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Finalization of Balance Sheet (Part - III)

SANYAM ARORA  
Updated on 09 May 2021

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Greetings  of  the  day  to  all  the  members  of  CCI  Family.

So friend’s this is the final part of my series i.e. “Finalization of Accounts”.

The links of my previous Article are given below:-

FINALIZATION OF BALANCE SHEET” & “FINALIZATION OF BALANCE SHEET (2)

INTRODUCTION –

1. In this Article I will be taking up the Un-Resolved Queries relating to my previous Articles.

2. Moreover attention will be diverted toward some specific issues like Exceptional & Extraordinary Items.

SCOPE –

1. Queries relating to Fixed Deposits & Prior Period Items.

2. Exceptional Items

3. Extraordinary Items

4. General Discussion

FINALIZATION OF BALANCE SHEET (PART – 3)

FIXED DEPOSITS –

1. For concluding this topic I have discussed it with many people. And you won’t believe that all of them had different opinion.

2. So after all the difficulties & struggle finally I have come out with an conclusion.

3. There can be two ways to show Fixed Deposits –

4. If we Strictly follow the Revised Schedule we need to follow the Below Mentioned Method:

CASH & CASH EQUIVALENTS

PARTICULARS

AMOUNT

CASH

Rs.1,00,000

BANK BALANCE WITH XYZ BANK

Rs.50,0000

FIXED DEPOSIT WITH ABC BANK

-          1 – 12 MONTHS

10,00,0000

-          MORE THAN 12 MONTHS

15,00,0000

But as we all are aware of the fact that Our Institute gives preference to Accounting Standards in comparison to Revised Schedule VI. So in such Case we can follow the following method:-

CASH & CASH EQUIVALENTS (CURRENT ASSETS)

PARTICULARS

AMOUNT

BANK BALANCE WITH XYZ BANK

Rs.7650,00

FIXED DEPOSIT WITH ABC BANK

-          3 – 12 MONTHS

250,00300

(NON - CURRENT ASSETS)

PARTICULARS

AMOUNT

BANK BALANCE WITH XYZ BANK

Rs.7650,00

FIXED DEPOSIT WITH ABC BANK

-          More than 12 Months

250,00300

I would like to give special thanks to Mr. Abhinandan Jain for helping me to get the matter resolved.

PRIOR PERIOD ITEMS –

1. In this part many students asked me whether we can show Prior Period Items as Exceptional Items & when will these expenses be allowed.

2. So the answer to the above query is yes we can show them as a part of Exceptional Items i.e. we are clearly showing them as Disallowed Items otherwise it can be a part of “Other Expenses”.

3. It can be shown in the Following Manner:-

PARTICULARS

YEAR ENDING 2012

YEAR ENDING 2011

Profit Before Exceptional Items

Rs.12,456433

Rs.2345566

Exceptional Items (Prior Period Items )

Rs.45,000

Rs.20,000

4. Prior Period Expenses will never be allowed hence we add them back while making Computation.

EXCEPTIONAL ITEMS –

1. First of all let’s understand the meaning of the term.

2. These are items of special importance & are of Non – Recurring Nature & they accrue during the Normal Course of Business.

3. Let's assume Company ABC is experiencing poor business. It may choose to undergo restructuring which costs a significant amount of money and is unusual during the normal cycle of business. The large transaction cost would be reported as an "exceptional item" on the balance sheet because it was significant and unusual. If the reorganization continues for the next several years, the transaction costs continue to be listed as "exceptional items" for the subsequent years until the reorganization is complete.

4. Exceptional items are important because they are a way to separate normal business operation transactions from unusual ones.  

5. These are special items which need to be disclosed separately in order to provide better view to the accounts.

6. They are also called “One time Occurrence” or “Items that not recur”.

7. They arise from outside the usual course of Business.

8. Example: - Profit on Disposal, Restructuring Cost, etc.

EXTRAORDINARY IREMS –

1. First of all let’s understand the meaning of the term.

2. These are unusual & unexpected one - time event that needs to be explained to shareholders in an Annual Report.

3. These are not permissible to be shown in Company Account’s because Investor must have a better understanding of Company’s future.

4. So they are disclosed separately in the following manner :-

PARTICULAR

YEAR ENDING 2012

YEAR ENDING 2011

Profit Before Extraordinary Items

Rs.12,456433

Rs.2345566

Extraordinary Items

Rs.45,000

Rs.20,000

Profit After Tax

-           

-           

5. Examples: - Employee fraud, a Lawsuit, Unexpected Natural Disasters, etc.

6. These are items of special importance & are of Non – Recurring Nature & they don’t accrue during the Normal Course of Business.

GENERAL DISCUSSION –

1. In this I will be taking up some general points which many of us forgets while finalizing the B/sheet.

2. Always remember to post the Entry of Payables as well as Outstanding’s i.e. Audit Fee Payable, Salary O/s etc.

3. Interest on Service Tax, TDS Needs to be added back while making Computation of Income as the same are disallowed.

4. All the expenses relating to employee i.e. Salary, Wages, Contribution to P.F & ESI, Bonus, etc. will fall under the Head “Employee Benefit Expenses”.

So this brings an end to my Article.

Any sort of suggestions as well as queries are welcome.

Thanks & Regards

Sanyam Arora




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