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Finalization of Balance Sheet (Practical Aspect)

SANYAM ARORA  
on 05 October 2012

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

INTRODUCTION –

· In this Article I will be discussing about some vital issues which arise while finalizing the Accounts.

· There are some points which are to be taken into consideration while finalizing the Accounts i.e. Finalization of Balance Sheets.

· Issues relating to Provision for Taxation, Creation of DTA/DTL, Fixed Deposits, etc. will be taken up.

SCOPE –

· Provision for Taxation

· Creation of DTA/DTL

· Fixed Deposits

· Identification of Current & Non-Current Liability

FINALIZATION OF BALANCE SHEET (PRACTICAL ASPECT)

PROVISION FOR TAXATION –

· It is created by debiting the profit and loss account i.e. P& L Account Dr. to Provision for Taxation.

· It is created to meet a known or specific contingency.

· Always remember Provisions are made at the end of Financial Year i.e. on 31st of March.

· They are to be revised on yearly basis.

· Let’s discuss it with the Help of an example :-

· Suppose we have calculated the Current Tax for the F.Y 11-12 150000, So Provision for Taxation for the F.Y will be more than the Current Tax.

· It’s just an estimate to meet the current taxation. So the Provision will be 170000.

PROFIT BEFORE TAX

11,700000

1350000

TAX EXPENSE :

CURRENT TAX
(PROVISION FOR TAX)

170000

250000

DEFERRED TAX

612236

625000

PROFIT AFTER TAX

483333

475000

· So in the above Excel sheet you can see we have made a provision of Rs.170000 on the basis of our Current Taxation.

· In the Assessment Year following entry will be passed :-

Provision for Taxation Dr.

To TDS (Amount of TDS deducted during the F.Y)

To Advance Taxation (Amount of Advance Tax Deposited)

FIXED DEPOSITS –

· I have seen many people getting confused as to where to show “FIXED DEPOSITS” in Revised Schedule VI.

· Some say it should be shown under Current Assets & Some say it should be shown under Cash & Cash Equivalents.

· The Answer to above is “It should be shown under the Head “Cash & Cash Equivalents”

CREATION OF DTA/DTL –

· These two terms are often misunderstood by the people.

· While Creation of DTA/DTL follow the following Table :-

PARTICULARS

AS PER I.T ACT

AS PER COMPANIES ACT

DIFFERENCE

DTA/DTL

TAXIMPACT @ 32.445 %

TIMING DIFFERENCE

DEPRECIATION

50000

70000

20000

DTL(31.3.2012)

6853

DTA (31.3.2011)

5000

EXPENSE

1853

· Rs.6853 will be shown in P&L Account in the following table whereas Rs.1853 will be shown in Balance Sheet under the Head “DTL”.

· We are claiming Deprecation as per Co.’s Act of Rs.70000 but I.T has allowed Depreciation up to Rs.50000.

· So it means we are claiming Rs.20000 more, hence it will result in Deferred Tax Liability.

· There can be many timing Differences which can be claimed in the same manner.

PROFIT BEFORE TAX

11,700000

1350000

TAX EXPENSE :

CURRENT TAX
(PROVISION FOR TAX)

170000

250000

DEFERRED TAX

6853

6250

PROFIT AFTER TAX

483333

475000

CURRENT & NON CURRENT LIABILITY –

· First of let’s understand the meaning of “Current Liabilities”.

· A company's debts or obligations that is due within one year.

· Current liabilities appear on the company's balance sheet and include short term debt, accounts payable, accrued liabilities and other debts.

· So let’s proceed further with the help of an example.

· Suppose M/S ABC has taken a loan of Rs.10, 00,000 from SBI Bank, Rajouri Garden. While differentiating Loan into Current & Non-Current Liability, we have to see that, if the Loan will be repaid in full within 1 year from the F.Y of which Accounts are being made i.e. in the Example we are preparing B/Sheet of F.Y 11 – 12, so if the Loan will be repaid within 1 Year i.e. up to A.Y 12-13, it will be Categorized under “Current Liabilities” & if not under “Non - Current”.

So this brings to the end of my Article.

I hope it will help you all in your future Assignments.

Thanks & Regards

Sanyam Arora




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