Finalization of balance sheet (practical aspect)

SANYAM ARORA (“It's hard to beat a person who never gives up.”)   (20158 Points)

04 October 2012  

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

 

Note : This Article does not cover Exhaustive Knowledge. It's the Part 1 of my Series.

 

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 31 st 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

DTA(31.3.2012)

6000

 

 

 

 

DTL (31.3.2011)

7853

 

 

 

 

EXPENSE

1853

 

Rs.1853 will be shown in P&L Account in the following table whereas Rs.6000 will be shown in Balance Sheet under the Head “DTA”.

 

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

 

 - 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

1853

6250

PROFIT AFTER TAX

       -

       -

 

 

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