Chapter 11: Financial Statements of Companies - Test 1: answer key

Question 1 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Scenario. Sterling Garments Ltd. manufactures made-to-order fire-resistant uniforms and protective fabric for industrial clients. Its financial year ends on 31 March 2027. Production records demonstrate a consistently identifiable normal operating cycle of 15 months, measured from acquisition of fabric and chemicals through treatment, cutting, quality testing, dispatch and ultimate realisation of cash. On 1 November 2026, the company purchased raw fabric for ₹28 lakh; the fabric is expected to be consumed in customer orders whose cash proceeds are realised within the 15-month cycle. At 31 March 2027, work-in-progress of ₹19 lakh is expected to be completed and converted into cash 14 months later, while finished goods of ₹32 lakh are expected to be dispatched and collected for in month 15. Trade receivables of ₹14 lakh from completed orders are contractually due on 31 January 2028, ten months after the reporting date. A refundable factory-lease security deposit of ₹8 lakh is recoverable on 30 November 2028, twenty months after the reporting date; it is unrelated to the production cycle and is not held for trading. On the liability side, ₹11 lakh is due to fabric suppliers on 31 May 2028, fourteen months after the reporting date, and is expected to be settled in the same operating cycle. Customer advances of ₹7 lakh will be adjusted only when the related 15-month orders are completed. A ₹4 lakh balance payable to a vendor for a new cutting machine is due on 31 December 2028, outside the normal operating cycle. The company has no right to defer or accelerate these stated settlement dates. The finance controller proposes to classify every item expected to be realised or settled after 12 months as non-current. The audit committee asks for the correct treatment under Schedule III, Division I, distinguishing the operating-cycle test from the separate 12-month test.

Which classification is correct for the four operating-contract asset balances: raw material, work-in-progress, finished goods and trade receivables?

1. All four are current: the three inventory balances fall within the 15-month cycle, and receivables mature within twelve months. (correct answer)
2. Inventories are current, but the receivable is non-current because collection is assessed only against the 15-month cycle.
3. Raw materials are current, but work-in-progress, finished goods and receivables are non-current after the twelve-month point.
4. All four are non-current because their expected realisation or collection extends beyond twelve months from reporting date.

Answer: A — All four are current: the three inventory balances fall within the 15-month cycle, and receivables mature within twelve months.

Explanation. Schedule III, Division I, Part I, General Instructions 1(a) and 2 treats an asset as current if it is expected to be realised, sold or consumed in the normal operating cycle; the 12-month test is an alternative criterion, not a ceiling. Raw material, work-in-progress and finished goods fall within the identifiable 15-month cycle. The receivable is current independently because it is due within 12 months. Option b wrongly treats the cycle criterion as a restriction rather than a basis for current classification.

Where it goes wrong. Treating twelve months as an overriding ceiling and overlooking the separate operating-cycle test.

Authority. Schedule III, Division I, Part I, General Instructions 1(a), 1(c) and 2; Section 129(1), Companies Act, 2013

Question 2 · 2 marks · Chapter 11: Financial Statements of Companies · medium

What is the aggregate amount of current assets from the five asset balances listed in the scenario?

1. ₹79 lakh
2. ₹87 lakh
3. ₹93 lakh (correct answer)
4. ₹101 lakh

Answer: C — ₹93 lakh

Explanation. Current assets comprise raw material ₹28 lakh, work-in-progress ₹19 lakh and finished goods ₹32 lakh under the 15-month operating-cycle criterion, plus trade receivables ₹14 lakh due within 12 months. The total is ₹28 + ₹19 + ₹32 + ₹14 = ₹93 lakh. The ₹8 lakh security deposit is recoverable only after 20 months and is outside the cycle, so it is non-current. The ₹101 lakh distractor incorrectly adds that deposit.

Where it goes wrong. Adding a long-term refundable security deposit while overlooking that the trade receivable is current.

Authority. Schedule III, Division I, Part I, General Instructions 1(a), 1(c) and 2; Section 129(1), Companies Act, 2013

Question 3 · 2 marks · Chapter 11: Financial Statements of Companies · hard

What amount of the three stated liability balances is current at 31 March 2027?

1. ₹11 lakh
2. ₹18 lakh (correct answer)
3. ₹22 lakh
4. ₹4 lakh

Answer: B — ₹18 lakh

Explanation. The ₹11 lakh raw-material supplier balance is expected to be settled within the identifiable 15-month normal operating cycle. The ₹7 lakh customer advance will be discharged by performance of the same cycle's customer order. Both satisfy General Instruction 3(a), so current liabilities total ₹18 lakh. The ₹4 lakh machine-vendor balance is due after 21 months and falls outside the operating cycle; it is non-current on the stated facts. A strict 12-month-only test would wrongly exclude both cycle-related liabilities.

Where it goes wrong. Applying the 12-month date test alone to trade-cycle liabilities expected to be settled after twelve months.

Authority. Schedule III, Division I, Part I, General Instructions 2 and 3(a); Section 129(1), Companies Act, 2013

Question 4 · 2 marks · Chapter 11: Financial Statements of Companies · medium

Which treatment correctly identifies the two balances that are non-current in the scenario?

1. The lease deposit is current, while the machine-vendor payable is non-current.
2. The lease deposit is non-current, while the machine-vendor payable is current.
3. Both the lease deposit and the machine-vendor payable are current.
4. Both the lease deposit and the machine-vendor payable are non-current. (correct answer)

Answer: D — Both the lease deposit and the machine-vendor payable are non-current.

Explanation. The ₹8 lakh lease security deposit is expected to be recovered after 20 months, is unrelated to the operating cycle and is not held for trading. It therefore fails each current-asset criterion. The ₹4 lakh machine-vendor payable is due after 21 months and is outside the operating cycle, so it is non-current as well. The 15-month cycle does not automatically extend current classification to unrelated deposits or capital-equipment payables.

Where it goes wrong. Extending the company's operating cycle to balances that are unrelated to the production and settlement cycle.

Authority. Schedule III, Division I, Part I, General Instructions 1, 2 and 3; Section 129(1), Companies Act, 2013

Question 5 · 2 marks · Chapter 11: Financial Statements of Companies · medium

Scenario. Zenith Technologies Pvt Ltd. provides enterprise-integration and remote infrastructure services and prepares its balance sheet as at 31 March 2027 under Schedule III, Division I. Its contracts vary substantially in duration and the finance team cannot identify a normal operating cycle; the assumed duration is therefore 12 months. The balance sheet includes a ₹20 lakh government security acquired for the treasury dealing desk and held primarily for trading, although its contractual maturity is 30 September 2028, eighteen months after the reporting date. A fixed deposit of ₹12 lakh matures on 30 November 2027, eight months after reporting date. Bank balances total ₹16 lakh: ₹9 lakh is blocked under a court escrow order until 30 June 2028, fifteen months after reporting date, and cannot be used to settle liabilities; ₹7 lakh is freely available. Service receivables of ₹5 lakh are expected to be collected within nine months, while another ₹7 lakh is contractually due on 30 April 2028, thirteen months after reporting date, with no early-settlement arrangement. The company also has a bank term loan of ₹18 lakh, contractually repayable on 30 September 2028. A leverage-covenant breach existed on 31 March 2027 and gives the bank an enforceable right to demand immediate repayment; no waiver was obtained by that date. A debenture of ₹10 lakh falls due exactly on 31 March 2028. A ₹6 lakh vendor payable is due on 30 June 2028, fifteen months after reporting date, and is not expected to be settled within the assumed cycle. Accrued interest of ₹0.9 lakh is payable on 30 April 2027. The controller has treated maturity dates as the sole classification factor and asks whether that approach is appropriate.

What is the aggregate amount of current assets of Zenith Technologies Pvt Ltd. under the stated facts?

1. ₹32 lakh
2. ₹39 lakh
3. ₹44 lakh (correct answer)
4. ₹53 lakh

Answer: C — ₹44 lakh

Explanation. The ₹20 lakh security qualifies as current because it is held primarily for trading, notwithstanding its 18-month maturity. The ₹12 lakh fixed deposit and ₹7 lakh freely available bank balance are realisable or available within 12 months; the ₹5 lakh service receivable is due within nine months. Current assets therefore total ₹20 + ₹12 + ₹7 + ₹5 = ₹44 lakh. The ₹9 lakh escrow balance is restricted for 15 months and the ₹7 lakh receivable is due after 12 months, so neither is current.

Where it goes wrong. Using maturity alone for a trading security and counting the long-restricted cash or 13-month receivable.

Authority. Schedule III, Division I, Part I, General Instructions 1(a)-(d) and 2; Section 129(1), Companies Act, 2013

Question 6 · 2 marks · Chapter 11: Financial Statements of Companies · hard

What amount of the listed assets is non-current at 31 March 2027?

1. ₹16 lakh (correct answer)
2. ₹9 lakh
3. ₹12 lakh
4. ₹20 lakh

Answer: A — ₹16 lakh

Explanation. The normal operating cycle is deemed to be 12 months because Zenith cannot identify it. The ₹9 lakh escrow balance is restricted from use for 15 months and therefore does not qualify for the cash-and-cash-equivalent current exception. The ₹7 lakh receivable is due in 13 months and is not held for trading. Non-current assets total ₹9 + ₹7 = ₹16 lakh. The trading security remains current under a separate criterion, despite its later maturity.

Where it goes wrong. Assuming every bank balance is current and every investment maturing after twelve months is non-current.

Authority. Schedule III, Division I, Part I, General Instructions 1(b)-(d) and 2; Section 129(1), Companies Act, 2013

Question 7 · 2 marks · Chapter 11: Financial Statements of Companies · hard

How should the ₹18 lakh bank term loan be classified at 31 March 2027?

1. Non-current, since the stated contractual maturity is eighteen months from the reporting date.
2. Non-current, because the original loan term remains more than one year.
3. Current only if the bank has formally demanded payment before approval.
4. Current, because the breach removes the unconditional right to defer settlement. (correct answer)

Answer: D — Current, because the breach removes the unconditional right to defer settlement.

Explanation. General Instruction 3(d) makes a liability current when the company does not have an unconditional right to defer settlement for at least 12 months after the reporting date. The covenant breach gives the bank an enforceable immediate-demand right on 31 March 2027, and no waiver existed at that date. The scheduled September 2028 maturity therefore does not preserve non-current classification. Option a looks only at the contractual date and ignores the lender's demand right.

Where it goes wrong. Looking only at the contractual repayment date and overlooking an enforceable demand right at the reporting date.

Authority. Schedule III, Division I, Part I, General Instructions 3(d); Section 129(1), Companies Act, 2013

Question 8 · 2 marks · Chapter 11: Financial Statements of Companies · hard

How should the ₹6 lakh vendor payable due on 30 June 2028 be classified?

1. Current, because every supplier payable is automatically a current liability.
2. Non-current, because it is beyond the assumed cycle and twelve-month period. (correct answer)
3. Current, because the amount is payable to an operating supplier.
4. Non-current only when it is secured by a specific asset.

Answer: B — Non-current, because it is beyond the assumed cycle and twelve-month period.

Explanation. Because the normal operating cycle cannot be identified, Schedule III assumes a 12-month cycle. The vendor payable falls due 15 months after reporting date, is not expected to be settled within the assumed cycle, is not held for trading and carries no immediate-demand feature. It therefore fails all current-liability criteria and is non-current. A trade payable is not automatically current merely because it arose from a supplier transaction.

Where it goes wrong. Assuming all trade payables are current without applying the operating-cycle and twelve-month tests.

Authority. Schedule III, Division I, Part I, General Instructions 2 and 3(a)-(d); Schedule III, Division I, Part I, Notes 6(D); Section 129(1), Companies Act, 2013

Question 9 · 2 marks · Chapter 11: Financial Statements of Companies · medium

Scenario. Vardhan Chemicals Ltd. is a non-Ind AS company applying the notified Accounting Standards and prepares its balance sheet under Division I as at 31 March 2027. Its share-capital records show authorised equity capital of 15,00,000 shares of ₹10 each; 12,50,000 shares have been issued and 12,00,000 subscribed. Of the subscribed shares, 10,00,000 are fully called at ₹10 each and 2,00,000 have only ₹8 per share called. Calls in arrears on the fully called shares amount to ₹1.50 lakh. The uncalled ₹2 per share on the partly called shares has not been demanded. Balances in reserves before adjustment of the post-appropriation debit balance in Statement of Profit and Loss are: Capital Reserve ₹12 lakh, Capital Redemption Reserve ₹8 lakh, Securities Premium ₹6 lakh, Revaluation Reserve ₹14 lakh and General Reserve ₹20 lakh. The debit balance of Statement of Profit and Loss is ₹77 lakh. The company has a secured bank term loan of ₹72 lakh outstanding, repayable in twelve equal quarterly principal instalments of ₹6 lakh. The next four instalments fall due on 30 June 2027, 30 September 2027, 31 December 2027 and 31 March 2028. Accrued interest of ₹1.80 lakh is due on 31 March 2027, and a further ₹0.60 lakh of interest has accrued but is not yet due. A separate ₹10 lakh cash-credit facility is repayable on demand. All loan covenants are complied with and no refinancing agreement exists. The finance team has proposed showing the accumulated loss as an asset and placing the term-loan instalments due within one year under Other Current Financial Liabilities. The audit committee asks for the correct Division I presentation of share capital, reserves and borrowings.

What amount should be presented as Share Capital under Shareholders' Funds at 31 March 2027?

1. ₹116.0 lakh, before deducting the arrears on fully called shares.
2. ₹113.0 lakh, after deducting uncalled capital and calls in arrears.
3. ₹116.0 lakh, after excluding partly called shares from capital.
4. ₹114.5 lakh, after deducting calls in arrears from called-up capital. (correct answer)

Answer: D — ₹114.5 lakh, after deducting calls in arrears from called-up capital.

Explanation. Called-up capital is ₹100 lakh (10,00,000 fully called shares × ₹10) plus ₹16 lakh (2,00,000 partly called shares × ₹8), totalling ₹116 lakh. Deduct calls in arrears of ₹1.50 lakh to arrive at share capital of ₹114.50 lakh. The uncalled ₹2 per partly called share is not part of called-up capital, while the issued but unsubscribed shares are also excluded.

Where it goes wrong. Deducting uncalled capital instead of deducting only calls in arrears from called-up capital.

Authority. Schedule III, Division I, Part I, Notes 6(A)(b), 6(A)(c) and 6(A)(k); Section 129(1), Companies Act, 2013

Question 10 · 2 marks · Chapter 11: Financial Statements of Companies · hard

How should the aggregate Reserves and Surplus be presented after adjusting the debit balance of Statement of Profit and Loss?

1. ₹17 lakh positive under Reserves and Surplus after set-off.
2. (₹17 lakh) negative under Reserves and Surplus after set-off. (correct answer)
3. (₹77 lakh) under Surplus, with all reserves left gross.
4. ₹60 lakh under Reserves and Surplus, with loss shown as asset.

Answer: B — (₹17 lakh) negative under Reserves and Surplus after set-off.

Explanation. The specified credit reserve balances total ₹12 + ₹8 + ₹6 + ₹14 + ₹20 = ₹60 lakh. After adjusting the post-appropriation debit balance of Statement of Profit and Loss of ₹77 lakh, the net Reserves and Surplus is negative ₹17 lakh. Schedule III requires the debit balance to appear as negative Surplus and the aggregate head to remain under Reserves and Surplus even when negative. It is not an asset.

Where it goes wrong. Showing accumulated losses as an asset or displaying gross reserves without the negative surplus adjustment.

Authority. Schedule III, Division I, Part I, Notes 6(B)(i) and 6(B)(iii); Section 129(1), Companies Act, 2013

Question 11 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Excluding the demand cash-credit facility and interest balances, how should the ₹72 lakh term-loan principal be split?

1. ₹48 lakh long-term; ₹24 lakh current maturities of the term loan. (correct answer)
2. ₹54 lakh long-term; ₹18 lakh current maturities of the term loan.
3. ₹42 lakh long-term; ₹30 lakh current maturities of the term loan.
4. ₹72 lakh long-term; nil current maturities of the term loan.

Answer: A — ₹48 lakh long-term; ₹24 lakh current maturities of the term loan.

Explanation. Four quarterly instalments fall due within 12 months of 31 March 2027: 30 June, 30 September and 31 December 2027, and 31 March 2028. At ₹6 lakh each, current maturities are ₹24 lakh. The remaining principal is ₹72 − ₹24 = ₹48 lakh and remains long-term. The separate ₹10 lakh cash-credit is short-term because it is repayable on demand; accrued interest is not part of principal.

Where it goes wrong. Counting only instalments falling before, but not on, the twelve-month anniversary of the reporting date.

Authority. Schedule III, Division I, Part I, Notes 6(C) and 6(F)(v); MCA Notification G.S.R. 207(E), dated 24 March 2021, effective 1 April 2021; Section 129(1), Companies Act, 2013

Question 12 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Which presentation is correct for the current maturities and interest balances under Division I?

1. ₹24 lakh under Other Current Liabilities; both interest balances under Short-term Borrowings.
2. ₹24 lakh under Short-term Borrowings; both interest balances under Short-term Provisions.
3. ₹24 lakh separately under Short-term Borrowings; both interest balances under Other Current Liabilities. (correct answer)
4. ₹72 lakh under Long-term Borrowings; all interest balances netted against principal.

Answer: C — ₹24 lakh separately under Short-term Borrowings; both interest balances under Other Current Liabilities.

Explanation. Division I, Part I, Note 6(F)(v), inserted by the 24 March 2021 amendment, requires current maturities of long-term borrowings to be disclosed separately under Short-term Borrowings. The ₹1.80 lakh interest accrued and due and ₹0.60 lakh interest accrued but not due are disclosed under Other Current Liabilities, separately as required by Note 6(G)(c) and 6(G)(b). The older Other Current Financial Liabilities classification should not be imported into this Division I presentation.

Where it goes wrong. Using the older or Ind AS-style Other Current Financial Liabilities label instead of the amended Division I short-term borrowings heading.

Authority. Schedule III, Division I, Part I, Notes 6(F)(v), 6(G)(b) and 6(G)(c); MCA Notification G.S.R. 207(E), dated 24 March 2021, effective 1 April 2021; Section 129(1), Companies Act, 2013

Question 13 · 2 marks · Chapter 11: Financial Statements of Companies · medium

Scenario. A shipbuilder has an identifiable normal operating cycle of 20 months. Work-in-progress of ₹35 lakh at the reporting date is expected to be completed, delivered and converted into cash in month 18. How should it be classified?

A shipbuilder has an identifiable normal operating cycle of 20 months. Work-in-progress of ₹35 lakh at the reporting date is expected to be completed, delivered and converted into cash in month 18. How should it be classified?

1. Non-current, because realisation is later than twelve months after reporting date.
2. Current, because conversion into cash occurs within the identifiable operating cycle. (correct answer)
3. Current only if the work-in-progress is held primarily for trading.
4. Non-current unless the reporting date is shifted to the completion date.

Answer: B — Current, because conversion into cash occurs within the identifiable operating cycle.

Explanation. Schedule III defines an operating cycle as the period between acquisition of assets for processing and their realisation in cash or cash equivalents. The shipbuilder's identifiable cycle is 20 months and the work-in-progress is expected to be converted into cash in month 18. It is therefore current under General Instruction 1(a), notwithstanding that realisation exceeds 12 months. Option a wrongly treats the 12-month criterion as a cap rather than an alternative test.

Where it goes wrong. Treating twelve months as an absolute limit despite an identifiable operating cycle longer than one year.

Authority. Schedule III, Division I, Part I, General Instructions 1(a) and 2; Section 129(1), Companies Act, 2013

Question 14 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Scenario. A non-trading fixed deposit, outside the company's operating cycle, is placed on 31 March 2027 and matures on 31 March 2028. What is its classification?

A non-trading fixed deposit, outside the company's operating cycle, is placed on 31 March 2027 and matures on 31 March 2028. What is its classification?

1. Non-current, because it matures in the next financial year.
2. Non-current, because fixed deposits are not operating-cycle assets.
3. Current only if the deposit is held primarily for trading.
4. Current, because maturity is exactly twelve months after reporting date. (correct answer)

Answer: D — Current, because maturity is exactly twelve months after reporting date.

Explanation. At 31 March 2027, the deposit is expected to be realised on 31 March 2028, exactly twelve months after the reporting date. It therefore meets General Instruction 1(c), which uses a twelve-month period after the reporting date. The date falls within the threshold; it is not beyond twelve months merely because it is the final day of the next financial year. Option a confuses a financial-year label with the elapsed period.

Where it goes wrong. Misreading an precise twelve-month maturity as falling outside the within-twelve-months criterion.

Authority. Schedule III, Division I, Part I, General Instructions 1(c) and 2; Section 129(1), Companies Act, 2013

Question 15 · 2 marks · Chapter 11: Financial Statements of Companies · medium

Scenario. A company cannot clearly identify its normal operating cycle. At 31 March 2027 it has a receivable of ₹5 lakh due on 28 February 2028, a fixed deposit of ₹3 lakh maturing on 31 March 2028, and another receivable of ₹4 lakh due on 30 April 2028. None is held for trading. What is the current amount?

A company cannot clearly identify its normal operating cycle. At 31 March 2027 it has a receivable of ₹5 lakh due on 28 February 2028, a fixed deposit of ₹3 lakh maturing on 31 March 2028, and another receivable of ₹4 lakh due on 30 April 2028. None is held for trading. What is the current amount?

1. ₹8 lakh, comprising the 11-month receivable and the 12-month deposit. (correct answer)
2. ₹5 lakh, comprising only the receivable due within eleven months.
3. ₹7 lakh, comprising the 11-month and 13-month receivables.
4. ₹12 lakh, comprising every balance including the 13-month receivable.

Answer: A — ₹8 lakh, comprising the 11-month receivable and the 12-month deposit.

Explanation. When a normal operating cycle cannot be identified, Schedule III assumes a duration of 12 months. The ₹5 lakh receivable due in 11 months and ₹3 lakh deposit due exactly 12 months meet General Instruction 1(c), giving current assets of ₹8 lakh. The ₹4 lakh receivable due in 13 months is neither within the assumed cycle nor held for trading, so it is non-current. Option d includes that 13-month balance incorrectly.

Where it goes wrong. Failing to apply the twelve-month assumed cycle when the company's normal operating cycle is not identifiable.

Authority. Schedule III, Division I, Part I, General Instructions 1(c) and 2; Section 129(1), Companies Act, 2013

Question 16 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Scenario. A bank balance of ₹22 lakh includes ₹8 lakh blocked under a court order until 30 April 2028 and ₹3 lakh pledged as margin money, releasable on 30 September 2027. The balance is otherwise freely available. What amount is non-current at 31 March 2027?

A bank balance of ₹22 lakh includes ₹8 lakh blocked under a court order until 30 April 2028 and ₹3 lakh pledged as margin money, releasable on 30 September 2027. The balance is otherwise freely available. What amount is non-current at 31 March 2027?

1. ₹3 lakh, because only the short-duration margin restriction is non-current.
2. ₹11 lakh, because every restricted bank balance is non-current.
3. ₹8 lakh, because the 13-month court restriction meets the exception. (correct answer)
4. ₹14 lakh, because both restricted balances and free cash are non-current.

Answer: C — ₹8 lakh, because the 13-month court restriction meets the exception.

Explanation. Of the ₹22 lakh, ₹8 lakh is unavailable until 30 April 2028, more than 12 months after 31 March 2027, and cannot be used to settle liabilities; that portion is non-current. The ₹3 lakh margin balance is restricted for only six months, so it remains current, as does the freely available balance. Thus only ₹8 lakh is non-current. Option b wrongly treats every restricted cash balance as non-current regardless of restriction period.

Where it goes wrong. Treating any earmarked or pledged cash as non-current without checking whether the restriction lasts at least twelve months.

Authority. Schedule III, Division I, Part I, General Instructions 1(d); Section 129(1), Companies Act, 2013

Question 17 · 2 marks · Chapter 11: Financial Statements of Companies · medium

Scenario. A company holds a ₹14 lakh marketable security primarily for trading; contractual settlement is expected 19 months after the reporting date. How should the security be classified?

A company holds a ₹14 lakh marketable security primarily for trading; contractual settlement is expected 19 months after the reporting date. How should the security be classified?

1. Non-current, because contractual settlement is expected after nineteen months.
2. Non-current, because investment securities cannot be current before maturity.
3. Current only when the security also matures within twelve months.
4. Current, because it is held primarily for the purpose of trading. (correct answer)

Answer: D — Current, because it is held primarily for the purpose of trading.

Explanation. General Instruction 1(b) independently classifies an asset held primarily for the purpose of being traded as current. The twelve-month realisation test is a separate criterion and does not override the trading criterion. Accordingly, the ₹14 lakh security is current even though settlement is expected after 19 months. Option a applies only the maturity test and ignores the independent trading basis for current classification.

Where it goes wrong. Applying the twelve-month maturity test without recognising the separate held-for-trading criterion.

Authority. Schedule III, Division I, Part I, General Instructions 1(b) and 1(c); Section 129(1), Companies Act, 2013

Question 18 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Scenario. A manufacturer has a normal operating cycle of 17 months. A ₹9.5 lakh raw-material trade payable is expected to be settled in month 16; a machine creditor of ₹3 lakh is due in month 19 and is outside the operating cycle. How should the raw-material payable be classified?

A manufacturer has a normal operating cycle of 17 months. A ₹9.5 lakh raw-material trade payable is expected to be settled in month 16; a machine creditor of ₹3 lakh is due in month 19 and is outside the operating cycle. How should the raw-material payable be classified?

1. Non-current, because the expected settlement date falls after twelve months.
2. Current, because settlement is expected within the identifiable operating cycle. (correct answer)
3. Non-current, because trade payables cannot be current beyond twelve months.
4. Current only if the machine creditor is also payable within the cycle.

Answer: B — Current, because settlement is expected within the identifiable operating cycle.

Explanation. General Instruction 3(a) classifies a liability as current when it is expected to be settled in the company's normal operating cycle. The ₹9.5 lakh raw-material payable is expected to be settled in month 16 of the identifiable 17-month cycle and is therefore current. The machine creditor is a separate capital-equipment obligation outside the cycle and due after 12 months. Option a wrongly treats the 12-month test as an overriding ceiling.

Where it goes wrong. Assuming that every liability due after twelve months must be non-current even where it falls within the operating cycle.

Authority. Schedule III, Division I, Part I, General Instructions 2 and 3(a); Section 129(1), Companies Act, 2013

Question 19 · 2 marks · Chapter 11: Financial Statements of Companies · medium

Scenario. A term-loan instalment is contractually due on 31 March 2028. The reporting date is 31 March 2027 and the company has no unconditional right to defer the payment further. How should the instalment be classified?

A term-loan instalment is contractually due on 31 March 2028. The reporting date is 31 March 2027 and the company has no unconditional right to defer the payment further. How should the instalment be classified?

1. Non-current, because repayment is scheduled after the reporting date, not on it.
2. Non-current, because the due date falls in the next financial year.
3. Current, because settlement is due exactly twelve months after the reporting date. (correct answer)
4. Current only if the lender demands payment before the twelve-month anniversary date.

Answer: C — Current, because settlement is due exactly twelve months after the reporting date.

Explanation. The instalment falls due exactly twelve months after 31 March 2027. Under General Instruction 3(c), a liability due to be settled within twelve months after the reporting date is current; the anniversary date is included. The question states no unconditional right to defer beyond that period. Option b treats the next financial year's label as decisive instead of measuring the actual twelve-month interval.

Where it goes wrong. Excluding a repayment due on the twelve-month anniversary from current liabilities.

Authority. Schedule III, Division I, Part I, General Instructions 3(c) and 3(d); Section 129(1), Companies Act, 2013

Question 20 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Scenario. A company has a ₹6.4 lakh derivative liability held primarily for trading. Its contractual settlement date is 30 September 2028, eighteen months after the reporting date. How should it be classified?

A company has a ₹6.4 lakh derivative liability held primarily for trading. Its contractual settlement date is 30 September 2028, eighteen months after the reporting date. How should it be classified?

1. Current, because the liability is held primarily for trading purposes by the company. (correct answer)
2. Non-current, because the contractual settlement date falls eighteen months after reporting date.
3. Current only if settlement also falls within the company's normal operating cycle.
4. Non-current unless the counterparty has exercised an immediate repayment or settlement right.

Answer: A — Current, because the liability is held primarily for trading purposes by the company.

Explanation. General Instruction 3(b) makes a liability current when it is held primarily for the purpose of being traded. This criterion operates independently of the due-date and operating-cycle criteria. The derivative trading liability is therefore current although settlement is scheduled 18 months after reporting date. Option b relies only on the twelve-month due-date test and overlooks the separate trading-liability criterion.

Where it goes wrong. Applying only the contractual maturity test and overlooking the independent held-for-trading criterion for liabilities.

Authority. Schedule III, Division I, Part I, General Instructions 3(b) and 3(c); Section 129(1), Companies Act, 2013

Question 21 · 2 marks · Chapter 11: Financial Statements of Companies · medium

Scenario. A company has Capital Reserve ₹4 lakh, Capital Redemption Reserve ₹6 lakh, Securities Premium ₹12 lakh, Debenture Redemption Reserve ₹3 lakh, Revaluation Reserve ₹5 lakh and Other Reserves ₹4 lakh. Its post-appropriation debit balance of Statement of Profit and Loss is ₹26 lakh. What is the net Reserves and Surplus?

A company has Capital Reserve ₹4 lakh, Capital Redemption Reserve ₹6 lakh, Securities Premium ₹12 lakh, Debenture Redemption Reserve ₹3 lakh, Revaluation Reserve ₹5 lakh and Other Reserves ₹4 lakh. Its post-appropriation debit balance of Statement of Profit and Loss is ₹26 lakh. What is the net Reserves and Surplus?

1. ₹34 lakh credit, because gross reserve balances are shown without adjusting the debit surplus.
2. ₹8 lakh credit, after adjusting the debit balance of Statement of Profit and Loss. (correct answer)
3. (₹8 lakh) debit, because the P&L debit always makes Reserves and Surplus negative.
4. ₹60 lakh credit, because Revaluation Reserve is excluded from net reserve computation.

Answer: B — ₹8 lakh credit, after adjusting the debit balance of Statement of Profit and Loss.

Explanation. The specified reserve balances aggregate to ₹34 lakh (₹4 + ₹6 + ₹12 + ₹3 + ₹5 + ₹4). Adjusting the debit balance of Statement of Profit and Loss of ₹26 lakh leaves net Reserves and Surplus of ₹8 lakh credit. The balance is presented under the Reserves and Surplus heading, with the allocations and appropriations disclosed. Option a fails to adjust the negative surplus against the reserve balances.

Where it goes wrong. Presenting gross reserves without setting off the debit balance of Statement of Profit and Loss.

Authority. Schedule III, Division I, Part I, Notes 6(B)(i) and 6(B)(iii); Section 129(1), Companies Act, 2013

Question 22 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Scenario. A company reports Capital Reserve ₹11 lakh, Capital Redemption Reserve ₹7 lakh, Securities Premium ₹8 lakh, Revaluation Reserve ₹6 lakh and Other Reserves ₹3 lakh. Its debit balance of Statement of Profit and Loss after all appropriations is ₹50 lakh. What amount appears under Reserves and Surplus?

A company reports Capital Reserve ₹11 lakh, Capital Redemption Reserve ₹7 lakh, Securities Premium ₹8 lakh, Revaluation Reserve ₹6 lakh and Other Reserves ₹3 lakh. Its debit balance of Statement of Profit and Loss after all appropriations is ₹50 lakh. What amount appears under Reserves and Surplus?

1. ₹50 lakh debit surplus, without adjusting the debit balance against any reserves.
2. ₹15 lakh credit Reserves and Surplus after adjusting the debit balance.
3. ₹35 lakh credit Reserves and Surplus, with accumulated losses shown as an asset.
4. (₹15 lakh) negative Reserves and Surplus after adjusting the debit balance. (correct answer)

Answer: D — (₹15 lakh) negative Reserves and Surplus after adjusting the debit balance.

Explanation. Aggregate reserves are ₹11 + ₹7 + ₹8 + ₹6 + ₹3 = ₹35 lakh. Deducting the post-appropriation debit balance of ₹50 lakh produces a negative net balance of ₹15 lakh. Schedule III requires the debit P&L balance to be shown as negative Surplus and the overall Reserves and Surplus head to be shown even when the result is negative. Option c incorrectly shows gross reserves and treats accumulated loss as an asset.

Where it goes wrong. Displaying accumulated losses as an asset instead of presenting the resulting negative Reserves and Surplus balance.

Authority. Schedule III, Division I, Part I, Notes 6(B)(i) and 6(B)(iii); Section 129(1), Companies Act, 2013

Question 23 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Scenario. During the year, 18,000 equity shares of ₹10 each were forfeited after ₹7 per share had been paid. Calls in arrears on continuing shares are ₹1.20 lakh. Which disclosure is required under Schedule III?

During the year, 18,000 equity shares of ₹10 each were forfeited after ₹7 per share had been paid. Calls in arrears on continuing shares are ₹1.20 lakh. Which disclosure is required under Schedule III?

1. ₹1.80 lakh share capital, after calls in arrears are netted off.
2. ₹1.26 lakh deducted from capital, with arrears disclosed separately.
3. ₹1.26 lakh paid-up on forfeited shares, with arrears disclosed separately. (correct answer)
4. ₹2.52 lakh face value forfeited, with calls in arrears omitted.

Answer: C — ₹1.26 lakh paid-up on forfeited shares, with arrears disclosed separately.

Explanation. Schedule III Note 6(A)(l) requires disclosure of forfeited shares by the amount originally paid up. Here, 18,000 × ₹7 = ₹1,26,000. The ₹1.20 lakh calls in arrears on continuing shares is a separate disclosure under Note 6(A)(k); it is not netted against the forfeited-share amount. The ₹1.80 lakh face value of forfeited shares is not the amount originally paid up.

Where it goes wrong. Disclosing the face value of forfeited shares or netting forfeiture disclosures with calls in arrears.

Authority. Schedule III, Division I, Part I, Notes 6(A)(k) and 6(A)(l); Section 129(1), Companies Act, 2013

Question 24 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Scenario. A ₹60 lakh bank term loan is repayable in ten equal half-yearly principal instalments of ₹6 lakh. At 31 March 2027, the next instalments fall due on 30 September 2027 and 31 March 2028. Interest of ₹0.75 lakh has accrued and is due. What is the correct Division I presentation?

A ₹60 lakh bank term loan is repayable in ten equal half-yearly principal instalments of ₹6 lakh. At 31 March 2027, the next instalments fall due on 30 September 2027 and 31 March 2028. Interest of ₹0.75 lakh has accrued and is due. What is the correct Division I presentation?

1. ₹12 lakh current as Short-term Borrowings; ₹48 lakh long-term; ₹0.75 lakh as Other Current Liabilities. (correct answer)
2. ₹12 lakh current as Other Current Liabilities; ₹48 lakh long-term; ₹0.75 lakh as Short-term Borrowings.
3. ₹6 lakh current as Short-term Borrowings; ₹54 lakh long-term; ₹0.75 lakh as Short-term Provisions.
4. ₹60 lakh long-term as Borrowings; ₹0.75 lakh as Other Long-term Liabilities, with no maturity split.

Answer: A — ₹12 lakh current as Short-term Borrowings; ₹48 lakh long-term; ₹0.75 lakh as Other Current Liabilities.

Explanation. The two instalments fall within 12 months after 31 March 2027, so current maturities are ₹6 + ₹6 = ₹12 lakh and the remaining ₹48 lakh stays under Long-term Borrowings. Division I Note 6(F)(v) requires current maturities to be disclosed separately under Short-term Borrowings. Accrued and due interest of ₹0.75 lakh is separately shown under Other Current Liabilities, Note 6(G)(c).

Where it goes wrong. Placing current loan principal under Other Current Liabilities or retaining the entire loan as long-term.

Authority. Schedule III, Division I, Part I, Notes 6(C), 6(F)(v) and 6(G)(c); MCA Notification G.S.R. 207(E), dated 24 March 2021, effective 1 April 2021; Section 129(1), Companies Act, 2013

Question 25 · 2 marks · Chapter 11: Financial Statements of Companies · medium

Scenario. Which company is required to prepare its balance sheet in the format prescribed by Schedule III, Division I?

Which company is required to prepare its balance sheet in the format prescribed by Schedule III, Division I?

1. An Ind AS company applying Division II because Section 129 has a common format.
2. An NBFC applying Ind AS and therefore using Division III under Schedule III.
3. A company required to apply notified Accounting Standards, but not Ind AS, using Division I. (correct answer)
4. Any company, regardless of the framework notified under Section 133, using Division I.

Answer: C — A company required to apply notified Accounting Standards, but not Ind AS, using Division I.

Explanation. Schedule III, Division I is expressly framed for companies whose financial statements are required to comply with the notified Accounting Standards framework rather than Ind AS. Section 129 requires financial statements to comply with applicable standards and to follow the form prescribed in Schedule III; Section 133 provides for notification of those standards. Ind AS companies use Division II, while relevant Ind AS NBFCs use Division III.

Where it goes wrong. Confusing the Non-Ind AS Division I format with Division II or Division III, which apply to Ind AS companies.

Authority. Schedule III, Division I, Part I, General Instructions; Section 129(1), Companies Act, 2013; Section 133, Companies Act, 2013