CHAPTER          4              
 
           
            FINANCIAL STATEMENTS  
            OF COMPANIES 
             UNIT 1: PREPARATION OF FINANCIAL 
                              STATEMENTS 
                                        LEARNING OUTCOMES 
          After studying this unit, you will be able to– 
            Know how to maintain books of account of a company. 
            Learn about statutory books of a company. 
            Prepare and present the financial statements of a company 
               as per Schedule III to the Companies Act, 2013  
            Calculate managerial remuneration of managers in a 
               company. 
            Appreciate the term divisible profits and dividends. 
            
           © The Institute of Chartered Accountants of India
                                                                                                           4.2                                                ACCOUNTING 
                                                                                                                                                         
                                                  
                                                                                                                                                                                                              
                                                                                                                                                               Requirements of 
                                                                                                                                                                   Schedule III to 
                                                                                                                                                                  the Companies 
                                                                                                                                                                           Act, 2013
                                                                                                                                                               Financial 
                                                                                                                                                         statements
                                                                                                                                                                                                                                Accounting 
                                                                                                         Other statutory                                                                                              Standards notified 
                                                                                                             requirements                                                                                                           by MCA
                                                                                                                                                                     Statement of 
                                                                                                                                                                         Profit and 
                                                                                                                                                                                  loss
                                                                                                   Balance sheet                                                 Financial                                                              Cash Flow 
                                                                                                                                                           statements                                                                   Statement
                                                                                                                                                                        Notes and 
                                                                                                                                                                                other 
                                                                                                                                                                        statements
                                                  
                                                 © The Institute of Chartered Accountants of India
                                           FINANCIAL STATEMENTS OF COMPANIES                                                      4.3 
                                                                                                                                 
                                1.1  MEANING OF COMPANY 
                       As per Section 2(20) of the Companies Act, 2013, “Company” means a company 
                       incorporated under the Companies Act, 2013 or under any previous company law 
                       (e.g., the Companies Act, 1956). Different types of companies have been defined 
                       (under various sub-sections of the Companies Act, 2013) as follows: 
                       2(21) “company limited by guarantee” means a company having the liability of 
                                   its members limited by the memorandum to such amount as the members 
                                   may respectively undertake to contribute to the assets of the company in 
                                   the event of its being wound up;  
                       2(22)  “Company limited by shares” means a company having the liability of its 
                                   members limited by the memorandum to the amount, if any, unpaid on 
                                   the shares respectively held by them;  
                       2(42)  “Foreign company” means any company or body corporate incorporated 
                                   outside India which –  
                                   (a)     has a place of business in India whether by itself or through an agent 
                                           physically or through electronic mode; and 
                                   (b)     conducts any business activity in India in any other manner. 
                       2(45)  “Government company” means any company in which not less than 51% 
                                   of the paid-up share capital is held by the Central Government, or by any 
                                   State Government or Governments, or partly by the Central Government 
                                   and partly by one or more State Governments, and includes a company 
                                   which is a subsidiary company of such a Government company;  
                       2(62) “One Person Company” means a company which has only one person as 
                                   a member; 
                       2(68)  “Private company” means a company having a minimum paid-up share 
                                   capital as may be prescribed, and which by its articles,—  
                                   (i)      restricts the right to transfer its shares;  
                                   (ii)     except in case of One Person Company, limits the number of its 
                                            members to two hundred:  
                                            Provided that where two or more persons hold one or more shares in 
                                            a company jointly, they should, for the purposes of this sub-clause, 
                                            be treated as a single member:  
                       © The Institute of Chartered Accountants of India
                                                   4.4                      ACCOUNTING 
                                                                          
                                                  
                                             Provided further that—  
                                             (A)      persons who are in the employment of the company; and  
                                             (B)      persons who, having been formerly in the employment of the 
                                                      company,  were members of the company while in that 
                                                      employment and have continued to be members after the 
                                                      employment ceased, should not be included in the number of 
                                                      members; and   
                                   (iii)    prohibits any invitation to the public to subscribe for any securities of 
                                            the company;  
                        2(71)  “Public Company” means a company which—  
                                   (a)       is not a private company; 
                                   (b)       has a minimum paid-up share capital as may be prescribed:  
                                   Provided that a company which is a subsidiary of a company, not being a 
                                   private company, should be deemed to be public company for the 
                                   purposes of this Act even where such subsidiary company continues to be 
                                   a private company in its articles;  
                        2(85)  “Small company” means a company, other than a public company, -  
                                   (i)      paid-up share capital of which does not exceed ` 50 lakhs or such 
                                            higher amount as may be prescribed which should not be more than 
                                            ` 5 crores; or 
                                   (ii)     turnover of which as per its last profit and loss account does not 
                                            exceed ` 2 crores or such higher amount as may be prescribed which 
                                            should not be more than ` 20 crores: 
                                   Provided that nothing in this clause should apply to: 
                                   (A)      a holding company or a subsidiary company 
                                   (B)      a company registered under section 8 
                                   (C)      a company or body corporate governed by any special Act 
                        2(92)  “Unlimited company” means a company not having any limit on the 
                                   liability of its members; 
                        2(46)   “Holding company”, in relation to one or more other companies, means a 
                                   company of which such companies are subsidiary companies; 
                        © The Institute of Chartered Accountants of India