Companies Act 2013 – Financial Statements Requirements

Introduction

Under the Companies Act 1956, there was no rigid format for P&L. However, the Companies Act 2013 (specifically Schedule III) brought uniformity. Every company must now prepare its financial statements in a prescribed Vertical Format.

1. Meaning of Financial Statements – Section 2(40)

Financial Statements relation to a company includes:

1. Balance Sheet: Position Statement at the end of financial year.
2. Statement of Profit and Loss: Performance Statement for the financial year.
3. Cash Flow Statement: Inflow/Outflow of Cash (Required for all except One Person Company, Small Company, Dormant Company).
4. Statement of Changes in Equity: (If applicable).
5. Explanatory Notes: Notes to Accounts.

2. Legal Requirements (Section 129)

1. True and Fair View: The FS must give a true and fair view of the state of affairs.
2. Accounting Standards: Must comply with Accounting Standards (AS/IndAS) notified under Section 133.
3. Schedule III: The form and content must be as per Schedule III.
4. Accrual Basis: Books must be kept on accrual basis and double entry system (Sec 128).

(Note: Detailed General Instructions regarding Rounding Off and Classification are covered in the next chapter).

Exam Notes: Writing the Answer

Question: "Define Financial Statements as per Sec 2(40)." (2 Marks)

Answer: Section 2(40) states that Financial Statements include: i) Balance Sheet. ii) Statement of Profit & Loss (or Income & Expenditure A/c). iii) Cash Flow Statement. iv) Statement of Changes in Equity. v) Explanatory Notes annexed to the above.

Summary

• Governing Section: Section 129.
• Format: Schedule III (Vertical).
• Basis: Accrual.
• Structure: Balance Sheet + P&L + Cash Flow + Notes.

Quiz Time! 🎯

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