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General Instructions for Preparation of Company Accounts

Introduction

Before preparing the Balance Sheet and Statement of Profit & Loss, Schedule III lays down certain "General Instructions" that every company must follow to ensure uniformity and comparability.

1. Rounding Off Figures

Figures in financial statements cannot be presented in absolute rupees if turnover is high. They must be rounded off:

Total IncomeRounding Off Requirement
Less than 100 CroreNearest Hundreds, Thousands, Lakhs, or Millions.
₹100 Crore or MoreNearest Lakhs, Millions, or Crores.

2. Comparative Figures

A company must disclose the figures of the Previous Reporting Period for every amount disclosed in the financial statements.

  • Purpose: To facilitate inter-period comparison.
  • Exception: In the very first year of incorporation, only current year figures are given.

3. Current vs Non-Current Classification

The fundamental rule of Schedule III is to classify every Asset and Liability as either Current or Non-Current.

Operating Cycle Rule

Operating Cycle is the time between the acquisition of assets for processing and their realization in cash.

  • If Operating Cycle is identifiable (e.g., 10 months), use it.
  • If NOT identifiable, assume it to be 12 months.

Criteria for "Current Asset"

An asset is Current if:

  1. Expected to be realized/sold/consumed in the company's Normal Operating Cycle.
  2. Held primarily for the purpose of Trading.
  3. Expected to be realized within 12 months from the reporting date.
  4. It is Cash or Cash Equivalent (unless restricted from being exchanged/used for > 12 months).

All other assets are Non-Current.

Criteria for "Current Liability"

A liability is Current if:

  1. Expected to be settled in Normal Operating Cycle.
  2. Held primarily for Trading.
  3. Due to be settled within 12 months from reporting date.
  4. Company does not have an unconditional right to defer settlement for at least 12 months.

All other liabilities are Non-Current.

4. Other Important Items

A. Money Received Against Share Warrants

  • What is it? A financial instrument that gives the holder the right to acquire equity shares.
  • Disclosure: Shown as a separate line item under Shareholders' Funds (after Share Capital and Reserves). It is Part of Equity, not Liability.

B. Share Application Money Pending Allotment

  • If shares are not yet allotted and the amount is likely to be refunded (or allotted > 12 months later): Shows under Other Current Liabilities.
  • If amount is non-refundable and shares will be issued: Shown as a separate line item between Shareholders' Funds and Non-Current Liabilities.

Summary

  • Rounding Off: Based on Turnover (Less than 100Cr / More than 100Cr).
  • Comparison: Prev Year figures mandatory.
  • Split: Current / Non-Current based on 12 months or Operating Cycle.

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