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Financial Statements of a Company 1.5

NOTE
The AS-4 Revised, Contingencies and Events Occurring After the Balance Sheet Date
prescribes that dividend proposed by the Board of Directors, i.e., Proposed Dividend for the
Current Year is not to be provided in the books of account but is to be disclosed (shown)
in the Notes to Accounts. Proposed dividend of the current year is shown in the Notes
to Accounts and proposed dividend of the previous year, if declared (approved) by the
shareholders in the AGM, is shown as appropriation from Surplus, i.e., Balance in Statement
of Profit & Loss.
• Provision means amount written off or retained by way of depreciation or for known liabilities, amount
of which cannot be determined with accuracy.
• Reserve means amount set aside out of profit and other surpluses for specific or general purposes.

IMPORTANT NOTE
According to CBSE Circular No. Acad-43/2013 dated 2nd July, 2013 on Schedule VI of
the Companies Act, 1956 (Now Schedule III of the Companies Act, 2013) accounting
treatment of certain items is not to be evaluated in the examination. The circular
clarifies that although accounting treatment of certain items will not be evaluated but,
their presentation in the Balance Sheet as per Schedule VI of the Companies Act, 1956
(now Schedule III of the Companies Act, 2013) can be examined.
According to the circular accounting treatment of following will not be evaluated:
(i) Reserves and Surplus: (Revaluation Reserve, Share Options Outstanding and Other
Reserves are not to be evaluated. However, General Reserve can be evaluated);
(ii) Money Received against Share Warrants;
(iii) Share Application Money Pending Allotment;
(iv) Deferred Tax Liabilities (Net);
(v) Other Long-term Liabilities;
(vi) Intangible Assets: (Masthead and Publishing Titles, Copyrights and Patents and
Other Intellectual Property Rights, Services and Operating Rights and Licences and
Franchise are not to be evaluated);
(vii) Capital Work-in-Progress;
(viii) Intangible Assets Under Development;
(ix) Deferred Tax Assets (Net);
(x) Other Non-current Assets;
(xi) Cash and Cash Equivalents: (Earmarked Balance with Banks, Balances with Banks held
as Margin Money or Security against borrowings, guarantees, other commitments
and Bank Deposits with more than 12 months maturity are not to be evaluated); and
(xii) Treatment of Unamortised Expenses.
Also note: Accounting Treatment of Other Current Assets is restricted to Prepaid Expenses,
Accrued Incomes and Advance Tax only.
The expression ‘Not to be evaluated’ used in the circular, means that a student will not be
examined for the above items in the examination in the topics of Comparative Statements,
Common-size Statements, Accounting Ratios and Cash Flow Statement. In simple words,
questions on Comparative Statements, Common-size Statements, Accounting Ratios and
Cash Flow Statement will not have entries or items from above heads.
Thus, these items have not been included in the illustrations and questions in this chaper.