PREPARATION AND PRESENTATION OF COMPANY FINAL ACCOUNTS

At every general meeting of the company, the Board of Directors of the company shall lay before the company:

•  A Balance Sheet as at the end of the period;
•  A Profit and Loss Account for the period;
•  In the case of companies not carrying on business for profit there must be an Income and Expenditure Account instead of Profit and Loss Account.

The Profit and Loss Account shall relate:

•  In the case of first annual general meeting from the date of incorporation to a date not later than 9 months previous to the date of the meeting;
•  In the case of any subsequent annual general meeting, from the date immediately after the date of the last account to a date not later than 6 months previous to the date of the meeting;

The period of accounts which is the financial year of the company—may be more or less than a calendar year, but it shall not exceed 15 months. It may extend to 18 months where special permission has been taken from the Registrar. Sec. 210 states that if any person (being a director of a company) fails to take all reasonable steps to comply with the provisions, he shall be punishable with imprisonment for a term which may extend to 6 months or with fine which may extend to Rs.1,000, or with both.

Form and Contents of Balance Sheet and Profit and Loss Account:

Profit and Loss Account and the Balance Sheet are to be prepared in accordance with the requirements of Sec. 211 and Schedule VI of the Companies Act, 1956. Part I of the Schedule contains the prescribed form of Balance Sheet and Part II contains the Profit and Loss Account.

Sub-section (1) of Sec. 211 of Companies Act requires: Every Balance Sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of this section, be in the form set out in Part I of Schedule VI, or as near thereto as circumstances admit, or in such other forms as may be approved by the Central Government either generally or any particular case; and in preparing the Balance Sheet, due regard shall be had, as far as may be, to the general instructions for preparation of Balance Sheet under the heading ‘Notes’ at the end of that part:

Provided that nothing contained in this sub-section shall apply to any Insurance or Banking Company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of Balance Sheet has been specified in or under the Act governing such class of company.

However, the Central Government may, by notification in the Official Gazette, exempt any class of companies from compliance with any of the requirements in Schedule VI if, in its opinion, it is necessary to grant the exemption in the public interest. Any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification.

The Central Government may, on the application, or with the consent of the Board of Directors of the company, by order, modify in relation to the company any of the requirements of this Act as to the matters to be stated in the company’s Balance Sheet or Profit and Loss Account for the purpose of adapting them to the circumstances of the company”—Sec.211 (4).

Every Profit and Loss Account of a company shall give a true and fair view of the profit or loss of the company for this financial year. The form set out in Part II of Schedule VI does not, however, apply to any Banking or Insurance company or to any other class of company for which a form of Profit and Loss Account has been specified.

Every Balance Sheet of a company shall give a true and fair view of the state of affairs of the company, as at the end of the financial year, and shall be in the form of Accounting Standards set out in Part I, Schedule VI to the Act or as near thereto as circumstances admit or in such other forms as the Central Government may approve—Sec. 211. Every Profit and Loss Account also must comply with the Accounting Standards.

If they do not comply with the Accounting Standards such companies must disclose:

•  Deviation from the accounting standards;
•  The reasons for such deviation; and
•  The financial effect, if any.

The Profit and Loss Account and the Balance Sheet of a company must not be treated as not disclosing a true and fair view of the state of affairs of the company, simply by reason of the fact that they do not disclose in the case of:

1. Insurance Company— (Matters not required to be disclosed by the Insurance Act,1938);
2. Banking Company— (Matters not required to be disclosed by the Banking Companies Act,1949);
3. A company engaged in the generation or supply of electricity (Matters not required to be disclosed by the Indian Electricity Act, 1910, and by the Electricity (Supply) Act,1948);
4. A company governed by the Special Acts, for the time being in force— (Matters not required to be disclosed by that Special Act);and
5. Any matter which are not required to be disclosed as per ScheduleVI.

For the purpose of Sec. 211, except where the context otherwise requires, any reference to a Profit and Loss Account or Balance Sheet shall include any notes orAnchor documents annexed thereto, giving information required by this Act, and allowed by this Act to be given in the form of such notes or documents.

Where the person responsible for securing compliance with the provisions of Sec. 211 fails to take all reasonable steps to do so, he shall be punishable for a term which may extend to 6 months or with fine which may extend to Rs. 1,000, or both. But no such person shall be sentenced to imprisonment for any offence under Sec. 211 unless the same was committed willfully.

Similarly, Sec. 211(8) states that this person may entrust any other competent and reliable person with the discharge of responsibility u/s 211 and, if he was in a position to discharge it, he shall be liable for any default in complying with the requirements of Sec. 211. In that case he shall be punishable with a fine what may extend to Rs.10, 000 or with imprisonment for a term which may extend to 6 months, or with both.

True and Fair view:

According to Sec. 211 of the Companies Act every Balance Sheet of a company must give a true and fair view of the state of affairs of the company and every Profit and Loss Account must give a true and fair view of the profit or loss (i.e., the result of the operation) of accompany.

From the above, it becomes clear that the Balance Sheet and the Profit and Loss Account must satisfy:

• The Balance Sheet and Profit and Loss Account should be drawn up in accordance with the requirements of Schedule VI, unless otherwise required by law.
• There must not be any concealment of material facts, over-statements and under-statements in the Balance Sheet and Profit and Loss Account, i.e., financial statement must not be window-dressed.
• Assets and liabilities should properly be valued, i.e.
  • Value of Fixed Assets should correctly be ascertained after charging proper depreciation.
  • Current Asset, like stock, should be valued on a consistent basis.AnchorContingent Liabilities, if any, should be ascertained fairly and stated as a footnote.
  • Proper provision should be made against known liabilities.
  • All expenses and losses, incomes and gains must be included in the Profit and Loss Account.
  • Usually expenses and incomes should separately be stated and must not be mixed up with general transactions.
  • Books of Accounts should be maintained as per Sec. 209 which will help to make the Profit and Loss Account and the Balance Sheet and will exhibit a true and fair view of the state of affairs of the company.