Active learning ideas
Financial Statements of a Company focuses on the standardised format of reporting as per Schedule III of the Companies Act, 2013. This is a shift from the horizontal formats used in partnership and sole proprietorship to a vertical presentation. Students learn to classify items under major headings and sub-headings in the Balance Sheet and the Statement of Profit and Loss.
Activity 01
Place 20 different accounting items (e.g., 'Loose Tools', 'Calls-in-Advance', 'Mining Rights') around the room. Students move in pairs to identify the Major Head and Sub-head for each as per Schedule III.
What are the major headings of the equity and liabilities side?
Activity 02
Provide groups with the published financial statements of an Indian company. They must find specific items like 'Contingent Liabilities', 'Capital Work-in-Progress', and 'Cash Equivalents' and explain their meaning to the class.
How are contingent liabilities disclosed in financial statements?
Activity 03
Students individually read about 'Exceptional Items' and 'Extraordinary Items' in the Statement of P&L. They then pair up to find examples from recent Indian business news and discuss how these affect the final profit figure.
Where do we classify trade receivables in the Balance Sheet?
A few notes on teaching this unit
Watch Out for These Misconceptions
Students often classify 'Loose Tools' and 'Stores and Spares' under Fixed Assets.
Under Schedule III, these are classified as 'Inventories' under Current Assets. A gallery walk where students sort items into 'buckets' helps correct this common classification error through visual reinforcement.
Thinking that 'Proposed Dividend' is a current liability.
As per the revised AS-4, proposed dividend is a contingent liability and is disclosed in the 'Notes to Accounts', not on the face of the Balance Sheet. Peer teaching sessions can help clarify this recent accounting change.
Methods used in this brief
Accounting for Share Capital
Features and types of companies, and the process of issuing shares. Accounting treatment for over-subscription, calls-in-arrears, forfeiture, and reissue of shares.
8 methodologies
Issue of Debentures
Understanding debentures as a source of borrowed funds and their types. Accounting entries for the issue of debentures for cash and for consideration other than cash.
8 methodologies