Company Accounts

BBA 3rd Year

5th Semester
Syllabus
• Unit 2nd
• Final Accounts
• Managerial Remuneration
• Final Accounts: Including Computation of Managerial Remuneration
and Disposal of Profit.

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 Final Accounts
• Final Accounts are the accounts, which are prepared at the end of a
fiscal year. It gives a precise idea of the financial position of the
business/organization to the owners, management, or other
interested parties. Financial statements are primarily recorded in a
journal; then transferred to a ledger; and thereafter, the final account
is prepared (as shown in the illustration).
• Usually, a final account includes the following components −
• Trading Account
• Manufacturing Account
• Profit and Loss Account
• Balance Sheet
• Trading Account
• Trading accounts represents the Gross Profit/Gross Loss of the
concern out of sale and purchase for the particular accounting period.
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 Study of Debit side of Trading Account
• a) Opening Stock: Unsold closing stock of the last financial year is appeared in debit
side of the Trading Account as “To Opening Stock“ of the current financial year.
• (b) Purchases: Total purchases (net of purchase return) including cash purchase
and credit purchase of traded goods during the current financial year appeared as
“To Purchases” in the debit side of Trading Account.
• c) Direct Expenses: Expenses incurred to bring traded goods at business
premises/warehouse called direct expenses. Freight charges, cartage or carriage
charges, custom and import duty in case of import, gas, electricity fuel, water,
packing material, wages, and any other expenses incurred in this regards comes
under the debit side of Trading Account and appeared as “To Particular Name of the
Expenses”.
• (d) Sales Account: Total Sale of the traded goods including cash and credit sales will
appear at outer column of the credit side of Trading Account as “By Sales.” Sales
should be on net releasable value excluding Central Sales Tax, Vat, Custom, and
Excise Duty.
• (e) Closing Stock: Total Value of unsold stock of the current financial year is called
as closing stock and will appear at the credit side of Trading Account.

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• Closing Stock = Opening Stock + Net Purchases – Net Sale
• (f) Gross Profit: Gross profit is the difference of revenue and the cost of providing services or
making products. However, it is calculated before deducting payroll, taxation, overhead, and
other interest payments. Gross Margin is used in the US English and carries same meaning as
the Gross Profit.
• Gross Profit = Sales – Cost of Goods Sold
• (g) Operating Profit: Operating profit is the difference of revenue and the costs generated by
ordinary operations. However, it is calculated before deducting taxes, interest payments,
investment gains/losses, and many other non-recurring items.
• Operating Profit = Gross Profit – Total Operating Expenses
• (h) Net Profit: Net profit is the difference of total revenue and the total expenses of the company.
It is also known as net income or net earnings.
• Net Profit = Operating Profit – (Taxes + Interest)
• Manufacturing Account
• Manufacturing account prepared in a case where goods are manufactured by the firm itself.
Manufacturing accounts represent cost of production. Cost of production then transferred to
Trading account where other traded goods also treated in a same manner as Trading account.

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Important Point Related to Manufacturing Account
• (a) Raw Material: Raw material is used to produce products and there
may be opening stock, purchases, and closing stock of Raw material.
Raw material is the main and basic material to produce items
• b) Work-in-Progress: Work-in-progress means the products, which are
still partially finished, but they are important parts of the opening and
closing stock. To know the correct value of the cost of production, it is
necessary to calculate the correct cost of it.
• (c) Finished Product: Finished product is the final product, which is
manufactured by the concerned business and transferred to trading
account for sale.
• Raw Material Consumed (RMC) − It is calculated as.
• RMC = Opening Stock of Raw Material + Purchases – Closing Stock

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Profit and Loss Account
• Profit & Loss account represents the Gross profit as transferred
from Trading Account on the credit side of it along with any other
income received by the firm like interest, Commission, etc.
• Debit side of profit and loss account is a summary of all the
indirect expenses as incurred by the firm during that particular
accounting year. For example, Administrative Expenses, Personal
Expenses, Financial Expenses, Selling, and Distribution
Expenses, Depreciation, Bad Debts, Interest, Discount, etc.
• Balance Sheet
• A balance sheet reflects the financial position of a business for
the specific period of time. The balance sheet is prepared by
tabulating the assets (fixed assets + current assets) and the
liabilities (long term liability + current liability) on a specific date.

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Assets
Assets are the economic resources for the businesses. It can be categorized as:

(a) Fixed Assets: Fixed assets are the purchased/constructed assets, used to earn profit not only
in current year, but also in next coming years. However, it also depends upon the life and utility of
the assets. Fixed assets may be tangible or intangible. Plant & machinery, land & building,
furniture, and fixture are the examples of a few Fixed Assets.
(b) Current Assets: The assets, which are easily available to discharge current liabilities of the
firm called as Current Assets. Cash at bank, stock, and sundry debtors are the examples of
current assets.
(c) Fictitious Assets: Accumulated losses and expenses, which are not actually any virtual assets
called as Fictitious Assets. Discount on issue of shares, Profit & Loss account, and capitalized
expenditure for time being are the main examples of fictitious assets.
(d) Cash & Cash Equivalents: Cash balance, cash at bank, and securities which are redeemable
in next three months are called as Cash & Cash equivalents.
(e) Wasting Assets: The assets, which are reduce or exhausted in value because of their use are
called as Wasting Assets. For example, mines, queries, etc.

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f) Tangible Assets: The assets, which can be touched, seen, and have volume such as cash, stock, building,
etc. are called as Tangible Assets.
(g) Intangible Assets: The assets, which are valuable in nature, but cannot be seen, touched, and not have
any volume such as patents, goodwill, and trademarks are the important examples of intangible assets.
(h) Accounts Receivables: The bills receivables and sundry debtors come under the category of Accounts
Receivables.
(i) Working Capital: Difference between the Current Assets and the Current Liabilities are called as
Working Capital.
Managerial Remuneration
Managerial remuneration is the compensation paid to a company's key managerial personnel
(KMPs). This includes directors, managing directors, whole-time directors, and managers. It can
also include benefits and other remuneration.
Provisions Regarding Managerial Remuneration
1) Payment Of Managerial Remuneration
2) Resolution in general meeting
3) Remuneration of a managerial person in more than one company
4) Refund of excess remuneration
5) Prohibition Of remuneration from subsidiary company
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 These restrictions are enumerate
1.Maximum Limit
(a) Any expenditure incurred by the company in providing any rent-free accommodation
or any other benefit or amenity in respect of accommodation free of charge, to any of
the persons aforesaid.
(b) Any expenditure incurred by the company in providing any other benefit or amenity
free of charge or at a concessional rate to any of the persons aforesaid.
(c) Any expenditure incurred by the company in respect of any obligation or service,
which, but for such expenditure by the company, would have been incurred by any of the
persons aforesaid;
(d) Any expenditure incurred by the company to effect any insurance on the life of, or to
provide any pension, annuity or gratuity for any of the person aforesaid or his spouse or
child.

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Minimum Limit
According to Sec. 198 (Subsection 4) of the Companies (Amendment) Act, 1988—subject to the
provisions of Sec. 269 (Schedule XIII)—a company shall not pay to its Directors (including any managing
or whole time Director or manager) by way of remuneration any sum exclusive of any fees payable to
Directors under Sec. 309 (2) except with the previous approval of the Central Government, if the
company has inadequate profits or no profits in any financial year.
Remuneration to Directors
Fees may be payable by the articles for attendance of the meeting of the board or committee subject to:
(a) A whole-time or managing director may be paid remuneration by way of monthly pay and/or specified
percentage of net profit of the company (not exceeding 5% where there is only one such director, and
not exceeding 10% in all where there are more than one whole-time director).
(b) A part-time director (i.e., not whole-time or managing director) may be remunerated either by way of
monthly, quarterly or annually (with the approval of the Central Government or by way of commission (if
the company by special resolution authorizes) not exceeding 1% for all such Directors, Secretaries,
Treasurers or Managers and not exceeding 3% for all such Directors in other cases, or at higher
percentage with the approval of the Central Government.

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c) Any whole-time or managing director shall not be entitled to receive any
commission from any subsidiary of such company.
(d) The special resolution shall remain in force for a maximum period of 5
years. It may, however, be renewed, from time to time, by a special resolution
for further periods of 5 years but no renewal can be effected earlier than 1
year from the date on which it is to come into force.
(e) A Director may be paid fees for attending each meeting of the Board or a
committee thereof attended by him.
(f) If any Director receives any sum in excess of remuneration due to him, he
shall keep the excess amount in trust for the company and shall refund it to
the company. The company, however, cannot waive the recovery of any such
sum.
(g) The above rules shall not apply to a private company unless it is a
subsidiary of a public company.
(h) Prohibition of tax-free payment. A company shall not pay any officer or
employee remuneration free of tax (Sec. 200).
(i) The net profit for the purpose of Directors’ remuneration shall be computed
as per prescribed manner laid down in Sections 349 and 350 without
deducting the Directors’ remuneration
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of Technology gross Kanpur
& Management, profit 12
 Disposal of Profit
• Generally company do not distribute its whole amount of profit earned among the
shareholders. The company retains a part of such profit in form of reserve. Thus use
of profits by company in various heads is known as disposal of profits.
• Disposal of profits can be divided in to 2 parts.
• 1) Divisble Profits : Amount Of Profit which legally can be distributed to shareholdrs.
• 2) Appropriation of Profits: Transfer Of Profits of the company to reserves and
distribution of dividend to shareholders.
• Procedure Regarding Declaration and Payments of dividend
• Meeting Of baord of directors.
• Information Of annual general meeting
• Declaration of dividend
• Prepration of dividend list
• Publications of notice of dividend
• Unapid or unclaimed dividend

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 Thank you
Axis Institute of Technology & Management,
Kanpur