Unit–IV: Company Final Accounts, Green Accounting & Sustainable Reporting
1. Introduction to Company & Kinds of Companies
A Company is a legal entity formed by an association of individuals under the law to operate a commercial or industrial enterprise. It possesses continuous existence (perpetual succession), a separate legal identity from its owners, and limited liability for its shareholders.
CLASSIFICATION OF COMPANIES
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BY INCORPORATION BY LIABILITY BY MEMBERSHIP BY CONTROL OTHER TYPES
• Statutory • Limited by Shares • One Person (OPC) • Holding Company • Section 8 (NGO)
• Registered • Limited by Guarantee• Private Limited • Subsidiary Company • Government Co.
• Unlimited • Public Limited • Associate Company • Foreign Company
| Category | Key Membership / Feature | Liability & Governance |
|---|---|---|
| One Person Company (OPC) | 1 Member | Limited liability; simplified compliance designed for single entrepreneurs. |
| Private Limited Company | Min: 2 | Max: 200 members | Shares cannot be freely transferred; no public subscription allowed. |
| Public Limited Company | Min: 7 | Max: Unlimited | Shares are freely transferable; can raise capital from the public. |
2. Share Capital & Issue of Shares
Share Capital represents the total capital raised by a corporate entity through the allotment of ownership units called shares.
STRUCTURE OF SHARE CAPITAL
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[ Authorized Capital ] —> [ Issued Capital ] —> [ Subscribed Capital ]
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[ Paid-Up Capital ] <— [ Calls-in-Arrears ] <— [ Called-Up Capital ]
Classification of Share Capital
- Equity Share Capital: Carry voting rights, variable dividend rates based on net profits, and residual ownership claims during liquidation.
- Preference Share Capital: Entrusted with preferential rights over equity shareholders regarding fixed rate dividend payments and capital repayment during liquidation.
Journal Accounting Flow for Share Issuance
| Issuance Stage | Debit Entry | Credit Entry |
|---|---|---|
| 1. Application | Bank A/c (Money Received) | Share Application A/c (Transfer to Capital on Allotment) |
| 2. Allotment | Share Allotment A/c (Due from Allottees) | Share Capital A/c (Capital Created) |
| 3. Calls | Share Call A/c (Due on Call Stage) | Share Capital A/c (Capital Created) |
3. Financial Statements as per Companies Act, 2013 & Schedules to Accounts
Under Section 129 and Schedule III of the Companies Act, 2013, corporate financial statements must give a true and fair view of the state of affairs of the company and follow uniform reporting formats.
COMPANIES ACT, 2013: FINANCIAL PACKAGE
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BALANCE SHEET STATEMENT OF CASH FLOW STATEMENT OF NOTES TO ACCOUNTS
(Part I, Schedule III)PROFIT & LOSS STATEMENT (AS 3) CHANGES IN EQUITY (Schedules detailing
(Part II, Schedule III) (Ind AS required) line-item calculations)
Provisions as to Preparation of Financial Statements
- Mandatory Compliance with Accounting Standards: Financial statements must comply with standard AS or Ind AS notified under Section 133.
- Use of Schedules / Notes to Accounts: Summary totals are presented in the main financial statements, while granular breakdowns are detailed in numbered Schedules/Notes.
- True and Fair View: Requires complete transparency, statutory audit certification, and full disclosures.
4. Preparation of Income Statement and Balance Sheet (Horizontal & Vertical Formats)
Formats Comparison
| Dimension | Horizontal Format (Traditional) | Vertical Format (Schedule III Mandatory) |
|---|---|---|
| Structural Layout | Two-sided “T-Account” format (Debits left, Credits right). | Single column format listing items top-to-bottom with cross-referenced Note numbers. |
| Regulatory Standing | Standard for sole traders and partnerships. | Mandatory standard for companies under Companies Act, 2013 (Schedule III). |
Schedule III Vertical Balance Sheet Architecture
VERTICAL BALANCE SHEET
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I. EQUITY AND LIABILITIES II. ASSETS
1. Shareholders’ Funds (Capital & Reserves) 1. Non-Current Assets (Property, Plant, Equipment)
2. Share Application Money Pending Allotment 2. Current Assets (Inventories, Trade Receivables, Cash)
3. Non-Current Liabilities (Long-term Borrowings)
4. Current Liabilities (Trade Payables, Short-term Provisions)
Proforma Format: Vertical Balance Sheet (Schedule III, Part I)
| Particulars | Note No. | Amount ($) |
|---|---|---|
| I. EQUITY AND LIABILITIES | ||
| 1. Shareholders’ Funds | ||
| (a) Share Capital | 1 | X,XXX |
| (b) Reserves and Surplus | 2 | X,XXX |
| 2. Non-Current Liabilities | ||
| (a) Long-Term Borrowings | 3 | X,XXX |
| 3. Current Liabilities | ||
| (a) Trade Payables | 4 | X,XXX |
| (b) Short-Term Provisions | 5 | X,XXX |
| TOTAL EQUITY AND LIABILITIES | XX,XXX | |
| II. ASSETS | ||
| 1. Non-Current Assets | ||
| (a) Property, Plant, and Equipment | 6 | X,XXX |
| (b) Intangible Assets | 7 | X,XXX |
| 2. Current Assets | ||
| (a) Inventories | 8 | X,XXX |
| (b) Trade Receivables | 9 | X,XXX |
| (c) Cash and Cash Equivalents | 10 | X,XXX |
| TOTAL ASSETS | XX,XXX | |
5. Green Accounting & Sustainable Reporting
Green Accounting (Environmental Accounting) is an emerging branch of accounting that incorporates environmental costs, resource consumption, and environmental impacts into an organization’s financial calculations.
GREEN & SUSTAINABLE ACCOUNTING
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INTERNAL GREEN ACCOUNTING EXTERNAL SUSTAINABLE REPORTING
Tracks internal eco-efficiency, resource costs, Discloses environmental, social, and governance (ESG)
waste management, and environmental liabilities. performance to investors and regulators.
Need & Objectives of Green Accounting
- Internalizing Externalities: Account for environmental costs (pollution, carbon emissions, depletion of resources) that traditional accounting ignores.
- Resource Optimization: Measure energy consumption and waste production to cut costs and improve operational efficiency.
- Regulatory Compliance & Risk Mitigation: Track environmental liabilities, compliance costs, and potential regulatory fines.
6. Sustainability Reporting: Need, Methods, Data Collection, & Analysis
Sustainability Reporting discloses a company’s Environmental, Social, and Governance (ESG) performance to demonstrate long-term value creation.
SUSTAINABILITY DATA MANAGEMENT FLOW
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[ Data Collection ] —> [ Analysis & Verification ] —> [ Reporting & Disclosures ]
(Energy, carbon emissions, (ESG impact assessment, (BRSR, GRI framework,
water usage, labor statistics) benchmark comparison) value creation disclosures)
| Stage | Operational Focus | Applied Methods & Frameworks |
|---|---|---|
| 1. Data Collection | Gathering quantitative metrics across business operations. | Tracking utility bills, fuel consumption logs, waste audit reports, and safety records. |
| 2. Analysis & Impact Assessment | Evaluating environmental and social footprint. | Life Cycle Assessment (LCA), Carbon Footprint Calculations, and Materiality Matrix analysis. |
| 3. Reporting to Improve Enterprise Value | Linking sustainability metrics to long-term financial stability. | Global Reporting Initiative (GRI), Integrated Reporting (IR), and Business Responsibility and Sustainability Reporting (BRSR). |
7. IFRS Financial Sustainability Disclosure Standards
The International Sustainability Standards Board (ISSB) under the IFRS Foundation introduced global reporting standards to ensure consistent, comparable sustainability disclosures alongside traditional financial reporting.
IFRS SUSTAINABILITY STANDARDS
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IFRS S1: GENERAL REQUIREMENTS IFRS S2: CLIMATE-RELATED DISCLOSURES
General framework for disclosing sustainability-related Requires specific disclosures on physical and transition
financial risks and opportunities. climate risks and carbon emissions.
| Standard | Focus Area | Key Core Disclosures |
|---|---|---|
| IFRS S1 | General Sustainability Requirements | Disclose material information about sustainability-related risks across Governance, Strategy, Risk Management, and Metrics & Targets. |
| IFRS S2 | Climate-Related Disclosures | Disclose Scope 1, Scope 2, and Scope 3 greenhouse gas (GHG) emissions, transition plans, and physical climate risk impacts. |
Key Learning Summary
| Section | Core Takeaway |
|---|---|
| Schedule III Compliance | Companies must present financial statements in a vertical format with supporting Schedules/Notes. |
| Share Capital Flow | Tracked from Authorized down to Paid-Up capital using double-entry journal entries for applications, allotments, and calls. |
| Green Accounting | Incorporates environmental costs and natural resource depletion into accounting framework. |
| IFRS S1 & S2 | Global standards connecting financial results with climate risks and ESG performance. |