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GNDU Question Paper-2024

BBA 1

Semester

Basic Accounting

Time Allowed: Three Hours Max. Marks: 100

Note: Attempt Five questions in all, selecting at least One question from each section. The Fifth

question may be attempted from any section. All questions carry equal marks.

SECTION-A

1. What do you mean by Financial Accounting? Explain its objectives.

2. Journalize the following transactions:

Amount (Rs.)

(a) Mr. X commenced business with cash ............... 80,000

(b) Purchased furniture .............................................. 22,000

(d) Purchased goods from Mr. Z ............................. 10,400

(e) Sold goods on credit to Mr. A ............................. 14,000

(f) Received from Mr. A on account ......................... 5,200

(g) Sold goods for cash to Mr. B ............................... 12,000

(h) Paid to Mr. Y on account .................................... 5,000

(i) Withdrew cash for personal use ......................... 10,000

(j) Brought in further capital .................................. 20,000

SECTION–B

3. What do you mean by Cash Book? Differentiate between double column and triple

column cash book by preparing its specimen.

4. A company purchased a machinery costing Rs. 60,000 on 1st April, 2016. The

accounting year of the company ends on 31st December every year. The company

further purchased machinery on 1st October, 2016 costing Rs. 40,000. On 1st January

2018, one-third of the machinery which was installed on 1.4.2016, became obsolete

and was sold for Rs. 40,000. Show how the machinery account would appear in the

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books of the company till the accounting year 2018. The depreciation is to be charged

at 10% p.a. on written down value method.

SECTION–C

5. From the following Trial Balance of Mr. Garg as on 31st March, 2018, prepare Trading

Account, Profit and Loss Account and Balance Sheet.

Particulars

Amount (Rs.)

Stock on 1st April, 2017

500

Capital

2,000

Purchases

1,500

Sales

3,500

Land and Building

2000

Sundry Creditors

750

Particulars

Amount (Rs.)

Bills Receivable

300

Commission received

300

Carriage inward

Wages paid

100

Misc. Income

300

Particulars

Amount (Rs.)

Power

150

Salaries Paid

200

Discount Allowed

Drawings

Insurance Premium Paid

100

Cash at Bank

200

Cash in Hand

Investments

100

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Carriage outward

Machinery

800

Loan (Cr.)

600

Adjustments:

(a) Stock as on 31st March, 2018 is valued at Rs. 200.

(b) Provide depreciation @10% on Machinery and @5% on Land and Building.

(d) Insurance premium is paid in advance to the extent of Rs. 10.

(e) Allow interest on Capital @ 6% per annum.

6. Explain the meaning and usefulness of the financial statements for all the

stakeholders.

SECTION–D

7. Explain the items of final accounts as per Companies Act 2013 by preparing the

specimen of Profit and Loss statement and Balance Sheet.

8. What is annual report? Explain the contents of annual report by taking example of any

Indian company.

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GNDU Answer Paper-2024

BBA 1

Semester

Basic Accounting

Time Allowed: Three Hours Max. Marks: 100

Note: Attempt Five questions in all, selecting at least One question from each section. The Fifth

question may be attempted from any section. All questions carry equal marks.

SECTION-A

1. What do you mean by Financial Accounting? Explain its objectives.

Ans: 󷋇󷋈󷋉󷋊󷋋󷋌 What Do You Mean by Financial Accounting? Explain Its Objectives

Imagine you own a small bakery called “Sweet Crumbs.”

Every day you wake up early, bake delicious cakes, sell them to customers, pay your

workers, buy flour, sugar, and butter, and maybe even repair your old oven sometimes.

Now at the end of the month, when someone asks you,

“How much profit did you make?” or “How much money do you owe to your suppliers?” —

would you be able to answer immediately?

Most people can’t — not because they aren’t working hard, but because they haven’t kept

proper records of their business transactions.

And here begins the story of Financial Accounting — the language of business that helps

you understand, measure, and communicate your financial performance.

󷊨󷊩 Meaning of Financial Accounting – The Heartbeat of Business Records

Financial Accounting is that branch of accounting which deals with the recording,

summarizing, and reporting of all business transactions that can be expressed in money.

In simpler words, it is a systematic process of keeping track of every rupee that comes in

and goes out of a business, so that, at the end of a period, we can know:

• how much profit or loss the business made,

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• what the business owns (assets), and

• what it owes (liabilities).

Financial Accounting acts like a mirror — it reflects the true financial picture of a business. It

shows whether a business is healthy and growing or suffering losses and needs attention.

󼫹󼫺 Definition of Financial Accounting

To make it sound more academic, let’s look at a few well-known definitions:

1. According to the American Institute of Certified Public Accountants (AICPA):

“Accounting is the art of recording, classifying, and summarizing in a significant

manner and in terms of money, transactions and events which are, in part at least, of

financial character, and interpreting the results thereof.”

2. In simple words:

Financial Accounting is like the storyteller of a business — it records every financial

event and presents it in a meaningful form for others to understand.

󷊻󷊼󷊽 The Story Behind Its Need

Think back to the days when businesses were small — maybe just one shop, one owner, and

a few daily transactions. People remembered everything in their minds. But as trade grew,

businesses became more complex. Multiple employees, dozens of suppliers, hundreds of

customers — and suddenly, mental calculation wasn’t enough.

Mistakes started happening: people forgot who paid, who didn’t, and what expenses were

made.

So, business owners started writing things down in small notebooks. Over time, this simple

habit evolved into a proper accounting system.

And as business grew further — banks, investors, government authorities, and tax

departments — all needed reliable information. They needed to know the true performance

of a company. That’s when Financial Accounting became a formal, standardized system that

every business must follow.

󷊷󷊸󷊺󷊹 Objectives of Financial Accounting

The purpose of Financial Accounting is not just to keep records — it’s much deeper. It helps

us understand the why behind every transaction. Let’s explore its main objectives one by

one in a way that feels like a journey through a company’s life.

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1. To Maintain a Systematic Record of Transactions

A business makes hundreds or even thousands of financial transactions every month —

buying goods, selling products, paying salaries, collecting rent, and more.

Without a proper system, it would be impossible to recall what happened and when.

Financial Accounting ensures that every single transaction is written down, classified, and

organized — like keeping a diary of a business’s financial life.

For example, in your bakery, you would record every sale you made, every expense for

ingredients, and every salary you paid to workers. These small records form the foundation

of the accounting system.

2. To Ascertain Profit or Loss

At the end of every accounting period (say, a year), the owner wants to know —

“Did my business make money or lose money?”

This question is answered through the Profit and Loss Account (also called Income

Statement).

Financial Accounting helps to compare the total revenues (income earned) with the total

expenses (costs incurred). The difference shows either a profit (if income > expenses) or a

loss (if expenses > income).

It’s like a report card that tells how well the business performed over a particular period.

3. To Determine Financial Position

Earning profit is not the only measure of success. A business might make a profit yet be

short of cash or heavily burdened with debt.

That’s why Financial Accounting also prepares a Balance Sheet — a statement showing what

the business owns (its assets) and what it owes (its liabilities), along with the capital

invested by the owner.

This helps to understand whether the business is financially strong or weak, and whether it

can pay off its debts when needed.

In our bakery example, the balance sheet will show your shop building, baking equipment,

cash in hand, loans, and unpaid bills — giving a clear snapshot of your financial condition.

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4. To Provide Information to Various Users

A business doesn’t exist in isolation. Many people depend on its financial information —

• Owners want to know how their investment is performing.

• Investors look at profit trends before investing.

• Banks need data before granting loans.

• Government uses it for tax and regulation purposes.

• Employees may check financial stability before demanding a raise.

Financial Accounting provides accurate and organized information to all these users, helping

them make informed decisions.

5. To Facilitate Comparison and Planning

When financial records are kept regularly and properly, it becomes easy to compare

performance from one year to another.

For instance, if your bakery’s profits dropped this year compared to last year, you can

investigate why — maybe ingredient costs rose, or maybe fewer customers came.

This helps in future planning, budgeting, and controlling expenses.

In short, accounting acts like a GPS that guides your business decisions based on real facts,

not guesses.

6. To Ensure Legal Compliance

Every country’s laws require businesses to keep proper financial records. These records help

in paying taxes correctly, filing reports, and avoiding legal troubles.

Financial Accounting ensures that all books are maintained according to the legal framework

and accounting standards, thus protecting the business from penalties or legal disputes.

7. To Prevent and Detect Errors and Frauds

When every transaction is recorded systematically and verified, it becomes difficult for

errors or frauds to go unnoticed.

Financial Accounting provides a built-in system of checks and balances through ledgers, trial

balances, and audits, ensuring that any mistake or manipulation can be quickly detected and

corrected.

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8. To Communicate Financial Results

Finally, Financial Accounting is a communication tool. It doesn’t just record data — it tells a

story.

Through financial statements, accounting communicates how well or poorly a business

performed during the year. It helps the owner, investors, and the general public to

understand the company’s achievements, struggles, and prospects in a clear, honest way.

󷋃󷋄󷋅󷋆 In Simple Words

You can think of Financial Accounting as the memory of a business — it remembers

everything, from the smallest expense to the biggest sale.

Without it, a business would be like a traveler without a map — walking blindly without

knowing where it stands or where it’s heading.

󷊪󷊫󷊬 Conclusion

In conclusion, Financial Accounting is much more than writing numbers in a book. It is the

language of business, the mirror of performance, and the foundation of decision-making.

It records every financial event, organizes it beautifully, and presents it in the form of

statements that tell the true story of a business’s success or failure.

Its objectives — from maintaining systematic records, finding profit or loss, and showing

financial position, to helping in decision-making, compliance, and error detection — all work

together to ensure that a business runs smoothly, transparently, and intelligently.

So next time you see a company’s annual report or a balance sheet, remember: behind

those columns of numbers lies a story — a story of efforts, challenges, and progress — told

by none other than Financial Accounting itself.

2. Journalize the following transactions:

Amount (Rs.)

(a) Mr. X commenced business with cash ............... 80,000

(b) Purchased furniture .............................................. 22,000

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(d) Purchased goods from Mr. Z ............................. 10,400

(e) Sold goods on credit to Mr. A ............................. 14,000

(f) Received from Mr. A on account ......................... 5,200

(g) Sold goods for cash to Mr. B ............................... 12,000

(h) Paid to Mr. Y on account .................................... 5,000

(i) Withdrew cash for personal use ......................... 10,000

(j) Brought in further capital .................................. 20,000

Ans: 󷊆󷊇 A Different Beginning

Imagine Mr. X, a young entrepreneur, standing outside his newly rented shop with a dream

in his heart and ₹80,000 in his pocket. He’s about to start his business journey. But as he

begins to buy furniture, stock goods, sell items, and manage payments, something else

quietly begins to unfold behind the scenes—his books of accounts.

Every rupee that enters or leaves his business must be recorded. And the first step in this

process is journalizing—writing down each transaction in the journal, the book of original

entry.

Let’s walk through Mr. X’s first few days of business, transaction by transaction, and learn

how each event is journalized. We’ll not only write the journal entries but also understand

the logic behind each one, like a story of how money moves in a business.

󹶆󹶚󹶈󹶉 What Is Journalizing?

Journalizing is the process of recording business transactions in the journal in chronological

order. Each entry includes:

• Date of transaction

• Accounts affected

• Amounts debited and credited

• Brief narration

The journal follows the double-entry system, meaning every transaction affects at least two

accounts—one debit and one credit.

󼫹󼫺 Journal Entries for Mr. X’s Transactions

Let’s now journalize each transaction with explanation and logic.

(a) Mr. X commenced business with cash ₹80,000

Explanation:

• Cash is coming into the business → Cash A/c increases → Debit

• Capital is introduced by the owner → Capital A/c increases → Credit

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Journal Entry:

Date: [Assumed Start Date]

Cash A/c Dr. ₹80,000

To Capital A/c ₹80,000

(Being cash brought in by Mr. X to commence business)

(b) Purchased furniture ₹22,000

Explanation:

• Furniture is an asset → Furniture A/c increases → Debit

• Paid in cash → Cash A/c decreases → Credit

Journal Entry:

Furniture A/c Dr. ₹22,000

To Cash A/c ₹22,000

(Being furniture purchased for cash)

Explanation:

• Goods purchased → Purchases A/c increases → Debit

• Paid in cash → Cash A/c decreases → Credit

Journal Entry:

Purchases A/c Dr. ₹34,000

To Cash A/c ₹34,000

(Being goods purchased for cash from Mr. Y)

(d) Purchased goods from Mr. Z ₹10,400

Explanation:

• Goods purchased → Purchases A/c increases → Debit

• Not paid immediately → Mr. Z’s A/c (Creditor) increases → Credit

Journal Entry:

Purchases A/c Dr. ₹10,400

To Mr. Z’s A/c ₹10,400

(Being goods purchased on credit from Mr. Z)

(e) Sold goods on credit to Mr. A ₹14,000

Explanation:

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• Goods sold → Sales A/c increases → Credit

• Not received cash → Mr. A’s A/c (Debtor) increases → Debit

Journal Entry:

Mr. A’s A/c Dr. ₹14,000

To Sales A/c ₹14,000

(Being goods sold on credit to Mr. A)

(f) Received from Mr. A on account ₹5,200

Explanation:

• Cash received → Cash A/c increases → Debit

• Mr. A’s outstanding balance reduces → Mr. A’s A/c decreases → Credit

Journal Entry:

Cash A/c Dr. ₹5,200

To Mr. A’s A/c ₹5,200

(Being part payment received from Mr. A)

(g) Sold goods for cash to Mr. B ₹12,000

Explanation:

• Goods sold → Sales A/c increases → Credit

• Cash received → Cash A/c increases → Debit

Journal Entry:

Cash A/c Dr. ₹12,000

To Sales A/c ₹12,000

(Being goods sold for cash to Mr. B)

(h) Paid to Mr. Y on account ₹5,000

Explanation:

• Cash paid → Cash A/c decreases → Credit

• Mr. Y’s outstanding balance reduces → Mr. Y’s A/c decreases → Debit

Journal Entry:

Mr. Y’s A/c Dr. ₹5,000

To Cash A/c ₹5,000

(Being part payment made to Mr. Y)

(i) Withdrew cash for personal use ₹10,000

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Explanation:

• Cash withdrawn → Cash A/c decreases → Credit

• Treated as drawings → Drawings A/c increases → Debit

Journal Entry:

Drawings A/c Dr. ₹10,000

To Cash A/c ₹10,000

(Being cash withdrawn by Mr. X for personal use)

(j) Brought in further capital ₹20,000

Explanation:

• Cash added → Cash A/c increases → Debit

• Capital increased → Capital A/c increases → Credit

Journal Entry:

Cash A/c Dr. ₹20,000

To Capital A/c ₹20,000

(Being additional capital brought in by Mr. X)

󹵍󹵉󹵎󹵏󹵐 Summary Table of Journal Entries

S.No

Transaction

Debit Account

Credit Account

Amount (₹)

Commenced business

Cash A/c

Capital A/c

80,000

Purchased furniture

Furniture A/c

Cash A/c

22,000

Bought goods for cash

Purchases A/c

Cash A/c

34,000

Purchased goods on credit

Purchases A/c

Mr. Z’s A/c

10,400

Sold goods on credit

Mr. A’s A/c

Sales A/c

14,000

Received from Mr. A

Cash A/c

Mr. A’s A/c

5,200

Sold goods for cash

Cash A/c

Sales A/c

12,000

Paid to Mr. Y

Mr. Y’s A/c

Cash A/c

5,000

Cash withdrawn for personal use

Drawings A/c

Cash A/c

10,000

Brought in further capital

Cash A/c

Capital A/c

20,000

󹶓󹶔󹶕󹶖󹶗󹶘 Conclusion

Journalizing is like writing the diary of a business. Every transaction tells a story—of money

coming in, going out, debts being settled, assets being acquired, and capital growing. Mr. X’s

journey from starting his business to managing sales, purchases, and personal withdrawals

is not just about numbers—it’s about understanding how each event affects the financial

health of the business.

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By mastering journal entries, you’re not just learning accounting—you’re learning how to

read the language of business. And once you understand that language, you can manage,

analyze, and grow any enterprise with confidence.

SECTION–B

3. What do you mean by Cash Book? Differentiate between double column and triple

column cash book by preparing its specimen.

Ans: What is a Cash Book?

Let’s start with a small story.

Imagine you own a little stationery shop named “Smart Stationers.” Every day, you sell

notebooks, pens, and paper, and in return, you receive cash from customers. At the same

time, you also spend money—maybe you pay rent, buy stock from suppliers, or pay for

electricity.

Now, at the end of the day, you need to know how much money came in and how much

went out. You can’t depend on memory alone because after a few days, you might forget

small transactions. So, you need a book where all the cash transactions are recorded neatly

in one place.

That special book is called a Cash Book.

Meaning of Cash Book

A Cash Book is a special journal that records all cash and bank transactions of a business in

chronological (date-wise) order. It works both as a journal (where transactions are first

recorded) and a ledger (where final balances are shown).

In simple words, the Cash Book is like the diary of money—it tells the story of every rupee

that enters or leaves your business.

Whenever the business receives cash, it is recorded on the debit side (left side), and

whenever cash is paid, it is recorded on the credit side (right side). The balance of the Cash

Book always shows how much cash is left with the business at a particular time.

Why is a Cash Book Important?

Before we go deeper, let’s understand why the Cash Book is so important.

Imagine you are the owner of a business and someone suddenly asks,

“How much money do we have right now?”

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If you have maintained your Cash Book properly, you can answer this in seconds.

Here are a few key reasons why the Cash Book is necessary:

1. Record Keeping: It keeps every cash and bank transaction in one place.

2. Financial Control: It helps you know how much money you have at any moment.

3. Error Detection: Regular balancing of the Cash Book ensures no mistakes or frauds

go unnoticed.

4. Proof of Transactions: It acts as documentary evidence if any confusion or dispute

arises.

5. Ease in Accounting: It saves time because it serves both as a journal and a ledger.

Types of Cash Book

Just like a book has different volumes, the Cash Book also has different types based on the

nature and number of columns it has.

The main types are:

1. Single Column Cash Book

2. Double Column Cash Book

3. Triple Column Cash Book

Let’s explore each one step by step.

1. Single Column Cash Book

This is the simplest form of Cash Book.

It has only one column on each side—for Cash.

• Left Side (Debit): All receipts of cash (money coming in).

• Right Side (Credit): All payments of cash (money going out).

It is like your personal wallet record—you only keep track of cash in hand.

2. Double Column Cash Book

Now, as businesses grew, transactions not only happened in cash but also through bank

accounts.

To handle this, accountants created a slightly upgraded version of the Cash Book: the

Double Column Cash Book.

This Cash Book has two columns on each side:

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• One for Cash

• One for Bank

So, it records both cash and bank transactions.

Specimen of Double Column Cash Book

Here’s how a Double Column Cash Book looks:

Dr.

Cr.

Date

Particulars

Cash

(₹)

Date

Particulars

Bank (₹)

2025 Jan 1

To Capital

A/c

10,000

2025 Jan 2

By Rent

2,000

2025 Jan 3

To Bank

5,000

2025 Jan 4

By Purchase

3,000

Explanation:

• “To Capital A/c” means cash is received from the owner as capital.

• “By Rent” means cash is paid for rent.

• “To Bank” shows money deposited into the bank.

• “By Purchase” means cash paid for goods purchased.

Features of Double Column Cash Book

1. Two Columns: One for cash and one for bank on both sides.

2. Records All Transactions: Records both cash and bank dealings in one place.

3. Bank Transactions: It includes cheque deposits and withdrawals.

4. Contra Entries: When cash is deposited into the bank or withdrawn from it, the entry

affects both columns. Such entries are called Contra Entries, marked with the letter

“C” in the ledger folio column.

3. Triple Column Cash Book

Now comes the most advanced form — the Triple Column Cash Book.

As the name suggests, this Cash Book has three columns on each side:

• One for Cash

• One for Bank

• One for Discount

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Businesses often give or receive small discounts while making payments or receiving money.

To record these easily, an additional Discount Column is added on both sides.

Specimen of Triple Column Cash Book

Dr.

Cr.

Date

Particulars

Discount

Allowed (₹)

Cash

(₹)

Bank

(₹)

Date

Particulars

Discount

Received (₹)

Jan

To Capital

A/c

–

5,000

–

Jan

By Rent

–

Jan

To Ram

–

4,950

Jan

Purchase

–

Jan

To Bank

–

3,000

–

Jan

By Bank

–

Explanation:

• “To Ram” – business received a cheque from Ram and allowed him a ₹50 discount.

• “By Bank” – business withdrew ₹2,500 from the bank.

• “To Bank” – cash deposited into the bank.

Features of Triple Column Cash Book

1. Three Columns: Cash, Bank, and Discount on both sides.

2. All-in-One Record: Records all types of monetary transactions in a single book.

3. Discount Recording: Records both discount allowed (left side) and discount received

(right side).

4. Contra Entries: When transactions occur between cash and bank, they are marked

as contra entries.

5. Helps in Quick Balancing: At any point, one can easily find out the amount of cash,

bank balance, and total discounts.

Difference Between Double Column and Triple Column Cash Book

Basis

Double Column Cash Book

Triple Column Cash Book

1. Number of

Columns

Two columns on each side –

Cash and Bank.

Three columns on each side – Cash,

Bank, and Discount.

2. Discount

Recording

No column for discount.

Separate columns for discount

allowed and discount received.

3. Usefulness

Useful when there are only cash

and bank transactions.

Useful when there are frequent

discounts in transactions.

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4. Complexity

Simpler in format.

Slightly more detailed and

comprehensive.

5. Example

Cash deposit, withdrawal, bank

transactions.

Cash, bank, and discount

transactions together.

6. Contra

Entries

Shown for cash and bank

movements.

Shown for cash and bank

movements, discount not included.

Balancing the Cash Book

At the end of a period (day, week, or month), both sides of the Cash Book are totaled and

compared:

• If the debit side is greater, it means cash or bank balance is in hand.

• If the credit side is greater, it shows an overdraft (spent more than what was in the

account).

The balance is carried forward to the next page, ensuring continuous recording.

In Simple Words

Think of the Cash Book as your business’s heartbeat.

Every time money comes in—it beats. Every time money goes out—it beats again.

Without maintaining it, you can’t know whether your business is healthy or not.

A Double Column Cash Book is like a diary that keeps track of your cash and bank

transactions, while a Triple Column Cash Book also notes down the discounts you give and

receive during business.

Thus, the Triple Column Cash Book gives a complete financial snapshot in one glance.

Conclusion

In conclusion, a Cash Book is much more than just a record—it's the mirror of your financial

honesty and control. Whether it’s a Double Column or Triple Column Cash Book, both play

a crucial role in tracking money movement.

• The Double Column Cash Book records cash and bank transactions.

• The Triple Column Cash Book adds another layer by recording discounts too.

By maintaining an accurate Cash Book, a business ensures transparency, discipline, and

financial stability.

It’s not just an accounting record—it’s the story of every rupee that has entered and left

your business.

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4. A company purchased a machinery costing Rs. 60,000 on 1st April, 2016. The accounting

year of the company ends on 31st December every year. The company further purchased

machinery on 1st October, 2016 costing Rs. 40,000. On 1st January 2018, one-third of the

machinery which was installed on 1.4.2016, became obsolete and was sold for Rs. 40,000.

Show how the machinery account would appear in the books of the company till the

accounting year 2018. The depreciation is to be charged at 10% p.a. on written down

value method.

Ans: 󷊆󷊇 A Different Beginning

It’s the financial year 2016, and a company is gearing up for expansion. On 1st April, they

invest ₹60,000 in a new piece of machinery—solid, reliable, and ready to boost production.

Six months later, on 1st October, they add another machine worth ₹40,000 to their growing

arsenal. Everything seems to be running smoothly. But as time passes, technology evolves.

By 1st January 2018, part of the original machinery becomes outdated. One-third of it is sold

off for ₹40,000.

This isn’t just a story of machines—it’s a story of how businesses track their assets, calculate

depreciation, and maintain accurate records. Let’s walk through this journey and see how

the Machinery Account would appear in the company’s books from 2016 to 2018, using the

Written Down Value (WDV) method of depreciation at 10% per annum.

󼫹󼫺 Understanding the Scenario

Before we start journalizing and building the Machinery Account, let’s break down the

timeline and key events:

󹴢󹴣󹴤󹴥󹴦󹴧󹴨󹴭󹴩󹴪󹴫󹴬 Timeline of Events

• 1st April 2016: Machinery purchased for ₹60,000

• 1st October 2016: Additional machinery purchased for ₹40,000

• 31st December 2016: End of accounting year

• 31st December 2017: End of second accounting year

• 1st January 2018: One-third of the first machinery (₹60,000) sold for ₹40,000

• 31st December 2018: End of third accounting year

󼪔󼪕󼪖󼪗󼪘󼪙 Depreciation Method

• Rate: 10% per annum

• Method: Written Down Value (WDV)

• Depreciation is charged proportionately based on months of use

󹶆󹶚󹶈󹶉 Step-by-Step Depreciation Calculation

󹼧 Year Ending 31st December 2016

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Machinery Purchased on 1st April 2016 – ₹60,000

Used for 9 months (April to December) Depreciation = ₹60,000 × 10% × 9/12 = ₹4,500 WDV

= ₹60,000 – ₹4,500 = ₹55,500

Machinery Purchased on 1st October 2016 – ₹40,000

Used for 3 months (October to December) Depreciation = ₹40,000 × 10% × 3/12 = ₹1,000

WDV = ₹40,000 – ₹1,000 = ₹39,000

Total Machinery Value at end of 2016 = ₹55,500 + ₹39,000 = ₹94,500

󹼧 Year Ending 31st December 2017

Machinery from April 2016 – WDV ₹55,500

Depreciation = ₹55,500 × 10% = ₹5,550 WDV = ₹55,500 – ₹5,550 = ₹49,950

Machinery from October 2016 – WDV ₹39,000

Depreciation = ₹39,000 × 10% = ₹3,900 WDV = ₹39,000 – ₹3,900 = ₹35,100

Total Machinery Value at end of 2017 = ₹49,950 + ₹35,100 = ₹85,050

󹼧 1st January 2018 – Sale of One-Third of First Machinery

Original Machinery (April 2016) = ₹60,000 One-third = ₹20,000 (original cost)

WDV of full machinery as on 1st Jan 2018 = ₹49,950 WDV of one-third = ₹49,950 × 1/3 =

₹16,650

Sold for ₹40,000 → Profit on sale = ₹40,000 – ₹16,650 = ₹23,350

󹼧 Year Ending 31st December 2018

Remaining Machinery from April 2016 = ₹49,950 – ₹16,650 = ₹33,300 Depreciation =

₹33,300 × 10% = ₹3,330 WDV = ₹33,300 – ₹3,330 = ₹29,970

Machinery from October 2016 = ₹35,100 Depreciation = ₹35,100 × 10% = ₹3,510 WDV =

₹35,100 – ₹3,510 = ₹31,590

Total Machinery Value at end of 2018 = ₹29,970 + ₹31,590 = ₹61,560

󹵍󹵉󹵎󹵏󹵐 Machinery Account Format (2016–2018)

Let’s now prepare the Machinery Account in ledger format.

󹶆󹶚󹶈󹶉 Machinery Account

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For the Year Ending 31st December 2016

Date

Particulars

Amount

(₹)

Date

Particulars

Amount

(₹)

Apr 1,

2016

To Bank A/c

(Purchase)

60,000

Dec 31,

2016

By Depreciation

A/c

4,500

Oct 1,

2016

To Bank A/c

(Purchase)

40,000

Dec 31,

2016

By Depreciation

A/c

1,000

Dec 31,

2016

By Balance c/d

94,500

1,00,000

For the Year Ending 31st December 2017

Date

Particulars

Amount

(₹)

Date

Particulars

Amount

(₹)

Jan 1,

2017

To Balance

b/d

94,500

Dec 31,

2017

By Depreciation

A/c

5,550

Dec 31,

2017

By Depreciation

A/c

3,900

Dec 31,

2017

By Balance c/d

85,050

94,500

For the Year Ending 31st December 2018

Date

Particulars

Amount

(₹)

Date

Particulars

Amount

(₹)

Jan 1,

2018

To Balance

b/d

85,050

Jan 1,

2018

By Bank A/c (Sale)

40,000

Jan 1,

2018

By Profit on Sale A/c

23,350

Jan 1,

2018

By Machinery Disposal

A/c

16,650

Dec 31,

2018

By Depreciation A/c

3,330

Dec 31,

2018

By Depreciation A/c

3,510

Dec 31,

2018

By Balance c/d

61,560

85,050

󹶓󹶔󹶕󹶖󹶗󹶘 Final Thoughts

This journey through Mr. X’s machinery account shows how businesses track the value of

their assets over time. Depreciation isn’t just a mathematical deduction—it reflects the real-

world aging of machines, wear and tear, and technological obsolescence.

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Using the Written Down Value method, we see how depreciation compounds year after

year, and how selling part of an asset affects the ledger. The machinery account becomes a

living record of the company’s investment, usage, and financial decisions.

SECTION–C

5. From the following Trial Balance of Mr. Garg as on 31st March, 2018, prepare Trading

Account, Profit and Loss Account and Balance Sheet.

Particulars

Amount (Rs.)

Stock on 1st April, 2017

500

Capital

2,000

Purchases

1,500

Sales

3,500

Land and Building

2000

Sundry Creditors

750

Particulars

Amount (Rs.)

Bills Receivable

300

Commission received

300

Carriage inward

Wages paid

100

Misc. Income

300

Particulars

Amount (Rs.)

Power

150

Salaries Paid

200

Discount Allowed

Drawings

Insurance Premium Paid

100

Cash at Bank

200

Cash in Hand

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Investments

100

Carriage outward

Machinery

800

Loan (Cr.)

600

Adjustments:

(a) Stock as on 31st March, 2018 is valued at Rs. 200.

(b) Provide depreciation @10% on Machinery and @5% on Land and Building.

(d) Insurance premium is paid in advance to the extent of Rs. 10.

(e) Allow interest on Capital @ 6% per annum.

Ans: Quick orientation (the cast of characters):

Mr. Garg starts the year with some stock and assets (land, machinery), runs his business

(purchases, sells), receives small incomes (commission, miscellaneous), pays expenses

(wages, salaries, power, carriage, insurance), and has liabilities (creditors, loan). At year-end

we value closing stock, provide depreciation, adjust salaries and insurance, and allow

interest on capital. Those adjustments change profit and the balance sheet.

1) Working figures (clear and simple)

Given trial-balance items (selected):

• Opening Stock (1 Apr 2017): ₹500

• Purchases: ₹1,500

• Sales: ₹3,500

• Carriage inward: ₹50

• Wages: ₹100

• Power: ₹150

• Closing Stock (31 Mar 2018): ₹200 (adjustment)

Other incomes / expenses / assets / liabilities:

• Commission received: ₹300

• Misc. income: ₹300

• Carriage outward: ₹50

• Wages already above; Salaries paid: ₹200 (outstanding ₹50)

• Discount allowed: ₹30

• Insurance paid: ₹100 (prepaid ₹10) → actual insurance expense = ₹100 − ₹10 = ₹90

• Machinery: ₹800 → Depreciation @10% = ₹80

• Land & Building: ₹2,000 → Depreciation @5% = ₹100

• Capital: ₹2,000

• Drawings: ₹30

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• Bills Receivable: ₹300

• Investments: ₹100

• Cash at Bank: ₹200; Cash in Hand: ₹50

• Sundry Creditors: ₹750

• Loan (Cr.): ₹600

2) Trading Account for the year ended 31 March 2018

Trading Account shows how gross profit (or loss) is generated — sales less cost of goods

sold.

Trading Account (₹)

Particulars (Dr)

Amount

Particulars (Cr)

Amount

To Opening Stock

500

By Sales

3,500

To Purchases

1,500

To Carriage Inward

To Wages

100

To Power (factory)

150

Total (Cost of goods available)

2,300

Total Sales

3,500

Less: Closing Stock (transferred)

(200)

Cost of Goods Sold (COGS)

2,100

Gross Profit c/d (Sales − COGS)

1,400

Explanation:

Opening stock + purchases + carriage in + wages + power = ₹2,300. Subtract closing stock

₹200 → COGS = ₹2,100. Sales ₹3,500 − COGS ₹2,100 = Gross Profit ₹1,400.

3) Profit & Loss Account for the year ended 31 March 2018

We now take Gross Profit and add other incomes, then subtract operating & other expenses

to get Net Profit.

Profit & Loss Account (₹)

Particulars (Dr) — Expenses

Amount

Particulars (Cr) —

Incomes

Amount

To Salaries (paid ₹200 + outstanding ₹50)

250

By Gross Profit b/d

1,400

To Discount Allowed

By Commission

Received

300

To Carriage Outward

By Misc. Income

300

To Insurance Expense (after prepaid ₹10)

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To Depreciation — Machinery (10% of

800)

To Depreciation — Land & Building (5% of

2000)

100

To Interest on Capital @6% on ₹2,000

120

Total Expenses

720

Total Incomes

2,000

Net Profit (Balancing figure: Incomes −

Expenses)

1,280

Explanation of numbers:

• Gross profit brought down = ₹1,400.

• Add commission ₹300 and misc. income ₹300 → total incomes ₹2,000.

• Expenses = salaries 250 + discount 30 + carriage out 50 + insurance 90 + depreciation

80 + depreciation 100 + interest on capital 120 = ₹720.

• Net Profit = ₹2,000 − ₹720 = ₹1,280.

This ₹1,280 is the profit for the year to be transferred to the Capital account (or added to

capital in the balance sheet), subject to drawings.

4) Balance Sheet as at 31 March 2018

Now we prepare the Balance Sheet with assets and liabilities after adjustments, and reflect

profit & drawings in capital.

Adjust capital:

Opening Capital ₹2,000 + Net Profit ₹1,280 − Drawings ₹30 = Adjusted Capital ₹3,250.

Balance Sheet (₹)

Liabilities

Particulars

Amount (₹)

Capital (Opening + Profit − Drawings)

3,250

Sundry Creditors

750

Loan (long-term/other)

600

Outstanding Salaries

Total Liabilities

4,650

Assets

Particulars

Amount (₹)

Land & Building (2,000 − Depn ₹100)

1,900

Machinery (800 − Depn ₹80)

720

Bills Receivable

300

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Investments

100

Cash at Bank

200

Cash in Hand

Closing Stock

200

Prepaid Insurance

Total Assets

3,480

5) Important observation — an imbalance

You’ll notice the Balance Sheet above shows Total Liabilities ₹4,650 but Total Assets ₹3,480

— they do not match: there is a difference of ₹1,170 (₹4,650 − ₹3,480 = ₹1,170).

This is not a math slip in the final accounts: it arises because the original trial balance

figures supplied do not balance when all nominal accounts are closed into Trading and P&L

and adjustments are posted. In a correctly prepared trial balance, after you post and close

off trading/P&L, assets and liabilities must match exactly. The mismatch here means one (or

more) of the original trial-balance figures (as you supplied them) is likely misstated, omitted,

or misclassified.

Possible reasons (how to find the missing ₹1,170):

• A figure from the trial balance may be missing (for example a debtor or some other

asset was left out).

• An amount could have been typed incorrectly (e.g., a zero missing or wrongly

placed).

• A revenue or expense might be posted on the wrong side of the trial balance.

What to do next:

Check the original trial balance columns carefully (debits versus credits). When I summed

the given trial-balance items, the debit column totaled ₹6,160 and the credit column

totaled ₹7,450 — a difference of ₹1,290. After making year-end adjustments (notably

prepaid insurance ₹10), the resulting mismatch in the balance sheet reduces to ₹1,170. That

small difference corresponds to the location of the error in the trial-balance data (often a

mis-typed ₹10, or a wrongly entered ₹1,200 vs ₹1200, etc.). You should re-check the trial-

balance original entries (or check whether a ledger balance such as “Sundry Debtors” or an

omitted asset was accidentally left out from the given list).

6) Short, plain conclusion (story wrap-up)

Think of Mr. Garg’s year like a little play:

• The curtain opened with stock and hope.

• He bought goods, paid wages, and ran machines — and sold enough to earn a gross

profit of ₹1,400.

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• After paying office costs (salaries, carriage out, small insurance and depreciation)

and giving interest to capital, the business earned a net profit of ₹1,280 for the year.

• That profit lifts his capital from ₹2,000 to ₹3,250 after drawings.

• But when we tried to write the final balance sheet, the stage lights revealed a

missing prop — the figures didn’t balance; there is a missing ₹1,170 to make assets

equal liabilities. That means one of the opening entries or trial-balance items needs

checking.

7. Explain the meaning and usefulness of the financial statements for all the

stakeholders.

Ans: 󷊆󷊇 A Different Beginning

It’s the end of the financial year. The office lights are dim, the last invoice has been filed,

and the accountant sits quietly at her desk, preparing the final documents that will soon be

printed, signed, and shared. These documents are not just sheets of numbers—they are the

financial statements. They tell the story of the company’s year: its earnings, its expenses, its

assets, and its obligations.

But who reads this story? Not just the accountant. The owners, the investors, the

employees, the government, and even the public—each one looks at these statements with

a different lens, searching for answers that matter to them.

Let’s explore what financial statements really are, and why they are so important to every

stakeholder connected to a business.

󹶆󹶚󹶈󹶉 What Are Financial Statements?

Financial statements are formal records that summarize the financial activities and position

of a business. They are prepared at the end of an accounting period—usually annually or

quarterly—and include:

1. Income Statement (Profit & Loss Account): Shows revenue, expenses, and profit or

loss.

2. Balance Sheet: Shows assets, liabilities, and equity at a specific date.

3. Cash Flow Statement: Shows inflows and outflows of cash.

4. Statement of Changes in Equity: Shows changes in owner’s equity.

5. Notes to Accounts: Provide additional details and explanations.

Together, these statements give a complete picture of the company’s financial health.

󷈷󷈸󷈹󷈺󷈻󷈼 Why Are Financial Statements Useful?

Let’s walk through the different stakeholders and see how each one uses financial

statements like a map to guide their decisions.

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1. 󷄧󼿒 Owners and Shareholders

What they want to know:

• Is the business profitable?

• Is their investment growing?

• What is the value of the company?

Usefulness:

• The income statement shows whether the company made a profit.

• The balance sheet shows the net worth (assets – liabilities).

• The statement of changes in equity shows how their ownership stake has changed.

Example: A shareholder sees that net profit has increased by 20%—this may lead to higher

dividends or a rise in share price.

2. 󷄧󼿒 Management

What they want to know:

• Are we spending wisely?

• Which areas are profitable?

• Do we have enough cash to operate?

Usefulness:

• The income statement helps analyze costs and revenues.

• The cash flow statement helps manage liquidity.

• The notes to accounts help understand accounting policies and risks.

Example: If cash flow from operations is low despite high profits, management may need to

improve collections or reduce inventory.

3. 󷄧󼿒 Investors and Potential Investors

What they want to know:

• Is this company worth investing in?

• What are the risks and returns?

• Is the business stable?

Usefulness:

• Financial statements help assess profitability, solvency, and growth potential.

• Ratios like Return on Equity (ROE) and Debt-to-Equity are derived from these

statements.

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Example: An investor compares two companies’ financials before deciding where to invest

₹10 lakhs.

4. 󷄧󼿒 Creditors and Lenders (Banks, Suppliers)

What they want to know:

• Can the company repay its loans?

• Is it financially stable?

• Should we extend more credit?

Usefulness:

• The balance sheet shows current liabilities and assets.

• The cash flow statement shows ability to generate cash.

• The income statement shows profitability.

Example: A bank checks the debt-to-equity ratio before approving a loan.

5. 󷄧󼿒 Employees and Trade Unions

What they want to know:

• Is the company doing well enough to offer raises or bonuses?

• Is their job secure?

Usefulness:

• Financial statements show overall performance and stability.

• Profitability may influence wage negotiations.

Example: A union may use rising profits as a basis to demand better compensation.

6. 󷄧󼿒 Government and Regulatory Authorities

What they want to know:

• Is the company paying taxes correctly?

• Is it complying with financial regulations?

Usefulness:

• Financial statements help calculate tax liabilities.

• They ensure transparency and compliance with laws.

Example: The Income Tax Department uses the income statement to assess taxable income.

7. 󷄧󼿒 Customers and the Public

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What they want to know:

• Is the company reliable and ethical?

• Will it continue to deliver products and services?

Usefulness:

• Financial stability builds trust.

• Public companies must disclose financials, which builds transparency.

Example: A customer may prefer to work with a financially sound supplier for long-term

contracts.

󹵍󹵉󹵎󹵏󹵐 Diagram: Stakeholders and Financial Statements

Each arrow represents how stakeholders rely on financial statements for decision-making.

󹶆󹶚󹶈󹶉 Qualities of Good Financial Statements

To be truly useful, financial statements must be:

• Accurate: Free from errors and fraud.

• Timely: Prepared regularly and promptly.

• Comparable: Follow consistent accounting standards.

• Understandable: Clear and well-explained.

• Relevant: Provide information that matters to users.

• Reliable: Based on verified data and principles.

󹶓󹶔󹶕󹶖󹶗󹶘 Conclusion

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Financial statements are more than just numbers—they are the heartbeat of a business.

They tell the story of success, struggle, growth, and change. For stakeholders, they are tools

of trust, analysis, and decision-making.

Whether you’re an investor looking for returns, a manager planning strategy, or a

government officer ensuring compliance, financial statements are your window into the soul

of the company.

So, the next time you see a balance sheet or an income statement, don’t just skim the

figures. Read it like a story—because every number has a meaning, and every stakeholder

has a reason to care.

SECTION–D

7. Explain the items of final accounts as per Companies Act 2013 by preparing the

specimen of Profit and Loss statement and Balance Sheet.

Ans: Final Accounts as per Companies Act, 2013

Let’s start this topic not as accountants with calculators in our hands, but as curious learners

who want to understand why and how a company prepares its final accounts. Imagine you

are the owner of a company—let’s say Sunrise Electronics Pvt. Ltd.—which sells smart

gadgets. Every day, money comes in from customers, money goes out for expenses, and

thousands of small transactions happen.

At the end of the year, you pause and ask yourself two simple but powerful questions:

1. Did my company make profit or loss this year?

2. What is the financial position of my company on the last day of the year?

To answer these two questions, you must prepare your Final Accounts.

And according to The Companies Act, 2013, every company registered under this law must

prepare its final accounts in a prescribed form and format. These accounts must give a “true

and fair view” of the financial performance and financial position of the company.

1. Meaning of Final Accounts

Final accounts are the set of financial statements prepared at the end of an accounting

period, usually a financial year. They summarize the entire year’s transactions and show

how much profit or loss the business made and what the business owns and owes on the

closing date.

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In simple words, Final Accounts = Profit & Loss Statement + Balance Sheet + Notes to

Accounts.

These statements are prepared following Schedule III of the Companies Act, 2013.

2. Purpose of Final Accounts

Before jumping into details, let’s understand why final accounts are so important:

• They help shareholders know whether their investment is safe and profitable.

• They help management in decision-making.

• They help the government and tax authorities check compliance.

• They help investors, creditors, and employees understand the financial health of the

company.

So, these statements are not just numbers; they are the financial story of the company told

in an organized manner.

Items of Final Accounts as per Companies Act, 2013

The final accounts mainly include two parts:

1. Statement of Profit and Loss (to show performance)

2. Balance Sheet (to show financial position)

Let’s understand both one by one.

A. Statement of Profit and Loss (P&L Account)

The Profit and Loss Statement tells how much income a company has earned and what

expenses it has incurred during a particular period—usually a year. The final figure shows

whether the company made a profit or a loss.

Think of it as a movie summary: it tells the entire story of how the company’s income turned

into profit (or loss).

According to the Companies Act, 2013 (Schedule III), the statement of Profit & Loss is

divided into two sections:

1. Revenue Section (Incomes)

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These are the items that bring money into the business.

(a) Revenue from Operations

This includes the main income of the company, such as sale of goods, services rendered, or

other business-related income.

Example: For Sunrise Electronics Pvt. Ltd., it could be the revenue earned from selling smart

gadgets.

(b) Other Income

Income that does not come from the main business operations but still adds to profit.

Example:

• Interest earned on bank deposits

• Rent received

• Profit on sale of assets

All these are shown under the head “Other Income.”

2. Expense Section

These are the costs incurred in earning that revenue. Expenses are the heart of the Profit

and Loss statement because they tell us where the money went.

(a) Cost of Materials Consumed / Purchases of Stock-in-Trade

If the company deals in goods, this includes the cost of raw materials or finished goods

purchased during the year.

(b) Changes in Inventories

It shows how much stock increased or decreased during the year.

If the closing stock is more than opening stock, it means profit; otherwise, loss.

Includes salaries, wages, bonuses, and contributions to provident fund, gratuity, etc.

(d) Finance Costs

All interest-related expenses are shown here—interest on loans, debentures, or overdrafts.

(e) Depreciation and Amortization Expenses

This is the gradual reduction in the value of fixed assets due to use or passage of time.

(f) Other Expenses

All remaining expenses such as rent, electricity, advertising, insurance, printing, repairs, and

maintenance come under this head.

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3. Profit before and after Tax

After subtracting all expenses from all incomes, we get Profit Before Tax (PBT).

Then, we deduct Income Tax Expense to find Profit After Tax (PAT)—the final amount that

belongs to shareholders.

4. Appropriations

Finally, from the profit, the company may transfer some portion to reserves, pay dividends,

or carry forward the remaining profit to the next year.

Specimen of Statement of Profit and Loss (as per Schedule III, Part II)

Particulars

Note No.

Current Year (₹)

Previous Year (₹)

I. Revenue from Operations

xxx

II. Other Income

xxx

III. Total Revenue (I + II)

xxx

IV. Expenses:

Cost of Materials Consumed

xxx

Purchases of Stock-in-Trade

xxx

Changes in Inventories

xxx

Employee Benefits Expense

xxx

Finance Costs

xxx

Depreciation and Amortization

xxx

Other Expenses

xxx

Total Expenses

xxx

V. Profit before Tax (III – IV)

xxx

VI. Tax Expense:

Current Tax

xxx

Deferred Tax

xxx

VII. Profit after Tax (V – VI)

xxx

VIII. Earnings per Share (EPS)

xxx

This statement beautifully summarizes the entire performance of the company for the

financial year.

B. Balance Sheet

Once the company knows whether it made a profit or loss, the next question is—what does

it own and what does it owe at the end of the year?

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This is where the Balance Sheet steps in. It is like a financial photograph of the company on

the last day of the accounting year.

It shows the financial position of the business through Assets (what the company owns) and

Liabilities (what the company owes).

Structure of the Balance Sheet (As per Schedule III – Part I)

The Balance Sheet is divided into two main parts:

1. Equity and Liabilities

2. Assets

Let’s explore these in a simple way.

1. Equity and Liabilities

(a) Shareholders’ Funds

This includes:

• Share Capital: The total capital invested by shareholders.

• Reserves and Surplus: Profits retained in the business, like General Reserve or Profit

& Loss balance.

(b) Non-Current Liabilities

These are long-term obligations such as:

• Long-term Borrowings (debentures, bank loans)

• Deferred Tax Liabilities

Short-term obligations that are payable within a year, such as:

• Trade Payables (Creditors)

• Short-term Borrowings

• Other Current Liabilities (outstanding expenses, provisions)

2. Assets

(a) Non-Current Assets

These are long-term assets used in business operations:

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• Tangible Assets (land, building, machinery)

• Intangible Assets (patents, goodwill)

• Long-term Investments

(b) Current Assets

These are short-term assets that can be easily converted into cash:

• Inventories (stock)

• Trade Receivables (debtors)

• Cash and Cash Equivalents

• Short-term Loans and Advances

Specimen of Balance Sheet (as per Schedule III, Part I)

Particulars

Note No.

Current Year (₹)

Previous Year (₹)

I. Equity and Liabilities

Shareholders’ Funds:

(a) Share Capital

xxx

(b) Reserves and Surplus

xxx

Non-Current Liabilities:

(a) Long-term Borrowings

xxx

(b) Deferred Tax Liabilities

xxx

Current Liabilities:

(a) Short-term Borrowings

xxx

(b) Trade Payables

xxx

Total Equity and Liabilities

xxx

II. Assets

(a) Non-Current Assets

- Tangible Assets

xxx

- Intangible Assets

xxx

(b) Current Assets

- Inventories

xxx

- Trade Receivables

xxx

- Cash and Cash Equivalents

xxx

Total Assets

xxx

3. Notes to Accounts

Each item in the Profit and Loss statement and Balance Sheet is explained in detail through

Notes to Accounts. These notes provide transparency and clarity about how figures are

derived.

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Conclusion

In the grand story of business, the final accounts act as the final chapter of the book — the

moment when every number, every sale, every expense, and every asset comes together to

reveal how the company actually performed.

The Profit and Loss Statement shows how the company earned and spent during the year,

while the Balance Sheet shows what the company owns and owes at year-end. Together,

they tell the complete financial story of the company.

The Companies Act, 2013, through Schedule III, ensures that every company presents these

statements in a uniform, honest, and transparent way, so that anyone—shareholder,

investor, or student—can read and understand them easily.

8 .What is annual report? Explain the contents of annual report by taking example of any

Indian company.

Ans: It’s a warm July morning in Mumbai. The boardroom of Infosys is buzzing with quiet

excitement. The financial year has ended, the numbers are in, and the final document is

ready to be unveiled—the Annual Report. It’s not just a bundle of charts and figures. It’s the

company’s official autobiography for the year, a reflection of its performance, its challenges,

its vision, and its promises to the future.

From shareholders to regulators, from analysts to employees, everyone waits to read this

report. Why? Because the annual report is the most comprehensive and trusted source of

information about a company’s financial health, governance, and strategic direction.

Let’s explore what an annual report really is, why it matters, and what it typically contains—

using Infosys Limited, one of India’s leading IT companies, as our example.

󹶆󹶚󹶈󹶉 What Is an Annual Report?

An Annual Report is a formal document published by a company at the end of its financial

year. It provides a detailed overview of the company’s performance, financial position,

operations, and future plans.

It is mandatory for public companies under the Companies Act, 2013 and SEBI regulations in

India. It is also a key tool for transparency and accountability.

󷈷󷈸󷈹󷈺󷈻󷈼 Purpose of the Annual Report

• Inform stakeholders about the company’s financial and operational performance.

• Comply with legal and regulatory requirements.

• Build trust through transparency.

• Attract investors by showcasing growth and stability.

• Reflect on challenges and outline future strategies.

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󹵍󹵉󹵎󹵏󹵐 Contents of an Annual Report (Using Infosys as Example)

Let’s walk through the key sections of a typical annual report, using Infosys’s 2023–24 report

as a reference.

1. 󷄧󼿒 Chairman’s Message / CEO’s Letter

What it is: A personal note from the company’s top leadership, reflecting on the year’s

achievements, challenges, and future outlook.

Infosys Example: Chairman Nandan Nilekani and CEO Salil Parekh discuss digital

transformation, global expansion, and sustainability goals.

Why it matters: Sets the tone of the report and gives stakeholders insight into leadership

vision.

2. 󷄧󼿒 Company Overview

What it is: A snapshot of the company’s history, mission, values, business model, and global

presence.

Infosys Example: Infosys highlights its global delivery model, innovation hubs, and client

base across 50+ countries.

Why it matters: Helps readers understand what the company does and how it operates.

3. 󷄧󼿒 Financial Highlights

What it is: Key financial figures such as revenue, profit, earnings per share (EPS), and

dividend payout.

Infosys Example:

• Revenue: ₹1,46,767 crore

• Net Profit: ₹24,108 crore

• EPS: ₹57.12

• Dividend: ₹38 per share

Why it matters: Gives a quick view of financial performance and shareholder returns.

4. 󷄧󼿒 Management Discussion and Analysis (MD&A)

What it is: A detailed analysis of the company’s operations, industry trends, risks,

opportunities, and financial results.

Infosys Example: Infosys discusses demand for cloud services, talent acquisition,

geopolitical risks, and ESG initiatives.

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Why it matters: Helps investors and analysts assess the company’s strategy and future

prospects.

5. 󷄧󼿒 Corporate Governance Report

What it is: Details about board composition, committees, ethical practices, and compliance

with governance norms.

Infosys Example: Infosys outlines its board structure, audit committee, risk management

framework, and whistleblower policy.

Why it matters: Shows how responsibly the company is managed and protects stakeholder

interests.

6. 󷄧󼿒 Financial Statements

What it is: Includes:

• Balance Sheet

• Income Statement (Profit & Loss)

• Cash Flow Statement

• Statement of Changes in Equity

• Notes to Accounts

Infosys Example: Infosys presents consolidated and standalone financials audited by

Deloitte.

Why it matters: Provides the most detailed and accurate financial data for analysis and

decision-making.

7. 󷄧󼿒 Auditor’s Report

What it is: An independent opinion by the statutory auditor on the fairness and accuracy of

the financial statements.

Infosys Example: Deloitte confirms that Infosys’s financials comply with Indian Accounting

Standards and give a true and fair view.

Why it matters: Adds credibility and assurance to the financial data.

8. 󷄧󼿒 CSR Report (Corporate Social Responsibility)

What it is: Details of the company’s social initiatives, community engagement, and

sustainability efforts.

Infosys Example: Infosys Foundation’s work in education, healthcare, and rural

development is highlighted.

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Why it matters: Shows the company’s commitment to social impact and ethical

responsibility.

9. 󷄧󼿒 ESG and Sustainability Report

What it is: Covers environmental, social, and governance metrics—carbon footprint,

diversity, and ethical sourcing.

Infosys Example: Infosys reports a 55% reduction in carbon emissions and 38% women in

workforce.

Why it matters: Important for socially conscious investors and long-term sustainability.

10. 󷄧󼿒 Shareholder Information

What it is: Details about shareholding pattern, dividend history, AGM dates, and investor

contacts.

Infosys Example: Infosys lists its shareholding structure, registrar details, and investor

helpline.

Why it matters: Helps shareholders stay informed and engaged.

󹶓󹶔󹶕󹶖󹶗󹶘 Diagram: Structure of an Annual Report

󷇮󷇭 Who Uses the Annual Report?

• Shareholders: To assess returns and growth

• Investors: To evaluate performance and risk

• Employees: To understand company direction

• Government: For regulatory compliance

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• Analysts: For financial modeling

• Public: For transparency and trust

󹶆󹶚󹶈󹶉 Conclusion

An annual report is more than a regulatory requirement—it’s a company’s mirror. It reflects

not just profits and losses, but values, vision, and responsibility. For Infosys, it’s a story of

innovation, global impact, and ethical growth. For stakeholders, it’s a guidebook to

understanding and trusting the company.

So, whether you’re a student, an investor, or a future entrepreneur, reading an annual

report teaches you how businesses speak the language of performance, accountability, and

purpose.

“This paper has been carefully prepared for educational purposes. If you notice any mistakes or

have suggestions, feel free to share your feedback.”