Question

Classify the following items under major heads and sub-heads (if any) in the Balance Sheet of the company as per Schedule III, Part I of the Companies Act, 2013:

(i) Loose tools

(ii) Design

(iii) Capital work in progress

Hint:

Decide for each item whether it is due or used within 12 months. Then pick the major head and the matching sub-head from Schedule III, Part I.

Answer 1

Step 1: Understanding the Question:
Schedule III, Part I of the Companies Act, 2013 gives the format of the Balance Sheet of a company.
Every item is placed under a major head, and then under a sub-head where the Schedule gives one.
Here we place three items one by one.

Step 2: Key Rule:
The major heads are Shareholders Funds, Non-Current Liabilities, Current Liabilities, Non-Current Assets and Current Assets.
An item is current if it is due, or will turn into cash or be used, within 12 months or the operating cycle.
Otherwise it is non-current.

Step 3: Classify Loose tools.
Loose tools are small tools that wear out quickly and are used up during production. They are treated like stores and consumables, so they are current assets. They are shown under Inventories.
So the major head is Current Assets and the sub-head is Inventories.

Step 4: Classify Design.
A design is an intangible asset, because it has no physical form but gives the company a right to use it for many years. It is a long-term asset, so it is non-current. Intangible assets are grouped with Property, Plant and Equipment in Schedule III.
So the major head is Non-Current Assets and the sub-head is Property, Plant and Equipment and Intangible Assets.

Step 5: Classify Capital work in progress.
Capital work in progress is the cost spent so far on a fixed asset that is not yet ready for use. The asset will serve the business for many years, so it is non-current. Schedule III places it under Property, Plant and Equipment and Intangible Assets.
So the major head is Non-Current Assets and the sub-head is Property, Plant and Equipment and Intangible Assets.

Step 6: Present the answer in a table.

Item	Major head	Sub-head
Loose tools	Current Assets	Inventories
Design	Non-Current Assets	Property, Plant and Equipment and Intangible Assets
Capital work in progress	Non-Current Assets	Property, Plant and Equipment and Intangible Assets

Each correct major head and sub-head earns half a mark, so the six parts carry 3 marks.

Final Answer:
Loose tools: Current Assets, Inventories; Design: Non-Current Assets, Property, Plant and Equipment and Intangible Assets; Capital work in progress: Non-Current Assets, Property, Plant and Equipment and Intangible Assets.