Question

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

(i) Prepaid insurance

(ii) Securities Premium

(iii) Design

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 Prepaid insurance.
Prepaid insurance is premium paid in advance for a period that is still to come. The company will receive the insurance cover within the next year, so it is a current asset. It is not stock, a receivable or cash, so the sub-head is Other Current Assets.
So the major head is Current Assets and the sub-head is Other Current Assets.

Step 4: Classify Securities premium.
Securities premium is the amount received over and above the face value when shares are issued. It belongs to the owners of the company. It is a capital reserve, so it is a part of shareholders funds. It is shown under Reserves and Surplus.
So the major head is Shareholders Funds and the sub-head is Reserves and Surplus.

Step 5: 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 6: Present the answer in a table.

Item	Major head	Sub-head
Prepaid insurance	Current Assets	Other Current Assets
Securities premium	Shareholders Funds	Reserves and Surplus
Design	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:
Prepaid insurance: Current Assets, Other Current Assets; Securities premium: Shareholders Funds, Reserves and Surplus; Design: Non-Current Assets, Property, Plant and Equipment and Intangible Assets.