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:

(a) Licenses and Franchise

(b) Capital Advance

(c) Stores and Spares

Hint:

Licenses are intangible non-current assets. Capital advance is a long-term advance. Stores and spares are current assets under inventories.

Answer 1

Step 1: Know the rule for classification:
Schedule III, Part I, asks for every item under a major head and a sub-head. Assets held for long use in the business are non-current. Assets that are used up or turned into cash within 12 months are current.

Step 2: Licenses and franchise:
A license or franchise gives the company a right to run a business or use a brand. It has no physical form, so it is an intangible asset. The company keeps it for many years, so it is non-current.
Major head: Non-Current Assets. Sub-head: Property, Plant and Equipment and Intangible Assets (shown as an intangible asset).

Step 3: Capital advance:
A capital advance is money paid in advance to buy a fixed asset, such as a machine, that has not yet been delivered. Until delivery it is an advance, not an asset. It is for a long-term purpose, so it is non-current.
Major head: Non-Current Assets. Sub-head: Long-term Loans and Advances.

Step 4: Stores and spares:
Stores and spares are items like lubricants and spare parts kept for use in the business. They are used up in the near future, so they are current. Schedule III counts them as part of inventories.
Major head: Current Assets. Sub-head: Inventories.

Step 5: Show the classification together:

Item	Major head	Sub-head
(a) Licenses and Franchise	Non-Current Assets	Property, Plant and Equipment and Intangible Assets (Intangible Assets)
(b) Capital Advance	Non-Current Assets	Long-term Loans and Advances
(c) Stores and Spares	Current Assets	Inventories

Final Answer:
(a) Non-Current Assets - Property, Plant and Equipment and Intangible Assets; (b) Non-Current Assets - Long-term Loans and Advances; (c) Current Assets - Inventories.