AccountsISC Class 12 · Final Accounts of Companies

Preparing a Company Balance Sheet with Adjustments: ISC Class 12 Accounts

Updated 17 October 2026 · Draft, not yet fact-checked

To prepare a company Balance Sheet, first work out the closing Surplus and General Reserve from the year's profit and appropriations, then classify each balance under the Schedule III heads and sub-heads, move debentures due within twelve months to Short-term Borrowings, show proposed dividend only in notes, and finally check that total equity and liabilities equals total assets.

Follow the steps in order, and remember: proposed dividend goes only in notes, and debentures due within 12 months move to short-term.

Illustration drawn for QuestionBuddy.

Understand Preparing a Company Balance Sheet with Adjustments

The job. In an ISC question you are usually given a list of balances and a few adjustments, and asked for the Balance Sheet with notes. The adjustments are where marks are lost, so follow a fixed routine.

Step 1: closing Surplus. Surplus is the balance of the Statement of Profit and Loss carried to the Balance Sheet.
Closing Surplus = Opening balance + Profit after tax for the year − Transfer to reserves − Interim dividend paid.
Treat an opening debit balance as negative. The proposed dividend is not deducted, because it is not yet a liability.

Step 2: reserves. Closing General Reserve = Opening General Reserve + Amount transferred this year. Securities Premium stays as given unless the question uses it, for example to write off a capital loss.

Step 3: classify liabilities. Share capital and Reserves and Surplus form Shareholders' Funds. Debentures and long-term loans go to Non-Current Liabilities, except the amount due within twelve months, which goes to Short-term Borrowings. Provision for tax is a Short-term Provision; outstanding expenses are Other Current Liabilities.

Step 4: classify assets. Use PPE and Intangible Assets at net value, then Non-current Investments, Long-term Loans, then the current assets. Show Trade Receivables net of the provision. Capital losses (such as preliminary expenses) are written off in the year unless the question says otherwise.

Step 5: notes and contingent liabilities. Prepare short notes for share capital, reserves and surplus, and any other head built from several items. Write contingent liabilities (proposed dividend; claims or bills discounted if given) below the Balance Sheet; they are not added in.

Step 6: agree the totals. If the two sides differ, the likely causes are an omitted item, a surplus not updated, or a double count. Never insert a balancing figure into cash.

Format reminders: use the vertical format, a Note No. column and the amended names from the earlier topic pages (Property, Plant and Equipment and Intangible Assets; Securities Premium).

Preparing a Company Balance Sheet with Adjustments: key facts

Closing Surplus: Opening surplus (negative if debit)
add Profit after tax
less Transfer to reserves
less Interim dividend paid; Proposed dividend is not deducted.
Closing General Reserve: Opening General Reserve | add Transfer from profit for the year; Appears under Reserves and Surplus.
Trade Receivables: Debtors + Bills receivable | less Provision for doubtful debts; Shown net.
Short-term Borrowings: Bank overdraft + Cash credit | add Current maturities of long-term borrowings; Syllabus amendment.
Balancing check: Total Equity and Liabilities | equals Total Assets; No plug figure to cash.

How to answer Preparing a Company Balance Sheet with Adjustments questions

Treat the question as three mini-tasks: update surplus and reserves, build the notes, then place each balance under its head.

1Compute closing Surplus and General Reserve from the adjustments.
2Split debentures or loans into long-term part and current maturity.
3Net the debtors and the fixed assets; add inventories and cash.
4Number the notes and total each head.
5Write proposed dividend and similar items below as contingent liabilities, then check both totals.

Preparing a Company Balance Sheet with Adjustments in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Surplus is what remains after the year's decisions

Suppose a bakery company starts the year with ₹40,000 in surplus. It earns a profit after tax of ₹1,00,000, moves ₹25,000 to General Reserve and pays an interim dividend of ₹20,000.

What surplus will the Balance Sheet carry forward?

Try it first, then show the solutionSolution

40,000 + 1,00,000 = ₹1,40,000.
Less 25,000 transfer and 20,000 interim dividend: 1,40,000 − 45,000 = ₹95,000.

Answer: ₹95,000 carried to Reserves and Surplus.

Memory hook: Profit comes in; reserves and paid dividends go out; the rest stays.

Tricks to remember Preparing a Company Balance Sheet with Adjustments

Short memory aids. Say each one aloud once, then use it on a question the same day.

O + P − T − I
Opening plus Profit minus Transfers minus Interim dividend: closing Surplus.
Use it when: Surplus working note.
Notes below, not inside
Contingent liabilities are written under the Balance Sheet, never added to it.
Use it when: Proposed dividend and claims.
Never plug cash
A difference means an error, not a missing cash balance.
Use it when: Agreeing the totals.

Preparing a Company Balance Sheet with Adjustments: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Preliminary expenses incurred this year · 1 mark · MCQBoard level

A company incurred preliminary expenses of ₹20,000 during the year. The question gives no instruction on treatment. In the Balance Sheet:
(a) ₹20,000 is shown under Other Non-current Assets
(b) ₹20,000 is written off against the year's profit and no asset appears
(c) ₹20,000 is shown under Intangible Assets
(d) ₹20,000 is shown as a contingent liability

Try it first, then show the solutionSolution

The syllabus limit: capital losses are written off in the year they occur unless stated otherwise.
So nothing is carried forward as an asset.

Answer: (b) written off against the year's profit and no asset appears

Example 2: Contingent liabilities note · 3 marks · Short answerBoard level

A company has 50,000 equity shares of ₹10 each, fully paid. The directors propose a dividend of 10%. Bills discounted but not yet matured are ₹1,20,000. Prepare the note on contingent liabilities and state whether the amount enters the Balance Sheet total. (3 marks)

Try it first, then show the solutionSolution

Share capital = 50,000 × 10 = ₹5,00,000; proposed dividend = 10% × 5,00,000 = ₹50,000.
Contingent liabilities = 50,000 + 1,20,000 = ₹1,70,000.
They are disclosed in the notes only and are not added to the totals.

Answer: Contingent liabilities: proposed dividend ₹50,000 and bills discounted ₹1,20,000 = ₹1,70,000; not included in the Balance Sheet total.

Example 3: Complete Balance Sheet with notes · 6 marks · Long answerHarder board level

Prepare the Balance Sheet of Zenith Ltd. as at 31st March 2026 from: Equity share capital ₹8,00,000; Securities Premium ₹80,000; General Reserve (opening) ₹1,20,000; Surplus (opening) ₹60,000; 10% Debentures ₹4,00,000; Trade payables ₹1,30,000; Outstanding wages ₹20,000; Provision for tax ₹70,000; Bank overdraft ₹40,000; PPE (net) ₹13,00,000; Patents ₹60,000; Long-term non-trade investments ₹1,00,000; Inventories ₹2,20,000; Debtors ₹1,80,000; Provision for doubtful debts ₹10,000; Cash and bank ₹95,000; Prepaid expenses ₹15,000. Adjustments: profit after tax for the year ₹2,40,000 is not yet added to Surplus; ₹50,000 is to be transferred to General Reserve; the directors propose a dividend of ₹80,000; ₹1,00,000 of the debentures are redeemable within 12 months. (6 marks)

Try it first, then show the solutionSolution

General Reserve = 1,20,000 + 50,000 = ₹1,70,000. Surplus = 60,000 + 2,40,000 − 50,000 = ₹2,50,000 (proposed dividend not deducted).
Reserves and Surplus = 80,000 + 1,70,000 + 2,50,000 = ₹5,00,000; Shareholders' Funds = 8,00,000 + 5,00,000 = ₹13,00,000.
Long-term Borrowings = 4,00,000 − 1,00,000 = ₹3,00,000. Short-term Borrowings = 40,000 + 1,00,000 = ₹1,40,000.
Current Liabilities = 1,40,000 + 1,30,000 + 20,000 + 70,000 = ₹3,60,000; total = 13,00,000 + 3,00,000 + 3,60,000 = ₹19,60,000.
Assets: PPE and Intangible Assets 13,60,000; Non-current Investments 1,00,000; Inventories 2,20,000; Trade Receivables 1,70,000; Cash 95,000; Other Current Assets 15,000. Total = ₹19,60,000.

Answer:

Particulars	Note	₹
I. Equity and Liabilities
1. Shareholders' Funds
(a) Share Capital	1	8,00,000
(b) Reserves and Surplus	2	5,00,000
2. Non-Current Liabilities: Long-term Borrowings		3,00,000
3. Current Liabilities
(a) Short-term Borrowings		1,40,000
(b) Trade Payables		1,30,000
(c) Other Current Liabilities		20,000
(d) Short-term Provisions		70,000
Total		19,60,000
II. Assets
1. Non-Current Assets
(a) PPE and Intangible Assets		13,60,000
(b) Non-current Investments		1,00,000
2. Current Assets
(a) Inventories		2,20,000
(b) Trade Receivables (1,80,000 − 10,000)		1,70,000
(c) Cash and Cash Equivalents		95,000
(d) Other Current Assets		15,000
Total		19,60,000

Note 2: Securities Premium 80,000; General Reserve 1,70,000; Surplus 2,50,000 = 5,00,000. Contingent liability: proposed dividend ₹80,000.

Example 4: Closing surplus with an opening debit balance · 3 marks · Short answerHarder board level

The Statement of Profit and Loss of a company showed a debit balance of ₹30,000 on 1st April 2025. The profit after tax for the year was ₹1,70,000. ₹40,000 was transferred to General Reserve, an interim dividend of ₹50,000 was paid and a final dividend of ₹60,000 was proposed. Find the Surplus to be shown on 31st March 2026. (3 marks)

Try it first, then show the solutionSolution

Opening debit balance is negative: −30,000.
−30,000 + 1,70,000 = 1,40,000; less 40,000 and 50,000 = ₹50,000.
The proposed dividend of ₹60,000 is not deducted.

Answer: Surplus = ₹50,000 (credit).

Example 5: Proposed dividend treated as an appropriation · 3 marks · Short answerHOTS / competency

In Zenith Ltd. above, an assistant deducted the proposed dividend of ₹80,000 from Surplus and showed it under Short-term Provisions. The two totals still agree at ₹19,60,000. Explain why this is wrong and compare the Current Ratio, given Current Assets of ₹5,00,000. (3 marks)

Try it first, then show the solutionSolution

A dividend not yet approved is not a liability, so it belongs in the notes.
Correct Current Liabilities = ₹3,60,000, Current Ratio = 5,00,000 ÷ 3,60,000 = 1.39 : 1.
Wrong Current Liabilities = 3,60,000 + 80,000 = ₹4,40,000, ratio = 5,00,000 ÷ 4,40,000 = 1.14 : 1.
Equal totals do not prove correct classification; the error understates Surplus and liquidity.

Answer: The treatment is wrong. Correct ratio 1.39 : 1; wrong ratio 1.14 : 1; Surplus is also understated by ₹80,000.

Where students lose marks in Preparing a Company Balance Sheet with Adjustments

The slips examiners see most often, and what to write instead.

Mistake: Deducting proposed dividend from Surplus
Treating it as an appropriation.
Wrong working
Surplus = 2,50,000 − 80,000 = 1,70,000
Right working
Surplus = 2,50,000; dividend noted as contingent
Do this: Only interim dividend actually paid reduces Surplus.
Usually costs: 2 marks.
Mistake: Forgetting the opening debit balance sign
Reading the figure without its nature.
Wrong working
30,000 + 1,70,000 − 90,000 = 1,10,000
Right working
−30,000 + 1,70,000 − 90,000 = 50,000
Do this: Write Dr balances with a minus sign.
Usually costs: 1-2 marks.
Mistake: Keeping debentures wholly in Long-term Borrowings
Ignoring the redemption date.
Wrong working
Long-term Borrowings = 4,00,000
Right working
Long-term 3,00,000; Short-term Borrowings include 1,00,000
Do this: Look for "redeemable within 12 months".
Usually costs: 1-2 marks.
Mistake: Plugging the difference into cash
Wanting the totals to agree.
Wrong working
Cash = 95,000 + 20,000 balancing figure
Right working
Find the omitted item (for example prepaid expenses 20,000)
Do this: Re-read the list of balances.
Usually costs: 2-3 marks.

Exam tips

Do a working note for Surplus and General Reserve before drawing the Balance Sheet.
Number notes in order and make each note total match the head.
Write contingent liabilities below the Balance Sheet in a separate line.
Use "Cash and Cash Equivalents", not "Cash and Bank" in the final format.

Practice questions on Preparing a Company Balance Sheet with Adjustments

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
An interim dividend paid during the year is:
(a) disclosed as a contingent liability
(b) deducted from the Surplus
(c) added to Share Capital
(d) shown under Short-term Provisions
Hint
It has already been paid.
Answer
(b) deducted from the Surplus
Q2 · 3 marks · Short answerBoard level
Opening Surplus ₹45,000 (credit). Profit after tax for the year ₹1,55,000; transfer to General Reserve ₹30,000; interim dividend paid ₹40,000. Find the closing Surplus. (3 marks)
Hint
O + P − T − I.
Answer
45,000 + 1,55,000 − 30,000 − 40,000 = ₹1,30,000.
Q3 · 6 marks · Long answerHarder board level
Prepare the Balance Sheet of Orion Ltd. as at 31st March 2026 from: Equity share capital ₹6,00,000; 12% Preference share capital ₹2,00,000; Securities Premium ₹50,000; General Reserve ₹1,00,000 (opening); Surplus (debit, opening) ₹20,000; 9% Debentures ₹3,00,000 (₹50,000 redeemable within 12 months); Trade payables ₹90,000; Provision for tax ₹45,000; Outstanding expenses ₹15,000; Land and building (net) ₹7,50,000; Machinery (net) ₹3,10,000; Goodwill (purchased) ₹40,000; Inventories ₹1,55,000; Trade receivables (net) ₹1,20,000; Cash and bank ₹1,25,000; Prepaid expenses ₹20,000. Adjustments: profit after tax ₹1,40,000 not yet added to Surplus; transfer ₹30,000 to General Reserve. (6 marks)
Hint
Closing Surplus is a credit.
Answer
General Reserve 1,30,000; Surplus −20,000 + 1,40,000 − 30,000 = 90,000; Reserves and Surplus = 50,000 + 1,30,000 + 90,000 = 2,70,000; Share Capital 8,00,000; Shareholders' Funds 10,70,000. Long-term Borrowings 2,50,000. Current Liabilities = 50,000 + 90,000 + 15,000 + 45,000 = 2,00,000. Total = ₹15,20,000. Assets: PPE and Intangibles 11,00,000; Inventories 1,55,000; Trade Receivables 1,20,000; Cash 1,25,000; Other Current Assets 20,000; total ₹15,20,000.
Q4 · 3 marks · Short answerHarder board level
A company has 40,000 equity shares of ₹10 each and 1,000, 12% preference shares of ₹100 each, all fully paid. The directors propose a 15% equity dividend and the usual preference dividend. Bills discounted and not yet matured are ₹1,50,000. Calculate the total of the note on contingent liabilities. (3 marks)
Hint
Preference dividend is on its own capital.
Answer
Equity dividend = 15% × 4,00,000 = 60,000; preference dividend = 12% × 1,00,000 = 12,000; contingent liabilities = 60,000 + 12,000 + 1,50,000 = ₹2,22,000.
Q5 · 3 marks · Short answerHOTS / competency
A student's Balance Sheet of Orion Ltd. shows total equity and liabilities ₹15,20,000 and total assets ₹15,00,000. She plans to add ₹20,000 to the cash balance. Advise her, using the data of the question above. (3 marks)
Hint
Check which listed balance is missing.
Answer
Do not plug cash. The list has prepaid expenses of ₹20,000 which she omitted; show it under Other Current Assets, which makes total assets ₹15,20,000 and agrees with the liabilities side.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Formula for closing Surplus?Show answer
Opening + Profit after tax − Transfers to reserves − Interim dividend.
2.Is proposed dividend deducted from Surplus?Show answer
No. It is a contingent liability note.
3.Where do current maturities of debentures go?Show answer
Short-term Borrowings.
4.How is an opening debit balance of profit and loss treated?Show answer
As a negative figure in the Surplus working.
5.May we plug cash to tally?Show answer
No. Find the missing or wrong item.

Preparing a Company Balance Sheet with Adjustments: frequently asked questions

Do I prepare the Statement of Profit and Loss?

No. The syllabus excludes Schedule III Part II for company final accounts; the profit is given and used in the Surplus working.

How many notes should I write?

One for each head built from several items: Share Capital, Reserves and Surplus, and any others the question needs.

Where does interim dividend appear?

Only as a deduction in the Surplus working, since it has been paid.

Are contingent liabilities totalled in the Balance Sheet?

No. They are written below the Balance Sheet.