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Help needed in ITR Balance Sheet

Arun G (Professional) (60 Points)

19 May 2021

I am a professional trying to prepare a balance sheet for ITR for the first time. Need help in understanding a few things in ITR balance sheet.

Where do I include fixed deposit investments? Does balance with bank include investments made in fixed deposits?

Where do I include mutual funds investment, other than ELSS? Is this included in Equity Shares?

What is Profit/Loss Account /Accumulated Balance? Do I include my net profit here?

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13 Replies

Sivaramaraju G (Learner) (2398 Points)
Replied 19 May 2021

You can keep both FD and Mutual fund investments under investments.

profit and Loss account is an account which shows how much profit or loss you earned during a particular year/period. which includes all your revenues, incomes, gains, expenses and losses.

accumulated balance includes previous years as well as current year net profits which are kept under separate account with out transferring to capital account.

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CA. Sourav Sarkar (Chartered Accountant ) (24583 Points)
Replied 19 May 2021

Investment in fixed deposit should be shown under Investments under assets. No, Investment in fixed deposit cannot be included in bank balance.

Mutual funds Investment should also be shown under Investments.

Net profit will be computed after allocating all the income and expenses in Profit and loss account

veerendar singh (tax consultant) (3301 Points)
Replied 19 May 2021

I think its convenient to show mututal funds and fd as investments and to transfer profit and loss account balance to capital account

CMA Poornima Madhava (CMA) (13112 Points)
Replied 19 May 2021

Fixed Deposit is part of Cash and Cash Equivalents as per Schedule 3 of Companies Act. So you may include FD under it.

veerendar singh (tax consultant) (3301 Points)
Replied 19 May 2021

We are aware of the schedule 3 classification. companies act provides it for a reason- company exists for set of declared objects. it is bound to strive for achieving them. hence each and enery penny is destined to be utilised for its attainment, if not now then in future. hence there is a sound reason for not classifying it as investment and as a bank balance so to signify that the company would withdraw from such deposit whenever there is a business need.

but in case of individual, things are not the way they are in companies. people put idle money often as life savings without having a determined objective. they just simply put money in deposits. sometimes it is finally used for starting a business, sometimes for meeting marriage expenses, sometimes for deferring an expenditure to a later date by not spending it now.

one would have a clear motive for considering it as bank balance. the primary motive, often, is to earn interest on such money instead of letting money to lie idle.

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CMA Poornima Madhava (CMA) (13112 Points)
Replied 19 May 2021

I have nowhere questioned (or mentioned) about awareness of people. The query is about classification of FD in balance sheet. It was my opinion to suggest the querist the possibility of including the same under cash & cash equivalents. I would appreciate it if anyone could share if there is any restriction on using schedule 3 (or similar) format by organizations other than companies.

Arun G (Professional) (60 Points)
Replied 19 May 2021

But where to include FDs and MFs?

Do FDs come under Government and other Securities - Quoted?

And MFs under Equity Shares, including share application money?

My net profit is approx. 6 lakhs, so will this come under Profit and loss account / Accumulated balance?

veerendar singh (tax consultant) (3301 Points)
Replied 19 May 2021

Eventhough we were aware of schedule 3 classification we did not recommend the querist to make classification the way companies are liable to do.

i presumed that the querist was not asking about drafting company's annual accounts.
hence any mention about schedule 3 was pointless.

further, accountants should not check if there exists any provision that restricts adoption of format of companies. accounting is done keeping in view the legal as well as substantial aspects of transaction. if fixed deposits are to be classified as cash equivalents then the particular circumstances and motive of depositing money for a fixed term must justify for such classification.

annual accounts are drawn in a way for specific reasons. moreover, formats are prescribed taking into account innumerous intricacies and possibilities of nature of transaction.

where formats are not prescribed, reporting is guided by the nature and purpose of transaction. one must not blindly follow inapplicable format.

CMA Poornima Madhava (CMA) (13112 Points)
Replied 19 May 2021

Originally posted by : Arun G
	But where to include FDs and MFs? Do FDs come under Government and other Securities - Quoted? And MFs under Equity Shares, including share application money? My net profit is approx. 6 lakhs, so will this come under Profit and loss account / Accumulated balance?

I missed the point that you are referring to the Balance sheet section in ITR. Assuming that you are trying to fill ITR3,

1) FDs cannot be shown under long-term or short-term investments in ITR because these are not securities (or shares or debentures). FD can be disclosed under Deposits,loans and advances to corporates and others or B.Balance with banks

2) MF is a security so you may include it under investments (assuming that it is held for the purpose of business)

3) Net profit for the year is part of the profit & loss section.

veerendar singh (tax consultant) (3301 Points)
Replied 19 May 2021

Poornima is right. the itr3 format does not allow us to report deposits under investments.
regarding profits- it depends upon how you have maintained accounts as per your records. if profits are not transferred to capital then it will be shown against the column for profit and loss account balance. if you have transferred profits to capital account then the capital balance already includes the profit of 6 lacs. hence the profit and loss account balance will be nil.

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Arun G (Professional) (60 Points)
Replied 20 May 2021

Originally posted by : CMA Poornima Madhava
	Originally posted by : Arun G But where to include FDs and MFs? Do FDs come under Government and other Securities - Quoted? And MFs under Equity Shares, including share application money? My net profit is approx. 6 lakhs, so will this come under Profit and loss account / Accumulated balance? I missed the point that you are referring to the Balance sheet section in ITR. Assuming that you are trying to fill ITR3, 1) FDs cannot be shown under long-term or short-term investments in ITR because these are not securities (or shares or debentures). FD can be disclosed under Deposits,loans and advances to corporates and others or B.Balance with banks 2) MF is a security so you may include it under investments (assuming that it is held for the purpose of business) 3) Net profit for the year is part of the profit & loss section.