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For Chartered AccountantsRates reviewed September 2026

Net Worth Calculator under Section 2(57)

Net worth is one of the few accounting terms the Companies Act defines for itself. Section 2(57) of the Companies Act 2013 reads that net worth means the aggregate value of the paid-up share capital and all reserves created out of the profits, securities premium account and debit or credit balance of profit and loss account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation.

Two things follow from that sentence that people get wrong in practice. The first is that a revaluation reserve never counts, however large the underlying property is, and nor does a reserve created by writing back depreciation or arising on an amalgamation. The second is that the figure is taken from the audited balance sheet, so a management-certified interim position is not net worth for the purposes of the Act even if it is more current.

Intangible assets are the other point of confusion. Section 2(57) does not deduct them, because it works down the equity side of the balance sheet rather than the asset side. Goodwill, brands and capitalised software therefore sit inside statutory net worth. Banks, tender authorities and many prequalification criteria ask instead for tangible net worth, which takes intangibles out, so a single balance sheet can honestly support two different net worth figures depending on who asked.

The number matters because so much hangs off it: whether a company must constitute a corporate social responsibility committee and spend under section 135, whether it qualifies as a small company, several SEBI and lender eligibility thresholds, and a long list of tender prequalifications that ask for a net worth certificate signed by a chartered accountant. Certify against the audited balance sheet, state the definition you have applied, and show the working.

Net Worth Calculator

Equity and preference capital actually paid up, as per the audited balance sheet.

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General reserve, retained earnings and the credit balance of profit and loss.

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₹

The debit balance carried forward in the profit and loss account.

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Excluded by section 2(57) however large the underlying asset is.

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Not deducted under section 2(57), but taken out of tangible net worth.

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Net worth under section 2(57)

₹1,75,00,000

tangible net worth ₹1,60,00,000

Paid-up share capital
₹1,00,00,000
Add: reserves created out of profitsincluding the credit balance of profit and loss
₹60,00,000
Add: securities premium accountincluded expressly by section 2(57)
₹40,00,000
Less: accumulated losses
₹20,00,000
Less: deferred and miscellaneous expenditure not written off
₹5,00,000
Excluded: revaluation reserveleft out of the computation, along with write-back of depreciation and amalgamation reserves
₹30,00,000
Net worth under section 2(57)₹2,00,00,000 added less ₹25,00,000 deducted
₹1,75,00,000
Less: intangible assetsnot deducted by the Act, deducted by a bank
₹15,00,000
Tangible net worththe figure a bank or a tender prequalification usually asks for
₹1,60,00,000
  • Counting the revaluation reserve would show ₹2,05,00,000 instead of ₹1,75,00,000. Section 2(57) excludes it, so the higher figure cannot be certified as net worth.
  • Section 2(57) does not deduct intangible assets, so the statutory figure and the tangible net worth differ. Give both and label them, rather than picking one.
  • The computation is made as per the audited balance sheet. A certificate issued on provisional accounts does not meet the definition in section 2(57).

The formula

Net worth = Paid-up share capital + Reserves created out of profits + Securities premium + Credit balance of profit and loss - Accumulated losses - Deferred and miscellaneous expenditure not written off; Tangible net worth = Net worth - Intangible assets

Paid-up share capital
The amount actually paid up on shares issued, equity and preference, as it stands in the audited balance sheet.
Reserves created out of profits
General reserve, retained earnings and any other reserve appropriated out of profits, together with the securities premium account which the definition includes expressly.
Accumulated losses
The debit balance in the profit and loss account carried forward, which is deducted in full.
Deferred and miscellaneous expenditure not written off
Preliminary expenses, deferred revenue expenditure and similar items still sitting on the asset side, deducted to the extent not yet charged to profit.
Revaluation reserve
A reserve arising from writing up assets to fair value, excluded by the definition along with write-back of depreciation and reserves arising on amalgamation.
Intangible assets
Goodwill, brands, licences and capitalised software, which stay inside statutory net worth but come out of tangible net worth.

The definition in its present form was substituted by the Companies (Amendment) Act 2017, which added the securities premium account and the debit or credit balance of profit and loss to the aggregation and amalgamation to the exclusions.

How to calculate it

  1. 1

    Start from the audited balance sheet

    Section 2(57) says net worth is computed as per the audited balance sheet, so use the latest audited figures and say which year they are. Provisional or management-certified accounts do not satisfy the definition, and a certificate issued on them should say so on its face rather than leaving the reader to assume otherwise.

  2. 2

    Add the paid-up capital and the qualifying reserves

    Take paid-up share capital, then add every reserve created out of profits, the securities premium account and the credit balance of the profit and loss account. Share application money pending allotment is not paid-up capital until the shares are allotted, and a capital redemption reserve created out of profits qualifies because it was appropriated from profits.

  3. 3

    Take out the reserves the definition excludes

    A revaluation reserve is excluded outright, and so is any reserve created by writing back depreciation or arising on an amalgamation. This is where a large property-holding company loses most of its apparent net worth, and it is the single most common error in a certificate. Leave the reserve in the balance sheet and exclude it in the computation.

  4. 4

    Deduct the losses and the unwritten-off expenditure

    Deduct accumulated losses in full, then deduct deferred expenditure and miscellaneous expenditure not written off, which covers preliminary expenses and deferred revenue expenditure still carried as an asset. Under Ind AS these items are rarely capitalised at all, so for many companies the deduction is nil and the line is there only to make the working complete.

  5. 5

    Compute the tangible net worth separately

    Section 2(57) does not deduct intangible assets, so do not silently remove them from the statutory figure. Compute tangible net worth as a second line by deducting goodwill, brands, licences and capitalised software, and label it clearly. Banks and most tender prequalifications want that second number, and giving both removes the ambiguity.

  6. 6

    Write the certificate so it can be relied on

    State the definition applied, the source of the figures, the balance sheet date and the purpose the certificate is issued for, and attach the computation as an annexure. A net worth certificate that quotes a number without the working invites the recipient to recompute it on a different basis, which is how a qualified company ends up disqualified from a tender.

What section 2(57) includes and excludes

What section 2(57) includes and excludes
ItemTreatment under section 2(57)Treatment for tangible net worth
Paid-up share capitalAddedAdded
Reserves created out of profitsAddedAdded
Securities premium accountAddedAdded
Credit balance of profit and lossAddedAdded
Accumulated lossesDeducted in fullDeducted in full
Deferred and miscellaneous expenditure not written offDeductedDeducted
Revaluation reserveExcludedExcluded
Write-back of depreciation and amalgamation reservesExcludedExcluded
Intangible assets such as goodwill and brandsNot deductedDeducted

Worked example

Paid-up share capital
₹1,00,00,000
Reserves created out of profits
₹60,00,000
Securities premium account
₹40,00,000
Accumulated losses
₹20,00,000
Deferred revenue expenditure not written off
₹5,00,000
Revaluation reserve
₹30,00,000
Intangible assets
₹15,00,000
  • Add: ₹1,00,00,000 + ₹60,00,000 + ₹40,00,000 = ₹2,00,00,000
  • Less accumulated losses ₹20,00,000 and deferred revenue expenditure ₹5,00,000 = ₹1,75,00,000
  • The revaluation reserve of ₹30,00,000 is excluded by section 2(57) and never enters the computation
  • Net worth under section 2(57) = ₹1,75,00,000
  • Tangible net worth = ₹1,75,00,000 - ₹15,00,000 of intangibles = ₹1,60,00,000
  • Had the revaluation reserve been counted, the balance sheet would have shown ₹2,05,00,000, which is why the exclusion matters

Net worth under section 2(57) is ₹1,75,00,000 and tangible net worth is ₹1,60,00,000

Frequently asked questions

Section 2(57) defines net worth as the aggregate value of the paid-up share capital and all reserves created out of the profits, securities premium account and debit or credit balance of profit and loss account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet. It expressly excludes reserves created out of revaluation of assets, write-back of depreciation and amalgamation.
No. The definition excludes reserves created out of revaluation of assets in terms, so a revaluation reserve is left out however large the underlying land or building is. The same exclusion covers reserves created by writing back depreciation and reserves arising on an amalgamation. This is the most frequent error in net worth certificates, and it usually overstates the figure by a wide margin for asset-heavy companies.
Not under section 2(57). The statutory definition works down the equity side of the balance sheet and never mentions intangibles, so goodwill, brands, licences and capitalised software remain inside net worth. Tangible net worth, which is what banks and most tender prequalifications ask for, is a separate and narrower figure that deducts them. If a document asks for net worth without saying which, ask before you certify.
Net worth becomes negative, and that is a legitimate result rather than an error to be floored at zero. A negative net worth affects eligibility for most tenders and lender criteria, feeds into the assessment of financial health under the insolvency framework, and is the point at which a bank will usually look for a promoter infusion before considering any fresh limit. Certify the negative figure and show the working.
Section 2(57) requires the computation to be made as per the audited balance sheet, so a certificate issued on provisional or management-certified accounts does not meet the statutory definition. If the recipient specifically wants a more recent position, issue the certificate on the latest audited balance sheet and, where the engagement permits, give the interim position as a separate statement that is clearly labelled as unaudited.
Paid-up preference share capital is part of paid-up share capital and is therefore included in net worth under section 2(57), which does not distinguish between classes of shares. Lenders often take a different view for their own purposes and treat redeemable preference capital as debt rather than as part of tangible net worth. That is a contractual definition, not the statutory one, so check what the particular document asks for.
Because it is the one measure of a company's own funds that the Act defines, several provisions hang off it. Corporate social responsibility under section 135 applies to a company with a net worth of ₹500 crore or more in a financial year, and numerous SEBI eligibility criteria, lender covenants and tender prequalifications borrow the same definition rather than writing their own. A single consistent computation therefore serves several purposes at once, which is why the working matters as much as the figure.

Sources

Rates and rules on this page come from the following. This is a working aid, not professional advice: confirm anything material with your Chartered Accountant before you act on it.

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