You are on page 1of 36

AUDIT ASSIGNMENT

TOPIC-REVISED SCHEDULE VI

ROOM-34
GROUP MEMBERS
Harshita Ajitsaria(135) Nehal Mehta(136) Richa Goyal(137) Pragati Mahansaria(138) Nidhi Chaudhary(139) Sakshi Agarwal(140)
1

Shantanu Modi(141)

Introduction With the emergence of multinational corporations and rapid increase in cross border transactions, it is essential that our financial statements speak the global language for attracting foreign funds into India. Internationally, the observance of universally accepted reporting norms is perceived as an important measure of good corporate governance, ensuring financial transparency to the stakeholders of the company. The transparency in financial statements of a company has a significant bearing on the decision of a stakeholder to invest, as well as the quantum of his investment. The THREE major reasons for revision-: The classification under the old Schedule VI was, however, not in line with the international practices followed by many developed countries, making investors reluctant to invest in the Indian companies. The Indian companies were required to prepare another set of financial statements to make foreign investors understand the performance and position of their companies, which not only resulted in higher costs, but also consumed considerable time and effort. With India moving towards convergence to IFRS, there was an urgent call to revise the old Schedule VI, as it was not compatible to meet either the disclosure requirements or the provisions of the upcoming accounting standards. Though the revised Schedule VI has been framed as per the existing non-converged Indian Accounting Standards notified under the Companies (Accounting Standards), Rules, 2006 and has nothing to do with the converged Indian Accounting Standards, still, it has taken into consideration the classification accepted internationally. Government of India had constituted an Expert Committee on Company Law in 2005. The Committee in its report admitted the right of shareholders to be informed through simple disclosure which should not be in
2

excessively technical format.The Committee was also of the view that Small Companies need not be subject to the costs of a regime suited to large companies with a wide stakeholder base. Significant Aspects of Schedule vi Some of the significant aspects of the revised Schedule include: The revised Schedule to apply to all companies following Indian GAAP until such companies are required to follow International Financial Reporting Standards (IFRS) converged Indian accounting standards (Ind AS) Accounting standards and requirements of the Companies Act, 1956 (Act) to override the requirements of the revised Schedule, wherever the two are inconsistent Information to be mandatorily presented on the face of financial statements limited to only broad and significant items details by way of notes Part IV of the pre-revised Schedule (containing balance sheet abstract and general business profile) dispensed with Format of cash flow statement not prescribed hence companies which are required to present this statement (i.e., other than small and medium sized companies) to continue to prepare it as per AS 3, Cash Flow Statements Disclosure requirements of various accounting standards also need to be complied with.

Old Schedule VI: Drawbacks Necessitating Revision 1. Classification in old Schedule VI not in line with the disclosure requirements under AS-After introduction of Accounting Standards on Leases, Consolidated Financial Statements ,Accounting for Taxes, Discontinuing Operations, Impairments of Assets, Provisions etc., the disclosure requirements of old Schedule VI on the face of balance sheet were felt to be insufficient. Further, appropriate heads, under which disclosures prescribed in the accounting standards have to be made, were missing in the Balance Sheet under old Schedule VI. For instance,
3

2.

3.

4.

Accounting Standard 22 requires that deferred tax assets (DTA) and deferred tax liabilities (DTL) should be disclosed under a separate heading in the balance sheet of the enterprise, separately from current assets and current liabilities. No place for industry specific requirements-Old Schedule VI had a fixed format in which every industry has to present its financial statements. However, the industry specific requirements could not always fit into such format. The old schedule VI did not address such problems which made it difficult for a preparer of financial statements to identify the appropriate head for their industry specific items. No specific format for Profit and Loss Account-One of the shortcomings of old Schedule VI was that it did not contain any specific format for Profit and loss account as it had for the Balance Sheet though the requirements for preparing profit and loss account were detailed in Part II of Schedule VI. However, it was felt that a specific format for presentation of the profit and loss account would have conveyed a clear cut picture to the preparers of financial statements. Measurement principles under Schedule VI not in line with Accounting Standards-Apart from the disclosure requirements, even the measurement principles as per old Schedule VI were different from what was given in the accounting standards. For instance, AS 11 requires that any exchange difference in foreign currency translation is to be charged / recognized in the Profit and loss account. However, as per old schedule VI, such exchange difference in foreign currency translation should be capitalised. On account of such differences in the measurement principles, it can be said that the old schedule VI was not in conformity with the mandatory requirements of the accounting standards.

OBJECTIVES For Revising Schedule VI In November, 2008, the Ministry of Corporate Affairs issued an Explanatory Memorandum for revising Schedule VI to the Companies Act, 1956 which clearly stated its objectives as follows: (a) To have a readable, useful, transparent and user friendly form of Schedule VI. (b) To set out minimum disclosure requirements which are considered essential to ensure true and fair presentation of the financial position and financial performance of the company and comparability both with the companys previous periods and with other companies. (c) The Balance Sheet and the Statement of Profit and Loss should not be burdened with too many disclosure requirements (d) To remove the requirements of disclosures no longer considered relevant in view of the changed socio-economic structure and level of development of the economy. (e)To remove disclosure requirements which are meant for statistical purposes only e.g. Part IV Of Schedule VI. (f) To have inherent flexibility for amendments and industry/sector specific improvements from time to time and to cater to industry/sector specific disclosure requirements. (g) To harmonize and synchronize the general disclosure requirements with those prescribed in the Accounting Standards by removing the existing inherent anomalies. (h) The specific disclosure requirements prescribed in the Accounting Standards are not incorporated here so that amendment in the Accounting Standard does not necessitate an amendment in the Schedule VI. ( i)To attain compatibility and convergence with the International Accounting Standards and practice. Salient Features
5

Applicability-This revised Schedule VI is applicable to all companies to which existing non-converged notified Accounting Standards are applicable. Flexibility-_ As and when there will be any change in the requirements of the Act including notified .Accounting Standards in the treatment or disclosure including addition, amendment, substitution or deletion in the head, sub-head or any changes inter se in the financial statements, the revised Schedule VI will be modified accordingly leaving no scope for any divergence or disagreement with the Accounting Standards. The disclosure requirements of revised Schedule VI are in addition to the disclosure requirements specified in the notified Accounting Standards. Additional disclosures (other than specified in the revised Schedule VI) required by the notified accounting standards may be made either in the notes to account or through additional statement or on. The face of the financial statements. In no way, the disclosure requirements of revised Schedule VI will substitute the disclosure requirements specified in the Accounting Standards. Any other disclosure required by the Companies Act, 1956 (in addition to the requirements of revised Schedule VI) shall be made in the Notes to Accounts. Revised Schedule VI sets out the minimum requirements for disclosure on the face of the Financial Statements and Notes to Accounts. Any addition of line or sub-line items or subtotals shall be presented as addition / substitution to it only when it is required under specific disclosure requirements of industry/sector or for compliance with the amendments to the Companies Act, 1956 or Accounting standards.

Notes to Accounts Notes to accounts, wherever necessary, should include narrative descriptions or disaggregations of items recognized on the face of the financial statements and information about items that do not qualify for recognition in the financial statements. Cross-reference of each item of the Balance Sheet and Statement of Profit and Loss shall be made to related information in the Notes to Accounts.

Unit of MeasurementFor companies having a turnover of less than one hundred crore rupees, the figures appearing in the Financial Statements may be rounded off to the nearest hundreds, thousands, lakhs or millions, or decimals thereof. For companies having a turnover of more than one hundred crore rupees, the figures appearing in the Financial Statements may be rounded off to the nearest lakhs, millions, or crores or decimals thereof. Once a unit of measurement is used, it should be used uniformly in the Financial Statements. Corresponding amounts (comparatives) for the immediately preceding reporting period for all items shown in the Financial Statements including notes shall be given. Assets and liabilities All the assets and liabilities are classified into current and non-current. Classification of liabilities into secured and unsecured heading as given in the old Schedule VI is now to be given in the Notes to Accounts as a line item. Current assets and current liabilities are defined in accordance with the definition given in Ind AS 1 / IAS 1. The term Sundry creditors used in the old Schedule VI has been replaced by the word Trade Payables. Similarly, the term Sundry debtors used in the old schedule VI has been replaced by the word Trade Receivables. Trade payables, trade receivables and provisions are further classified as long term (non-current) item and short term (current) item. Trade receivable will include only the amount due on account of goods sold or services rendered in the normal course of business. Other receivables will be shown under the heading Other current assets. Trade payable will include only the amount due on account of goods purchased or services received in the normal course of business. Other payables will be shown under the heading Other current liabilities.

Equity All the details regarding share capital to be shown in the notes to accounts. Additions and deductions to every item/head under reserve and surplus, since last balance sheet, are required to be shown. Loss from Profit and Loss account will be shown under the head surplus as a negative figure.
7

Balance of reserves and surplus may be in negative (i.e. after adjusting negative balance of surplus).

Profit and Loss Account Expenses are grouped on the basis of their nature. Any item of income or expenditure which exceeds one per cent of the revenue from operations or Rs.1,00,000 (against Rs.5,000 given in the old schedule VI), whichever is higher; is to be disclosed separately. Net gain or loss on foreign currency transactions/ translation related to finance cost and net gain or loss on others should be separately disclosed. The requirements of disclosures in respect of quantity of inventories dispensed with. Other General features List of shareholders having more than 5% share holding to be given in financial report Terms & Conditions for Share Application money are to be mentioned Loss will be shown in Liability side of balance sheet under the head Surplus. Thus it will be a negative figure, in case of loss. Current Liabilities will be shown in the liabilities side of balance sheet. Up to previous year, it happened to be deducted from Current assets in the assets side of balance sheet. Borrowings are to be bifurcated into Long Term & Short term borrowings. These will be shown under the head Non current liabilities & Current liabilities respectively. Period and amount of continuing default as on Balance Sheet date in repayment of loan & interest to be separately specified. Deferred Tax Assets/Liability to be disclosed under Non Current Assets/Liabilities. Creditors shall be shown under Current Liabilities as Trade payable Current maturities of Long Term debts to be disclosed under Current Liabilities. Fixed Assets to be bifurcated as Tangible and Non Tangible assets. Current and Non Current Investments to be shown separately.

Loans & Advances to be broken up in Long term & Short term and to be disclosed in Non Current assets & Current assets respectively. Any item in P/L account of amount 1% of revenue from operation or Rs 100000/ - whichever is higher- is to be shown separately. Finance cost shall be classified as Interest, Gain/loss in foreign currency, borrowing cost, etc. Goods traded in by the company to be disclosed in broad head in Notes. Major disclosures omitted under revised schedule VIa. Details of amount and quantity of turnover for each class of goods. b. Details pertaining to licensed /installed and production quantity. c. Details of opening and closing stock of goods d. Quantity related information related to raw material consumption e. Commission paid to sole selling agent and other selling agents. f. Cash discount separately. g. Details of arrear depreciation. h. Separation of investment income from trade investment and other income. i. Disclosure of TDS in respect of Interest income and investment income. j. Director remuneration disclosure under section 198. k. Computation of Net profit under section 349/350 of the Companies Act.

APPLICABLITY Date of application As per the MCAs notification dated 30 March 2011, the revised Schedule is effective for financial years commencing on or after 1 April 2011. Thus, the pre-revised Schedule VI would be applicable to the financial statements for the year ended 31 December 2011. In view of application of the revised Schedule for financial years beginning on or after 1 April 2011, immediate action will need to be taken to effect requisite changes in accounting systems and procedures. Applicable to all companies The revised Schedule would apply to all Indian companies till they are required to follow IFRS-converged Indian Accounting Standards (Ind ASs). However, like its predecessor, the revised Schedule does not apply to banking or insurance companies. In case of companies engaged in the generation and supply of electricity, the revised Schedule VI may be followed by such companies till the time a format is prescribed under the relevant statute. Applicability to consolidated financial statements While the revised Schedule has been prescribed in the context of standalone financial statements prepared under the Act, it would apply equally to consolidated financial statements. This is due to the requirement of AS 21, Consolidated Financial Statements that consolidated financial statements should be presented, to the extent possible, in the same format as adopted for the parents standalone financial statements. However, it may be noted that as per AS 21, certain information (e.g., CIF value of imports, foreign currency expenditure and earnings, etc.) disclosed in standalone financial statements of the subsidiary and/or the parent having no bearing on the true and fair view of the consolidated financial statements need not be given therein. Thus, the requirements of the revised Schedule will need a review to determine statutory information which need not be given in consolidated financial statements. Adherence to the specified nomenclature

10

The nomenclature specified in the revised Schedule VI should be followed as far as possible. This would not only ensure uniformity in presentation of financial statements by different companies but also ensure that there is no perception of noncompliance with the requirements of the revised Schedule. Applicability of general exemptions The notifications issued by MCA in February 2011 granting exemption from certain disclosure requirements of pre revised Schedule VI would not be applicable in the context of the revised Schedule. In any case many of the exempted disclosures are not required under the revised Schedule. Applicability of Schedule VI to Public Issues and Rights Issues The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (Regulations) specify the requirements for financial information for the purpose of public issues and rights issues. As regards public issues, the Regulations also contain an illustrative format for furnishing financial information which is largely based on pre-revised Schedule VI. For a rights issue, the Regulations require companies to furnish 1. a statement of assets and liabilities as per Schedule VI of the Act It follows that the format of the applicable Schedule VI should be followed, e.g., revised Schedule VI for companies with the financial year commencing on or after 1 April 2011 2.a statement of profit or loss It shall be sufficient if this contains information relating to income and expenditure required to be disclosed as per Clause 41 of the Equity Listing Agreement. The format of aforesaid information is not in line with revised Schedule VI. To facilitate transition to the revised Schedule VI, MCA vide its circular dated 5 September 2011 has clarified that the presentation of financial statements for the limited purpose of Initial Public Offer (IPO)/Follow on Public Offer (FPO) during the financial year 2011-12 may be made as per the pre-revised Schedule VI. Considering that the illustrative format for public issues is based on pre-revised Schedule VI, in view of the above circular, the revision of Schedule VI does not have any significant impact for companies going for public issues during 2011-12. However, in case a company would like to follow the revised Schedule, it is advisable to take a clarification from SEBI whether the revised Schedule can be followed since the format given by the regulations is only illustrative. It seems that suitable modifications would be required in

11

the SEBI Regulations before all requirements therein are in consonance with revised Schedule VI. Clause 41 and revised Schedule VI Listed companies are required to furnish financial information as per the requirements of Clause 41 of the Equity Listing Agreement for each quarter in the prescribed format. The presentation and disclosure requirements of Clause 41 override the relevant requirements of AS 25, Interim Financial Reporting. A statement of assets and liabilities is required to be included as a note to the half-yearly results under Clause 41. Though the format for the statement of assets and liabilities, required at the end of the half year, is drawn from the pre-revised Schedule VI, it will have to be followed till Clause 41 is revised. This is because Clause 41(V) specifically requires that disclosure of balance sheet items in half-yearly results shall be in the format specified in Annexure IX drawn from Schedule VI of the Companies Act MAJOR DIFFERENCES BETWEEN OLD SCHEDULE VI & NEW SCHEDULE VI
Particulars Form of Balance Sheet Form of Profit and Loss Account Profit and Loss Appropriation Account Old Schedule VI Both horizontal and vertical form were allowed No format specified for Profit and Loss Account Opening surplus, proposed dividend and transfer to/ from reserves were shown in Profit and Loss Appropriation Account Revised Schedule VI Only vertical form of Balance Sheet has been specified in the revised Schedule VI Form of Profit and Loss Account specified under Part II Transfer from/ to reserves to be shown under the heading Reserves & Surplus only. No requirement of separate Profit and Loss Appropriation Account.

Name of the Company. Balance Sheet as at (Rupees in) Figures as at the end of current reporting period

Particulars EQUITY AND LIABILITIES


12

Note No

Figures as at the end of the previous reporting period

Shareholders funds (a) Share capital (b) Reserves and surplus (c) Money received against share warrants Share application money pending allotment Non-current liabilities (a) Long-term borrowings (b) Deferred tax liabilities (Net) (c) Other Long term liabilities (d) Long-term provisions Current liabilities (a) Short-term borrowings (b) Trade payables (c) Other current liabilities (d) Short-term provisions TOTAL II.

ASSETS Non-current assets (a) Fixed assets (i)Tangible assets (ii)Intangible assets (iii)Capital work-in-progress (iv)Intangible assets under development (b) Non-current investments (c) Deferred tax assets (net) (d) Long-term loans and advances (e) Other non-current assets Current assets (a) Current investments (b) Inventories (c) Trade receivables (d) Cash and cash equivalents
13

(e) Short-term loans and advances (f) Other current assets TOTAL

GENERAL INSTRUCTIONS FOR PREPARATION OF BALANCE SHEET 1. An asset shall be classified as current when it satisfies any of the following criteria: (a) it is expected to be realized in, or is intended for sale or consumption in, the companys normal operating cycle; (b) it is held primarily for the purpose of being traded; (c) it is expected to be realized within twelve months after the reporting date; or (d) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date. All other assets shall be classified as non-current. 2. An operating cycle is the time between the acquisition of assets for processing and their realization in cash or cash equivalents. Where the normal operating cycle cannot be identified, it is assumed to have a duration of 12 months. 3. A liability shall be classified as current when it satisfies any of the following criteria: (a) it is expected to be settled in the companys normal operating cycle; (b) it is held primarily for the purpose of being traded; (c) it is due to be settled within twelve months after the reporting date; or (d) the company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. All other liabilities shall be classified as non-current. 4. A receivable shall be classified as a trade receivable if it is in respect of the amount due on account of goods sold or services rendered in the normal course of
14

business. 5. A payable shall be classified as a trade payable if it is in respect of the amount due on account of goods purchased or services received in the normal course of business. 6. A company shall disclose the following in the notes to accounts: A. Share Capital for each class of share capital (different classes of preference shares to be treated separately): (a) the number and amount of shares authorized; (b) the number of shares issued, subscribed and fully paid, and subscribed but not fully paid; (c) par value per share; (d) a reconciliation of the number of shares outstanding at the beginning and at the end of the reporting period; (e) the rights, preferences and restrictions attaching to each class of shares including restrictions on the distribution of dividends and the repayment of capital; (f) shares in respect of each class in the company held by its holding company or its ultimate holding company including shares held by or by subsidiaries or associates of the holding company or the ultimate holding company in aggregate; (g) shares in the company held by each shareholder holding more than 5 percent shares specifying the number of shares held; (h) shares reserved for issue under options and contracts/commitments for the sale of shares/disinvestment, including the terms and amounts; (i) For the period of five years immediately preceding the date as at which the Balance Sheet is prepared: Aggregate number and class of shares allotted as fully paid up pursuant to contract(s) without payment being received in cash. Aggregate number and class of shares allotted as fully paid up by way of bonus shares.
15

Aggregate number and class of shares bought back. (j) Terms of any securities convertible into equity/preference shares issued along with the earliest date of conversion in descending order starting from the farthest such date. (k) Calls unpaid (showing aggregate value of calls unpaid by directors and officers) (l) Forfeited shares (amount originally paid up) B. Reserves and Surplus (i) Reserves and Surplus shall be classified as: (a) Capital Reserves ; (b) Capital Redemption Reserve; (c) Securities Premium Reserve; (d) Debenture Redemption Reserve; (e) Revaluation Reserve; (f) Share Options Outstanding Account; (g) Other Reserves (specify the nature and purpose of each reserve and the amount in respect thereof); (h) Surplus i.e. balance in Statement of Profit & Loss disclosing allocations and appropriations such as dividend, bonus shares and transfer to/from reserves etc. (Additions and deductions since last balance sheet to be shown under each of the specified heads) (ii) A reserve specifically represented by earmarked investments shall be termed as a fund. (iii) Debit balance of statement of profit and loss shall be shown as a negative figure under the head Surplus. Similarly, the balance of Reserves and Surplus, after adjusting negative balance of surplus, if any, shall be shown under the head Reserves and Surplus even if the resulting figure is in the negative. C. Long-term borrowings (i) Long-term borrowings shall be classified as: (a) Bonds/debentures. (b) Term loans from banks.
16

from other parties. (c) Deferred payment liabilities. (d) Deposits. (e) Loans and advances from related parties. (f) Long term maturities of finance lease obligations (g) Other loans and advances (specify nature). (ii) Borrowings shall further be sub-classified as secured and unsecured. Nature of security shall be specified separately in each case. (iii) Where loans have been guaranteed by directors or others, the aggregate amount of such loans under each head shall be disclosed. (iv) Bonds/debentures (along with the rate of interest and particulars of redemption or conversion, as the case may be) shall be stated in descending order of maturity or conversion, starting from farthest redemption or conversion date, as the case may be. Where bonds/debentures are redeemable by installments, the date of maturity for this purpose must be reckoned as the date on which the first installment becomes due. (v) Particulars of any redeemed bonds/ debentures which the company has power to reissue shall be disclosed. (vi) Terms of repayment of term loans and other loans shall be stated. (vii) Period and amount of continuing default as on the balance sheet date in repayment of loans and interest, shall be specified separately in each case. D. Other Long Term Liabilities Other Long term Liabilities shall be classified as: (a) Trade payables (b) Others E. Long-term provisions The amounts shall be classified as: (a) Provision for employee benefits. (b) Others (specify nature). F. Short-term borrowings (i) Short-term borrowings shall be classified as: (a) Loans repayable on demand
17

from banks. from other parties. (b) Loans and advances from related parties. (c) Deposits. (d) Other loans and advances (specify nature). (ii) Borrowings shall further be sub-classified as secured and unsecured. Nature of security shall be specified separately in each case. (iii) Where loans have been guaranteed by directors or others, the aggregate amount of such loans under each head shall be disclosed. (iv) Period and amount of default as on the balance sheet date in repayment of loans and interest, shall be specified separately in each case. G. Other current liabilities The amounts shall be classified as: (a) Current maturities of long-term debt; (b) Current maturities of finance lease obligations; (c) Interest accrued but not due on borrowings; (d) Interest accrued and due on borrowings; (e) Income received in advance; (f) Unpaid dividends (g) Application money received for allotment of securities and due for refund and interest accrued thereon. Share application money includes advances towards allotment of share capital. The terms and conditions including the number of shares proposed to be issued, the amount of premium ,if any, and the period before which shares shall be allotted shall be disclosed. It shall also be disclosed whether the company has sufficient authorized capital to cover the share capital amount resulting from allotment of shares out of such share application money. Further, the period for which the share application money has been pending beyond the period for allotment as mentioned in the document inviting application for shares along with the reason for such share application money being pending shall be disclosed. Share application money not exceeding the issued capital and to the extent not refundable shall be shown under the head Equity and share application money to the extent refundable i.e., the amount in excess of subscription or in case the requirements of minimum subscription are not met, shall be
18

separately shown under ther current liabilities (h) Unpaid matured deposits and interest accrued thereon (i) Unpaid matured debentures and interest accrued thereon (j) Other payables (specify nature); H. Short-term provisions The amounts shall be classified as: (a) Provision for employee benefits. (b) Others (specify nature). I. Tangible assets (i) Classification shall be given as: (a) Land. (b) Buildings. (c) Plant and Equipment. (d) Furniture and Fixtures. (e) Vehicles. (f) Office equipment. (g) Others (specify nature). (ii) Assets under lease shall be separately specified under each class of asset. (iii) A reconciliation of the gross and net carrying amounts of each class of assets at the beginning and end of the reporting period showing additions, disposals, acquisitions through business combinations and other adjustments and the related depreciation and impairment losses/reversals shall be disclosed separately. (iv) Where sums have been written off on a reduction of capital or revaluation of assets or where sums have been added on revaluation of assets, every balance sheet subsequent to date of such write-off, or addition shall show the reduced or increased figures as applicable and shall by way of a note also show the amount of the reduction or increase as applicable together with the date thereof for the first five years subsequent to the date of such reduction or increase. J. Intangible assets
19

(i) Classification shall be given as: (a) Goodwill. (b) Brands /trademarks. (c) Computer software. (d) Mastheads and publishing titles. (e) Mining rights. (f) Copyrights, and patents and other intellectual property rights, services and operating rights. (g) Recipes, formulae, models, designs and prototypes. (h) Licenses and franchise. (i) Others (specify nature). (ii) A reconciliation of the gross and net carrying amounts of each class of assets at the beginning and end of the reporting period showing additions, disposals, acquisitions through business combinations and other adjustments and the related amortization and impairment losses/reversals shall be disclosed separately. (iii) Where sums have been written off on a reduction of capital or revaluation of assets or where sums have been added on revaluation of assets, every balance sheet subsequent to date of such write-off, or addition shall show the reduced or increased figures as applicable and shall by way of a note also show the amount of the reduction or increase as applicable together with the date thereof for the first five years subsequent to the date of such reduction or increase. K. Non-current investments (i) Non-current investments shall be classified as trade investments and other investments and further classified as: (a) Investment property; (b) Investments in Equity Instruments; (c) Investments in preference shares (d) Investments in Government or trust securities; (e) Investments in debentures or bonds; (f) Investments in Mutual Funds; (g) Investments in partnership firms
20

(h) Other non-current investments (specify nature) Under each classification, details shall be given of names of the bodies corporate (indicating separately whether such bodies are (i) subsidiaries, (ii) associates, (iii) joint ventures, or (iv) controlled special purpose entities) in whom investments have been made and the nature and extent of the investment so made in each such body corporate (showing separately investments which are partly-paid). In regard to investments in the capital of partnership firms, the names of the firms (with the names of all their partners, total capital and the shares of each partner) shall be given. (ii) Investments carried at other than at cost should be separately stated specifying the basis for valuation thereof. (iii) The following shall also be disclosed: (a) Aggregate amount of quoted investments and market value thereof; (b) Aggregate amount of unquoted investments; (c) Aggregate provision for diminution in value of investments L. Long-term loans and advances (i) Long-term loans and advances shall be classified as: (a) Capital Advances; (b) Security Deposits; (c) Loans and advances to related parties (giving details thereof); (d) Other loans and advances (specify nature). (ii) The above shall also be separately sub-classified as: (a) Secured, considered good; (b) Unsecured, considered good; (c) Doubtful. (iii) Allowance for bad and doubtful loans and advances shall be disclosed under the relevant heads separately. (iv) Loans and advances due by directors or other officers of the company or any of them either severally or jointly with any other persons or amounts due by firms or private companies respectively in which any director is a partner or a director or a member should be separately stated.
21

M. Other non-current assets Other non-current assets shall be classified as: (i) Long Term Trade Receivables (including trade receivables on deferred credit terms); (ii) Others (specify nature) (iii) Long term Trade Receivables, shall be sub-classified as: (i) (a) Secured, considered good; (b) Unsecured considered good; (c) Doubtful (ii) Allowance for bad and doubtful debts shall be disclosed under the relevant heads separately. (iii) Debts due by directors or other officers of the company or any of them either severally or jointly with any other person or debts due by firms or private companies respectively in which any director is a partner or a director or a member should be separately stated. N. Current Investments (i) Current investments shall be classified as: (a) Investments in Equity Instruments; (b) Investment in Preference Shares (c) Investments in government or trust securities; (d) Investments in debentures or bonds; (e) Investments in Mutual Funds; (f) Investments in partnership firms (g) Other investments (specify nature). Under each classification, details shall be given of names of the bodies corporate (indicating separately whether such bodies are (i) subsidiaries, (ii) associates, (iii) joint ventures, or (iv) controlled special purpose entities) in whom investments have been made and the nature and extent of the investment so made in each such body corporate (showing separately investments which are partly-paid). In regard to investments in the capital of partnership firms, the names of
22

the firms (with the names of all their partners, total capital and the shares of each partner) shall be given. (ii) The following shall also be disclosed: (a) The basis of valuation of individual investments (b) Aggregate amount of quoted investments and market value thereof; (c) Aggregate amount of unquoted investments; (d) Aggregate provision made for diminution in value of investments. O. Inventories (i) Inventories shall be classified as: (a) Raw materials; (b) Work-in-progress; (c) Finished goods; (d) Stock-in-trade (in respect of goods acquired for trading); (e) Stores and spares; (f) Loose tools; (g) Others (specify nature). (ii) Goods-in-transit shall be disclosed under the relevant sub-head of inventories. (iii) Mode of valuation shall be stated. P. Trade Receivables (i) Aggregate amount of Trade Receivables outstanding for a period exceeding six months from the date they are due for payment should be separately stated. (ii) Trade receivables shall be sub-classified as: (a) Secured, considered good; (b) Unsecured considered good; (c) Doubtful. (iii) Allowance for bad and doubtful debts shall be disclosed under the relevant heads separately. (iv) Debts due by directors or other officers of the company or any of them either severally or jointly with any other person or debts due by firms or private companies respectively in which any director is a partner or a director or a member should be separately stated.
23

Q. Cash and cash equivalents (i) Cash and cash equivalents shall be classified as: (a) Balances with banks; (b) Cheques, drafts on hand; (c) Cash on hand; (d) Others (specify nature). (ii) Earmarked balances with banks (for example, for unpaid dividend) shall be separately stated. (iii) Balances with banks to the extent held as margin money or security against the borrowings, guarantees, other commitments shall be disclosed separately. (iv) Repatriation restrictions, if any, in respect of cash and bank balances shall be separately stated. (v) Bank deposits with more than 12 months maturity shall be disclosed separately. R. Short-term loans and advances (i) Short-term loans and advances shall be classified as: (a) Loans and advances to related parties (giving details thereof); (b) Others (specify nature). (ii) The above shall also be sub-classified as: (a) Secured, considered good; (b) Unsecured, considered good; (c) Doubtful. (iii) Allowance for bad and doubtful loans and advances shall be disclosed under the relevant heads separately. (iv) Loans and advances due by directors or other officers of the company or any of them either severally or jointly with any other person or amounts due by firms or private companies respectively in which any director is a partner or a director or a member shall be separately stated. S. Other current assets (specify nature). This is an all-inclusive heading, which incorporates current assets that do not fit into any other asset categories. T. Contingent liabilities and commitments
24

(to the extent not provided for) (i) Contingent liabilities shall be classified as: (a) Claims against the company not acknowledged as debt; (b) Guarantees; (c) Other money for which the company is contingently liable (ii) Commitments shall be classified as: (a) Estimated amount of contracts remaining to be executed on capital account and not provided for; (b) Uncalled liability on shares and other investments partly paid (c) Other commitments (specify nature). U. The amount of dividends proposed to be distributed to equity and preference shareholders for the period and the related amount per share shall be disclosed separately. Arrears of fixed cumulative dividends on preference shares shall also be disclosed separately. V. Where in respect of an issue of securities made for a specific purpose, the whole or part of the amount has not been used for the specific purpose at the balance sheet date, there shall be indicated by way of note how such unutilized amounts have been used or invested. W. If, in the opinion of the Board, any of the assets other than fixed assets and noncurrent investments do not have a value on realization in the ordinary course of business at least equal to the amount at which they are stated, the fact that the Board is of that opinion, shall be stated. STATEMENT OF PROFIT AND LOSS Profit and Loss statement for the year ended 31st March, 2011 Figures as Figures as at the at the end Note end of Particulars of current No previous reporting reporting period period I. Revenue from operations
25

II. Other Income III. Total Revenue (I +II) IV. Expenses: Cost of materials consumed Purchase of Stock-in-Trade Changes in inventories of finished goods, work-in-progress and Stock-in-Trade Employee benefit expense Financial costs Depreciation and amortization expense Other expenses Total Expenses V. Profit before exceptional and extraordinary items and tax VI. Exceptional Items VII. Profit before extraordinary items and tax (V - VI) VIII. Extraordinary Items IX. Profit before tax (VII - VIII) X. Tax expense: (1) Current tax (2) Deferred tax XI. Profit(Loss) from the perid from continuing operations XII. Profit/(Loss) from discontinuing operations XIII. Tax expense of discounting operations (VIIVIII) (III IV)

26

XIV. Profit/(Loss) from Discontinuing operations (XII - XIII) XV. Profit/(Loss) for the period (XI + XIV) XVI. Earning per equity share: (1) Basic (2) Diluted

GENERAL INSTRUCTIONS FOR PREPARATION OF STATEMENT OF PROFIT AND LOSS 1. The provisions of this Part shall apply to the income and expenditure account referred to in sub-section (2) of Section 210 of the Act, in like manner as they apply to a statement of profit and loss. 2. (A) In respect of a company other than a finance company revenue from operations shall disclose separately in the notes revenue from (a) sale of products; (b) sale of services; (c) other operating revenues; Less: (d) Excise duty. (B) In respect of a finance company, revenue from operations shall include revenue from (a) Interest; and (b) Other financial services Revenue under each of the above heads shall be disclosed separately by way of notes to accounts to the extent applicable. 3. Finance Costs Finance costs shall be classified as: (a) Interest expense; (b) Other borrowing costs; (c) Applicable net gain/loss on foreign currency transactions and translation.
27

4. Other income Other income shall be classified as: (a) Interest Income (in case of a company other than a finance company); (b) Dividend Income; (c) Net gain/loss on sale of investments (d) Other non-operating income (net of expenses directly attributable to such income). 5. Additional Information A Company shall disclose by way of notes additional information regarding aggregate expenditure and income on the following items:(i) (a)Employee Benefits Expense [showing separately (i) salaries and wages, (ii) contribution to provident and other funds, (iii) expense on Employee Stock Option Scheme (ESOP) and Employee Stock Purchase Plan (ESPP), (iv) staff welfare expenses]. (b) Depreciation and amortization expense; (c) Any item of income or expenditure which exceeds one per cent of the revenue from operations or Rs.1,00,000, whichever is higher; (d) Interest Income; (e) Interest Expense; (f) Dividend Income; (g) Net gain/ loss on sale of investments; (h) Adjustments to the carrying amount of investments; (i) Net gain or loss on foreign currency transaction and translation (other than considered as finance cost); (j) Payments to the auditor as (a0 auditor,(b0 for taxation matters, (c) for company law matters, (d) for management services, (e) for other services, (f) for reimbursement of expenses; (k) Details of items of exceptional and extraordinary nature; (l) Prior period items; (ii) (a) In the case of manufacturing companies,(1) Raw materials under broad heads. (2) goods purchased under broad heads.
28

(b)In the case of trading companies, purchases in respect of goods traded in by the company under broad heads. (c)In the case of companies rendering or supplying services, gross income derived form services rendered or supplied under broad heads. (d)In the case of a company, which falls under more than one of the categories mentioned in (a), (b) and (c) above, it shall be sufficient compliance with the requirements herein if purchases, sales and consumption of raw material and the gross income from services rendered is shown under broad heads. (e)In the case of other companies, gross income derived under broad heads. (iii) In the case of all concerns having works in progress, works-in-progress under broad heads. (iv) (a) The aggregate, if material, of any amounts set aside or proposed to be set aside, to reserve, but not including provisions made to meet any specific liability, contingency or commitment known to exist at the date as to which the balancesheet is made up. (b) The aggregate, if material, of any amounts withdrawn from such reserves. (v) (a) The aggregate, if material, of the amounts set aside to provisions made for meeting specific liabilities, contingencies or commitments. (b) The aggregate, if material, of the amounts withdrawn from such provisions, as no longer required. (vi) Expenditure incurred on each of the following items, separately for each item:(a) Consumption of stores and spare parts. (b) Power and fuel. (c) Rent. (d) Repairs to buildings. (e) Repairs to machinery. (g) Insurance . (h) Rates and taxes, excluding, taxes on income. (i) Miscellaneous expenses, (vii) (a) Dividends from subsidiary companies.
29

(b) Provisions for losses of subsidiary companies. (viii) The profit and loss account shall also contain by way of a note the following information, namely:a) Value of imports calculated on C.I.F basis by the company during the financial year in respect of I. Raw materials; II. Components and spare parts; III. Capital goods; b) Expenditure in foreign currency during the financial year on account of royalty, know-how, professional and consultation fees, interest, and other matters; c) Total value if all imported raw materials, spare parts and components consumed during the financial year and the total value of all indigenous raw materials, spare parts and components similarly consumed and the percentage of each to the total consumption; d) The amount remitted during the year in foreign currencies on account of dividends with a specific mention of the total number of non-resident shareholders, the total number of shares held by them on which the dividends were due and the year to which the dividends related; e) Earnings in foreign exchange classified under the following heads, namely:I. Export of goods calculated on F.O.B. basis; II. Royalty, know-how ,professional and consultation fees; III. Interest and dividend; IV. Other income, indicating the nature thereof Note:-Broad heads shall be decided taking into account the concept of materiality and presentation of true and fair view of financial statements,. MAJOR DISCLOSURE REQUIREMENTS RETAINED UNDER REVISED SCHDULE VI
30

a. Value of imports calculated on C.I.F basis by the company during the financial year in respect of:(i) Raw materials; (ii) Components and spare parts; (iii) Capital goods; b. Expenditure in foreign currency during the financial year on account of royalty, know-how, professional, consultation fees, interest, and other matters; c. Value of all imported raw materials, spare parts and components consumed during the financial year and the value of all indigenous raw materials, spare parts and components similarly consumed and the percentage of each to the total consumption; d. The amount remitted during the year in foreign currencies on account of dividends, with a specific mention of the number of non-resident shareholders, the number of shares held by them on which the dividends related; e. Earnings in foreign exchange classified under the following heads, namely:(i) Export of goods calculated on F.O.B. basis; (ii) Royalty, know-how, professional and consultation fees; (iii) Interest and dividend;

f. Expenditure incurred on each of the following items, separately for each item:31

a. Consumption of stores and spare parts. b. Power and fuel. c. Rent. d. Repairs to buildings. e. Repairs to machinery. f. Insurance. g. Rates and taxes, excluding taxes on income. h. Miscellaneous expenses: g. Dividends from subsidiary companies and Provisions for losses of subsidiary companies h.(a) The aggregate, if material, of any amounts set aside or proposed to be set aside, to reserves, but not including provisions made to meet any specific liability, contingency or commitment known to exist at the date as at which the balance-sheet is made up. (b) The aggregate, if material, of any amounts withdrawn from such reserves. i. (a) The aggregate, if material, of the amounts to set aside to provisions made for meeting specific liabilities, contingencies or commitments. (b) The aggregate, if material, of the amounts withdrawn from such provisions, as no longer required. GOING FORWARD AND MAJOR CHALLENGES

32

The revised schedule is a major revamp of the existing one. The focus has been put primarily on the liquidity aspect of balance sheet items. The revised guidelines are a stepping stone towards IFRS convergence and will assist at the time of IFRS convergence. Accounting standards are now more important than ever. Not only have the prescribed definitions of accounting standards are to be referred to in relation to Schedule VI but now they have gained dominance over the schedule VI requirement. The revised guidelines calls for additional task for the gathering new information mainly in the areas of 1. Previous year figures based on revised schedule VI guidelines. 2. All assets and liability needs to be bifurcated between current and non-current. This requires accumulation of several additional informations in relation to each assets and liabilities. 3. The provision for Employee benefits needs to be sliced between current and non-current involving the role of actuary valuation for earlier year also. 4. Separate disclosure of Investment property. 5. Various new disclosures in relation to share holding pattern of the Company. Some Issues Emanating From Revised Schedule VI Though the revised Schedule VI has reduced the burden in terms of disclosure requirements and made the presentation of Financial Statements more meaningful, yet there are certain issues which need to be addressed by the
33

Ministry. For instance, revised Schedule VI requires the comparative information in respect of the immediately preceding reporting period for all items given in the financial statements. The same has been exempted only in the case of the first financial statements of a company prepared after its incorporation. Therefore, in the case of other companies, the financial statements prepared as per revised Schedule VI for the first time, have to disclose comparative information in respect of the immediately preceding reporting period. This requires the figures of the immediately preceding reporting period to be reinstated as per revised Schedule VI, which no doubt, is a cumbersome process. Also, companies whose accounting periods end on 30th September or 30th June, 2011 may face a dilemma on whether to prepare their interim financial statements on the basis of old Schedule VI or revised Schedule VI. Further, the application of the revised Schedule VI may cast an additional burden, both in terms of cost and consumption of time. It may also require customizing of IT/MIS systems of a company within a short period to prepare its financial statements within the set time. Overview on Revised Schedule VI AT A GLANCE 1. The privilege of having a balance sheet under horizontal or vertical format has been done away with. Option of only one format i.e vertical format is now available for preparation of the Balance Sheet. 2. Introduction of a new format for publishing profit & loss account. 3. Part III and part IV of the existing schedule VI has been done away with. 4. The disaggregation of information given in the Balance sheet and Profit Loss account now shall be disclosed in the notes to accounts instead of the schedule format as per existing schedule VI. 5. Various new disclosures have been added and few existing requirements have been removed. The additional disclosure requirements are more pertinent in case of balance sheet. The disclosure requirements in respect to Profit & Loss have been significantly reduced. 6. Under the new framework revised schedule VI will act as an additional requirement of disclosures along with the disclosure required by the Companies Act and the Accounting Standards. In other words the disclosure requirements of
34

Notified Accounting Standards will prevail on the revised schedule VI disclosures where-ever there are conflicts. 7. Revised schedule VI gives the liberty of application of judgment in maintaining a balance between excessive details that may not assist the users of the financial statements and not providing too much important information as a result of too much aggregation. 8. Revised schedule VI disclosures are a major step towards convergence of International Financial Reporting Standard. 9. Revised schedule VI strives for a more transparent presentation of the Companys Financial. Focus more on the liquidity aspect of the assets and liabilities of the company. 10. Current and non-current classification has been brought into for presentation of assets and liabilities in the balance sheet which is largely in line with the fundamental of used under Ind-AS/ IFRS. The same would require classification of assets and liabilities to be segregated into their current and noncurrent portions. 11. Previous years figures need to be given in the revised format along with the current financials. 12. The definitions prescribed under Notified Accounting standard shall be used for the purpose of terms used in the revised schedule VI. 13. The limits of rounding off (on the basis of turnover) have been increased and the revised limits are as follows Turnover Rounding off (i) Less than one hundred crores To the nearest hundreds, thousands, lakhs or millions, or decimals thereof. (ii) More than one hundred crores To the nearest lakhs, millions or crores, or dec There may be certain other issues as well which may come up while preparing the financial statements imals thereof. CONCLUSION

35

as per revised Schedule VI. No doubt, in course of time, these issues will be resolved by the Ministry. The need of the hour is to overcome the resistance to change, especially, since we now function in a Knowledge Economy, which is quite different from a traditional economy. The game in the Knowledge Economy is How fast one can learn. Therefore, to sustain in a Knowledge Economy, where change is inevitable, adaptation and constant learning are essential prerequisites. With the convergence towards IFRS and the proposed introduction of new legislations like Direct Taxes Code and Goods and Services Tax, one has no option but to learn, unlearn and relearn.

36

You might also like