Revised Schedule VI Page 1

Revised Schedule VI
Key Insights and Practical Challenges
CA Navneet Kabra
Revised Schedule VI Page 2
Agenda
Introduction
Overall Approach
Key changes to Balance Sheet and practical issues and
perspectives
Key changes to Profit and Loss Account and practical issues and
perspectives
Simplification of Disclosures
Open Issues for SEBI
Revised Schedule VI Page 3
Overall Approach
A step in right direction as supremacy has been provided to the Accounting Standards
and the Companies Act, 1956, which would avoid disputes as well as save time of
legislature in making time to time amendments in Schedule VI
A step towards convergence to IFRS to some extent with regard to presentation of
financial statements as many features as discussed have been taken from these
International Financial Reporting Standards
Format of Balance Sheet and Statement of Profit and Loss
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Document
Revised Schedule VI Page 4
Format of Balance Sheet Equity and Liabilities
Particulars Note No Amount as at end
of Current Year
Amount as at end of
the Previous Year
I EQUITY AND LIABILITIES
1. Shareholders funds
(a) Share capital xxxxxx xxxxxx
(b) Reserves and surplus xxxxxx xxxxxx
(c) Money received against share warrants xxxxxx xxxxxx
2. Share application money pending allotments xxxxxx xxxxxx
3. Non current liabilities
(a) Long term borrowings xxxxxx xxxxxx
(b) Deferred tax liabilities (net) xxxxxx xxxxxx
(c) Other long term liabilities xxxxxx xxxxxx
(d) Long term provisions xxxxxx xxxxxx
(4) Current Liabilities
(a) Short term borrowings xxxxxx xxxxxx
(b) Trade payable xxxxxx xxxxxx
(c) Other current liabilities xxxxxx xxxxxx
(d) Short term provisions xxxxxx xxxxxx
Total xxxxxx xxxxxx
Revised Schedule VI Page 5
Format of Balance Sheet Assets
Particulars Note No Amount as at end
of Current Year
Amount as at end of
the Previous Year
II ASSETS
1. Non Current Assets
(a) Fixed assets xxxxxx xxxxxx
(i) Tangible assets xxxxxx xxxxxx
(ii) Intangible assets xxxxxx xxxxxx
(iii) Capital Work in progress xxxxxx xxxxxx
(iv) Intangible assets under development xxxxxx xxxxxx
(b) Non current investments xxxxxx xxxxxx
(c) Deferred tax assets (net) xxxxxx xxxxxx
(d) Long term loans and advances xxxxxx xxxxxx
(e) Other non current assets xxxxxx xxxxxx
2. Current Assets
(a) Current investments xxxxxx xxxxxx
(b) Inventories xxxxxx xxxxxx
(c) Trade receivables xxxxxx xxxxxx
(d) Cash and cash equivalents xxxxxx xxxxxx
(e) Short term loans and advances xxxxxx xxxxxx
(f) Other current assets xxxxxx xxxxxx
Total xxxxxx xxxxxx
Revised Schedule VI Page 6
Format of Statement of Profit and Loss
Particulars Note no For the
current
year
For the
previous
year
I. Revenue from operations xxxxx xxxxx
II. Other Income xxxxx xxxxx
III. Total Revenue xxxxx xxxxx
IV. Expenses
Cost of material consumed xxxxx xxxxx
Purchases of stock in trade xxxxx xxxxx
Changes in Inventories in FG, WIP and Stock in trade xxxxx xxxxx
Employee benefit expense xxxxx xxxxx
Finance cost xxxxx xxxxx
Depreciation and amortization expense xxxxx xxxxx
Other expense xxxxx xxxxx
Total Expense xxxxx xxxxx
V. Profit before exceptional and extra ordinary items (III-
IV)
xxxxx xxxxx
VI. Exceptional items xxxxx xxxxx
VII. Profit before extra ordinary items and tax (V-VI) xxxxx xxxxx
VIII. Extraordinary items xxxxx xxxxx
IX. Profit before tax (VII-VIII) xxxxx xxxxx
X .Tax expense xxxxx xxxxx
Current tax xxxxx xxxxx
Deferred tax xxxxx xxxxx
XI. Profit /(Loss) for the period/year from the continuing
operations
xxxxx xxxxx
XII. Profit/ (Loss) from the discontinuing operations xxxxx xxxxx
XIII. Tax expense of discontinuing operations xxxxx xxxxx
XIV. Profit/(Loss) from discontinuing operations(after
tax) (XII-XIII)
xxxxx xxxxx
XV. Profit /(Loss) for the period(X+XIV) xxxxx xxxxx
XVI. Earnings per equity share xxxxx xxxxx
(1) Basic xxxxx xxxxx
(2) Diluted xxxxx xxxxx
Revised Schedule VI
Page 7
Comparison with old Schedule VI - Contents
The contents of the Revised
Schedule VI are as under:-
I) General Instructions for preparation
of Balance Sheet and Statement of
Profit and Loss of a company.
II) Form of Balance Sheet (only vertical
format) with General Instructions for
preparation of Balance Sheet. (PART-I).
III) Form of Statement of Profit and Loss
with General Instructions for preparation
of Statement of Profit and Loss. (PART-
II.)
The contents of Old Schedule VI are
stated as under:-
I) Form of Balance Sheet (including
disclosure requirements) both in
horizontal as well as vertical form with
general instructions for its preparation
(PART-I)
II) Requirements as to Profit and
Loss Account.(PART-II)
III) Interpretation (PART III)
IV) Balance Sheet Abstract and
Companys General Business
Profile. (Part IV).
Revised Schedule VI
Page 8
Comparison with old Schedule VI - Contents
Comparison of contents
a) Balance Sheet Abstract and Companys General Business Profile as provided in Part-IV
has been removed, which is a welcome move as this statement was of no real purpose and
meant for statistical purposes.
b) Horizontal format of Balance Sheet known as conventional or customary form of Balance
Sheet has been deleted. Accordingly, now onwards only vertical format is to be used.
c) Form of Statement of Profit and Loss has been provided in Part II, which was not
prescribed in old Schedule VI.
d) Further Part III on Interpretation, which contained explanation of provision, reserve, etc.
has been scrapped as these terms are already covered in the Accounting Standards. It has
been stated in revised Schedule VI that for the purpose of this schedule, the terms used
shall be as per the applicable Accounting Standards.
Revised Schedule VI Page 9
Introduction
Schedule VI to the Companies Act, 1956 which provides for the manner in which every
company needs to prepare its Balance Sheet and Profit and Loss Account has been
revised by the Ministry of Corporate Affairs in consultation with the ICAI and NACAS.
One of the most significant changes in over half-a-century which has far-reaching
impact on companies across the country, from a small private company to a large
conglomerate.
Revised Schedule VI is applicable for financial statements to be prepared for the
financial year commencing on or after 1st April 2011.
Framed based on existing non-converged Indian Accounting Standards notified under
the Companies (Accounting Standards) Rules, 2006 and has nothing to do with
converged Accounting Standards.
Lays down several new concepts and disclosure requirements and also does away with
several existing disclosure requirements.
Revised Schedule VI Page 10
Introduction
Disclosures required by Revised Schedule VI are minimum disclosures, Additional disclosures
required by Accounting Standards & Companies Act will have to be made,
Changes may also be made on the face of BS and P&L if relevant to understanding of the
Companys Financial Position / Performance / Industry-specific disclosure requirements, the
Companies may choose to present additional line item i.e. sub totals of current assets and current
liabilities.
Paradigm Shift : Accounting Standards/Companies Act requirements to over-ride requirements of
Revised Schedule VI, may result in change in treatment and disclosures prescribed by Revised
Schedule VI including addition, amendment, substitution or deletion, Due to this, the Schedule VI is
not bulky as several disclosure requirements already covered in Accounting Standards have not
been reiterated
Change in the format of presentation from a combination of Schedules and Notes to entirely Notes to
Accounts in line with the international style of presentation
Presentation of comparatives for the immediately preceding period required from the very first year of
application for all items presented in the financial statements
Revised Schedule VI Page 11
Introduction
All items of the Balance Sheet to be classified between Current and Non-Current. Principles
underlying such classification appear to be adopted from Ind-AS/IFRS.
All the terms in Revised Schedule VI to be interpreted as per Accounting Standards
Balance to be maintained between Excessive Detail and Excessive Aggregation, not to obscure
important information by including it among a large number of insignificant details.
Explicit requirement to use the same unit of measurement uniformly throughout the financial
statements.
Rounding Off Rules modified to eliminate the option of presenting figures in hundreds and thousands
if turnover exceeds `100 crores
Under revised schedule VI the upper half is referred to as Equity and Liabilities and later half is
shown as Assets whereas in old schedule VI the same were referred as Sources of Funds and
application of Funds. Accordingly the current liabilities (including short term provisions) are to be
shown in upper half of balance-sheet under Equity and Liabilities whereas in old schedule VI (vertical
form) it was shown as deduction from current assets, loans and advances and net current assets are
disclosed on Assets side. Due to this the Balance Sheets totals would increase to the extent of the
current liabilities.
Revised Schedule VI
Page 12
Key changes to Balance Sheet
Introduction of Current and Non-current Classification introduced for presentation of
all assets and liabilities.
Implications :
Implementation of appropriate systems to capture the right classification
Significant changes may have to be made to entity-wide ERP systems etc.
Systems will have to be set for each individual item of asset and liability
Details for ascertaining the classification will be required even for the
immediately preceding reporting period.
Involvement of significant additional time and effort both for the Company as
well as the Auditors
Revised Schedule VI
Page 13
Key changes to Balance Sheet (continued.)
Current and Non-Current Classification of all Assets & Liabilities
An Asset shall be classified as Current when any of the following is satisfied :
It is expected to be realized in, or is intended for sale or consumption in, the entitys normal
operating cycle;
It is held primarily for the purpose of being traded;
It is expected to be realized within twelve months after the reporting date; or
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.
A Liability shall be classified as Current when any of the following is satisfied :
It is expected to be settled in the entitys normal operating cycle;
It is held primarily for the purpose of being traded;
It is due to be settled within twelve months after the reporting date; or
The entity 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.
Revised Schedule VI
Page 14
Key changes to Balance Sheet (continued.)
The above bifurcation of assets and liabilities between current and non-current would
require major reclassifications in the Balance Sheets of all companies and would have
impact on the current ratio. Some of such instances of reclassifications are as under:-
a) Presently even the current maturities to long term debt are shown as part of long term
debt and only disclosure of amount due to be repaid within one year is made. However, as
per revised Schedule VI current maturities to long term debt would be depicted as Other
Current liabilities
b) As per old schedule VI interest accrued and due on long term loans were shown as part
of the long term loans but in revised schedule VI the same is to be shown as current
liabilities
c) Currently all loans and advances (except capital advances) are shown under Current
Assets and Loans and Advances but now onwards the same needs to be bifurcated
between current and non-current, accordingly the sub heading of long term loans and
advances has been introduced in Revised Schedule VI
.
Revised Schedule VI
Page 15
Key changes to Balance Sheet (continued.)
.
d) The provisions also need to be bifurcated among long term and short term, the latter one
being classified as current, and former being classified as non-current e.g. employee
related provisions; accordingly subheading of long term provisions has been introduced.
Under old Schedule VI all the provisions were being shown under Current Liabilities and
Provisions.
e) Under old schedule VI the trade receivables (Debtors)/ Trade payables (creditors) were
always shown as Current, but in revised schedule VI, these can also be shown as Non
current. It appears that where the credit is offered on deferred credit basis or the payment
is not expected to be received from debtors within normal operating cycle/12 months from
reporting period, the same needs to be disclosed as Non Current
Revised Schedule VI
Page 16
Key changes to Balance Sheet (continued.)
For understanding the above definitions let us apply the same in following cases:-
As of 31st March, 2011, a property developer has inventories of residential units
which it expects to sell in three years. Historically similar residential units have been
sold in three years. As of 31st March, 2011, should the inventories of residential
units be classified as current or non current assets?
An asset shall be classified as current when it satisfies any of the four criteria. Since, the
inventories of residential units in the given case, satisfy the first requirement i.e. it is
expected to be realised in, or is intended for sale or consumption in, the entitys normal
operating cycle, the residential units should be classified as current assets.
Revised Schedule VI
Page 17
Key changes to Balance Sheet (continued.)
A primary school requires a deposit to be paid upon enrolment into the school.
Should the student leave the school, this deposit is refundable within three months.
However, based on historical evidence the majority of students enrolling to primary
school continue with school and receive the deposit back at the end of six year
period. How should the deposits be classified?
The deposits should be classified as current liabilities. Despite the historical evidence that
indicates that the majority of the deposits are only repaid at the end of six year period, the
deposits are payable on three months notice. Revised Schedule VI states that a liability
should be classified as current when the entity does not have an unconditional right to
defer settlement of the liability for at least 12 months after the balance sheet date.
Therefore, the deposits should be classified as current liabilities.
Revised Schedule VI
Page 18
Key changes to Balance Sheet (continued.)
Share Capital
Separate disclosure required for Number of shares held by each shareholder holding
more than 5% shares.
Disclosures of Preference Share Capital as per AS 31 Financial Instruments
Reconciliation of the number of shares outstanding at the beginning and at the end of
the reporting period.
Each class of shares held by holding Company, or its ultimate holding Company,
subsidiaries of the holding company and ultimate holding Company, associates of its
holding Company and its ultimate holding Company
Disclosure of bonus shares and shares issued for a consideration other than cash
only for fives years, disclosures related to buy back
Revised Schedule VI
Page 19
Key changes to Balance Sheet (continued.)
Share Capital - practical issue
Number of shares held by each shareholder holding more than 5%
shares now needs to be disclosed under Revised Schedule VI.
Such percentage should be computed as on which date?
What is the objective of such disclosures for Private Companies?
Where shares are issued through GDR/ADR what should be the level
of details for disclosure purposes?
In the absence of any specific indication, date of holding should be taken as the
balance sheet date.
Various shareholding information is required to be disclosed every quarter by listed
companies. Private Companies generally have few shareholders who may not be
interested in public disclosure of such information e.g. PE Funds etc.
When shares are issued by means of GDR/ADR, the custodian is the direct
shareholder of the Company. In the absence of any specific requirement, disclosing
the name and shareholding of the real investor does not appear mandatory.
Clarification is required from MCA in respect of all the above matters
Revised Schedule VI
Page 20
Key changes to Balance Sheet (continued.)
Share Capital - practical issue
Revised Schedule VI requires different classes of Preference
Shares to be treated separately. Whether this means
preference shares should be classified based on substance over
form e.g. whether redeemable preference shares should be
classified as liability?
The revised Schedule VI deals only with presentation and disclosure requirements.
Accounting treatment for all items will be governed by the applicable standards.
Companies early adopting AS-30, AS-31 & AS-32 will have to decide the liability
and equity classification of preference shares based on the principles laid in AS 31.
Other Companies will continue to classify all Preference Shares as part of Share
Capital.
Revised Schedule VI
Page 21
Key changes to Balance Sheet (continued.)
Reserves and Surplus
Debit balance in P&L Account to be disclosed under the head Reserves & Surplus vis-
-vis the earlier requirement of including the same on asset side of Balance Sheet.
Allocations and appropriations such as dividend, bonus shares and transfer to/from
reserves
Share options outstanding account is now a part of reserves and surplus.
Revised Schedule VI
Page 22
Key changes to Balance Sheet (continued.)
Share application money pending allotment
Share application money pending allotment will not include share application money to
the extent this is refundable
Various disclosure requirements pertaining to Share Application Money are as
follows:
- terms and conditions;
- number of shares proposed to be issued;
- the amount of premium, if any;
- the period before which shares are to be allotted;
- whether the company has sufficient authorized share capital to cover the
share capital amount on allotment of shares out of share application money;
- Interest accrued on amount due for refund;
- The period for which the share application money has been pending beyond the
period for allotment as mentioned in the share application form along with the
reasons thereof for such share application money being pending is to be
disclosed.
The above disclosures should be made in respect of amounts classified under both
Equity as well as Current Liabilities, wherever applicable.
Revised Schedule VI
Page 23
Key changes to Balance Sheet (continued.)
NON CURRENT LIABILITIES
Long Term borrowings
Period and amount of continuing default as on the balance sheet date in repayment of
loans and interest, Defaults in repayment of loans and interest to be disclosed for
separately for each item of Borrowings vis--vis defaults in repayment of dues to
financial institutions, banks and debenture holders currently reported under CARO
The nature of security shall be specified separately in each case.
Loans and advances from related parties
Terms of repayment of term loans and other loans shall be disclosed, including
deferred payment liabilities
Revised Schedule VI
Page 24
Key changes to Balance Sheet (continued.)
Long term borrowings - practical issue
How should a loan be classified if after the reporting period and
before the approval of the financial statements for issue, the
lender agrees to waive a default in a debt covenant that occurred
on or before the reporting date?
View 1
A liability is classified as Current if there is no unconditional right to defer
settlement of the liability for at least twelve months after the reporting date.
The subsequent waiver would change the classification from current to
non-current but only at the date the waiver is made going by strict application
of definition.
The issue may involve legal interpretation of the loan agreement as to whether a
borrower has an unconditional right to defer settlement
Legal interpretation may involve consideration of the wordings of the loan
agreement as well as the Banking Regulation Act etc.
Such interpretation is in line with Ind-AS/IFRS which is specific in this regard. The
definitions of Current & Non-Current Liability are taken verbatim from Ind-AS/IFRS,
though the Para directly addressing the issue has not been specifically adopted.
Revised Schedule VI
Page 25
Key changes to Balance Sheet (continued.)
Long term borrowings - practical issue
How should a loan be classified if after the reporting period and
before the approval of the financial statements for issue, the
lender agrees to waive a default in a debt covenant that occurred
on or before the reporting date?
View 2
The liability may be classified as Non-Current
The paragraphs which mandate the treatment of View 1 under IFRS/Ind-AS are not
included in Revised Schedule VI.
Definition of Current Liability does not specify whether the deferment right should
be ascertained at the reporting date or events after the balance sheet date can be
considered
As per AS-4, one may take the view that the subsequent waiver provides additional
evidence of conditions (i.e. default and negotiations with the lenders) existing as on
the balance sheet date.
Revised Schedule VI
Page 26
Key changes to Balance Sheet (continued.)
Other Long Term liabilities
Trade payables include amount due on account of goods purchased or services
received in the normal course of business operations, not against the contractual
obligations
Amount due under contractual obligation can no longer be included within trade
payables.
Long Term Provisions
This should be classified into provisions for employee benefits and others
Revised Schedule VI
Page 27
Key changes to Balance Sheet (continued.)
Long term provisions - practical issue
A company also needs to classify its employee benefit obligations in
current and non-current categories for disclosure purposes. What is the
appropriate basis for classification of these obligations into current and
non-categories?
A liability is classified as current if a company does not have an unconditional right
to defer its settlement for 12 months after the reporting date
Bonus Liability : Amount payable within one year from the balance sheet date will
be classified as current
Accumulated leave outstanding on reporting date : Employees have already
earned the right to avail the leave and are entitled to avail the same at any time
during the year. Hence, should be classified as Current Liability even if measured
as other long-term employee benefit under AS 15.
Funded post-employment benefit obligations : Amount due for payment to the
fund within 12 months would be Current Liability.
Unfunded post-employment benefit obligations : Amount of settlement
obligation at the balance sheet date or within 12 months for employees who have
already resigned or are expected to resign or are due for retirement within next 12
months will have to be classified as Current Liability.
Actuary should give the Current Non-current breakup for unfunded obligation
Revised Schedule VI
Page 28
Key changes to Balance Sheet (continued.)
CURRENT LIABILITIES
Short Term Borrowings
Current maturity of long term borrowings should not be classified as short term
borrowings, they have to be classified under other current liabilities
Other Current liabilities
This include Current maturities of long-term debt, current maturities of finance lease
obligations, interest accrued but not due on borrowings, Interest accrued and due on
borrowings, Income received in advance, unpaid dividend, application money received
for allotment of securities and due for refund and interest accrued thereon and other
(specify nature)
Revised Schedule VI
Page 29
Key changes to Balance Sheet (continued.)
NON CURRENT ASSETS
Fixed Assets
Classification also includes Office Equipments
Others will include items like live stock, railway sidings etc.
Assets under lease shall be separately specified under each class of asset.
Capital advances will not be part of CWIP
Separate disclosure of Intangible assets under development
Perpetual disclosure of revalued assets as per AS -10
Intangible assets - New head like mastheads and publishing rights, Mining Rights,
Recipes, formulae, models, designs and prototypes introduced.
Revised Schedule VI
Page 30
Key changes to Balance Sheet (continued.)
NON CURRENT ASSETS
NON CURRENT INVESTMENTS
Investments include investment property
Segregation between trade and non trade investments
Disclosure of investment in subsidiaries, associates, joint ventures and controlled
special purpose entities.
If investments in the capital of partnership firms: Name of the
firm (with the names of each partner, total capital and shares of
each partner
Investment carried at other than cost should be separately stated specifying the basis
of valuation thereof
Revised Schedule VI
Page 31
Key changes to Balance Sheet (continued.)
LONG TERM LOANS AND ADVANCES
Capital Advances to be presented separately under the head Loans & Advances instead of
including the same as part of Capital Work in Progress.
Under loans and advances to related parties, making disclosures beyond the requirements of
AS -18 would not be necessary, the earlier requirement of amounts due from parties covered
under section 370 of the Companies Act, 1956 is now dispensed with.
Loans and advances due by Directors, any other officer or any partnership firm or a private
company where any such director is a director or partner or member shall be disclosed
separately as against the earlier requirement which was limited to the directors, secretaries and
treasurers.
Revised Schedule VI
Page 32
Key changes to Balance Sheet (continued.)
OTHER NON CURRENT ASSETS
- This includes long term trade receivables and others,
- Debts due by Directors, any other officer or any partnership firm or a private
company where any such director is a director or partner or member shall be
disclosed separately
- Unamortised ancillary borrowing costs can be disclosed under other current/non
current assets depending on whether the amount will be amortised in the next 12
months or thereafter.
Revised Schedule VI
Page 33
Key changes to Balance Sheet (continued.)
CURRENT ASSETS
TRADE RECEIVABLES
The old schedules VI required separate presentation of debtors for a period exceeding
six months (i.e. based on billing date) and other debtors. However, the revised
schedule VI require separate disclosures of trade receivables outstanding for a period
exceeding six months from the date they became due for the payment only for the
current portion of trade receivables.
CASH AND CASH EQUIVALENTS
Conflict should be resolved by changing the caption cash and cash equivalent to cash
and bank balance
Bank deposits with more than twelve months maturity shall be disclosed separately
Requirements of disclosures of balances with non scheduled banks have been
dispensed with.
Revised Schedule VI
Page 34
Key changes to Balance Sheet (continued.)
Current Assets - practical issue
Whether capital advances also need to be bifurcated between non-
current and current categories?
Capital Advances are not expected to be realised in cash.
They are given for procurement of fixed assets which are non-current assets.
Hence should be classified as Non-current.
Earlier Schedule VI required bifurcation of Sundry Debtors between :
(i) Outstanding for a period exceeding 6 months and (ii) Other debtors
based on the Billing Date.
Revised Schedule VI requires separate disclosure of trade receivables outstanding
for a period exceeding 6 months from the date they became due for payment
for the current portion of trade receivables
Companies will need to implement sophisticated systems/make necessary changes
to track such information.
Revised Schedule VI
Page 35
Key changes to Balance Sheet (continued.)
Cash and Cash equivalents practical issue
Though Revised Schedule VI requires terms used therein to be
interpreted as per Accounting Standards, certain items listed under the
head of Cash and Cash Equivalents do not meet the definition of Cash
Equivalents as per AS-3. How can this conflict be resolved?
Items that do not meet the definition of Cash Equivalents :
Bank Balances held as margin money, security against borrowings/guarantees
Bank Deposits with more than 12 months maturity
Revised Schedule VI clarifies that change in treatment or disclosure should be
made wherever required by Accounting Standards - this may include addition,
amendment, substitution or deletion
Caption Cash and Cash Equivalents may be changed to Cash and Bank
Balances and may be broken into two sub-heads :
Cash and Cash Equivalents
Other Bank Balances
Cash and Cash Equivalents should include only those items that constitute Cash
and Cash Equivalents as per AS-3 (and not the revised Schedule VI)
Other Bank Balances can include all the other balances
Revised Schedule VI
Page 36
Key changes to Balance Sheet (continued.)
CURRENT ASSETS
CURRENT INVESTMENTS
- No requirement to classify investments into trade and non trade in respect of
current investments.
INVENTORIES
- Separate disclosures for stocks of traded goods from finished goods.
Revised Schedule VI
Page 37
Key changes to Balance Sheet (continued.)
SHORT-TERM LOANS AND ADVANCES
Loans and advances due by Directors, any other officer or any partnership firm or a private
company where any such director is a director or partner or member shall be disclosed
separately as against the earlier requirement which was limited to the directors, secretaries and
treasures.
OTHER CURRENT ASSETS
This includes unbilled revenues, unamortised premium on forward contracts etc.
Following specific disclosures requirements are dispensed with:
Bills receivables
Balances with Customs, Ports trust (where payable on demand)
Revised Schedule VI
Page 38
Key changes to Balance Sheet (continued.)
CONTINGENT LIABILITIES AND COMMITMENTS
All commitments apart from Capital Commitments need to be disclosed,
The disclosures required to be made for other commitments should include - the non-
cancellable contractual commitments (i.e. cancellation of which will result in a penalty
disproportionate to the benefits involved) based on the professional judgement of the
management which are material and relevant in understanding the financial statements
of the company and impact the decision making of the users of financial statements
Commitments in the nature of buy-back arrangements, commitments to fund
subsidiaries and associates, non-disposal of investments in subsidiaries and
undertakings, derivative related commitments
Revised Schedule VI
Page 39
Key changes to Balance Sheet (continued.)
Contingent Liabilities - practical issue
Revised Schedule VI requires the disclosure of all commitments i.e.
other commitments in addition to capital commitments. What is the
nature of commitments that will get covered under this disclosure
requirement?
The term other commitments is not defined anywhere. Simply put it would mean
any unrecognised contractual commitment.
Scope of such terminology is very wide and may include contractual commitments
for purchase of inventory, services, investments, sales, employee contracts etc.
Overarching principle under General Instructions requires balance to be maintained
between excessive detail and too much aggregation
Accordingly, disclosure should be made for only non-cancellable contractual
commitments which are material and impact decision making of the users
E.g. non-cancellable long-term contracts for purchase of key raw material,
significant sales commitment involving high penalty on failure, material employee
commitment for bonus etc.
Management should be responsible for completeness of disclosures
Revised Schedule VI
Page 40
Key changes to Balance Sheet (continued.)
Contingent Liabilities - practical issue
The existing Schedule VI requires Proposed Dividend to be disclosed
under the Provisions Schedule. Revised Schedule VI requires this to
be disclosed in the Notes. Does it mean that proposed dividend is not
required to be provided for going forward?
Accounting Standards override Revised Schedule VI
AS-4 requires dividends relating to the period covered by the financial statements
declared after balance sheet date but before approval of the financial statements to
be adjusted
Hence provisions for Proposed Dividend will still be required to be created
Disclosure in the Notes is required in addition to the following disclosures :
Appropriation items under Reserves & Surplus
Provisions in the Balance Sheet
Revised Schedule VI
Page 41
Key changes to Profit and Loss Account
This is now Statement of Profit and Loss
Format specified for presentation of Profit & Loss Account unlike earlier Schedule VI
Disclosure of other operating revenue
Disclosure of Excise Duty on the face of Statement of Profit and Loss continues as per
AS 9
Dividends declared by Subsidiary companies after the Balance Sheet date but relating
to the period ending on or before the balance sheet date can no longer be recognised.
Dividend from subsidiary can be recognised only when there is a right to receive the
same before the Balance Sheet date, this will require a change of accounting policies.
Net exchange gain/loss on foreign currency borrowings to the extent considered as an
adjustment to interest cost to be disclosed separately as a finance cost
Revised Schedule VI
Page 42
Key changes to Statement of Profit and Loss
(continued) Revenue Practical issue
For non-finance companies, Revenue from Operations need to be
disclosed separately as revenue from (a) sale of products, (b) sale of
services and (c) other operating revenues. What should constitute
other operating revenues vis--vis Other Income?
The term other operating revenue is not defined.
Should include income arising from a companys operating activities, i.e., either its
principal or ancillary revenue-generating activities but, which is neither revenue
from sale of products or rendering of services
Whether a particular income constitutes other operating income or other
income should be decided based on facts of the case and nature of companys
activities.
Examples :
Consider a manufacturing company with real estate division. The real estate arm is
regularly engaged in leasing of properties.
Rental Income should be classified as Other Operating Income.
Consider another manufacturing company which owns a mutli-storied building but,
does not temporarily require one floor for own use and gives it on rent.
Rental Income should be classified as Other Income.
Revised Schedule VI
Page 43
Key changes to Statement of Profit and Loss
(continued) Revenue Practical issue
Should the net gains arising on foreign exchange fluctuations be
included under the head Other Operating Revenues or Other
Income?
View 1
Classification should be based on same principles discussed in the previous issue
For a manufacturing Company, typically, net gain arising on foreign exchange
fluctuations would relate to foreign currency debtors, creditors etc. which are part of
the operating activities of the company
Other exchange gain not relating to companys main operations such as foreign
currency investments and loans should be classified as Other Income
This is consistent with AS-17 which requires loans and investments to be classified
as Segment Liability or Segment Asset only if the segment is of financial nature.
View 2
Net exchange gain/loss is purely of financial nature and hence should be classified
entirely as Other Income.
As per the exposure draft on the Guidance Note, this can be shown under
other operating revenue.
Revised Schedule VI
Page 44
Key changes to Statement of Profit and Loss
(continued)
Disclosure of exceptional items and extraordinary items .
Separate disclosure required for any item of income or expense exceeding higher of
1% of revenue from operations or `100,000 whichever is higher vis--vis a threshold for
only Miscellaneous Expenses
Revenue from operations (for non-finance companies) need to be disclosed separately
from Sale of Products / Sale of Services / Other Operating Revenues
Break-up in terms of quantitative disclosures for significant items of P&L Account such
as raw material consumption, inventory, purchases and sales have been simplified and
replaced with the disclosure of broad heads only
The broad heads need to be decided based on materiality and presentation of true and
fair view of the financial statements.
Revised Schedule VI
Page 45
Key changes to Statement of Profit and Loss
(continued)
Revised Schedule VI requires the following additional information to be
given by way of notes:
Broad heads are to be decided taking into account the concept of Materiality
and presentation of True and Fair View of financial statements
Nature of company Disclosures required
Manufacturing companies Raw materials under broad heads
Goods purchased under broad heads
Trading companies Purchases of goods traded under broad heads
Companies rendering or
supplying services
Gross income derived from services rendered under
broad heads
Company that falls in more
than one category
It will be sufficient compliance with the requirements, if
purchases, sales and consumption of raw material and
gross income from services rendered are shown under
broad heads
Revised Schedule VI
Page 46
Key changes to Statement of Profit and Loss
(continued)
Clarification is required from MCA to understand the following :
Whether a manufacturing company should disclose broad heads for both
purchases and consumption of raw material?
What is meant by good purchased in case of manufacturing companies?
While there is a requirement to disclose broad heads of sales and services for
companies falling in more than one category, why is there no requirement to
disclose sales under broad heads for a manufacturing or a trading company?
How should broad heads for Work-in-Progress be disclosed?
Whether broad heads of Opening and Closing Inventory should also be
disclosed?
Revised Schedule VI
Page 47
Key changes to Statement of Profit and Loss
(continued)
In the absence of any guidance the following may be assumed :
A manufacturing company may disclose broad heads for consumption of raw
material only and not for purchases of raw material
Manufacturing companies may also be involved in insignificant volume of
trading. Good purchased in case of manufacturing companies would mean
only traded goods.
Broad heads for sales for a manufacturing or a trading company must also be
disclosed. No clear requirement appears to be a drafting error.
Broad heads for Work-in-Progress should be disclosed in terms of the same
heads disclosed for Sale of Manufactured Goods.
Broad heads of Inventory are not mandatory but, advisable to be disclosed.
Revised Schedule VI
Page 48
Simplification of Disclosures
The following disclosure requirements have been removed/simplified :
Disclosures relating to managerial remuneration and computation of net profits for
calculation of commission
Quantitative information pertaining to Raw Materials consumed, Purchases of Trading
Goods, Opening and Closing Inventory and Sale of Goods
Information relating to licensed capacity, installed capacity and actual production
Information on investments purchased and sold during the year
Investments, sundry debtors and loans & advances pertaining to companies under the
same management
Commission, brokerage and non-trade discounts
Revised Schedule VI
Page 49
Key changes to Statement of Profit and Loss
(continued)Disclosures Practical issue
Whether certain disclosures no longer prescribed under Revised
Schedule VI such as disclosures regarding outstanding amounts and
interest due to Micro, Small and Medium Enterprises can be avoided?
Revised Schedule VI prescribes minimum disclosures
Disclosures required to be made in the financial statements by other applicable laws
and pronouncements by regulatory bodies will still have to be presented
Examples :
Disclosures required by Micro Small and Medium Enterprises Development Act
Disclosures required under Clause 32 of the Listing Agreement
Disclosures required by ICAI Announcement on Derivatives and Unhedged Foreign
Currency Exposures
Disclosures required by ICAI Guidance Note on Employee Share Based Payments
Revised Schedule VI Page 50
Open Issues for Regulators
Revised Schedule VI
Page 51
Open Issues for SEBI
The Balance Sheet format prescribed under Clause 41 of the Listing Agreement, which is on
the lines of existing Schedule VI, will now be inconsistent with the Revised Schedule VI
Balance Sheet format.
Half Yearly Results
Clause 41(V)(h) prescribes a format for presentation of Balance Sheet items at the end of half-
year.
Though the clause specifically acknowledges that the format is drawn from Schedule VI it does
not allow automatic amendment in case of any change/revision in Schedule VI
Until new format is prescribed by SEBI, Companies will have to continue to present Half-Yearly
Balance Sheet in old format.
Annual Audited Results
Clause 41(V)(h) does not refer to any format for annual audited balance sheet.
Two views seem possible Until Clause 41 is amended :
View 1 : Companies can use the format used for annual financial statements, i.e., as per the
revised Schedule VI
View 2 : Companies should use the same format as that used for half-yearly balance sheet.
As per the exposure draft of guidance note on revised schedule VI, this should be in the format of
revised schedule VI. SEBI should take immediate steps to align the formats with new Schedule VI
Revised Schedule VI
Page 52
Open Issues for SEBI
The Balance Sheet and P&L format prescribed under SEBI ICDR
Regulations will also now be inconsistent with Revised Schedule VI.
How should companies deal with this issue?
The formats of balance sheet and P&L account suggested under ICDR Regulations
are clearly stated as illustrative formats
Companies may use Revised Schedule VI format to present the required
information for inclusion in offer document for all 5 years.
Alternatively, use of the illustrative format cannot be totally ruled out since
suggested by SEBI.
Implementation of Revised Schedule VI format may pose practical challenges in
arriving at Current /Non-Current Classification for BS items of the earlier 3 to 5
years
SEBI should take immediate steps to resolve the matter e.g. one solution
could be to allow the existing format to be used for presenting the earlier
years figures when Revised Schedule VI was not in existence/announced
Revised Schedule VI
Page 53
Thank You