aa update revised schedule vi feb12

7/31/2019 AA Update Revised Schedule VI Feb12

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February 2012

ACCOUNTING

AND AUDITING

UPDATE

Revised Schedule VI


2/60 2012 KPMG, an Indian Registered Partnership and a member rm o the KPMG network o independent member rms aliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

1 | Accounting and Auditing Update - February 2012


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EditorialIt is with immense pleasure we bring orth the

February 2012 edition o the Accounting and Auditing

Update.

Schedule VI to the Companies Act, 1956 (Act),

which, prescribes the ormat or presentation o

Balance Sheet and Statement o Prot and Loss by

companies was introduced in 1960 and is almost as

old as the Act itsel. It is inevitable that regulatorsin India have elt the imperative need to marry the

accounting advancements witnessed over the

last two or three decades with that o the manner

in which the nancial inormation is presented.

Further, some o the presentation and disclosure

requirements as set out in the pre-revised Schedule

VI appear to have become outdated and do not

appear to synchronise with the objective o a air

presentation o nancial inormation. Although rom

time to time, the Central Government had amendedSchedule VI, some o the disclosures required

by that Schedule such as licensed capacity, CIF

value o imports, etc. are quite irrelevant rom the

perspective o todays investor.

Furthermore, the current version o Schedule VI

does not require a company to distinguish current

assets rom non-current assets and current liabilities

rom their non-current counterparts. For example, a

security deposit which is likely to be reunded ater

10 years rom the time o origination is likely to be

classied as Loans and Advances and embedded

in the larger Current Assets, Loans and Advances

category which could potentially mislead a reader

into thinking that all Loans and Advances are

current assets. Some o these limitations appear

to have persuaded MCAs move to go ahead with

the implementation o the revised Schedule VI or

periods commencing on or ater 1 April 2011 without

waiting or IFRS convergence in India.

Whilst the existing Schedule VI does not require

companies to classiy their assets and liabilities

into current and non-current, the revised Schedule

VI does so in order to acilitate a air portrayal o the

nancial and liquidity position o a company to the

readers o the nancial statements. The revised

Schedule VI, among other things, has also prescribed

a ormat or Statement o Prot and Loss mandatingclassication o expenses by their nature as opposed

to by unction and added a host o incremental

disclosures. In this publication, apart rom discussing

the specic implementation issues surrounding the

changes brought out by the revised Schedule VI, we

have also attempted to provide a sector specic

impact analysis or ew industries.

We hope you nd this publication insightul. We

would look orward to receiving your eedback

on what you would like us to cover in our uturepublications at [email protected]

2012 KPMG, an Indian Registered Partnership and a member rm o the KPMG network o independent member rms aliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Accounting and Auditing Update - February 2012 | 2

Narayanan Balakrishnan

Partner

KPMG in India


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Revised Schedule VI

Catching up with global trendsThe Ministry o Corporate Aairs (MCA) has issued

revised Schedule VI which lays down a new ormat or

preparation and presentation o nancial statements by

Indian companies or nancial years commencing on or

ater 1 April 2011. The pre-revised Schedule VI had been

in existence or almost ve decades without any majorstructural overhaul. In view o the drastic changes during

this long period in economic philosophy and environmentcoupled with advancements in accounting principles and in

global practices relating to corporate nancial reporting, a

major overhaul o the Schedule was overdue. In this context,

introduction o the revised Schedule is indeed welcome.

The revised Schedule VI introduces some signicant

conceptual changes such as current/non-current distinction,

primacy to the requirements o the accounting standards,

etc. While the revised Schedule does not adopt the

international standard on disclosures in nancial statements

ully, it brings corporate disclosures closer to international

practices. Overall the attempt is largely successul in

modernising and simpliying the Schedule and making itmore relevant to the present needs.

Some o the signicant aspects o the revised Schedule

include:

The revised Schedule to apply to all companies ollowing

Indian GAAP until such companies are required to

ollow International Financial Reporting Standards (IFRS)

converged Indian accounting standards (Ind AS)

Accounting standards and requirements o theCompanies Act, 1956 (Act) to override the requirements

o the revised Schedule, wherever the two are

inconsistent

Inormation to be mandatorily presented on the ace o

nancial statements limited to only broad and signicant

items details by way o notes

Part IV o the pre-revised Schedule (containing balance

sheet abstract and general business prole) dispensed

with

Format o cash fow statement not prescribed hence

companies which are required to present this statement

(i.e., other than small and medium sized companies) tocontinue to prepare it as per AS 3, Cash Flow Statements

Disclosure requirements o various accounting standards

also need to be complied with.

Overview




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Balance sheet

Onlyverticalformofbalancesheetisallowedwith

signicant changes vis--vis the structure o pre-revisedSchedule VI

- Shareholders unds to be shown ater deduction odebit balance o statement o prot and loss.

Reserves and surplus and shareholders unds (i.e.,aggregate o Share Capital and Reserves and Surplus)

could thus be negative gures.

- Miscellaneous expenditure can no longer be shown as

a separate broad heading under Assets. It would be

required to be reclassied depending on the nature o

each such item.

All assets and liabilities to be classied into current

and non-current. This provides useul inormation by

distinguishing assets/liabilities continuously circulating as

working capital or expected to be settled/realised within

12 months rom the balance sheet date rom those used

in long-term operations.- Basic criteria or classiying an item (asset or liability)

as current are:

is the item a constituent o the normal operating

cycle, or

is the item expected to be realised/settled within 12

months o the reporting date

- Current/non-current distinction will have major impact

on classication o accounting inormation and

account heads. Hence, changes would be required in

accounting systems and procedures.

New and signicant disclosures required regardingownership o the company including all shareholdings

above ve percent o any class o shares.

Share options outstanding account recognised as a part

o reserves and surplus.

Detailed disclosures required regarding deaults on

borrowings.

All liabilities to be classied into current and non-current

on the basis o the same criteria o distinction as in the

case o assets.

Non-current liabilities include long-term borrowings,

long-term maturities o nance lease obligations, long-

term trade payables and long-term provisions. Current

liabilities include current maturities o long-term debt

and o nance lease obligations, short-term borrowings,

all borrowings repayable on demand, unpaid matureddeposits/debentures, and short-term provisions.

Intangible xed assets to be disclosed separately.

Investments no longer a broad head to be included

under non-current and current assets categories;

disclosures rationalised.

Long-term loans and advances given not to be clubbedwith current assets.

Cash and cash equivalents to be disclosed separately.

Contingent liabilities distinguished rom commitments.

Disclosure o all material and relevant commitments

required (instead o only capital commitments as per the

pre-revised Schedule).

Statement o prot and loss

Format o statement o prot and loss prescribed

classication o expenses by nature.

Various computations relating to prots (losses) to beshown:

- Prot (loss) beore exceptional and extraordinary items

and tax

- Prot (loss) beore extraordinary items and tax

- Prot (loss) beore tax

- Prot (loss) rom continuing operations

- Prot (loss) rom discontinuing operations

- Prot (loss) or the period.

Quantitative disclosures relating to turnover, raw

materials, purchases, etc. dispensed with. Other

signicant disclosures which have been dispensed with

include capacity and actual production, calculation o

managerial remuneration.

The implications o the revised Schedule are varied and

are expected to present a large number o implementation

issues. Companies will need to plan and implementmodications in accounting systems and procedures to

enable reporting under the revised Schedule. Based on our

analysis o the revised Schedule, this note seeks to provide

an overall understanding o the new requirements while also

discussing some o the implications that may need to beconsidered by preparers o nancial statements.

Date o application

As per the MCAs notication dated 30 March 2011, the

revised Schedule is eective or nancial years commencing

on or ater 1 April 2011. Thus, the pre-revised Schedule VI

would be applicable to the nancial statements or the

year ended 31 December 2011. In view o application o the

revised Schedule or nancial years beginning on or ater 1April 2011, immediate action will need to be taken to eect

requisite changes in accounting systems and procedures.




6/60 2011 KPMG, an Indian Partnership and a member rm o the KPMG network o independent member rms aliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Applicable to all companies

The revised Schedule would apply to all Indian companies till

they are required to ollow IFRS-converged Indian Accounting

Standards (Ind ASs). However, like its predecessor, the

revised Schedule does not apply to banking or insurancecompanies.

In case o companies engaged in the generation and supply

o electricity, the revised Schedule VI may be ollowed by

such companies till the time a ormat is prescribed under the

relevant statute.

Applicability to consolidated nancial

statements

While the revised Schedule has been prescribed in the

context o standalone nancial statements prepared underthe Act, it would apply equally to consolidated nancial

statements. This is due to the requirement o AS 21,Consolidated Financial Statementsthat consolidated nancial

statements should be presented, to the extent possible,

in the same ormat as adopted or the parents standalone

nancial statements. However, it may be noted that as

per AS 21, certain inormation (e.g., CIF value o imports,

oreign currency expenditure and earnings, etc.) disclosed

in standalone nancial statements o the subsidiary and/or

the parent having no bearing on the true and air view o the

consolidated nancial statements need not be given therein.

Thus, the requirements o the revised Schedule will need areview to determine statutory inormation which need not be

given in consolidated nancial statements.

Adherence to the specied nomenclature

The nomenclature specied in the revised Schedule VI should

be ollowed as ar as possible. This would not only ensure

uniormity in presentation o nancial statements by dierent

companies but also ensure that there is no perception o non-

compliance with the requirements o the revised Schedule.

Applicability o general exemptions

The notications issued by MCA in February 2011 granting

exemption rom certain disclosure requirements o pre-

revised Schedule VI would not be applicable in the contexto the revised Schedule. In any case many o the exempted

disclosures are not required under the revised Schedule.

Clause 41 and revised Schedule VI

Listed companies are required to urnish nancial inormation

as per the requirements o Clause 41 o the Equity Listing

Agreement or each quarter in the prescribed ormat. The

presentation and disclosure requirements o Clause 41

override the relevant requirements o AS 25, Interim Financial

Reporting.

A statement o assets and liabilities is required to be included

as a note to the hal-yearly results under Clause 41. Though

the ormat or the statement o assets and liabilities, required

at the end o the hal year, is drawn rom the pre-revised

Schedule VI, it will have to be ollowed till Clause 41 is

revised. This is because Clause 41(V) specically requires

that disclosure o balance sheet items in hal-yearly results

shall be in the ormat specied in Annexure IX drawn rom

Schedule VI o the Companies Act




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The revised Schedule begins with general instructions that

are applicable to both the balance sheet and the statement o

prot and loss.

The next section is titled Part I Form o Balance Sheet. This

section contains (i) a ormat o balance sheet and (ii) general

instructions or preparation o balance sheet. The ormat is in

vertical orm and thus companies would not be permitted to

present their balance sheet in horizontal orm.

The last section is titled Part II Form o Statement o Prot

and Loss. This section contains (i) a ormat o statement o

prot and loss and (ii) general instructions or preparation

o statement o prot and loss. Thus, unlike the present

position, a ormat or prot and loss statement has been

prescribed. The prescribed ormat classies the variousexpenses by their nature. This is a departure rom the

international practice which also permits classication oexpenses by their unction (with additional inormation on

the nature o expenses) e.g., cost o sales, distribution costs,

administrative expenses, etc.

No ormat o cash fow statement has been prescribed in the

revised Schedule. This is perhaps on account o the act that

Section 211 under which Schedule VI is ormulated does notcontain any reerence to cash fow statement. However,

AS 3, Cash Flow Statements, as notied will have to becomplied with by companies to which it applies. AS 3 itsel

provides illustrative ormats o cash fow statement.

The revised Schedule makes it clear that the terms usedtherein have meanings assigned to them in respective

accounting standards. Consequently (and unlike the pre-

revised Schedule), the revised Schedule does not contain

denitions o provision, reserve, capital reserve, revenue

reserve, etc.

The requirement o giving balance sheet abstract and generalbusiness prole, contained in Part IV o pre-revised Schedule

VI, is also not carried orward in the revised Schedule.

The general instructions applicable to both balance sheet

and prot and loss account deal with such matters as primacy

o accounting standards, rounding o, corresponding gures,

etc.

Primacy o accounting standards/other

requirements o the Act

It is specically provided that accounting standards and other

requirements o the Act are primary and would be required

to be complied with. Where compliance with accounting

standards or other requirements o the Act necessitatesany change in the treatment or disclosure including addition,

amendment, substitution or deletion o any head/subhead

etc., the same should be made and the requirements o the

revised Schedule VI shall stand modied accordingly.

It is also specically mentioned that the revised Schedulesets out the minimum requirements or disclosure on the

ace o balance sheet and statement o prot and loss and in

the notes, and that line items, sub-line items and sub-totals

should be presented as an addition or substitution on the

ace o the nancial statements when such presentation

is relevant to an understanding o the companys nancial

position or perormance or to cater to industry/sector-specic

disclosure requirements or when required or compliance

with the requirements o the Act or accounting standards.

For example, prot beore interest, tax, depreciation and

amortisation is considered an important measure o nancial

perormance o a company in certain specic sectors. Hence,the company may choose to present it as an additional line

item on the ace o the statement o prot and loss. Similarly

a company may present additional sub-totals o current

assets and current liabilities on the ace o balance sheet or

highlighting the specic eatures o its liquidity position.The disclosures specied in the accounting standards which

are in addition to those o the revised Schedule, should

be made in the notes to accounts or by way o additional

statement unless required to be disclosed on the ace o

the nancial statements. For example, AS 24, Discontinuing

Operations, requires disclosure o the amount o pre-tax

gain or loss recognised on disposal o assets or settlemento liabilities attributable to the discontinuing operation on the

ace o the statement o prot and loss. This requirement

will have to be complied with, even though the ormat o

statement o prot and loss prescribed in revised Schedule VI

does not contain a requirement to this eect.Similarly, other disclosures required by the Act should also

be made. For example, Section 293A o the Act requires

separate disclosure o donations made to political parties

or or political purposes. Such disclosures will generally be

made in the notes.

In our view, the above approach should also be applied inrespect o disclosures required by regulatory bodies such

as SEBI listing agreement (e.g., clause 32), ICAIs guidance

notes (e.g., Guidance Note on Accounting or Employee

Share-based Payments), ICAIs announcements, the Micro,

Small and Medium Enterprises Development Act, 2006, etc.

Structure of Revised Schedule

General instructions




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Corresponding amountsThe revised Schedule (like the present one) requires

previous year gures to be given along with the current year

gures except in the case o the rst nancial statements

laid beore a company ater its incorporation. It is claried

that corresponding amounts would be required in respecto notes to accounts also. A signicant issue is whether

corresponding gures as per the revised Schedule would

be required to be presented in the rst year o application

o the revised Schedule. Considering that the requirement

to present previous year gures is an integral part o the

revised Schedule, it can be strongly argued that compliance

with the revised Schedule requires compliance with the saidrequirement also. On an overall comparison o the revised

Schedule with the pre-revised one, it seems that though

additional work would be involved in re-working the previous

year gures as per the revised schedule (e.g., to segregate

the current and non-current portions o borrowings,investments, loans and advances, etc), it would generally be

practicable to do so. The act o reclassication/regrouping o

previous year gures to conorm to the requirements o the

revised Schedule would need to be brought out.

To the extent that the corresponding gures are reworkedgures and do not exactly match those presented in the

previous years nancial statements, the auditors would needto examine the reworked gures, even though generally,

the audit report does not specically reer to previous years

gures.

Where, in the specic circumstances o a case, somecorresponding gures are not available even ater due eorts,

the act should be mentioned at appropriate place in the

nancial statements. However, such cases should be rare.

Rounding o

The provisions relating to rounding o have undergone

some change. As per the revised provisions, companies

with turnover o less than INR 100 crore are also permitted

to round o the gures in the nancial statements to the

nearest lakhs or millions, or decimals thereo apart rom to

the nearest hundreds or thousands or decimals thereo. Itis obvious that a company having a very low turnover (say

INR 5 crores) shall select a proper unit (say hundreds or

thousands) so that the nancial statements give a true and

air view o the signicance o detailed items. Companies

with turnover o INR 100 crores or more may round o to the

nearest lakhs, millions or crores, or decimals thereo. In the

pre-revised Schedule VI, companies with turnover between

INR 100 crores to INR 500 crores were permitted to round

o the gures to the nearest hundreds or thousands or lakhs

or millions or decimals thereo the choice o rounding o

to nearest hundreds or thousands is not available under the

revised Schedule. It is specically provided that once a unito measurement is chosen, it should be used uniormly in the

nancial statements including notes to accounts.

Notes to Accounts

Notes to accounts will include narrative descriptions

or disaggregation o items recognised in the nancial

statements and inormation about items that do not qualiy

or recognition in the statements (e.g., contingent liabilities,

commitments, revenue recognition postponed due to

uncertainty).

Striking a balance between important

inormation and excessive inormation

The general instructions also lay down the requirement that

in preparing nancial statements including notes to accounts,

a balance shall be maintained between providing excessive

details that may not assist users o nancial statements andnot providing important inormation as a result o too much

aggregation. Compliance with this requirement is a matter

o judgement based on acts and circumstances o a case. It

must be ensured that important inormation is not obscured

by including it among a large amount o insignicant details

or in a way that obscures important dierences betweenindividual transactions or associated risks.

Accounting and Auditing Update - January 2012 | 6




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As per the revised Schedule, the balance sheet can be

prepared only in vertical orm. Horizontal (or T-orm) o

balance sheet has been done away with. There are, however,signicant broad-level changes in the new vertical orm as

compared with the vertical orm in the pre-revised Schedule.The vertical orm in the pre-revised Schedule purported to

show the aggregate o sources o unds as well

as application o unds. However, the way the total sources

o unds and applications thereo were determined under the

pre-revised Schedule VI gave rise to a number o conceptual

anomalies. For example, the current liabilities and provisions

(without making the distinction o current/non-current) were

deducted rom the aggregate o current assets and loans

and advances. Similarly, the net debit balance o prot and

loss account was not adjusted against reserves. The newvertical orm removes these anomalies and is conceptually

more sound. It shows total assets as well as total equity andliabilities. Total equity or shareholders unds are correctly

disclosed ater deduction o net debit balance o statement

o prot and loss. All liabilities are divided into current and

non-current. Similarly, all assets are also classied into

current and non-current categories. There is no separate

broad heading o miscellaneous expenditure (or debit

balance o the prot and loss account). The above raises the

question o disclosure o miscellaneous expenditure to the

extent not written o or adjusted. Obviously i an item under

this head is an intangible asset it would be so classied.Other items e.g., discount allowed on issue o debentures or

debenture issue expenses would need to be reclassied.

Form of balance sheet

Current/non-current distinction

A signicant change is the requirement to classiy all assets

and liabilities into current and non-current categories. What

constitutes a current asset or a current liability is explicitly

dened (the denitions are essentially the same as in

international standards and had to be given in the Schedulesince they are not presently contained in any notied Indian

Standard). This aspect is discussed in detail in the next

section.

Broad headings o balance sheet

The broad headings under which balance sheet is divided are

equity and liabilities and assets.

Equity and liabilities

Equity and liabilities are divided into:

Shareholders unds (with urther sub-classication on the

ace)

Share application money pending allotment

Non-current liabilities (with urther sub-classication on

the ace)

Current liabilities (with urther sub-classication on the

ace).

Assets

Assets are divided into:

Non-current assets (with urther sub-classication on the

ace)

Current assets (with urther sub-classication on the ace).




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A major conceptual advance in the revised Schedule isintroduction o current/non-current distinction in the balance

sheet. Separate classication o current and non-current

assets and liabilities on the ace o the balance sheet

provides useul inormation by distinguishing the assets/liabilities that are continuously circulating as working capital

or expected to be settled/realised within 12 months rom the

balance sheet date rom those used in long-term operations.

It may be emphasised that current/non-current presentation

is particularly useul in the case o entities which supply

goods or services within a clearly identiable operating cycle.

It may also be mentioned that in the case o entities like

nancial institutions, a presentation o assets and liabilitiesin increasing or decreasing order o liquidity provides more

relevant inormation. However, the revised Schedule VI does

not give this option.

Current asset

The revised Schedule states that an asset shall be classied

as current when it satises any o the ollowing criteria:

a. it is expected to be realised in, or is intended or sale or

consumption in, the companys normal operating cycle

b. it is held primarily or the purpose o being traded

c. it is expected to be realised within 12 months ater the

reporting date or

d. it is cash or cash equivalent unless it is restricted rom

being exchanged or used to settle a liability or at least 12months ater the reporting date.

All other assets shall be classied as non-current.

Current assets include assets such as inventories and trade

receivables that are sold, consumed or realised as part o

the normal operating cycle even when they are not expected

to be realised within 12 months ater the reporting period.

Current assets also include assets held primarily or the

purpose o trading and the current portion o non-current

nancial assets.

Current liabilityAs per the revised Schedule, a liability shall be classied as

current when it satises any o the ollowing criteria:

a. it is expected to be settled in the companys normal

operating cycle

b. it is held primarily or the purpose o being traded

c. it is due to be settled within 12 months ater the reporting

date

d. the company does not have an unconditional right to deersettlement o the liability or at least 12 months ater the

reporting date. Terms o a liability that could, at the option

o the counterparty, result in its settlement by the issue o

equity instruments do not aect its classication.All other liabilities shall be classied as non-current.

Some current liabilities, such as trade payables and some

accruals or employee and other operating costs, are part

o the working capital used in the entitys normal operating

cycle. Such operating items are current liabilities even i they

are due to be settled more than 12 months ater the reporting

period.

Liabilities that are not settled as part o the normal operating

cycle, but are due or settlement within 12 months ater

the reporting period or are held primarily or the purpose o

trading are also current liabilities. Thus, current liabilities alsoinclude current portion o non-current nancial liabilities.

Operating cycle

An operating cycle is the time between the acquisition o

assets or processing and their realisation in cash or cash

equivalents. Where the normal operating cycle cannot be

identied, it is assumed to have a duration o 12 months.

A companys normal operating cycle may be longer than 12months e.g., real estate companies, ship-building companies,

etc. Where a company constructs oce buildings or third

parties and the construction normally takes two to threeyears to complete, the companys construction work in

progress would be classied as a current asset because

construction over two to three years is part o the companys

normal operating cycle.

The same normal operating cycle applies to the classication

o both assets and liabilities.

I a company has dierent operating cycles or dierent

parts o the business (e.g., retail and construction), then theclassication o an asset as current is based on the normal

operating cycle that is relevant to that particular asset. The

company would not identiy a single operating cycle.

I a liability is part o the working capital used in the entitys

normal operating cycle, then it is classied as current eveni it is due to be settled more than 12 months ater the

reporting date. For example, an entity develops sotware or

third parties that takes two years to complete and receives

payment or this service upront.

Issues relating to current/non-current classication




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These are sub-classied as ollows on the ace o the balancesheet:

- Share capital

- Reserves and surplus

- Money received against share warrants.

Share capital

Disclosures relating to share capital (to be given in the notes)

are more detailed than those in the pre-revised Schedule. The

ollowing aspects are particularly noteworthy.

Illustrations

A liability that is payable on demand at the reporting date

is a current liability because the entity does not have an

unconditional right to deer settlement or at least 12

months ater the reporting date.

A term loan rom a bank is usually subject to certain

debt covenants. A breach o a minor covenant such as

ling o inormation in the last quarter may result in the

bank legally having a right to recall the loan. However,

the bank has not demanded repayment till the time

nancial statements are approved. Further, based on

past experience, the managements assessment is thatsince, the deault is minor, the bank will not recall the loan.

In such cases, the loan will continue to be classied as

non-current. Though it can be argued that the company

does not have unconditional right to deer the repayment,

it needs to be noted that in the Indian context, the

stipulation o the loan becoming repayable on demand on

breach o a covenant is generally added in the terms and

conditions only as a matter o abundant caution and banks

generally do not demand repayment o term loans on

such minor deaults o debt covenants.

Loan which is repayable on demand rom day one (e.g.,

normal bank overdrat) would be classied as current

even i the bank does not demand repayment at any time.

Long-term employee benets within the meaning o AS

15, Employee Benefts, should be accounted or as such

in their entirety. However, an entity should distinguishbetween current and non-current portions o obligations

arising rom long-term employee benets i it does not

have the ability to deer payment beyond 12 months

rom the reporting date. For example, an employee is

eligible to receive an additional ve weeks leave ater

providing 10 years o continuous service to an employer;

i the additional leave is not taken during employment,then it will be paid upon termination o employment/

resignation. The additional leave is a long-term employee

benet even ater the benet becomes unconditional

(i.e., ater the employee provides 10 years o continuous

service). However, ater the end o year nine, the entity nolonger has the ability to deer settlement o the obligation

beyond 12 months rom the reporting date, and thereore,

it can be argued that it should be presented as current in

the balance sheet. The actuaries should be requested to

provide the amount o current & non-current portions osuch a liability.

Provisions (or portions thereo) have also to be classied

as non-current and current.

An advance along with an order or supply o merchandise

in which the entity trades, with supply to be made within

six months rom the reporting date, would be a current

liability.

A trade receivable with a stated and normal credit term

o three months shall be classied as non-current i it is

not expected to be realised within 12 months rom the

reporting date.

Debentures issued by an entity whose current accountingyear ends on 31 March 20X1 are due to mature on 30

November 20X1. As per the terms o issue, upon maturity,

the debentureholders have an option to either redeem the

debentures in cash or convert them into a xed number

o equity shares o the company. The share price o the

company as at 31 March 20X1 as well as around the date

o nalisation o the accounts makes it highly probable

that debentureholders will opt or conversion rather than

cash redemption.

Since the option o conversion or cash redemption iswith the debentureholders, not with the company, the

company does not have an unconditional right to deer

settlement o the debentures or at least 12 months

rom 31 March 20X1. Hence, the debentures should be

classied as current.

A manuacturing company with a normal operating cycle

o 18 months gives a loan to a sister concern which is

acing liquidity problem. The loan is repayable 15 months

ater the reporting date. Giving o such loans is not a part

o normal operating cycle o the company. Further, the

loan is not held or the purpose o being traded, nor is it

cash or cash equivalent. The loan should be classied asnon-current.

Shareholders funds




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The revised Schedule states that dierent classes

o preerence share capital to be treated separately.

Thus, i a company has issued, say, 8 percent optionallyconvertible preerence shares and 11 percent redeemable

preerence shares, these would be disclosed as twoseparate classes o shares or purposes o the Schedule.

or each class o shares, disclosure is required, inter alia,

o:

a. the number and amount o shares authorised

b. the number o shares issued, subscribed and ully

paid, and subscribed but not ully paid

c. par value per share

d. a reconciliation o the number o shares outstanding at

the beginning and at the end o the reporting period.

Unlike the pre-revised Schedule, there is no requirementto disclose the amount called up per share. Consequently,

the requirement o pre-revised Schedule to present callsunpaid as a deduction or called up capital is also not

carried orward in the revised Schedule. Though there is

no requirement to disclose the amount per share called,

i shares are not ully called-up, it would be appropriate to

state the amount per share called up. Also, in the revised

Schedule, calls unpaid are required to be disclosed (as

a note), stating separately the aggregate value o calls

unpaid by directors and ocers o the company. The

terms director and ocer should be interpreted based

on the denitions in the Act. As per Section 92 o the Act, a company, i so authorised

by its Articles, may accept calls in advance rom

shareholders. The shareholder who has paid the money

in advance is not a creditor or the amount so paid as

advance, since it cannot be demanded or repayment

(unless Articles so provide). The amount o calls paid in

advance does not orm part o the paid-up capital. Therecan be a view that calls in advance are akin to share

application money pending allotment (i.e., not due or

reund) and should thereore, be so disclosed. However,

as per a circular o the Department o Company Aairs,

it is better to show calls in advance under CurrentLiabilities and Provisions (Letter No. 8/16(1)/61-PR,

dated 9.5.1961). Thus, under the revised Schedule, calls

in advance should be disclosed under Other Current

Liabilities. The amount o interest, i any, on such advance

should also be disclosed as a liability.

For each class o shares, a reconciliation o the number

o shares outstanding at the beginning and at the end

o the reporting period is required. This seems to be a

response to the malpractice o issuing a larger number

o shares than represented by the amount o paid up

capital as disclosed in the balance sheet. In order to

make the disclosure more relevant to the understandingo share capital, the reconciliation should also be given

or the amount o each class o share capital. Keeping in

view the requirement to give corresponding gures, the

reconciliation should be given or the previous year as

well.

The rights, preerences and restrictions attaching to each

class o shares, including restrictions on the distribution

o dividends and the repayment o capital have to bedisclosed.

Disclosure is required o shares in respect o each class in

the company held by its holding company or its ultimate

holding company including shares held by subsidiaries or

associates o the holding company or the ultimate holdingcompany in aggregate. It seems that the requirement is

aimed at bringing clarity regarding the identity o ultimate

owners o the company.

Reerence should be made to the relevant accounting

standards (AS 21, Consolidated Financial Statementsand

AS 18, Related Party Disclosures) or the denitions o theterms subsidiary, holding company and associate. In

view o these denitions, the aorementioned disclosurewould cover the shares held by the entire chain o holding

companies, rom immediate holding company to ultimate

holding company, and associates o these companies as

well as those held by ellow subsidiaries. However while

shares (equity as well as preerence) held by subsidiaries

and associates o the holding company or ultimate holding

company are covered, shares held by a joint venture

o the holding company or ultimate holding company

are not required to be included. Similarly it seems that

shares held by associates and joint ventures o ellowsubsidiaries are not required to be disclosed.

The pre-revised Schedule required disclosure o thenumber o shares held by the holding company as well as

by the ultimate holding company and its subsidiaries. The

revised Schedule adds associates to this list.




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Disclosure is required o shares in the company held by

each shareholder holding more than 5 percent shares o

each class, speciying the number o shares held. Theobjective again seems to be to provide clarity regarding

the owners o the company. The revised Schedule doesnot prescribe any particular date or applying the above

parameter i.e., whether the limit o ve percent should

be with reerence to any time during the year or as at

the reporting date. In the absence o clarity, the relevant

percentage may be computed with reerence to the

position as at the end o the nancial year. For example,

i during the year, any shareholder held more than ve

percent equity shares but does not hold as much at

the balance sheet date, disclosure need not be made.

It may be reiterated that the percentage should becomputed separately or each class o shares outstanding

within equity and preerence shares. As with any otherdisclosure under the Schedule, inormation would be

required or the previous year also. The percentage

holding o ve percent needs to be computed individually

at the level o a shareholder rather than aggregated or a

group.

Shares reserved or issue under options and contracts/

commitments or the sale o shares/disinvestment,

including the terms and amounts, should be disclosed.

The pre-revised Schedule VI required disclosure o

particulars o only any option on un-issued share capital.

Disclosure is required o the ollowing or the period o

ve years immediately preceding the date o the balancesheet:

- Aggregate number and class o shares allotted as ullypaid up pursuant to contracts without payment being

received in cash

- Aggregate number and class o shares allotted as ully

paid up by way o bonus shares

- Aggregate number and class o shares bought back.

The above disclosures are required or a ve-year period

including current year. Each o the above disclosures is

required on an aggregate basis or the ve-year period,and not or each individual year.

The pre-revised Schedule VI also required disclosuresmentioned in the rst two bullet points above but did not

limit the period o such disclosure to a period o 5 years.

Further, it required disclosure o the source rom which

bonus shares were issued; this requirement is not carried

orward in the revised Schedule.

The ollowing cases are not instances o shares allotted

pursuant to contracts without payment being received in

cash

- I the subscription amount payable by the allottee is

adjusted against a bona de debt payable in money at

once by the company

- Conversion o loan into shares in the event o deault

in repayment.

Terms o any securities issued that are convertible into

equity/preerence shares have to be disclosed along

with the earliest date o conversion in descending order

starting rom the arthest such date. This requirement

would apply irrespective o whether the convertibility

into equity/preerence shares is compulsory or at the

option o either the company or the holder o the security.

Preerence shares that are convertible into equity shareswould also be covered by the requirement. Where

conversion is to take place (compulsorily or optionally) in

tranches, all the dates o conversion have to be reported.Similar treatment would be required in case o ESOPs

with graded vesting eatures. As regards convertible

bonds or debentures, etc. reerence may be made to the

relevant note disclosed under borrowings, etc. rather than

disclosing the same again under this clause.

Foreited shares (amount originally paid up) should bedisclosed.

Reserves and surplus

In the notes, reserves and surplus are required to be

classied as ollows:

a. Capital reserves

b. Capital redemption reserve

c. Securities premium reserve

d. Debenture redemption reserve

e. Revaluation reserve

. Share options outstanding account

g. Other reserves (speciying the nature and purpose o each

reserve and the amount in respect thereo). An example

o such a reserve would be Foreign Currency Translation

Reserve arising on translation o nancial statements o anon-internal oreign operation

h. Surplus i.e., balance in statement o prot and loss,

disclosing allocations and appropriations such as dividend,

bonus shares and transer to/rom reserves, etc.




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Additions and deductions since the last balance sheet are

required to be shown under each o the specied items.

The pre-revised Schedule VI required that in case there was

debit balance in the prot and loss account, uncommitted

reserves should rst be deducted thererom. The remaining

balance, i any, ater such deduction was required to be

disclosed on the assets side o the balance sheet (or under

application o unds in the vertical orm o balance sheet).In the revised Schedule, it is explicitly provided that debit

balance o prot and loss shall be shown as a negative

gure under the head surplus under shareholders unds.

Similarly, the balance o reserves and surplus, ater

adjusting negative balance o surplus, i any, shall be shown

under the head reserves and surplus even i the resulting

gure is in the negative.

Share options outstanding account has been specicallyrecognised as a separate item under reserves and surplus.

The pre-revised Schedule VI did not speciy the manner o

disclosure o share options outstanding account. However,

ICAIs Guidance Note on Accounting or Employee Share-

based Payments requires the credit balance in the stock

options outstanding account to be disclosed in the balance

sheet under a separate heading, between share capital and

reserves and surplus as part o the shareholders unds.

Considering that the revised Schedule prescribes a specic

requirement or disclosure o share options outstandingaccount and such a requirement can be superseded only

by the requirement o an accounting standard (and not a

guidance note), the requirement o the revised Schedulewould need to be ollowed.

It may be noted that the above would also impact the balance

o reserves and surplus to be considered or compliance with

various provisions o law - thus the balance o share optionsoutstanding account would now be considered as part o

the reserves to determine the applicability o Companies(Auditors Report) Order, 2003 (CARO).

Money received against share warrants

Share warrants are issued to promoters and others in terms

o the Guidelines or preerential issues o SEBI (Issue o

Capital and Disclosure Requirements), Guidelines, 2009 in

the case o listed companies and as per the Unlisted Public

Companies (Preerential Allotment) Rules, 2003 in the case o

unlisted public companies. The revised Schedule specically

requires money received against share warrants to be

disclosed as a separate line item as part o shareholdersunds this is on the basis that money received against

share warrants represents amount which would ultimatelyorm part o either the Share Capital or Reserves and

Surplus. The pre-revised Schedule VI did not contain such a

requirement.




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Unlike its predecessor, the revised Schedule contains

specic requirements in this regard. On the basis o its

economic substance, share application money pending

allotment, is required to be divided into two parts the part

against which shares will be allotted is in the nature o equityand the part which is due or reund is in the nature o liability.

Share application money pending allotment (and not due

or reund) has to be shown as a separate category under

the head Equity on the ace o the balance sheet but is not

included in shareholders unds. However, share application

money (or application money or other securities) which

is due or reund (e.g., in the event o over-subscription, orminimum subscription requirement not met) has to be

presented under other current liabilities along with interest

accrued thereon, i any.

In case o share application money pending allotment,

the terms and conditions including the number o shares

proposed to be issued, the amount o premium, i any, and

the period beore which shares shall be allotted have to be

disclosed. It has also to be disclosed whether the companyhas sucient authorised capital to cover the share capital

amount resulting rom allotment o shares against shareapplication money. Further, the period or which the share

application money has been pending beyond the stipulated

period or allotment along with the reasons or delay should

be disclosed. Apart rom being an investor protection

measure, this disclosure is also likely to act as a check against

the practice by some companies that receive substantial

unds in the guise o share application money rom their

parent company or others against which the shares are not

allotted or several years. In some cases, the shares are not

allotted and the money is reunded ater a ew years. In suchcases, the true nature o unding is that o a loan.

Non-current liabilities are required to be classied under

the ollowing our sub-heads on the ace o the balance

sheet.

Long-term borrowings

Deerred tax liabilities (net)

Other long term liabilities

Long-term provisions.

It may be noted that net deerred tax liabilities are required

to be classied as non-current in their entirety (rather than

making an analysis o the amounts reversible within a

short period and others). The requirement to distinguish

long-term provisions rom short-term provisions has a

sound conceptual basis.

Long-term borrowings

Long-term borrowings are to be urther classied into the

ollowing categories in the notes:

a. Bonds/debentures

b. Term loans

- rom banks

- rom other parties

c. Deerred payment liabilities

d. Deposits

e. Loans and advances rom related parties

. Long term maturities o nance lease obligationsg. Other loans and advances (speciying nature).

Though the phrase long-term has not been dened, it

seems rom the context that this phrase has been used as

a synonym or non-current.

Share application money pending allotment

Non-Current Liabilities




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The ollowing disclosure requirements are noteworthy:

Each category o borrowing should be classied as

secured or unsecured and the nature o security should

be specied in each case. Thus, a blanket disclosure o

security covering all loans classied under the same

item such as all term loans rom banks will not suce.

However, where one security is given or multiple

loans, the same may be clubbed together or disclosurepurposes with adequate details or cross reerencing.

The disclosure about the nature o security should also

cover the type o asset given as security e.g., inventories,

plant and machinery, land and building, etc. This is

because the nature o these assets may not be the same

and the extent to which loan is secured may vary with thenature o asset against which it is secured.

When promoters, other shareholders or any third partyhave given any personal security or any borrowing, such

as shares or other assets held by them, disclosure should

be made thereo, though such security does not result inthe classication o such borrowing as secured.

Non-current loans and advances rom related parties are

required to be shown separately under each head o

long-term borrowings.

It may be noted that to some extent, the above disclosure

would also be covered separately as part o disclosures

under AS 18, Related Party Disclosures.

Advances taken or goods and services to be suppliedare arguably not borrowings and thereore, where they

need to be presented is a moot question. While an

advance means a payment beorehand, in all cases a

sum paid by way o advance is not a loan. Thus, it can be

argued that only advances which are in the nature o loans

should be disclosed as part o borrowings.

The revised Schedule requires disclosure o period and

amount o continuing deault as on the balance sheet

date in repayment o loans and interestunder long term

borrowings. Similarly, disclosure is required o period

and amount o deault as on the balance sheet date

in repayment o loans and interestunder short term

borrowings. There was no such requirement in the

pre-revised Schedule. However, at present, deaultsin repayment o dues to nancial institutions, banks or

debenture holders are required to be reported by the

auditor under the CARO.

The revised Schedule does not dene the term loan with

regard to which disclosure o deault/continuing deault

(as applicable) has to be given. In general commercialparlance, the term loan means a lending; advance with

absolute promise to repay; delivery o money by one

party and receipt by another on agreement, express

or implied, to repay. Thus, a loan would also include

borrowings in the orm o bonds, debentures, etc. and

would not be restricted to just borrowings rom banks and

nancial institutions (as is the case or reporting under

CARO). Thus, disclosure o deault will be required withregard to loans (rom banks and nancial institutions as

well as rom other parties), bonds, debentures, etc. Inother words, the term loan used in the revised Schedule

should be viewed as a synonym or borrowing. Hence,

the disclosures relating to deault should be made or all

items listed under any category o borrowings.

The relevant disclosure would be required only in respect

o deault in repayment o principal and interest. Other

deaults such as non-compliance with other terms,

debenture indenture, etc. would not be required to be

disclosed.

For long-term borrowings, it is provided that period and

amount o continuing deault as on the balance sheetdate in repayment o loans and interest shall be specied

separately in each case. With respect to short-term

borrowings, the revised Schedule requires only deault in

repayment to be disclosed. However, in our view, it would

be prudent that i the deault in repayment o principal and

interest exists on the date o balance sheet, it should be

disclosed.

The term deault should be construed to mean non-

payment o dues to banks, nancial institutions or other

parties rom whom borrowings are raised, on the last

dates specied in the relevant documents, etc. as the

case may be. For example, in the case o term loans, xeddates are prescribed or repayment in the agreement or

terms and conditions o the loans. The dates prescribed

or repayments would operate as the last dates and delaybeyond this period would amount to deault.

The revised Schedule requires disclosure o the period

and amount o continuing deault as on the balance

sheet date. Hence, it would be prudent that all relevant

deaults subsisting as at the date o the balance sheet

are disclosed whether they arose in the current yearor previous year even i they are made good ater the

balance sheet date but beore date o approval o the

nancial statements. (However i the deault has beenmade good ater the balance sheet date but beore the

approval o the nancial statements, it is advisable that

this act is mentioned.) Any deault that occurred during

the current year but was made good beore the date o

the balance sheet may not be disclosed. Similarly, any

deault made ater the balance sheet date but beore the

date o approval o the nancial statements need not be

disclosed.




18/60

What constitutes continuing deault has not been

dened. However, considering that the deault can

normally arise or the portion that is currently payable

(which would be disclosed under current liabilities), it

seems that there would usually not be a deault to be

reported or long-term borrowings. The revised Schedule states that where loans have been

guaranteed by directors or others, the aggregate amount

o such loans under each head shall be disclosed. The

word others would mean any person or entity other

than a director. Thereore, it is not restricted to mean only

related parties (though in the normal course, a person or

entity guaranteeing a loan o a company will generally be

associated with the company in some manner). The pre-

revised Schedule required disclosure o loans guaranteed

by directors or manager only. The disclosures under

the revised Schedule, on the other hand, cover all loans

guaranteed by any party. Bonds/debentures are to be stated in descending

order o maturity or conversion, starting rom arthest

redemption or conversion date, as the case may be along

with the rates o interest and particulars o redemption or

conversion, as the case may be. Where bonds/debenturesare redeemable by installments, the date o maturity or

this purpose is the date on which the rst installment

becomes due.

Particulars o any redeemed bonds/debentures which the

company has power to reissue shall be disclosed.

Terms o repayment o term loans and other loans shouldbe stated. This should include the period o maturity,

number and amount o installments to be repaid, the

applicable rate o interest and other signicant relevant

terms, i any. Disclosure o terms o repayment should

be made or each loan unless the repayment terms ovarious loans within a category are similar, in which case,

disclosure may be made on a category basis.

Term loans rom banks are separately required to be

disclosed under long-term borrowings (except or the

portion qualiying as current). It is noteworthy that bankloans repayable on demand are classied under current

liabilities even though such loans are seldom recalled.

The phrase term loan has not been dened in the revised

Schedule. The same may be construed as those having

a xed or pre-determined maturity period or repayment

schedule. Thus, or purposes o the revised Schedule,non-current term loans may be construed as those

which are not payable within 12 months o the reporting

date. In case the repayment is by way o installments,

the installments repayable within 12 months would be

classied as current and the rest o the amount as non-

current.

Only such portions o nance lease obligations as do notqualiy as current are to be included under long-term

borrowings. In other words, nance lease obligations

should be biurcated into their respective current and non-

current portions.

Deerred payment liability would include any liability

or which payment is to be made on deerred credit

terms. e.g., deerred sales tax liability, deerred

payment or acquisition o xed assets, etc. Under such

circumstances, the liability is classied as deerred

payment liability ater considering the entire creditperiod. However, only those portions o deerred

payment liabilities that are non-current based on the

criteria specied under the revised Schedule (i.e.,

remaining credit period o more than 12 months rom the

balance sheet date) shall be disclosed under long-term

borrowings.

Deerred tax liabilities

The amount o deerred tax liabilities (net) is required to be

disclosed on the ace o the balance sheet ater long-term

borrowings as part o non-current liabilities. The deerred

tax liabilities (net o deerred tax assets) will be classied as

non-current liabilities in entirety even where a part thereo

is expected to reverse within a period o 12 months. While

the pre-revised Schedule was silent on the disclosure o net

deerred tax liability (or asset), AS 22, Accounting or Taxes on

Income, requires deerred tax liabilities (net o the deerred

tax assets) to be disclosed on the ace o the balance sheet

separately ater the head unsecured loans. There is thus nosubstantive impact due to the above change in Schedule VI.

Other long-term liabilities

Other long term liabilities are required to be sub-classiedin the notes as

a. Trade payables: Only those amounts due on account

o goods purchased or services received in the normal

course o business which are non-current would be

disclosed here. Acceptances should also be classied

as trade payables. It may be noted that i a trade

payable is expected to be settled in the companys

normal operating cycle (even i the cycle is longer than

12 months) it would be classied as current. Thereore,

an amount should be disclosed here only i it isexpected to be settled beyond the normal credit period

and beyond 12 months rom the reporting date.

b. Others: Non-current items such as dues payables in

respect o statutory obligations, purchase o xedassets, contractually reimbursable expenses, and

interest accrued on trade payables should be classied

as others and each such item should be disclosed

nature-wise.

As per the pre-revised Schedule VI, the term sundry

creditors included, apart rom amounts due in respect o

goods purchased or services received, the amounts due in

respect o other contractual obligations as well. However,

the revised Schedule requires disclosure o trade payables.

The amounts due under other contractual obligations cannotbe included within trade payables; such amounts should be

classied as others and disclosed nature-wise.




19/60

The revised Schedule does not require disclosure o dues to

micro, small and medium enterprises. However, the Micro,

Small and Medium Enterprises Development Act, 2006

(MSMED Act) requires specied disclosures in nancial

statements o the buyers relating to delayed payments and

outstanding amounts to suppliers that are micro and smallenterprises. Thus, to the extent the disclosures are required

by the MSMED Act, they will have to be still given.

Long term provisions

Long-term provisions are required to be sub-classied in

the notes into (i) provision or employee benets, and (ii)

others (speciying nature).

The pre-revised Schedule required separate disclosure

o provisions or provident und scheme and insurance,

pension and similar sta benet schemes. A single

amount o (long-term) provision or employee benets

is required to be disclosed under the revised Schedule.

Provision or employee benets to be shown under long-term provisions would not cover amounts that amounts

that qualiy as current liabilities.

Long term provisions other than those or employeebenets are required to be shown under others,

speciying nature.




20/60

These are required to be sub-classied on the ace o the

balance sheet as below:

a. Short-term borrowings

b. Trade payables

c. Other current liabilities

d. Short-term provisions.

Short-term borrowings

Short-term borrowings are required to be urther classied in

the notes as below:

a. Loans repayable on demand

- rom banks

- rom other partiesb. Loans and advances rom related parties

c. Deposits

d. Other loans and advances (speciying nature).

Following disclosures are required in respect o each sub-head:

Each category o borrowing should be classied as

secured or unsecured and the nature o security shall

be specied in each case. Thus, a blanket disclosure osecurity covering all loans classied under the same item

will not suce. However, where one security is given

or multiple loans, the same may be clubbed togetheror disclosure purposes with adequate details or cross

reerencing.

The disclosure about the nature o security should also

cover the type o asset given as security e.g., inventories,plant and machinery, land and building, etc. This is

because the nature o these assets may not be the same

and the extent to which loan is secured may vary with the

nature o asset against which it is secured.

When promoters, other shareholders or any third party

have given any personal security or any borrowing, such

as shares or other assets held by them, disclosure shouldbe made thereo, though such security does not result in

the classication o such borrowing as secured.

Loans and advances rom related parties are required

to be shown separately under each head o short-term

borrowings.

It may be noted that to some extent, the above disclosure

would also be covered separately as part o disclosures

under AS 18, Related Party Disclosures.

Advances taken or goods and services to be supplied

are arguably not borrowings and thereore, where theyneed to be presented is a moot question. It can be

argued that such advances o a current nature should be

disclosed as an item under Other Payables (which is a

sub-category o Other Current Liabilities) and not as part

o Other loans and advances. While an advance meansa payment beorehand, in all cases a sum paid by way o

advance is not a loan. Thus, it is only advances which arein the nature o loans that should be disclosed as part

o Other loans and advances.

The revised Schedule requires disclosure o period

and amount o deault as on the balance sheet date

in repayment o loans and interestunder short termborrowings. There was no such requirement in the

pre-revised Schedule. However, at present, deaults

in repayment o dues to nancial institutions, banks or

debenture holders are required to be reported by the

auditor under the CARO.

The revised Schedule does not dene the term loan withregard to which disclosure o deault has to be given. In

general commercial parlance, the term loan meansa lending; advance with absolute promise to repay;

delivery o money by one party and receipt by another on

agreement, express or implied, to repay. Thus, disclosure

o deault will be required with regard to loans, etc. rom

banks as well as rom other parties. In other words, the

term loan used in the revised Schedule should be viewed

as a synonym or borrowing. Hence, the disclosures

relating to deault should be made or all items listed

under any category o borrowings.

The relevant disclosure would be required only in respecto deault in repayment o principal and interest. Other

deaults such as non-compliance with other terms,

debenture indenture, etc. would not be required to be

disclosed.

The term deault should be construed to mean non-

payment o dues on the last dates specied in the relevant

documents, etc. as the case may be.

The revised Schedule requires disclosure o the period and

amount o deault as on the balance sheet date. Hence,

it would be prudent that all relevant deaults subsisting

as at the date o the balance sheet are disclosed eveni they are made good ater the balance sheet date but

beore the date o approval o the nancial statements.

(However, i the deault has been made good ater the

balance sheet date but beore the approval o the nancial

statements, it is advisable that this act is mentioned.)

Any deault that occurred during the current year but was

made good beore the date o the balance sheet may not

be disclosed. Similarly, any deault made ater the balance

sheet date but beore the date o approval o the nancial

statements need not be disclosed.

Current Liabilities




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The revised Schedule states that where loans have been

guaranteed by directors or others, the aggregate amount

o such loans under each head shall be disclosed. Theword others would mean any person or entity other

than a director. Thereore, it is not restricted to mean onlyrelated parties (though in the normal course, a person or

entity guaranteeing a loan o a company will generally be

associated with the company in some manner). The pre-

revised Schedule required disclosure o loans guaranteed

by directors or manager only. The disclosure under the

revised Schedule, on the other hand, covers all loans

guaranteed by any party.

Current maturities o long-term borrowings are not to be

classied as short-term borrowings; rather, they have to be

classied under other current liabilities.

Trade payables

This head would cover amounts payable in respect o goods

purchased or services received in the normal course o

business (except to the extent classied as non-current).

Other current liabilities

Other current liabilities are required to be sub-classied in the

notes into the ollowing categories:

a. Current maturities o long-term debt

b. Current maturities o nance lease obligations

c. Interest accrued but not due on borrowings

d. Interest accrued and due on borrowings

e. Income received in advance

. Unpaid dividends

g. Application money received or allotment o

securities and due or reund and interest accrued thereon

h. Unpaid matured deposits and interest accrued thereon

i. Unpaid matured debentures and interest accrued thereon

j. Other payables (speciying nature).

In case o interest accrued but not due on borrowings, only

the current portion should be classied above and the

non-current portion should be disclosed under non-current

liabilities. As per the pre-revised Schedule, interest accrued

and due on borrowings was included in the carrying amount

o the related borrowing.

In the case o share application money due or reund and

interest accrued thereon, the period or which the money has

been pending beyond the period or allotment as mentioned

in the document inviting application or shares along with

the reason or such share application money being pendingshould be disclosed.

Other payables would include amounts in the nature o

statutory dues such as withholding taxes, service tax, etc.

Short-term provisions

Like long-term provisions, short-term provisions are also

required to be categorised in the notes into two categories:(i) provisions or employee benets, and (ii) others (speciying

nature).

Others would include all provisions other than provisions

or employee benets such as provision or dividend,

provision or taxation, warranty provision (which is current in

nature), etc. These amounts should be disclosed separately,

speciying the nature thereo.

There is no specic requirement to show proposed dividends

under provisions. Instead, it is required that the amount o

dividends proposed to be distributed to equity and preerence

shareholders or the period and the related amount per share

shall be disclosed separately. One possible interpretationcan be that since proposed dividend is considered as not

representing a present obligation on the balance sheet, itno longer need/can be provided or. However, it needs to be

noted that as per AS 4, Contingencies and Events Occurring

Ater the Balance Sheet Date:

14. Dividends stated to be in respect o the period covered

by the fnancial statements, which are proposed or declared

by the enterprise ater the balance sheet date but beore

approval o the fnancial statements, should be adjusted.

Thus, even in the absence o any specic requirement in the

revised Schedule, dividends will have to be recognised as per

the requirements o AS 4.It may also be mentioned that with regard to arrears o xed

cumulative dividends, the pre-revised Schedule required a

company to disclose the amount o arrears or each class o

preerence shares beore deduction o income tax (except in

the case o tax ree dividends) and period o arrears. In case

such dividend was tax ree then the act needed to be stated.

The revised Schedule requires disclosure o only arrears o

xed cumulative dividends i.e., the period o arrear and tax

position need not be stated.




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The revised Schedule VI makes a clear distinction between

contingent liabilities and commitments.

Contingent liabilities

These are to be sub-classied into:

a. Claims against the company not acknowledged as debt

b. Guarantees (the separate disclosures required by the pre-

revised Schedule regarding guarantees given on behal o

directors/other ocers are not required, though some o

these would nevertheless require to be disclosed under

AS 18)

c. Other money or which the company is contingently liable.

AS 29, Provisions, Contingent Liabilities and Contingent

Assets, should be applied or identiying contingent liabilities.

A contingent liability in respect o guarantees arises when

a company issues guarantees to another person on behal

o a third party e.g., when it undertakes to guarantee the

loan given to its subsidiary. However, where a company

undertakes to perorm its own obligations, and or this

purpose issues, what is called a guarantee, it does not

represent a contingent liability and it would be incorrect

to show such items as contingent liabilities in the nancial

statements. Similarly, or various reasons, it is customary

or guarantees to be issued by the bankers o the company

e.g., or payment o insurance premia, deerred payments

to oreign suppliers, letters o credit, etc.; in such cases, thecompany may issue a counter-guarantee to the bankers.

Such counter-guarantee is not really a guarantee at all, but is

an undertaking to perorm what is in any event the obligation

o the company, namely, to pay the insurance premia when

demanded or to make deerred payments when due. Hence,

such perormance guarantees and counter-guarantees

should not be disclosed as contingent liabilities.

Commitments

These include:

a. Estimated amount o contracts remaining to be executed

on capital account and not provided orb. Uncalled liability on shares and other investments partly

paid

c. Other commitments (speciying nature).

The pre-revised Schedule required disclosure o estimated

amount o contracts remaining to be executed on capitalaccount and not provided or (i.e., capital commitments)

as well as uncalled liability on shares and other

investments partly paid. The revised Schedule, in addition

to these commitments, also requires disclosure o other

commitments. Since the number o commitments o

a company at any given point o time is very large, the

nature o other commitments which require disclosuremerits consideration. It seems that disclosure should be

made in respect o only those non-cancellable contractual

commitments (i.e., cancellation o which will result in a

penalty disproportionate to the benets involved) based

on the proessional judgement o the management whichare material and relevant in understanding the nancial

statements o the company and impact the decision making

o the users o nancial statements. Some examples can

be commitments relating to acquisition o intangible assets;

purchase, construction, or development o investment

property; agreement or purchase o business; buy-back

arrangements; commitments to und subsidiaries, etc.

In this context, it is relevant to note that disclosures relating

to lease commitments or non-cancellable leases are

required by AS 19, Leases.

Contingent Liabilities and Commitments and other notes




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Accounting and Auditing Update - December 2011 | 18

Other Notes

These include the ollowing:

Where in respect o an issue o securities made or a

specic purpose, the whole or part o the amount has notbeen used or the specic purpose at the balance sheet

date, there shall be indicated by way o a note how such

unutilised amount has been used or invested.

I, in the opinion o the Board, any o the assets other than

xed assets and non-current investments do not have avalue on realisation in the ordinary course o business at

least equal to the amount at which they are stated, the

act that the Board is o that opinion, shall be stated.

A similar requirement existed in the pre-revised Schedule

also. In this regard, it may be noted that usually i

any asset (other than xed assets and non-currentinvestments) has a realisable value that is lower than

its carrying value, the carrying value o that asset isappropriately adjusted in the nancial statements.

For example, AS 2, Valuation o Inventoriesrequires

inventories to be valued at the lower o cost and net

realisable value. Further, allowance or bad and doubtuldebts is required to be shown as a deduction rom long

term loans and advances, other non-current assets, tradereceivables and short-term loans and advances. Hence,

a diligent application o the requirements o accounting

standards and the revised Schedule VI will normally result

in no disclosure having to be made pursuant to the above

requirement.

The amount o dividends proposed to be distributed to

equity and preerence shareholders or the period and the

related per share amount.

Arrears o xed cumulative dividends, i any, on

preerence shares should be disclosed.

Disclosures required by other applicable laws or

pronouncements issued by regulatory bodies, e.g.,

MSMED Act, Clause 32 o the Listing agreement.




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As in the case o liabilities, assets are also to be classied

under two broad categories i.e., non-current assets

and current assets.

Non-current Assets

These are to be classied on the ace o balance sheet as

ollows:

a. Fixed assets (with specied sub-classication on the ace

o balance sheet)

b. Non-current investments

c. Deerred tax assets (net)

d. Long-term loans and advances

e. Other non-current assets.

Fixed Assets

Recognising the signicance o intangible assets, the revised

Schedule requires them to be presented separately rom

tangible xed assets. Thus, xed assets are to be sub-

classied on the ace o balance sheet as ollows:

i. Tangible assets

ii. Intangible assets

iii. Capital work-in-progress (this would relate to tangible

xed assets)

iv. Intangible assets under development.

On the ace o the balance sheet, only the net block is

required to be disclosed. The practice so ar had been

to disclose gross block, accumulated depreciation andimpairment and net block o xed assets (other than capital

work-in-progress) as a whole on the ace o the balance sheet,with details or each category being given in a Schedule.

Tangible fxed assets

Tangible xed assets are required to be urther classied into

the ollowing categories in the notes:

a. Land

b. Buildings

c. Plant and equipment

d. Furniture and xtures

e. Vehicles

. Oce equipment

g. Others (speciying nature).

The above sub-classication o tangible xed assets is

slightly dierent rom that under the pre-revised Schedule

e.g., oce equipment is a new category. Livestock has not

been listed specically as separate category in the revised

Schedule (presumably because this asset category is not

very common). Railway sidings is another category which

has not been listed specically. Railway sidings can now be

included i

aa update revised schedule vi feb12

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