AA Update Revised Schedule VI Feb12

ACCOUNTING AND AUDITING UPDATE
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February 2012
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1 | Accounting and Auditing Update - February 2012
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Accounting and Auditing Update - February 2012 | 2
Editorial
It is with immense pleasure we bring forth the February 2012 edition of the Accounting and Auditing Update. Schedule VI to the Companies Act, 1956 (Act), which, prescribes the format for presentation of Balance Sheet and Statement of Profit and Loss by companies was introduced in 1960 and is almost as old as the Act itself. It is inevitable that regulators in India have felt the imperative need to marry the accounting advancements witnessed over the last two or three decades with that of the manner in which the financial information is presented. Further, some of the presentation and disclosure requirements as set out in the pre-revised Schedule VI appear to have become outdated and do not appear to synchronise with the objective of a fair presentation of financial information. Although from time to time, the Central Government had amended Schedule VI, some of the disclosures required by that Schedule such as licensed capacity, CIF value of imports, etc. are quite irrelevant from the perspective of todays investor. Furthermore, the current version of Schedule VI does not require a company to distinguish current assets from non-current assets and current liabilities from their non-current counterparts. For example, a security deposit which is likely to be refunded after 10 years from the time of origination is likely to be classified 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 of these limitations appear to have persuaded MCAs move to go ahead with the implementation of the revised Schedule VI for periods commencing on or after 1 April 2011 without waiting for IFRS convergence in India. Whilst the existing Schedule VI does not require companies to classify their assets and liabilities into current and non-current, the revised Schedule VI does so in order to facilitate a fair portrayal of the financial and liquidity position of a company to the readers of the financial statements. The revised Schedule VI, among other things, has also prescribed a format for Statement of Profit and Loss mandating classification of expenses by their nature as opposed to by function and added a host of incremental disclosures. In this publication, apart from discussing the specific implementation issues surrounding the changes brought out by the revised Schedule VI, we have also attempted to provide a sector specific impact analysis for few industries. We hope you find this publication insightful. We would look forward to receiving your feedback on what you would like us to cover in our future publications at aaupdate@in.kpmg.com
Narayanan Balakrishnan Partner KPMG in India
Revised Schedule VI
Catching up with global trends

Overview
The Ministry of Corporate Affairs (MCA) has issued revised Schedule VI which lays down a new format for preparation and presentation of financial statements by Indian companies for financial years commencing on or after 1 April 2011. The pre-revised Schedule VI had been in existence for almost five decades without any major structural overhaul. In view of the drastic changes during this long period in economic philosophy and environment coupled with advancements in accounting principles and in global practices relating to corporate financial reporting, a major overhaul of the Schedule was overdue. In this context, introduction of the revised Schedule is indeed welcome. The revised Schedule VI introduces some significant conceptual changes such as current/non-current distinction, primacy to the requirements of the accounting standards, etc. While the revised Schedule does not adopt the international standard on disclosures in financial statements fully, it brings corporate disclosures closer to international practices. Overall the attempt is largely successful in modernising and simplifying the Schedule and making it more relevant to the present needs. Some of the significant aspects of the revised Schedule include: The revised Schedule to apply to all companies following Indian GAAP until such companies are required to follow International Financial Reporting Standards (IFRS) converged Indian accounting standards (Ind AS) Accounting standards and requirements of the Companies Act, 1956 (Act) to override the requirements of the revised Schedule, wherever the two are inconsistent Information to be mandatorily presented on the face of financial statements limited to only broad and significant items details by way of notes Part IV of the pre-revised Schedule (containing balance sheet abstract and general business profile) dispensed with Format of cash flow statement not prescribed hence companies which are required to present this statement (i.e., other than small and medium sized companies) to continue to prepare it as per AS 3, Cash Flow Statements Disclosure requirements of various accounting standards also need to be complied with.
Balance sheet
Only vertical form of balance sheet is allowed with significant changes vis--vis the structure of pre-revised Schedule VI - Shareholders funds to be shown after deduction of debit balance of statement of profit and loss. Reserves and surplus and shareholders funds (i.e., aggregate of Share Capital and Reserves and Surplus) could thus be negative figures. - Miscellaneous expenditure can no longer be shown as a separate broad heading under Assets. It would be required to be reclassified depending on the nature of each such item. All assets and liabilities to be classified into current and non-current. This provides useful information by distinguishing assets/liabilities continuously circulating as working capital or expected to be settled/realised within 12 months from the balance sheet date from those used in long-term operations. - Basic criteria for classifying an item (asset or liability) as current are: is the item a constituent of the normal operating cycle, or is the item expected to be realised/settled within 12 months of the reporting date - Current/non-current distinction will have major impact on classification of accounting information and account heads. Hence, changes would be required in accounting systems and procedures. New and significant disclosures required regarding ownership of the company including all shareholdings above five percent of any class of shares. Share options outstanding account recognised as a part of reserves and surplus. Detailed disclosures required regarding defaults on borrowings. All liabilities to be classified into current and non-current on the basis of the same criteria of distinction as in the case of assets. Non-current liabilities include long-term borrowings, long-term maturities of finance lease obligations, longterm trade payables and long-term provisions. Current liabilities include current maturities of long-term debt and of finance lease obligations, short-term borrowings, all borrowings repayable on demand, unpaid matured deposits/debentures, and short-term provisions. Intangible fixed 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 clubbed with current assets. Cash and cash equivalents to be disclosed separately. Contingent liabilities distinguished from commitments. Disclosure of all material and relevant commitments required (instead of only capital commitments as per the pre-revised Schedule).
Statement of profit and loss

Format of statement of profit and loss prescribed classification of expenses by nature. Various computations relating to profits (losses) to be shown: Profit (loss) before exceptional and extraordinary items and tax Profit (loss) before extraordinary items and tax Profit (loss) before tax Profit (loss) from continuing operations Profit (loss) from discontinuing operations Profit (loss) for the period.
Quantitative disclosures relating to turnover, raw materials, purchases, etc. dispensed with. Other significant disclosures which have been dispensed with include capacity and actual production, calculation of managerial remuneration. The implications of the revised Schedule are varied and are expected to present a large number of implementation issues. Companies will need to plan and implement modifications in accounting systems and procedures to enable reporting under the revised Schedule. Based on our analysis of the revised Schedule, this note seeks to provide an overall understanding of the new requirements while also discussing some of the implications that may need to be considered by preparers of financial statements.
Date of application
As per the MCAs notification dated 30 March 2011, the revised Schedule is effective for financial years commencing on or after 1 April 2011. Thus, the pre-revised Schedule VI would be applicable to the financial statements for the year ended 31 December 2011. In view of application of the revised Schedule for financial years beginning on or after 1 April 2011, immediate action will need to be taken to effect requisite changes in accounting systems and procedures.
Applicable to all companies

The revised Schedule would apply to all Indian companies till they are required to follow IFRS-converged Indian Accounting Standards (Ind ASs). However, like its predecessor, the revised Schedule does not apply to banking or insurance companies. In case of companies engaged in the generation and supply of electricity, the revised Schedule VI may be followed by such companies till the time a format is prescribed under the relevant statute.
companies but also ensure that there is no perception of noncompliance with the requirements of the revised Schedule.
Applicability of general exemptions

The notifications issued by MCA in February 2011 granting exemption from certain disclosure requirements of prerevised Schedule VI would not be applicable in the context of the revised Schedule. In any case many of the exempted disclosures are not required under the revised Schedule.
Applicability to consolidated financial statements

While the revised Schedule has been prescribed in the context of standalone financial statements prepared under the Act, it would apply equally to consolidated financial statements. This is due to the requirement of AS 21, Consolidated Financial Statements that consolidated financial statements should be presented, to the extent possible, in the same format as adopted for the parents standalone financial statements. However, it may be noted that as per AS 21, certain information (e.g., CIF value of imports, foreign currency expenditure and earnings, etc.) disclosed in standalone financial statements of the subsidiary and/or the parent having no bearing on the true and fair view of the consolidated financial statements need not be given therein. Thus, the requirements of the revised Schedule will need a review to determine statutory information which need not be given in consolidated financial statements.
Clause 41 and revised Schedule VI

Listed companies are required to furnish financial information as per the requirements of Clause 41 of the Equity Listing Agreement for each quarter in the prescribed format. The presentation and disclosure requirements of Clause 41 override the relevant requirements of AS 25, Interim Financial Reporting. A statement of assets and liabilities is required to be included as a note to the half-yearly results under Clause 41. Though the format for the statement of assets and liabilities, required at the end of the half year, is drawn from the pre-revised Schedule VI, it will have to be followed till Clause 41 is revised. This is because Clause 41(V) specifically requires that disclosure of balance sheet items in half-yearly results shall be in the format specified in Annexure IX drawn from Schedule VI of the Companies Act
Adherence to the specified nomenclature

The nomenclature specified in the revised Schedule VI should be followed as far as possible. This would not only ensure uniformity in presentation of financial statements by different
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Revised Schedule VI and Interim Financial Statements as per AS 25

Paras 10 and 11 of AS 25, Interim Financial Reporting, state as below: 10. If an enterprise prepares and presents a complete set of financial statements in its interim financial report, the form and content of those statements should conform to the requirements as applicable to annual complete set of financial statements. 11. If an enterprise prepares and presents a set of condensed financial statements in its interim financial report, those condensed statements should include, at a minimum, each of the headings and sub-headings that were included in its most recent annual financial statements and the selected explanatory notes as required by this Standard. Additional line items or notes should be included if their omission would make the condensed interim financial statements misleading. Thus, if a listed company with financial year ending on 31 March 2012 prepares a set of complete interim financial statements under AS 25, these will have to be on the basis of revised Schedule VI. On the other hand, the way AS 25 is worded, a company preparing a set of condensed interim financial statements under AS 25 will have to prepare these as per pre-revised Schedule VI, even though its annual financial statements for the year ended 31 March 2012 will have to be as per revised Schedule VI. Such a company would therefore, need to have appropriate systems and processes in place to be able to comply with requirements of both, prerevised and revised Schedule VI in the first financial year in which revised Schedule VI applies. It may be clarified that the above does not apply to financial results prepared in accordance with Clause 41 of the Listing Agreement.
Applicability of Schedule VI to Public Issues and Rights Issues

The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (Regulations) specify the requirements for financial information for the purpose of public issues and rights issues. As regards public issues, the Regulations also contain an illustrative format for furnishing financial information which is largely based on pre-revised Schedule VI. For a rights issue, the Regulations require companies to furnish a statement of assets and liabilities as per Schedule VI of the Act It follows that the format of the applicable Schedule VI should be followed, e.g., revised Schedule VI for companies with the financial year commencing on or after 1 April 2011 a statement of profit or loss It shall be sufficient if this contains information relating to income and expenditure required to be disclosed as per Clause 41 of the Equity Listing Agreement. The format of aforesaid information is not in line with revised Schedule VI. To facilitate transition to the revised Schedule VI, MCA vide its circular dated 5 September 2011 has clarified that the presentation of financial statements for the limited purpose of Initial Public Offer (IPO)/Follow on Public Offer (FPO) during the financial year 2011-12 may be made as per the pre-revised Schedule VI. Considering that the illustrative format for public issues is based on pre-revised Schedule VI, in view of the above circular, the revision of Schedule VI does not have any significant impact for companies going for public issues during 2011-12. However, in case a company would like to follow the revised Schedule, it is advisable to take a clarification from SEBI whether the revised Schedule can be followed since the format given by the Regulations is only illustrative. It seems that suitable modifications would be required in the SEBI Regulations before all requirements therein are in consonance with revised Schedule VI.
Structure of Revised Schedule

The revised Schedule begins with general instructions that are applicable to both the balance sheet and the statement of profit and loss. The next section is titled Part I Form of Balance Sheet. This section contains (i) a format of balance sheet and (ii) general instructions for preparation of balance sheet. The format is in vertical form and thus companies would not be permitted to present their balance sheet in horizontal form. The last section is titled Part II Form of Statement of Profit and Loss. This section contains (i) a format of statement of profit and loss and (ii) general instructions for preparation of statement of profit and loss. Thus, unlike the present position, a format for profit and loss statement has been prescribed. The prescribed format classifies the various expenses by their nature. This is a departure from the international practice which also permits classification of expenses by their function (with additional information on the nature of expenses) e.g., cost of sales, distribution costs, administrative expenses, etc. No format of cash flow statement has been prescribed in the revised Schedule. This is perhaps on account of the fact that Section 211 under which Schedule VI is formulated does not contain any reference to cash flow statement. However, AS 3, Cash Flow Statements, as notified will have to be complied with by companies to which it applies. AS 3 itself provides illustrative formats of cash flow statement. The revised Schedule makes it clear that the terms used therein have meanings assigned to them in respective accounting standards. Consequently (and unlike the prerevised Schedule), the revised Schedule does not contain definitions of provision, reserve, capital reserve, revenue reserve, etc. The requirement of giving balance sheet abstract and general business profile, contained in Part IV of pre-revised Schedule VI, is also not carried forward in the revised Schedule.
General instructions
The general instructions applicable to both balance sheet and profit and loss account deal with such matters as primacy of accounting standards, rounding off, corresponding figures, etc. item on the face of the statement of profit and loss. Similarly a company may present additional sub-totals of current assets and current liabilities on the face of balance sheet for highlighting the specific features of its liquidity position. The disclosures specified in the accounting standards which are in addition to those of the revised Schedule, should be made in the notes to accounts or by way of additional statement unless required to be disclosed on the face of the financial statements. For example, AS 24, Discontinuing Operations, requires disclosure of the amount of pre-tax gain or loss recognised on disposal of assets or settlement of liabilities attributable to the discontinuing operation on the face of the statement of profit and loss. This requirement will have to be complied with, even though the format of statement of profit and loss prescribed in revised Schedule VI does not contain a requirement to this effect. Similarly, other disclosures required by the Act should also be made. For example, Section 293A of the Act requires separate disclosure of donations made to political parties or for political purposes. Such disclosures will generally be made in the notes. In our view, the above approach should also be applied in respect of disclosures required by regulatory bodies such as SEBI listing agreement (e.g., clause 32), ICAIs guidance notes (e.g., Guidance Note on Accounting for Employee Share-based Payments), ICAIs announcements, the Micro, Small and Medium Enterprises Development Act, 2006, etc.
Primacy of accounting standards/other requirements of the Act

It is specifically provided that accounting standards and other requirements of the Act are primary and would be required to be complied with. Where compliance with accounting standards or other requirements of the Act necessitates any change in the treatment or disclosure including addition, amendment, substitution or deletion of any head/subhead etc., the same should be made and the requirements of the revised Schedule VI shall stand modified accordingly. It is also specifically mentioned that the revised Schedule sets out the minimum requirements for disclosure on the face of balance sheet and statement of profit 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 face of the financial statements when such presentation is relevant to an understanding of the companys financial position or performance or to cater to industry/sector-specific disclosure requirements or when required for compliance with the requirements of the Act or accounting standards. For example, profit before interest, tax, depreciation and amortisation is considered an important measure of financial performance of a company in certain specific sectors. Hence, the company may choose to present it as an additional line
Accounting and Auditing Update - February 2012 | | 6 Accounting and Auditing Update - January 2012 8
Corresponding amounts
The revised Schedule (like the present one) requires previous year figures to be given along with the current year figures except in the case of the first financial statements laid before a company after its incorporation. It is clarified that corresponding amounts would be required in respect of notes to accounts also. A significant issue is whether corresponding figures as per the revised Schedule would be required to be presented in the first year of application of the revised Schedule. Considering that the requirement to present previous year figures is an integral part of the revised Schedule, it can be strongly argued that compliance with the revised Schedule requires compliance with the said requirement also. On an overall comparison of the revised Schedule with the pre-revised one, it seems that though additional work would be involved in re-working the previous year figures as per the revised schedule (e.g., to segregate the current and non-current portions of borrowings, investments, loans and advances, etc), it would generally be practicable to do so. The fact of reclassification/regrouping of previous year figures to conform to the requirements of the revised Schedule would need to be brought out. To the extent that the corresponding figures are reworked figures and do not exactly match those presented in the previous years financial statements, the auditors would need to examine the reworked figures, even though generally, the audit report does not specifically refer to previous years figures. Where, in the specific circumstances of a case, some corresponding figures are not available even after due efforts, the fact should be mentioned at appropriate place in the financial statements. However, such cases should be rare.
the nearest hundreds or thousands or decimals thereof. It is 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 financial statements give a true and fair view of the significance of detailed items. Companies with turnover of INR 100 crores or more may round off to the nearest lakhs, millions or crores, or decimals thereof. In the pre-revised Schedule VI, companies with turnover between INR 100 crores to INR 500 crores were permitted to round off the figures to the nearest hundreds or thousands or lakhs or millions or decimals thereof the choice of rounding off to nearest hundreds or thousands is not available under the revised Schedule. It is specifically provided that once a unit of measurement is chosen, it should be used uniformly in the financial statements including notes to accounts.
Notes to Accounts
Notes to accounts will include narrative descriptions or disaggregation of items recognised in the financial statements and information about items that do not qualify for recognition in the statements (e.g., contingent liabilities, commitments, revenue recognition postponed due to uncertainty).
Striking a balance between important information and excessive information

The general instructions also lay down the requirement that in preparing financial statements including notes to accounts, a balance shall be maintained between providing excessive details that may not assist users of financial statements and not providing important information as a result of too much aggregation. Compliance with this requirement is a matter of judgement based on facts and circumstances of a case. It must be ensured that important information is not obscured by including it among a large amount of insignificant details or in a way that obscures important differences between individual transactions or associated risks.
Rounding off
The provisions relating to rounding off have undergone some change. As per the revised provisions, companies with turnover of less than INR 100 crore are also permitted to round off the figures in the financial statements to the nearest lakhs or millions, or decimals thereof apart from to
Form of balance sheet

As per the revised Schedule, the balance sheet can be prepared only in vertical form. Horizontal (or T-form) of balance sheet has been done away with. There are, however, significant broad-level changes in the new vertical form as compared with the vertical form in the pre-revised Schedule. The vertical form in the pre-revised Schedule purported to show the aggregate of sources of funds as well as application of funds. However, the way the total sources of funds and applications thereof were determined under the pre-revised Schedule VI gave rise to a number of conceptual anomalies. For example, the current liabilities and provisions (without making the distinction of current/non-current) were deducted from the aggregate of current assets and loans and advances. Similarly, the net debit balance of profit and loss account was not adjusted against reserves. The new vertical form removes these anomalies and is conceptually more sound. It shows total assets as well as total equity and liabilities. Total equity or shareholders funds are correctly disclosed after deduction of net debit balance of statement of profit and loss. All liabilities are divided into current and non-current. Similarly, all assets are also classified into current and non-current categories. There is no separate broad heading of miscellaneous expenditure (or debit balance of the profit and loss account). The above raises the question of disclosure of miscellaneous expenditure to the extent not written off or adjusted. Obviously if an item under this head is an intangible asset it would be so classified. Other items e.g., discount allowed on issue of debentures or debenture issue expenses would need to be reclassified.
Current/non-current distinction
A significant change is the requirement to classify all assets and liabilities into current and non-current categories. What constitutes a current asset or a current liability is explicitly defined (the definitions are essentially the same as in international standards and had to be given in the Schedule since they are not presently contained in any notified Indian Standard). This aspect is discussed in detail in the next section. Assets Assets are divided into: Non-current assets (with further sub-classification on the face) Current assets (with further sub-classification on the face).
Broad headings of 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 funds (with further sub-classification on the face) Share application money pending allotment Non-current liabilities (with further sub-classification on the face) Current liabilities (with further sub-classification on the face).
Issues relating to current/non-current classification

A major conceptual advance in the revised Schedule is introduction of current/non-current distinction in the balance sheet. Separate classification of current and non-current assets and liabilities on the face of the balance sheet provides useful information by distinguishing the assets/ liabilities that are continuously circulating as working capital or expected to be settled/realised within 12 months from the balance sheet date from those used in long-term operations. It may be emphasised that current/non-current presentation is particularly useful in the case of entities which supply goods or services within a clearly identifiable operating cycle. It may also be mentioned that in the case of entities like financial institutions, a presentation of assets and liabilities in increasing or decreasing order of liquidity provides more relevant information. However, the revised Schedule VI does not give this option. d. the company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. All other liabilities shall be classified as non-current. Some current liabilities, such as trade payables and some accruals for employee and other operating costs, are part of the working capital used in the entitys normal operating cycle. Such operating items are current liabilities even if they are due to be settled more than 12 months after the reporting period. Liabilities that are not settled as part of the normal operating cycle, but are due for settlement within 12 months after the reporting period or are held primarily for the purpose of trading are also current liabilities. Thus, current liabilities also include current portion of non-current financial liabilities.
Current asset
The revised Schedule states that an asset shall be classified as current when it satisfies any of the following criteria: a. it is expected to be realised in, or is intended for sale or consumption in, the companys normal operating cycle b. it is held primarily for the purpose of being traded c. it is expected to be realised within 12 months after the reporting date or d. it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date. All other assets shall be classified as non-current. Current assets include assets such as inventories and trade receivables that are sold, consumed or realised as part of the normal operating cycle even when they are not expected to be realised within 12 months after the reporting period. Current assets also include assets held primarily for the purpose of trading and the current portion of non-current financial assets.
Operating cycle
An operating cycle is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents. Where the normal operating cycle cannot be identified, it is assumed to have a duration of 12 months. A companys normal operating cycle may be longer than 12 months e.g., real estate companies, ship-building companies, etc. Where a company constructs office buildings for third parties and the construction normally takes two to three years to complete, the companys construction work in progress would be classified as a current asset because construction over two to three years is part of the companys normal operating cycle. The same normal operating cycle applies to the classification of both assets and liabilities. If a company has different operating cycles for different parts of the business (e.g., retail and construction), then the classification of an asset as current is based on the normal operating cycle that is relevant to that particular asset. The company would not identify a single operating cycle. If a liability is part of the working capital used in the entitys normal operating cycle, then it is classified as current even if it is due to be settled more than 12 months after the reporting date. For example, an entity develops software for third parties that takes two years to complete and receives payment for this service upfront.
Current liability
As per the revised Schedule, a liability shall be classified as current when it satisfies any of the following criteria: a. it is expected to be settled in the companys normal operating cycle b. it is held primarily for the purpose of being traded c. it is due to be settled within 12 months after the reporting date
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 defer settlement for at least 12 months after the reporting date. A term loan from a bank is usually subject to certain debt covenants. A breach of a minor covenant such as filing of information 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 financial statements are approved. Further, based on past experience, the managements assessment is that since, the default is minor, the bank will not recall the loan. In such cases, the loan will continue to be classified as non-current. Though it can be argued that the company does not have unconditional right to defer the repayment, it needs to be noted that in the Indian context, the stipulation of the loan becoming repayable on demand on breach of a covenant is generally added in the terms and conditions only as a matter of abundant caution and banks generally do not demand repayment of term loans on such minor defaults of debt covenants. Loan which is repayable on demand from day one (e.g., normal bank overdraft) would be classified as current even if the bank does not demand repayment at any time. Long-term employee benefits within the meaning of AS 15, Employee Benefits, should be accounted for as such in their entirety. However, an entity should distinguish between current and non-current portions of obligations arising from long-term employee benefits if it does not have the ability to defer payment beyond 12 months from the reporting date. For example, an employee is eligible to receive an additional five weeks leave after providing 10 years of continuous service to an employer; if the additional leave is not taken during employment, then it will be paid upon termination of employment/ resignation. The additional leave is a long-term employee benefit even after the benefit becomes unconditional (i.e., after the employee provides 10 years of continuous service). However, after the end of year nine, the entity no longer has the ability to defer settlement of the obligation beyond 12 months from the reporting date, and therefore, it can be argued that it should be presented as current in the balance sheet. The actuaries should be requested to provide the amount of current & non-current portions of such a liability. Provisions (or portions thereof) have also to be classified as non-current and current. An advance along with an order for supply of merchandise in which the entity trades, with supply to be made within six months from the reporting date, would be a current liability. A trade receivable with a stated and normal credit term of three months shall be classified as non-current if it is not expected to be realised within 12 months from the reporting date. Debentures issued by an entity whose current accounting year ends on 31 March 20X1 are due to mature on 30 November 20X1. As per the terms of issue, upon maturity, the debentureholders have an option to either redeem the debentures in cash or convert them into a fixed number of equity shares of the company. The share price of the company as at 31 March 20X1 as well as around the date of finalisation of the accounts makes it highly probable that debentureholders will opt for conversion rather than cash redemption. Since the option of conversion or cash redemption is with the debentureholders, not with the company, the company does not have an unconditional right to defer settlement of the debentures for at least 12 months from 31 March 20X1. Hence, the debentures should be classified as current. A manufacturing company with a normal operating cycle of 18 months gives a loan to a sister concern which is facing liquidity problem. The loan is repayable 15 months after the reporting date. Giving of such loans is not a part of normal operating cycle of the company. Further, the loan is not held for the purpose of being traded, nor is it cash or cash equivalent. The loan should be classified as non-current.
Shareholders funds
These are sub-classified as follows on the face of the balance sheet: - 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 following aspects are particularly noteworthy.
The revised Schedule states that different classes of preference share capital to be treated separately. Thus, if a company has issued, say, 8 percent optionally convertible preference shares and 11 percent redeemable preference shares, these would be disclosed as two separate classes of shares for purposes of the Schedule. for each class of shares, disclosure is required, inter alia, of: a. the number and amount of shares authorised b. the number of shares issued, subscribed and fully paid, and subscribed but not fully paid c. par value per share d. a reconciliation of the number of shares outstanding at the beginning and at the end of the reporting period. Unlike the pre-revised Schedule, there is no requirement to disclose the amount called up per share. Consequently, the requirement of pre-revised Schedule to present calls unpaid as a deduction for called up capital is also not carried forward in the revised Schedule. Though there is no requirement to disclose the amount per share called, if shares are not fully 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 of calls unpaid by directors and officers of the company. The terms director and officer should be interpreted based on the definitions in the Act. As per Section 92 of the Act, a company, if so authorised by its Articles, may accept calls in advance from shareholders. The shareholder who has paid the money in advance is not a creditor for the amount so paid as advance, since it cannot be demanded for repayment (unless Articles so provide). The amount of calls paid in advance does not form part of the paid-up capital. There can be a view that calls in advance are akin to share application money pending allotment (i.e., not due for refund) and should therefore, be so disclosed. However, as per a circular of the Department of Company Affairs, it is better to show calls in advance under Current Liabilities 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 of interest, if any, on such advance should also be disclosed as a liability. For each class of shares, a reconciliation of the number of shares outstanding at the beginning and at the end of the reporting period is required. This seems to be a response to the malpractice of issuing a larger number of shares than represented by the amount of paid up capital as disclosed in the balance sheet. In order to make the disclosure more relevant to the understanding of share capital, the reconciliation should also be given for the amount of each class of share capital. Keeping in view the requirement to give corresponding figures, the reconciliation should be given for the previous year as well.
The rights, preferences and restrictions attaching to each class of shares, including restrictions on the distribution of dividends and the repayment of capital have to be disclosed. Disclosure is required of shares in respect of each class in the company held by its holding company or its ultimate holding company including shares held by subsidiaries or associates of the holding company or the ultimate holding company in aggregate. It seems that the requirement is aimed at bringing clarity regarding the identity of ultimate owners of the company. Reference should be made to the relevant accounting standards (AS 21, Consolidated Financial Statements and AS 18, Related Party Disclosures) for the definitions of the terms subsidiary, holding company and associate. In view of these definitions, the aforementioned disclosure would cover the shares held by the entire chain of holding companies, from immediate holding company to ultimate holding company, and associates of these companies as well as those held by fellow subsidiaries. However while shares (equity as well as preference) held by subsidiaries and associates of the holding company or ultimate holding company are covered, shares held by a joint venture of the holding company or ultimate holding company are not required to be included. Similarly it seems that shares held by associates and joint ventures of fellow subsidiaries are not required to be disclosed. The pre-revised Schedule required disclosure of the number of 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.
Disclosure is required of shares in the company held by each shareholder holding more than 5 percent shares of each class, specifying the number of shares held. The objective again seems to be to provide clarity regarding the owners of the company. The revised Schedule does not prescribe any particular date for applying the above parameter i.e., whether the limit of five percent should be with reference to any time during the year or as at the reporting date. In the absence of clarity, the relevant percentage may be computed with reference to the position as at the end of the financial year. For example, if during the year, any shareholder held more than five 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 be computed separately for each class of shares outstanding within equity and preference shares. As with any other disclosure under the Schedule, information would be required for the previous year also. The percentage holding of five percent needs to be computed individually at the level of a shareholder rather than aggregated for a group. Shares reserved for issue under options and contracts/ commitments for the sale of shares/disinvestment, including the terms and amounts, should be disclosed. The pre-revised Schedule VI required disclosure of particulars of only any option on un-issued share capital. Disclosure is required of the following for the period of five years immediately preceding the date of the balance sheet: - Aggregate number and class of shares allotted as fully paid up pursuant to contracts without payment being received in cash - Aggregate number and class of shares allotted as fully paid up by way of bonus shares - Aggregate number and class of shares bought back. The above disclosures are required for a five-year period including current year. Each of the above disclosures is required on an aggregate basis for the five-year period, and not for each individual year. The pre-revised Schedule VI also required disclosures mentioned in the first two bullet points above but did not limit the period of such disclosure to a period of 5 years. Further, it required disclosure of the source from which bonus shares were issued; this requirement is not carried forward in the revised Schedule.
The following cases are not instances of shares allotted pursuant to contracts without payment being received in cash If the subscription amount payable by the allottee is adjusted against a bona fide debt payable in money at once by the company Conversion of loan into shares in the event of default in repayment.
Terms of any securities issued that are convertible into equity/preference shares have to be disclosed along with the earliest date of conversion in descending order starting from the farthest such date. This requirement would apply irrespective of whether the convertibility into equity/preference shares is compulsory or at the option of either the company or the holder of the security. Preference shares that are convertible into equity shares would also be covered by the requirement. Where conversion is to take place (compulsorily or optionally) in tranches, all the dates of conversion have to be reported. Similar treatment would be required in case of ESOPs with graded vesting features. As regards convertible bonds or debentures, etc. reference may be made to the relevant note disclosed under borrowings, etc. rather than disclosing the same again under this clause. Forfeited shares (amount originally paid up) should be disclosed.
Reserves and surplus

In the notes, reserves and surplus are required to be classified as follows: a. Capital reserves b. Capital redemption reserve c. Securities premium reserve d. Debenture redemption reserve e. Revaluation reserve f. Share options outstanding account g. Other reserves (specifying the nature and purpose of each reserve and the amount in respect thereof). An example of such a reserve would be Foreign Currency Translation Reserve arising on translation of financial statements of a non-internal foreign operation h. Surplus i.e., balance in statement of profit and loss, disclosing allocations and appropriations such as dividend, bonus shares and transfer to/from reserves, etc.
Additions and deductions since the last balance sheet are required to be shown under each of the specified items. The pre-revised Schedule VI required that in case there was debit balance in the profit and loss account, uncommitted reserves should first be deducted therefrom. The remaining balance, if any, after such deduction was required to be disclosed on the assets side of the balance sheet (or under application of funds in the vertical form of balance sheet). In the revised Schedule, it is explicitly provided that debit balance of profit and loss shall be shown as a negative figure under the head surplus under shareholders funds. Similarly, the balance of reserves and surplus, after adjusting negative balance of surplus, if any, shall be shown under the head reserves and surplus even if the resulting figure is in the negative. Share options outstanding account has been specifically recognised as a separate item under reserves and surplus. The pre-revised Schedule VI did not specify the manner of disclosure of share options outstanding account. However, ICAIs Guidance Note on Accounting for Employee Sharebased 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 of the shareholders funds. Considering that the revised Schedule prescribes a specific requirement for disclosure of share options outstanding account and such a requirement can be superseded only by the requirement of an accounting standard (and not a guidance note), the requirement of the revised Schedule would need to be followed.
It may be noted that the above would also impact the balance of reserves and surplus to be considered for compliance with various provisions of law - thus the balance of share options outstanding account would now be considered as part of the reserves to determine the applicability of Companies (Auditors Report) Order, 2003 (CARO).
Money received against share warrants

Share warrants are issued to promoters and others in terms of the Guidelines for preferential issues of SEBI (Issue of Capital and Disclosure Requirements), Guidelines, 2009 in the case of listed companies and as per the Unlisted Public Companies (Preferential Allotment) Rules, 2003 in the case of unlisted public companies. The revised Schedule specifically requires money received against share warrants to be disclosed as a separate line item as part of shareholders funds this is on the basis that money received against share warrants represents amount which would ultimately form part of either the Share Capital or Reserves and Surplus. The pre-revised Schedule VI did not contain such a requirement.
Share application money pending allotment

Unlike its predecessor, the revised Schedule contains specific requirements in this regard. On the basis of 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 of equity and the part which is due for refund is in the nature of liability. Share application money pending allotment (and not due for refund) has to be shown as a separate category under the head Equity on the face of the balance sheet but is not included in shareholders funds. However, share application money (or application money for other securities) which is due for refund (e.g., in the event of over-subscription, or minimum subscription requirement not met) has to be presented under other current liabilities along with interest accrued thereon, if any. In case of share application money pending allotment, the terms and conditions including the number of shares proposed to be issued, the amount of premium, if any, and the period before which shares shall be allotted have to be disclosed. It has also to be disclosed whether the company has sufficient authorised capital to cover the share capital amount resulting from allotment of shares against share application money. Further, the period for which the share application money has been pending beyond the stipulated period for allotment along with the reasons for delay should be disclosed. Apart from being an investor protection measure, this disclosure is also likely to act as a check against the practice by some companies that receive substantial funds in the guise of share application money from their parent company or others against which the shares are not allotted for several years. In some cases, the shares are not allotted and the money is refunded after a few years. In such cases, the true nature of funding is that of a loan.
Non-Current Liabilities
Non-current liabilities are required to be classified under the following four sub-heads on the face of the balance sheet. Long-term borrowings Deferred tax liabilities (net) Other long term liabilities Long-term provisions. It may be noted that net deferred tax liabilities are required to be classified as non-current in their entirety (rather than making an analysis of the amounts reversible within a short period and others). The requirement to distinguish long-term provisions from short-term provisions has a sound conceptual basis.
Long-term borrowings
Long-term borrowings are to be further classified into the following categories in the notes: a. Bonds/debentures b. Term loans - from banks - from other parties c. Deferred payment liabilities d. Deposits e. Loans and advances from related parties f. Long term maturities of finance lease obligations g. Other loans and advances (specifying nature). Though the phrase long-term has not been defined, it seems from the context that this phrase has been used as a synonym for non-current.
The following disclosure requirements are noteworthy: Each category of borrowing should be classified as secured or unsecured and the nature of security should be specified in each case. Thus, a blanket disclosure of security covering all loans classified under the same item such as all term loans from banks will not suffice. However, where one security is given for multiple loans, the same may be clubbed together for disclosure purposes with adequate details or cross referencing. The disclosure about the nature of security should also cover the type of asset given as security e.g., inventories, plant and machinery, land and building, etc. This is because the nature of these assets may not be the same and the extent to which loan is secured may vary with the nature of asset against which it is secured. When promoters, other shareholders or any third party have given any personal security for any borrowing, such as shares or other assets held by them, disclosure should be made thereof, though such security does not result in the classification of such borrowing as secured. Non-current loans and advances from related parties are required to be shown separately under each head of long-term borrowings. It may be noted that to some extent, the above disclosure would also be covered separately as part of disclosures under AS 18, Related Party Disclosures. Advances taken for goods and services to be supplied are arguably not borrowings and therefore, where they need to be presented is a moot question. While an advance means a payment beforehand, in all cases a sum paid by way of advance is not a loan. Thus, it can be argued that only advances which are in the nature of loans should be disclosed as part of borrowings. The revised Schedule requires disclosure of period and amount of continuing default as on the balance sheet date in repayment of loans and interest under long term borrowings. Similarly, disclosure is required of period and amount of default as on the balance sheet date in repayment of loans and interest under short term borrowings. There was no such requirement in the pre-revised Schedule. However, at present, defaults in repayment of dues to financial institutions, banks or debenture holders are required to be reported by the auditor under the CARO. The revised Schedule does not define the term loan with regard to which disclosure of default/continuing default (as applicable) has to be given. In general commercial parlance, the term loan means a lending; advance with absolute promise to repay; delivery of money by one party and receipt by another on agreement, express or implied, to repay. Thus, a loan would also include borrowings in the form of bonds, debentures, etc. and
would not be restricted to just borrowings from banks and financial institutions (as is the case for reporting under CARO). Thus, disclosure of default will be required with regard to loans (from banks and financial institutions as well as from other parties), bonds, debentures, etc. In other words, the term loan used in the revised Schedule should be viewed as a synonym for borrowing. Hence, the disclosures relating to default should be made for all items listed under any category of borrowings. The relevant disclosure would be required only in respect of default in repayment of principal and interest. Other defaults 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 of continuing default as on the balance sheet date in repayment of loans and interest shall be specified separately in each case. With respect to short-term borrowings, the revised Schedule requires only default in repayment to be disclosed. However, in our view, it would be prudent that if the default in repayment of principal and interest exists on the date of balance sheet, it should be disclosed. The term default should be construed to mean nonpayment of dues to banks, financial institutions or other parties from whom borrowings are raised, on the last dates specified in the relevant documents, etc. as the case may be. For example, in the case of term loans, fixed dates are prescribed for repayment in the agreement or terms and conditions of the loans. The dates prescribed for repayments would operate as the last dates and delay beyond this period would amount to default. The revised Schedule requires disclosure of the period and amount of continuing default as on the balance sheet date. Hence, it would be prudent that all relevant defaults subsisting as at the date of the balance sheet are disclosed whether they arose in the current year or previous year even if they are made good after the balance sheet date but before date of approval of the financial statements. (However if the default has been made good after the balance sheet date but before the approval of the financial statements, it is advisable that this fact is mentioned.) Any default that occurred during the current year but was made good before the date of the balance sheet may not be disclosed. Similarly, any default made after the balance sheet date but before the date of approval of the financial statements need not be disclosed.
What constitutes continuing default has not been defined. However, considering that the default can normally arise for the portion that is currently payable (which would be disclosed under current liabilities), it seems that there would usually not be a default to be reported for long-term borrowings. The revised Schedule states that where loans have been guaranteed by directors or others, the aggregate amount of such loans under each head shall be disclosed. The word others would mean any person or entity other than a director. Therefore, it is not restricted to mean only related parties (though in the normal course, a person or entity guaranteeing a loan of a company will generally be associated with the company in some manner). The prerevised Schedule required disclosure of 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 of maturity or conversion, starting from farthest redemption or conversion date, as the case may be along with the rates of interest and particulars of redemption or conversion, as the case may be. Where bonds/debentures are redeemable by installments, the date of maturity for this purpose is the date on which the first installment becomes due. Particulars of any redeemed bonds/debentures which the company has power to reissue shall be disclosed. Terms of repayment of term loans and other loans should be stated. This should include the period of maturity, number and amount of installments to be repaid, the applicable rate of interest and other significant relevant terms, if any. Disclosure of terms of repayment should be made for each loan unless the repayment terms of various loans within a category are similar, in which case, disclosure may be made on a category basis. Term loans from banks are separately required to be disclosed under long-term borrowings (except for the portion qualifying as current). It is noteworthy that bank loans repayable on demand are classified under current liabilities even though such loans are seldom recalled. The phrase term loan has not been defined in the revised Schedule. The same may be construed as those having a fixed or pre-determined maturity period or repayment schedule. Thus, for purposes of the revised Schedule, non-current term loans may be construed as those which are not payable within 12 months of the reporting date. In case the repayment is by way of installments, the installments repayable within 12 months would be classified as current and the rest of the amount as noncurrent. Only such portions of finance lease obligations as do not qualify as current are to be included under long-term borrowings. In other words, finance lease obligations should be bifurcated into their respective current and noncurrent portions.
Deferred payment liability would include any liability for which payment is to be made on deferred credit terms. e.g., deferred sales tax liability, deferred payment for acquisition of fixed assets, etc. Under such circumstances, the liability is classified as deferred payment liability after considering the entire credit period. However, only those portions of deferred payment liabilities that are non-current based on the criteria specified under the revised Schedule (i.e., remaining credit period of more than 12 months from the balance sheet date) shall be disclosed under long-term borrowings.
Deferred tax liabilities

The amount of deferred tax liabilities (net) is required to be disclosed on the face of the balance sheet after long-term borrowings as part of non-current liabilities. The deferred tax liabilities (net of deferred tax assets) will be classified as non-current liabilities in entirety even where a part thereof is expected to reverse within a period of 12 months. While the pre-revised Schedule was silent on the disclosure of net deferred tax liability (or asset), AS 22, Accounting for Taxes on Income, requires deferred tax liabilities (net of the deferred tax assets) to be disclosed on the face of the balance sheet separately after the head unsecured loans. There is thus no substantive impact due to the above change in Schedule VI.
Other long-term liabilities

Other long term liabilities are required to be sub-classified in the notes as a. Trade payables: Only those amounts due on account of goods purchased or services received in the normal course of business which are non-current would be disclosed here. Acceptances should also be classified as trade payables. It may be noted that if a trade payable is expected to be settled in the companys normal operating cycle (even if the cycle is longer than 12 months) it would be classified as current. Therefore, an amount should be disclosed here only if it is expected to be settled beyond the normal credit period and beyond 12 months from the reporting date. b. Others: Non-current items such as dues payables in respect of statutory obligations, purchase of fixed assets, contractually reimbursable expenses, and interest accrued on trade payables should be classified as others and each such item should be disclosed nature-wise. As per the pre-revised Schedule VI, the term sundry creditors included, apart from amounts due in respect of goods purchased or services received, the amounts due in respect of other contractual obligations as well. However, the revised Schedule requires disclosure of trade payables. The amounts due under other contractual obligations cannot be included within trade payables; such amounts should be classified as others and disclosed nature-wise.
The revised Schedule does not require disclosure of dues to micro, small and medium enterprises. However, the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) requires specified disclosures in financial statements of the buyers relating to delayed payments and outstanding amounts to suppliers that are micro and small enterprises. Thus, to the extent the disclosures are required by the MSMED Act, they will have to be still given.
The pre-revised Schedule required separate disclosure of provisions for provident fund scheme and insurance, pension and similar staff benefit schemes. A single amount of (long-term) provision for employee benefits is required to be disclosed under the revised Schedule. Provision for employee benefits to be shown under longterm provisions would not cover amounts that amounts that qualify as current liabilities. Long term provisions other than those for employee benefits are required to be shown under others, specifying nature.
Long term provisions

Long-term provisions are required to be sub-classified in the notes into (i) provision for employee benefits, and (ii) others (specifying nature).
Current Liabilities
These are required to be sub-classified on the face of the balance sheet as below: a. Short-term borrowings b. Trade payables c. Other current liabilities d. Short-term provisions. disclosed as an item under Other Payables (which is a sub-category of Other Current Liabilities) and not as part of Other loans and advances. While an advance means a payment beforehand, in all cases a sum paid by way of advance is not a loan. Thus, it is only advances which are in the nature of loans that should be disclosed as part of Other loans and advances. The revised Schedule requires disclosure of period and amount of default as on the balance sheet date in repayment of loans and interest under short term borrowings. There was no such requirement in the pre-revised Schedule. However, at present, defaults in repayment of dues to financial institutions, banks or debenture holders are required to be reported by the auditor under the CARO. The revised Schedule does not define the term loan with regard to which disclosure of default has to be given. In general commercial parlance, the term loan means a lending; advance with absolute promise to repay; delivery of money by one party and receipt by another on agreement, express or implied, to repay. Thus, disclosure of default will be required with regard to loans, etc. from banks as well as from other parties. In other words, the term loan used in the revised Schedule should be viewed as a synonym for borrowing. Hence, the disclosures relating to default should be made for all items listed under any category of borrowings. The relevant disclosure would be required only in respect of default in repayment of principal and interest. Other defaults such as non-compliance with other terms, debenture indenture, etc. would not be required to be disclosed. The term default should be construed to mean nonpayment of dues on the last dates specified in the relevant documents, etc. as the case may be. The revised Schedule requires disclosure of the period and amount of default as on the balance sheet date. Hence, it would be prudent that all relevant defaults subsisting as at the date of the balance sheet are disclosed even if they are made good after the balance sheet date but before the date of approval of the financial statements. (However, if the default has been made good after the balance sheet date but before the approval of the financial statements, it is advisable that this fact is mentioned.) Any default that occurred during the current year but was made good before the date of the balance sheet may not be disclosed. Similarly, any default made after the balance sheet date but before the date of approval of the financial statements need not be disclosed.
Short-term borrowings
Short-term borrowings are required to be further classified in the notes as below: a. Loans repayable on demand - from banks - from other parties b. Loans and advances from related parties c. Deposits d. Other loans and advances (specifying nature). Following disclosures are required in respect of each subhead: Each category of borrowing should be classified as secured or unsecured and the nature of security shall be specified in each case. Thus, a blanket disclosure of security covering all loans classified under the same item will not suffice. However, where one security is given for multiple loans, the same may be clubbed together for disclosure purposes with adequate details or cross referencing. The disclosure about the nature of security should also cover the type of asset given as security e.g., inventories, plant and machinery, land and building, etc. This is because the nature of these assets may not be the same and the extent to which loan is secured may vary with the nature of asset against which it is secured. When promoters, other shareholders or any third party have given any personal security for any borrowing, such as shares or other assets held by them, disclosure should be made thereof, though such security does not result in the classification of such borrowing as secured. Loans and advances from related parties are required to be shown separately under each head of short-term borrowings. It may be noted that to some extent, the above disclosure would also be covered separately as part of disclosures under AS 18, Related Party Disclosures. Advances taken for goods and services to be supplied are arguably not borrowings and therefore, where they need to be presented is a moot question. It can be argued that such advances of a current nature should be
The revised Schedule states that where loans have been guaranteed by directors or others, the aggregate amount of such loans under each head shall be disclosed. The word others would mean any person or entity other than a director. Therefore, it is not restricted to mean only related parties (though in the normal course, a person or entity guaranteeing a loan of a company will generally be associated with the company in some manner). The prerevised Schedule required disclosure of 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 of long-term borrowings are not to be classified as short-term borrowings; rather, they have to be classified under other current liabilities.
Short-term provisions
Like long-term provisions, short-term provisions are also required to be categorised in the notes into two categories: (i) provisions for employee benefits, and (ii) others (specifying nature). Others would include all provisions other than provisions for employee benefits such as provision for dividend, provision for taxation, warranty provision (which is current in nature), etc. These amounts should be disclosed separately, specifying the nature thereof. There is no specific requirement to show proposed dividends under provisions. Instead, it is required that the amount of dividends proposed to be distributed to equity and preference shareholders for the period and the related amount per share shall be disclosed separately. One possible interpretation can be that since proposed dividend is considered as not representing a present obligation on the balance sheet, it no longer need/can be provided for. However, it needs to be noted that as per AS 4, Contingencies and Events Occurring After the Balance Sheet Date: 14. Dividends stated to be in respect of the period covered by the financial statements, which are proposed or declared by the enterprise after the balance sheet date but before approval of the financial statements, should be adjusted. Thus, even in the absence of any specific requirement in the revised Schedule, dividends will have to be recognised as per the requirements of AS 4. It may also be mentioned that with regard to arrears of fixed cumulative dividends, the pre-revised Schedule required a company to disclose the amount of arrears for each class of preference shares before deduction of income tax (except in the case of tax free dividends) and period of arrears. In case such dividend was tax free then the fact needed to be stated. The revised Schedule requires disclosure of only arrears of fixed cumulative dividends i.e., the period of arrear and tax position need not be stated.
Trade payables
This head would cover amounts payable in respect of goods purchased or services received in the normal course of business (except to the extent classified as non-current).
Other current liabilities

Other current liabilities are required to be sub-classified in the notes into the following categories: a. Current maturities of long-term debt b. Current maturities of finance lease obligations c. Interest accrued but not due on borrowings d. Interest accrued and due on borrowings e. Income received in advance f. Unpaid dividends g. Application money received for allotment of securities and due for refund and interest accrued thereon h. Unpaid matured deposits and interest accrued thereon i. Unpaid matured debentures and interest accrued thereon j. Other payables (specifying nature). In case of interest accrued but not due on borrowings, only the current portion should be classified 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 of the related borrowing. In the case of share application money due for refund and interest accrued thereon, the period for which the money has been pending beyond the period for allotment as mentioned in the document inviting application for shares along with the reason for such share application money being pending should be disclosed. Other payables would include amounts in the nature of statutory dues such as withholding taxes, service tax, etc.
Contingent Liabilities and Commitments and other notes

The revised Schedule VI makes a clear distinction between contingent liabilities and commitments.
Commitments
These include: a. Estimated amount of contracts remaining to be executed on capital account and not provided for b. Uncalled liability on shares and other investments partly paid c. Other commitments (specifying nature). The pre-revised Schedule required disclosure of estimated amount of contracts remaining to be executed on capital account and not provided for (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 of other commitments. Since the number of commitments of a company at any given point of time is very large, the nature of other commitments which require disclosure merits consideration. It seems that disclosure should be made in respect of only those 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. Some examples can be commitments relating to acquisition of intangible assets; purchase, construction, or development of investment property; agreement for purchase of business; buy-back arrangements; commitments to fund subsidiaries, etc. In this context, it is relevant to note that disclosures relating to lease commitments for non-cancellable leases are required by AS 19, Leases.
Contingent liabilities
These are to be sub-classified into: a. Claims against the company not acknowledged as debt b. Guarantees (the separate disclosures required by the prerevised Schedule regarding guarantees given on behalf of directors/other officers are not required, though some of these would nevertheless require to be disclosed under AS 18) c. Other money for which the company is contingently liable. AS 29, Provisions, Contingent Liabilities and Contingent Assets, should be applied for identifying contingent liabilities. A contingent liability in respect of guarantees arises when a company issues guarantees to another person on behalf of a third party e.g., when it undertakes to guarantee the loan given to its subsidiary. However, where a company undertakes to perform its own obligations, and for 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 financial statements. Similarly, for various reasons, it is customary for guarantees to be issued by the bankers of the company e.g., for payment of insurance premia, deferred payments to foreign suppliers, letters of credit, etc.; in such cases, the company may issue a counter-guarantee to the bankers. Such counter-guarantee is not really a guarantee at all, but is an undertaking to perform what is in any event the obligation of the company, namely, to pay the insurance premia when demanded or to make deferred payments when due. Hence, such performance guarantees and counter-guarantees should not be disclosed as contingent liabilities.
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Other Notes
These include the following: Where in respect of an issue of securities made for a specific purpose, the whole or part of the amount has not been used for the specific purpose at the balance sheet date, there shall be indicated by way of a note how such unutilised amount has been used or invested. If, in the opinion of the Board, any of the assets other than fixed assets and non-current investments do not have a value on realisation in the ordinary course of business at least equal to the amount at which they are stated, the fact that the Board is of that opinion, shall be stated. A similar requirement existed in the pre-revised Schedule also. In this regard, it may be noted that usually if any asset (other than fixed assets and non-current investments) has a realisable value that is lower than its carrying value, the carrying value of that asset is appropriately adjusted in the financial statements.
For example, AS 2, Valuation of Inventories requires inventories to be valued at the lower of cost and net realisable value. Further, allowance for bad and doubtful debts is required to be shown as a deduction from long term loans and advances, other non-current assets, trade receivables and short-term loans and advances. Hence, a diligent application of the requirements of accounting standards and the revised Schedule VI will normally result in no disclosure having to be made pursuant to the above requirement. The amount of dividends proposed to be distributed to equity and preference shareholders for the period and the related per share amount. Arrears of fixed cumulative dividends, if any, on preference shares should be disclosed. Disclosures required by other applicable laws or pronouncements issued by regulatory bodies, e.g., MSMED Act, Clause 32 of the Listing agreement.
On the face of the balance sheet, only the net block is required to be disclosed. The practice so far had been to disclose gross block, accumulated depreciation and impairment and net block of fixed assets (other than capital work-in-progress) as a whole on the face of the balance sheet, with details for each category being given in a Schedule. Tangible fixed assets Tangible fixed assets are required to be further classified into the following categories in the notes: a. Land b. Buildings c. Plant and equipment d. Furniture and fixtures e. Vehicles f. Office equipment g. Others (specifying nature). The above sub-classification of tangible fixed assets is slightly different from that under the pre-revised Schedule e.g., office equipment is a new category. Livestock has not been listed specifically 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 specifically. Railway sidings can now be included in plant and machinery. It is specifically provided that assets under lease shall be separately specified under each class of asset. The reference is to fixed assets acquired by the company under finance leases as well as to those given by it under operating leases. Freehold land should continue to be presented as a separate asset class. The revised Schedule does not prescribe any particular classification/presentation for leasehold land. If on the basis of the prevailing Indian generally accepted accounting principles, a leasehold land qualifies for recognition as tangible fixed asset, it should be presented as a separate asset class under tangible fixed assets. It seems that leasehold improvements would warrant disclosure as a separate class of assets because their life would be linked to the term of the lease. Disclosures regarding reconciliation of opening and closing gross and net carrying amounts of each class of assets are required. The reconciliation should separately disclose additions, disposals, acquisitions through business combinations and other adjustments as well as the related depreciation and impairment losses/reversals. These requirements are similar to those under the pre-revised Schedule except that impact of acquisitions through business combinations and impairment (or reversal of impairment) have to be separately disclosed. Though not specifically required, disposals through demergers, etc. may also be disclosed separately for each class of asset.
Assets
As in the case of liabilities, assets are also to be classified under two broad categories i.e., non-current assets and current assets.
Non-current Assets
These are to be classified on the face of balance sheet as follows: a. Fixed assets (with specified sub-classification on the face of balance sheet) b. Non-current investments c. Deferred tax assets (net) d. Long-term loans and advances e. Other non-current assets.
Fixed Assets
Recognising the significance of intangible assets, the revised Schedule requires them to be presented separately from tangible fixed assets. Thus, fixed assets are to be subclassified on the face of balance sheet as follows: i. Tangible assets ii. Intangible assets iii. Capital work-in-progress (this would relate to tangible fixed assets) iv. Intangible assets under development.
The term business combination is not defined in the revised Schedule or in Act or notified accounting standards. The related concepts have been enumerated in AS 14, Accounting for Amalgamations and AS 10, Accounting for Fixed Assets. Accordingly, the term should be interpreted to mean an amalgamation or acquisition or any other mode of restructuring of a set of assets and/or a group of assets and liabilities constituting a business. It may be noted that business has been defined in Ind AS 103, Business Combinations, as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants. Other adjustments may include items such as capitalisation of exchange differences where such option has been exercised by the Company1 and/or adjustments on account of translation of fixed assets of non integral foreign operations in accordance with AS 11, The Effects of Changes in Foreign Exchange Rates. Further, adjustments may also arise on revaluation of assets. Such adjustments should be disclosed separately for each class of assets. The disclosures relating to revaluation of fixed assets in revised Schedule are slightly different than those in the pre-revised Schedule. However, in view of the over-riding requirements of AS 10, Accounting for Fixed Assets, the effect of the change is not significant. Thus, where the amounts are written up or reduced due to revaluation, the revalued figures should be shown in every subsequent balance sheet. Further, every balance sheet for the first five years subsequent to the date of revaluation should show the amount of the reduction or revaluation made. Other disclosures required by AS 10 should also be made. Intangible fixed assets Recognising the importance of intangible fixed assets, this new category has been added, with sub-classification in the notes as below: Goodwill Brands /trademarks Computer software Mastheads and publishing titles Mining rights Copyrights, and patents and other intellectual property rights, services and operating rights Recipes, formulae, models, designs and prototypes Licenses and franchise Others (specifying nature).
The requirements relating to reconciliation of opening and closing balances of each class are similar to those relating to tangible fixed assets. The revised Schedule also contains disclosure requirements applicable in case of adjustment to intangible assets on account of reduction of capital; these are similar to those applicable in respect of tangible fixed assets. Though the revised Schedule also referes to disclosures in the case of revaluation of intangible assets, it is noteworthy that as per AS 26, Intangible Assets cannot be revalued (though any impairment in value has to be recognised as per AS 28, Impairment of Assets). Capital work-in-progress The (aggregate) amount of capital work-in-progress (relating to tangible fixed assets) is required to be disclosed as a separate item under fixed assets on the face of the balance sheet. As per the revised Schedule, capital advances are required to be disclosed under long-term loans and advances. Thus, they cannot be included under capital work-in-progress (or under intangible assets under development). Intangible assets under development The (aggregate) amount of intangible assets under development (which would be recognised and measured in accordance with AS 26, Intangible Assets) has to be disclosed separately as a separate item on the face of the balance sheet under fixed assets.
Non-current investments
Investments are required to be classified into current and non-current categories. Non-current investments are to be presented under non-current assets and current investments under current assets. Thus, there is no separate main heading of investments. It is noteworthy that the definition of current (and consequently non-current) investment as per the revised Schedule does not exactly correspond to AS 13, Accounting for Investments which defines current investment as an investment that is by its nature readily realisable and is intended to be held for not more than one year from the date on which such investment is made. As per the definition of current asset in the revised Schedule, the period of realisation is within 12 months after the reporting date . Besides, to qualify as current under the revised Schedule, an investment does not necessarily have to be readily realisable by nature. It is noted that the current/non-current distinction in the revised Schedule is broader in its sweep and seeks to classify all assets and liabilities on the basis of uniform criteria with a view to facilitating a more meaningful analysis of the financial position of a company. This approach should, therefore, be followed in the presentation of investments also. At the same time, compliance with AS 13 has also to be ensured.
MCA has amended the provisions of AS 11 insofar as they relate to treatment of exchange differences arising in respect of long-term foreign currency monetary items. The amendment gives an irrevocable, one-time option to follow an alternative treatment whereby, inter alia, such exchange differences related to acquisition of depreciable capital assets could be capitalised. Reference should be made to the relevant notifications (dated 31 March 2009, 11 May 2011 and 29 December 2011) to determine the exchange differences that may be capitalised by a company.
In our view, the following may represent a harmonious manner of applying both AS 13 and requirements of revised Schedule VI: a. Generally, an investment that qualifies as a current investment under AS 13 would also fall under the current category under the revised schedule and should therefore be so classified. b. Investments that qualify as long-term investments under AS 13 may be bifurcated into current and non-current categories of the revised Schedule as follows: - those which are expected to the realised within twelve months after the reporting date may be presented in the current category as current portion of long-term investments under relevant sub-heads. Thus, if a debenture held as an investment is to be redeemed partly within 12 months of the reporting date and balance after 12 months, the amount to be redeemed within 12 months should be disclosed as current and balance should be shown as non-current - other long-term investments may be presented under non-current category; c. the aggregate amount of current investments and of long investments within the meaning of AS 13 should be disclosed in a note and it may be pointed out that for presentation purposes, long-term investments have also been bifurcated into current and non-current asset categories in consonance with the overall scheme of revised Schedule VI. Non-current investments are to be sub-classified in the notes as trade investments and other investments. Though the revised Schedule does not define the term trade investment, it is normally understood as an investment made by a company in shares, debentures or other securities of another company, to promote the trade or business of the first company. Non-current investments should be further classified in the notes as: a. Investment property As per AS 13, an investment property is an investment in land or buildings that are not intended to be occupied substantially for use by, or in the operations of, the investing enterprise. b. Investments in equity instruments c. Investments in preference shares d. Investments in Government or trust securities e. Investments in debentures or bonds
f. Investments in mutual funds g. Investments in partnership firms h. Other non-current investments (specifying nature). Under each classification, further details are required to be disclosed including names of the bodies corporate (indicating separately whether such bodies are (i) subsidiaries, (ii) associates, (iii) joint ventures, or (iv) controlled special purpose entities in whom investments have been made and the nature and extent of the investment so made in each such body corporate (showing separately investments which are partly-paid). The pre-revised Schedule did not require separate disclosure for all the above categories. The requirement to disclose the nature and extent should be interpreted to mean the class of share (preference/equity), number and face value of shares. It should also be disclosed whether investments are fully paid-up or partly paid-up. For identification of subsidiaries, associates and joint ventures, reference should be made to the respective accounting standards. The term controlled special purpose entities is not defined in the revised Schedule or in accounting standards or in the Act. In the absence of any definition, there can be a challenge in ensuring that a consistent approach is followed by companies in this regard. Accordingly, no disclosures would be additionally required to be made under this caption. If and when such terminology is explained/introduced in the applicable accounting standards, the disclosure requirement would become applicable.2
2 This is as per the ICAIs Guidance Note on the revised Schedule VI to the Companies Act, 1956. There can be another view that information regarding this category may be given as per the guidance contained in Ind AS 27 Consolidated and Separate Financial Statements (which has been issued by the ICAI/MCA, though it is yet to be made , applicable as an authoritative standard for the relevant class of companies). In view of ICAIs clear stand on the issue, a company may follow the alternative view only at its own choice. However, if it does so, the financial statements should describe the criterion/criteria applied by the company for identifying controlled special purpose entities
With regard to investment in the capital of partnership firms, the names of the firms (with the names of all their partners, total capital and the share of each partner) are to be given. This requirement is the same as under the prerevised Schedule. In this regard, the following aspects merit consideration: The names of the other partners should be disclosed by reference to the position existing as on the balance sheet date. Similarly, the total capital should be disclosed with reference to the capital of the firm on the balance sheet date. In case the financial statements of the firm are not made up to the same date as the date of the companys financial statements and if it is not practicable to draw up the financial statements of the partnership upto such date, then drawing analogy from AS 21 and AS 27 adjustments , should be made for the effects of significant transactions or other events that occur between those dates and the date of the parents financial statements. In any case, the difference between reporting dates should not be more than six months. Where there is a difference between the reporting dates, it should be disclosed. With respect to the share of each partner, disclosure should be made of the share of each partner in the profits of the firm rather than the share in the capital since that is how the expression is generally understood. Further, there is a separate requirement to disclose the total capital of the firm as well as the companys share in it. Consistent with the other disclosures, the details should
accounts have not been segregated, or where the partnership deed provides that the capital of each partner is to be calculated by reference to the net amount at his credit after merging all the various accounts, the disclosure relating to the partnership capital should be made on the basis of the total effect of such accounts taken together. Though unlike the pre-revised Schedule, there is no specific requirement to disclose the amount of share of profit or loss in a partnership firm, the relevant disclosures should be included in the profit and loss account. A Limited Liability Partnership (LLP) is formed and registered under the Limited Liability Partnership Act, 2008. It is noted that a LLP is a body corporate and not a partnership firm as envisaged under the Partnership Act, 1932. Hence, disclosures pertaining to investment in partnership firms will not include investment in LLP The investment in LLPs should, . therefore, be disclosed separately under Other Investments. However, other disclosures prescribed for investment in partnership firm need not be made for investment in LLP . As per the revised Schedule, non-current investments carried at other than cost have to be separately shown along with basis of valuation. As mentioned earlier, generally, investments classified as current under AS 13 would be categorised as current under the revised Schedule. On the other hand, investments classified as long-term under AS 13 may need bifurcation into current/non-current categories under the revised Schedule. Thus, investments classified as non-current under the revised Schedule would generally be those classified as long-term under AS 13. The basis of valuation for long term investments (as per AS 13) would be cost less provision for other-than-temporary diminution in value. Apart from the above, the following have also to be disclosed: a. Aggregate amount of quoted investments and market value thereof: The term quoted investments has not been defined. However, as per the pre-revised Schedule, quoted investment means an investment as respects which there has been granted a quotation or permission to deal on a recognised stock exchange, and the expression unquoted investment shall be construed accordingly. In our view, this would be a logical basis for indentifying quoted investments. b. Aggregate amount of unquoted investments c. Aggregate provision for diminution in value of investments The requirement of pre-revised Schedule VI regarding disclosure, by companies other than investment companies, of investments purchased and sold within the reporting period has been done away with.
be given with reference to the balance sheet date (or date of last available balance sheet of the firm). Where a partnership firm has separate accounts for partners capital, drawings or current accounts, loans to or from partners, etc., the disclosure of total capital of the firm should be made with regard to the total of the capital accounts only, since it represents the capital of the partnership firm. Where, however, the aforementioned
Long term loans and advances

The revised Schedule requires long term loans and advances to be presented separately on the face of the balance sheet under non-current assets whereas short-term loans and advances are to be shown on the face of balance sheet under current assets. Considering the format of the Schedule, it appears that even though the terms used are long-term and short-term, these would correspond to non-current and current loans and advances. With respect to long-term loans and advances, the revised Schedule specifies the following further classification in the notes: Capital advances This is a new category. It is thus clear that capital advances would not be shown under capital work in progress or under intangible assets under development. Capital advances should be treated as non-current assets irrespective of when the fixed assets are expected to be received. This is because on receipt of fixed asset, the capital advance would get transferred into another non current asset. Security deposits. Loans and advances to related parties (giving details thereof). Reference should be made to AS 18 for identifying the related parties. Other loans and advances (nature to be specified). The requirements as per the pre-revised Schedule regarding sub-classification as secured or unsecured, considered good or doubtful, and allowance for bad and doubtful debts continue in the revised Schedule also. Loans and advances due from directors/other officers/firms or private companies in which any director is partner/director/member are also to be disclosed separately. However, the following disclosure requirements of the pre-revised Schedule have been done away with: a. maximum amount due from directors or other officers during the year b. dues from companies under the same management. Loans and advances to related parties should be disclosed under each of the other heads separately. This disclosure would also be required in the note given pursuant to the requirements of AS 18.
Classification of security deposits Security deposits should be classified as current or noncurrent as per the definition provided in the Schedule. In our view, if the intention of the company is to not seek refund of a deposit within the normal operating cycle or 12 months after the reporting date, whichever is longer, then it may not be appropriate to classify the deposit as a current asset. Other loans and advances (nature to be specified) This would include all other loans as well as items in the nature of advances recoverable in cash or kind which are not expected to be realised within the next 12 months from the balance sheet date or within the normal operating cycle, whichever is longer. Other non-current assets These have to be classified in the notes as follows: Long-term trade receivables (including trade receivables on deferred credit terms) It may be noted that while current trade receivables are required to be disclosed separately on the face of the balance sheet, long-term trade receivables are required to be disclosed under other non-current assets in the notes. A receivable should be classified as trade receivable if it is in respect of the amount due on account of goods sold or services rendered in the normal course of business. The pre-revised Schedule instead required disclosure of sundry debtors which, as per the definition of this term in ICAIs Guidance Note on Terms used in Financial Statements, covers not only trade receivables, but also amounts in respect of other contractual obligations (of counterparties). Amounts due in respect of such other contractual obligations cannot be included within trade receivables under the revised Schedule. Such amounts should be classified as others and disclosed separately, specifying their nature.
Considering that items arising, and expected to be realised/ settled, in the course of normal operating cycle are classified as current, it seems that a trade receivable which is expected to be realised after 12 months from the reporting date would not be classified as non-current if it is expected to be recovered within the normal operating cycle, e.g., a trade receivable arising on 1 February 2012 where the normal credit period is, say, 18 months and there is no indication that the receivable would not be collected at the scheduled date. Separate disclosure is required for receivables secured considered good, unsecured considered good, and doubtful. Allowance for bad and doubtful debts should also be disclosed. Debts due by directors or other officers of the company or debts due by firms or private companies in which any director is a partner or a director or a member should be separately stated. However, the requirements of pre-revised Schedule regarding maximum amounts due from directors or other officers of the company at any time during the year and dues from companies under same management have been dispensed with. [In respect of above items, the discussion relating to longterm loans and advances would also be relevant.] Others (specifying nature) This is the residuary category which covers all non-current assets that do not fall into any of the specified non-current asset categories. Unlike the pre-revised Schedule, the revised Schedule does not contain any specific disclosure requirement for the unamortised portion of items such as share issue expenses, ancillary borrowing costs and discount or premium relating to borrowings. As per AS 16, Borrowing Costs, ancillary borrowing costs and discount or premium relating to borrowings need to be amortised. Further, as per current Indian GAAP share issue expenses are also , usually amortised over a period. In the absence of any requirements or instructions in the revised Schedule, these items would continue to be so recognised and disclosed under other current/non-current assets, depending on whether the amount will be fully amortised in the next 12 months or thereafter.
Current Investments As discussed earlier, the definition of current investment as per the revised Schedule does not exactly correspond to the definition of current investment as per AS 13. However, in almost all cases an investment that qualifies as current investment under AS 13 would also fall under the current category under the revised Schedule. Of course, under the revised Schedule, a portion of what are classified as long term investments under AS 13 (i.e., the portion of long term investments which is expected to be realised within 12 months from the reporting date), would also fall under the current category. Hence, each subcategory of current investments as per the revised Schedule would need to be further classified into (i) current investments as per AS 13 and (ii) current portion of long term investments under AS 13. Thus, if a debenture held as an investment is to be redeemed partly within 12 months of the reporting date and balance after 12 months, the amount to be redeemed within 12 months should be disclosed as current and balance should be shown as non-current. Sub-categories identical to those of non-current investments are required to be disclosed in the notes (except that investment property has not been listed as a separate subcategory under current investments). The basis of valuation of individual investments is required to be disclosed. Other disclosures are the same as in the case of non-current investments. Accordingly, reference may be made to the discussion on non-current investments to the extent relevant. Unlike the pre-revised Schedule, there is no requirement to classify current investments into trade and non-trade. This is perhaps on the basis that trade investments are by and large non-current. Inventories In practical terms, there is no significant change in presentation of inventories except that now there is a clearer categorisation of different types of inventories in the notes, viz., raw materials, work-in-progress, finished goods, stock in trade (trading goods), stores and spares, loose tools, and others (nature to be specified). For example, finished goods (i.e., those manufactured for sale) have been clearly distinguished from trading goods. Goods-in-transit are required to be disclosed under the relevant sub-head of inventories. Mode of valuation is required to be stated.
Current assets
These are required to be classified into the following categories on the face of the balance sheet: a. Current investments b. Inventories c. Trade receivables d. Cash and cash equivalents e. Short-term loans and advances f. Other current assets.
Trade receivables A trade receivable will be treated as current if it is expected to be realised within 12 months from the balance sheet date or within the op erating cycle of the business, whichever is longer. Trade receivables that are classified as current are required to be disclosed on the face of the balance sheet (long term trade receivables are disclosed in the notes under non-current assets). In the notes, these should be further classified (as earlier) into secured considered good, unsecured considered good, and doubtful. Allowance for bad and doubtful debts is required to be separately stated. Similar to the earlier position, the revised Schedule also requires disclosure of debts due by directors or other officers or by firms or private companies in which any director is a partner/director/member. However, the requirement to disclose the maximum amount due by directors or other officers of the company at any time during the year has not been retained. Also, the revised Schedule does not include the requirement to disclose amounts due from companies under the same management. As per the pre-revised Schedule VI, debts outstanding for a period exceeding six months were required to be disclosed separately. The revised Schedule includes a requirement for disclosure of trade receivables under the current category that are outstanding for more than six months but the period is to be reckoned from the date they are due for payment. Thus, this period should be determined after excluding the contractual credit period. Where no due date is specifically agreed upon, normal credit period allowed by the company should be taken into consideration for computing the due date which may vary depending upon the nature of goods or services sold, the type of customers, etc. Reference may also be made to discussion on long-term trade receivables to the extent relevant. Cash and cash equivalents As per the revised Schedule, a separate line item for cash and cash equivalents is required to be presented under current assets on the face of balance sheet. In the notes, these should be sub-classified as: Balances with banks Cheques, drafts on hand Cash on hand Others (specifying nature). The following bank balances are required to be disclosed separately: Earmarked balances with banks (such as for unpaid dividend) Balances with banks held as margin money or security against the borrowings, guarantees or other commitments
Balance under repatriation restrictions Bank deposits with maturities of more than 12 months. Repatriation restrictions, if any, in respect of cash should also be stated. The term cash and cash equivalents has been defined in AS 3 as per which cash comprises cash on hand and demand deposits with banks and cash equivalents are short term, highly liquid investments that are readily convertible into known amounts of cash and that are subject to an insignificant risk of changes in value. The Standard further explains that an investment normally qualifies as a cash equivalent only when it has a short maturity of three months or less from the date of acquisition. Hence, deposits with original maturity of three months or less only should be classified as cash equivalents. Further, bank balances held as margin money or security against borrowings would generally not meet the aforesaid definition of cash equivalents. Thus, there is an apparent conflict between the requirements of the revised Schedule and those of AS 3 with respect to items that should form part of cash and cash equivalents. As laid down in the General Instructions, Para 1 of revised Schedule VI, requirements of the Accounting Standards prevail over the revised Schedule VI and the this may necessitate necessary modifications in the financial statements which may include addition, amendment, substitution or deletion in the head/sub-head or any other changes inter-se. Accordingly, the conflict can be resolved by changing the caption Cash and cash equivalents to Cash and bank balances, which may have two sub-headings, viz., Cash and cash equivalents and Other bank balances. The former should include only the items that constitute cash and cash equivalents in accordance with AS 3 (and not the revised Schedule VI), while the remaining items may be included under the latter heading subject to a further classification as discussed below. Another issue that would arise pertains to bank deposits with more than 12 months maturity from the reporting date. If they are shown as above (under other bank balances), it would militate against the basic concept of distinction between current and non current items. There can be two views in this matter. One view can be that since such balances are specifically required to be shown under the head current assets, a company would have no other option but to show them here. The other view can be that since only such items qualify as current assets which are expected to be realised within 12 months of the reporting date, bank deposits which are due for realisation within 12 months of the reporting date should be shown under Other bank balances under current category. Those bank deposits which are due for realisation after 12 months of the reporting date are by definition a non current asset and should be shown under Other non current assets. In our opinion, the latter view is appropriate and in harmony with the conceptual basis of the revised Schedule and can be justified even on grounds of legal interpretation.
Thus, balances with banks may get classified as below: a. Under Cash and cash equivalents if they are demand deposits or have original maturity of three months or less. b. Under a separate sub-heading Other Bank balances if they are due for realisation within 12 months of the reporting date and do not qualify for classification under cash and cash equivalents. c. As a separate heading under other non-current assets, if they are not due for realisation within 12 months of the reporting date. The revised Schedule does not include the earlier requirement to disclose bank balances with scheduled banks separately from balances with other banks. Short term loans and advances These need to be sub-classified in the notes as: Loans and advances to related parties (giving details thereof) Others (specifying nature).
It may be argued that loans and advances are of totally different nature and should not have been clubbed. Information to be given regarding security, realisability, allowance for bad and doubtful debts as well as dues from directors/other officers, etc. is similar to that in the prerevised Schedule, except that the revised Schedule does not require disclosure of amounts due from other companies under the same management and maximum amount from directors or other officers during the year. Also, the revised Schedule does not specify a separate disclosure for bills of exchange and balances with excise, customs, port trust, etc. Other current assets Other current assets is the residuary heading, which covers current assets that do not fall into any of the other current asset categories. Examples of items that may be included in this category are unbilled revenue; interest accrued on investments, to the extent due for realisation within 12 months from the reporting date. Constituents of other current assets are to be presented in the notes.
Statement of profit and loss

Form
Unlike the pre-revised Schedule which merely lists the items to be disclosed in the profit and loss account, the revised Schedule gives a form of statement of profit and loss (Statement) which specifies the minimum line items to be presented on the face of such a Statement. This should be seen in the context of the general requirement that line items, sub-line items and sub-totals are to be presented as an addition or substitution on the face of a financial statement when such presentation is relevant to an understanding of the companys financial position or performance or to cater to industry/sector-specific disclosure requirements or when required for compliance with the requirements of the Act or of the accounting standards. The revised Schedule also specifies the minimum details to be provided in notes in respect of items shown on the face of the Statement. The provisions of the revised Schedule relating to the statement of profit and loss also apply to the income and expenditure account prepared under the Companies Act, 1956 by companies not carrying on business for profit in the same manner as they apply to a statement of profit and loss.
Classification by nature
The revised Schedule follows the classification of expenses based on their nature. This is a continuation of the present practice and is simpler to apply because, unlike functional classification, no allocation of expenses is necessary. However, under IAS 1, Presentation of Financial Statements, functional classification is also permitted (presumably on the basis that it facilitates meaningful information e.g., comparisons like changes in gross profit ratio). However, a company can, on a voluntary basis, additionally present the functional classification in the notes to accounts.
Concept of comprehensive income not introduced

In view of the fact that the requirements of the revised Schedule will apply to the vast majority of Indian companies which would continue to be required to follow the presently notified Indian accounting standards, the internationallyrecognised concept of comprehensive income has not been introduced in the revised Schedule. Similarly, the concept of statement of changes in equity has also not been enunciated.
Minimum information on the face of statement of profit and loss

On the face of statement of profit and loss, revenue from operations and other income are to be presented along with the total of the two, i.e., total revenue. Expenses are to be presented as under: Cost of materials consumed Purchases of stock-in-trade Changes in inventories of finished goods, work-inprogress and stock-in-trade Employee benefits expense Finance costs Depreciation and amortisation expense Other expenses
VII (i.e., Profit before extraordinary items and tax). In our view, Item XI should have been arrived at by deducting Item X (i.e., Tax expense) from Item XI (i.e., profit before tax) so as to reach Profit (loss) for the period from continuing operations. Only then the amount at Item XV [i.e., Profit (loss) for the period] would be correctly arrived at by adding Item XIV [i.e., Profit (loss) from discontinuing operations after tax] and Item XI. The resolution of the above anamoly would depend upon the issue of consistency between AS 24 and the revised Schedule VI. As per the Illustrative Disclosures given in Illustration 1 under AS 24: On the face under the statement of profit and loss, Profit before tax is first arrived at by deducting the expenses from revenue, both being aggregates of amounts relating to both continuing operations and discontinuing operations. Profit before tax is then analysed between profit (loss) from continuing operations and profit (loss) from discontinuing operations and the income-tax expense associated with each constituent is shown as a deduction therefrom. The aggregate of profit (loss) after tax from continuing operations and from discontinuing operations is then shown as profit from operating activities after tax. The break up of revenue and expenses into continuing operations and discounting operations is made in the notes (along with other disclosures required by AS 24 to be made in the notes). The above manner of presentation is different from that given in the revised Schedule as per which the revenue and expenses reported on the face of the statement of profit and loss are those pertaining to continuing operations only. In respect of discontinuing operations, only the profit (loss) before tax, associated tax expense and profit (loss) after tax are reported on the face of the statement, with revenue and expenses relating to discontinuing operations being disclosed in the notes. One may raise a hyper-technical argument that the Illustrative Disclosures contained in AS 24 are not part of the Accounting Standard and therefore, they do not override the revised Schedule. Hence, the format given in the revised Schedule should be followed. However, even then there would be a problem if totals of revenue and expense items (e.g., sales) are not reported for the company as a whole. In any case the illustration is a part of the relevant Rules and its purpose is to illustrate the application of the Accounting Standard to assist in clarifying its meaning. Accordingly, in our view, the manner of presentation as per the illustration in AS 24 should be followed.
- Total expenses. Separate line items on the face of statement of profit and loss are required to present: Profit before exceptional and extraordinary items and tax Exceptional items Profit before extraordinary items and tax Extraordinary items Profit before tax
- Tax expense
Current tax Deferred tax.
If there is a discontinuing operation, further separate line items are required to be presented on the face of the Statement as follows: Profit/(loss) for the period from continuing operations Profit/(loss) from discontinuing operations
- Tax expense of discounting operations Profit/(loss) from discontinuing operations (after tax).
Finally, the profit (loss) for the period and basic as well as diluted EPS have to be shown on the face of the statement of profit and loss. The form of statement of profit and loss as given in the revised Schedule seems to create an anamoly. As per the format given in the revised Schedule, Item XI [Profit (loss) for period from continuing operations] is required to be arrived at by deducting Item VIII (i.e., Extraordinary Items) from Item
Details by way of notes

The general instructions for preparation of statement of profit and loss inter alia contain detailed disclosure requirements in respect of various line items, including classification by way of sub-heads in notes. It is specifically required that details of exceptional and extraordinary items should also be given. It is provided that an item of income or expense should be separately disclosed if it exceeds one percent of the revenue from operations or INR 1,00,000, whichever is higher. Some would argue that this threshold is too low and is, in substantive terms, a carry-over of the requirement of the prerevised Schedule (applicable only to expenses).
tax, service tax, purchase tax, etc. are generally collected from the customer on behalf of the government. However, this may not hold true in all cases and it is possible that a company may be acting as principal rather than as an agent in collecting these taxes. Accordingly: VAT should not be recorded as revenue of the enterprise. By analogy, the payment of VAT should not be treated as an expense. Consistent with this, ICAIs Guidance Note on Value Added Tax states that Value Added Tax (VAT) is collected from the customers on behalf of the VAT authorities and, therefore, its collection from the customers is not an economic benefit for the enterprise and it does not result in any increase in the equity of the enterprise. Similarly, sales tax and service tax should not be included in the revenue from operations since in such cases, the company is acting as an agent. As per ICAIs Guidance Note on VAT, Where the enterprise has not charged VAT separately but has made a composite charge, it should segregate the portion of sales which is attributable to tax and should credit the same to VAT Payable Account at periodic intervals The same principle should be . followed for sales tax and service tax. In respect of finance companies, the break-up of revenue from operations should be disclosed by way of a note into (a) interest and (b) other financial services. It is noted that while in the case of finance companies, interest is to be included in revenue from operations, in the case of other companies, it will be included in other income. The term finance company is not defined under the Companies Act, 1956, or the revised Schedule. Companies carrying on activities which are in the nature of business of non-banking financial institution as defined under Section 45(1)(f) of the Reserve Bank of India Act, 1935 can be considered as finance companies. In the case of companies rendering or supplying services, income derived from services should be classified under broad heads. Although the term broad heads has not been defined, the revised Schedule states that broad heads shall be decided taking into account the concept of materiality and presentation of true and fair view of financial statements. While the identification of broad heads will require exercise of judgement, it seems that as a general proposition, where income from a certain kind of services accounts for 10 percent or more of the total income derived from services rendered or supplied, the same may be presented separately. Any other threshold can also be considered taking into account the concept of materiality and presentation of true and fair view of financial statements. Similarly, in the case of other companies, gross income should be classified under broad heads. The requirement for disclosure of quantitative details of turnover has been dispensed with.
Revenue from operations

The aggregate of Revenue from operations needs to be disclosed on the face of the Statement. As per the instructions for preparation of the Statement, a company other than a finance company is required to disclose by way of a note the break-up of revenue into a. sale of products b. sale of services c. other operating revenues d. Less: excise duty. However, as per the requirement of AS 9, Revenue Recognition, turnover needs to be disclosed in the following manner on the face of the statement of profit and loss:
Turnover (Gross) Less: Excise Duty Turnover (Net) XX XX XX
Due to primacy of accounting standards, it seems that excise duty should be shown as a deduction from sale of products on the face of the statement. Consequently, the other two elements of revenue, i.e., sale of services and other operating revenues may also be presented on the face of the Statement instead of in the Notes. While defining the term revenue, ICAIs Guidance Note on Terms Used in Financial Statements states that It excludes amounts collected on behalf of third parties such as certain taxes Thus, whether revenue should be presented gross . or net of taxes should depend on whether the company is acting as principal and hence responsible for paying tax on its own account or, whether it is acting as an agent i.e., simply collecting tax on behalf of government authorities and paying to them. In the former case, revenue should also include the the tax billed to the customer and the tax payable should be shown as an expense. However, in cases, where the company collects tax only as an intermediary, revenue should be presented net of taxes. Indirect taxes such as sales
Other operating revenues

It is important to understand the meaning of the term other operating revenues and distinguish it from other income The term other operating revenues is not defined in the revised Schedule. It seems that this would include revenue from a companys operating activities incidental to principal revenue producing activities of sale of products or rendering of services e.g., sale of by-products or scrap in a manufacturing company. Other income would be income from activities other than principal or incidental operating activities. Thus, whether a particular income constitutes other operating revenue or other income needs to be determined on the basis of the facts and circumstances of each case. For example, for a consumer products company which owns a building and has given a small part of it on rent on a temporary basis, lease rent will not be part of other operating revenue; instead, it should be disclosed as other income. Similarly, interest income in the case of companies other than finance companies would be part of other income. As far as net forex gain is concerned, , it should be classified as other income, the part relating to trade receivables/trade payables pertains to operating activities and could be shown under other operating revenues. However, the part relating to loans or where such gain arises from activities not related to operating activities of the company such as speculation or purchase/sale of foreign currency investments (where such activities are not principal revenue producing activities), it should be classified as other income. Where it is not feasible to segregate the fluctuations on various items, the entire gain may be classified as other income.
This would cover all kinds of interest income such as interest on fixed deposits, interest from customers on amounts overdue, etc. b. Dividend income (dividends from subsidiary companies are required to be shown separately) c. Net gain on sale of investments. (net loss, if any, should be classified under expenses) d. Other non-operating income (net of expenses directly attributable to such income). The pre-revised Schedule required the parent company to recognise dividends declared by subsidiary companies even after the date of the balance sheet if they pertained to the period ending on or before the balance sheet date. The revised Schedule does not include a similar requirement. Besides, it also recognises the primacy of accounting standards. Hence, such dividends will have to be recognised as per the requirements of AS 9 which states that dividends should be recognised as income only when the right to receive dividends is established. Normally, the right to receive dividend is established only when the dividend is approved by the shareholders at the annual general meeting of the investee company. In the first year of application of the revised Schedule, no adjustment need be made in respect of dividends from subsidiaries properly recognised in the immediately preceding year based on the requirements of pre-revised Schedule. However, necessary disclosures as per AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies relating to change in accounting policy concerning recognition of dividends from subsidiaries should be made in the notes to accounts. To the extent items of other income arise from investments, separate disclosure is required under AS 13 of such income from current investments and from long-term investments within the meaning of AS 13. Though other non-operating income is required to be disclosed net of expenses directly attributable to such income, the expenses so netted off should be separately disclosed. The following requirements of the pre-revised Schedule VI have been dispensed with: Split between income from trade investments and other investments Nature of interest income Requirement to disclose TDS in case of gross presentation of income from investments and interest Profit earned (or loss incurred) on account of membership of partnership firm.
Gross income under broad heads

The detailed disclosures required by the pre-revised Schedule VI with regard to break-up of turnover i.e., quantities and amounts in respect to each class of goods, have been dispensed with. However, as discussed earlier, in the case of a services company, gross income from services has to be disclosed under broad heads. For other companies, the requirement is to show gross income derived under broad heads. While the position is not unambiguous, in our view, in the case of trading or manufacturing companies also, sale of products should be shown under broad heads. (The term broad heads has already been discussed).
Other income
Break-up of other income in the following categories is required to be given in the notes: a. Interest income (in the case of a company other than a finance company)
The revised Schedule no longer requires disclosure of the companys share in profits or losses on investments in a partnership firm. The issue therefore is whether the companys proportionate share of profits of the partnership firm for an accounting period should be recognised in the financial statements of the company. Since the share of profit or loss in a partnership firm accrues the moment the same is computed and credited or debited to the capital/current/any other account of the company in the books of the partnership firm the same should be accordingly accounted for in the books of the company. As a partner, the company would have unlimited liability in relation to the partnership entities. Thus, if a partnership firm is incurring losses, the company should consider a provision for diminution in the value of investment as per AS 13 and once the investment value is reduced to zero, a further provision as per AS 29. The principles discussed above for partnership firms should also be applied to accounting for the share of profits and losses in an Association of Persons and a Limited Liability Partnership.
and loss. Details of consumption of raw materials, purchases and work in progress are required to be given under broad heads. Although the term broad heads has not been defined, the revised Schedule states that broad heads shall be decided taking into account the concept of materiality and presentation of true and fair view of financial statements. Further, the 10 percent criterion for grouping of items and the requirement to classify raw materials/purchases based on industrial licenses (if any) and classification of imported items have been removed. The existing criterion of grouping of items was a measurable and objective criterion. Now identification of broad heads will require exercise of judgement. It seems that generally10 percent of total value of purchases of stock-in-trade, WIP and consumption of raw , materials can be considered as an acceptable threshold for determination of broad heads. Any other threshold can also be considered taking into account the concept of materiality and presentation of true and fair view of financial statements. Generally speaking, the term raw materials would include materials which physically enter into the composition of the finished product including purchased intermediates and components. Materials such as consumable stores, fuel, etc, which do not enter physically into the composition of the finished product would, therefore, be excluded from the purview of the term raw materials. The requirement is silent with regard to containers and packaging materials. Whether such item constitute raw materials for this purpose should be decided in the facts and circumstances of each case by considering the nature of the containers and packaging materials, their relative value in comparison to the raw materials consumed, and other similar considerations. Where packing materials are not classified as raw materials, the consumption thereof should be disclosed separately.
Cost of materials consumed/purchases of stockin-trade

The revised Schedule requires separate disclosure of (i) cost of materials consumed, (ii) purchases of stock-in-trade and (iii) change in inventories of finished goods, work-inprogress and stock in trade on the face of the statement of profit and loss. Thus, opening and closing stocks are not required to be shown separately in the statement of profit
Internally manufactured components may be treated as below: a. where such components are consumed in manufacturing the finished product, the raw materials relating thereto would automatically be included in materials consumed. b. where such components are to be sold without further processing, they should be included in finished products. c. where such components are to be sold only after further processing, they should be included in work-in-progress or another suitable description. Traded goods should be excluded from the amount of consumption of materials. There is no specific requirement to disclose the quantities of the relevant items. Thus, the requirements of pre-revised Schedule VI to provide detailed break up of quantities of raw materials consumed, purchases and stocks have been done away with.
Finance costs
The following break up of finance costs is required to be disclosed in the notes: Interest expense Other borrowing costs Applicable net gain/loss on foreign currency transactions and translation. Interest expense would include interest on borrowings from banks and others, interest on debentures, bonds or similar instruments. Unlike the pre-revised Schedule, there is no requirement to separately disclose interest on fixed period loans and interest on other borrowings. The term borrowing cost has not been defined in the revised Schedule and will have to be understood with reference to its definition in AS 16, Borrowing Costs. Thus, other borrowing costs (i.e. other than interest) would include commitment charges, loan processing charges, guarantee charges, loan facilitation charges, discounts/premium on borrowings, other ancillary costs incurred in connection with borrowings. Finance charges for finance leases should be included under interest keeping in view their nature. Many of the other borrowing costs may need to be amortised over more than one accounting period from an expense recognition perspective, e.g., discount on debentures with a five-year maturity period would be recognised as expense over the said period. As regards applicable net gain/loss on foreign currency transactions and translation to be included in finance costs, in our view, the amount should be determined by considering the requirements of AS 16. Paragraph 4(e) of AS 16 states that borrowing costs may include exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Thus, gain/loss on foreign currency transactions to be shown under finance costs should be limited to this extent. As regards other foreign exchange loss/gain, it should be shown separately under appropriate head i.e., net loss on account of foreign exchange fluctuations (refer to other expenses below).
Employee benefits expense, etc.

The revised Schedule requires disclosure of employee benefits expense on the face of the Statement with disclosure of details (salaries and wages, contribution to provident and other funds, expense on Employee Stock Option Scheme (ESOP) and Employee Stock Purchase Plan (ESPP), and staff welfare expenses) in the notes. In our view, bonus and leave encashment would constitute a part of salaries and wages. For this purpose, directors, whether in whole-time or parttime employment of the company, should also be considered. However, remuneration paid, if any, to directors who do not have any contract of service with the company and who only attend the board meetings should be excluded. Similarly, payments to consultants or advisers who do not have an employer-employee relationship with the company should also be excluded. In other words, a distinction should be made between persons engaged under a contract of service and those engaged under a contract for services. The former should be considered while the latter should be excluded. As regards contribution to funds such as provident fund, the contribution paid/payable should be disclosed. Penalties paid/ payable to statutory authorities (e.g., on account of delayed deposit of PF dues) are not in the nature of contribution and should not be disclosed under the head contribution to provident and other funds. However, expense recognised on account of gratuity liability would be included under this head. The pre-revised Schedule did not require separate disclosure of expense on account of ESOP and ESPP in the notes to accounts. However, ICAIs guidance note on the subject requires a disclosure of the ESOP/ESPP cost. Hence, practically the revision will have no effect.
Depreciation and amortisation expense

This needs to be disclosed separately on the face of the Statement. A break-up would be required to show impairment separately and to comply with various other requirements of AS 6, Depreciation Accounting, AS 26, Intangible Assets and AS 28, Impairment of Assets.
Payments to auditors
Details of payments to auditors have to be given in notes as follows: a. As auditor, b. for taxation matters, c. for company law matters, d. for management services, e. for other services, f. for reimbursement of expenses. Thus, a separate disclosure of reimbursement of auditors expenses is now required.
Commission on sales
Separate disclosure of commission and brokerage is not specifically required. However, separate disclosure would be required if the amount exceeds one percent of turnover or INR 1,00,000, whichever is higher.
Other expenses
Expenditure on each of the following items forming part of other expenses as shown on the face of the Statement, is required to be shown separately in the notes: a. Consumption of stores and spare parts b. Power and fuel c. Rent d. Repairs to buildings e. Repairs to machinery f. Insurance g. Rates and taxes, excluding taxes on income h. Miscellaneous expenses. Apart from the above the following would also need to be disclosed separately: items exceeding the higher of one percent of revenue from operations or INR 1,00,000, net loss on sale of investments, provision for diminution in the value of investments/other adjustments to carrying amount of investments, net loss on account of foreign exchange fluctuations (other than considered as finance cost as discussed earlier) and provisions for losses of subsidiary companies Generally, in its stand-alone financial statements, a parent would recognise only the investment in the subsidiary and the dividends declared/paid by the subsidiary; it would not recognise its share of losses incurred by the subsidiary. However, in many cases, losses incurred by a subsidiary company may result in recognition of an other than temporary diminution in the value of investment in the subsidiary in the books of the parent. The above disclosure would be made only in these cases.
Exceptional items
While the revised Schedule requires disclosure of a separate line item for exceptional items on the face of the Statement (with details in notes), the term has not been defined. Nor is this term defined in accounting standards. However, the term is generally construed as referring to the items requiring disclosure under para 12 of AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies which reads as under: 12 When items of income and expense within profit or loss from ordinary activities are of such size, nature or incidence that their disclosure is relevant to explain the performance of the enterprise for the period, the nature and amount of such items should be disclosed separately. The revised Schedule requires a separate line for exceptional items to be disclosed before Profit before extraordinary items and tax. However, as per AS 5: 12. . the nature and amount of such items should be disclosed separately. 13. Disclosure of such information is sometimes made in the notes to the financial statements.
Thus, as per AS 5, exceptional items are either disclosed as a separate line item(s) on the face or included in the relevant line item and explained by way of notes to the financial statements. Does this mean that since the revised Schedule gives primacy to the requirements of an accounting standard, companies can continue to follow the disclosure requirements of AS 5? In our view, this is not so. Considering the specific requirements of the revised Schedule, companies no longer have the option to not disclose exceptional items as a separate line on the face of the statement of profit and loss. It may be noted that the standards will prevail only if there is a conflict between the requirements of a standard and the revised Schedule. However, the given case is not that of a conflict but one of elimination of an option. Thus, the exceptional items should be disclosed separately on the face of the Statement as a separate line item, with the details disclosed in the Notes (where there is more than one such item).
Tax expense
With regard to tax expense, the revised Schedule requires separate disclosure of current tax and deferred tax. Presentation of Minimum Alternative Tax (MAT) should be made as per the ICAIs Guidance Note on Accounting for Credit available in respect of Minimum Alternative tax under Income Tax Act, 1961 which specifies the following disclosure: Current tax (MAT) payable Less: MAT credit entitlement Net Current tax liability XX (XX) XX
Any interest on shortfall in payment of advance income-tax should not be included in current tax. The same should be classified as part of interest expense under finance costs. Wealth tax payable by a company is not a tax on income. Accordingly, wealth tax may be included in rates and taxes under other expenses. Excess/short provision of income tax relating to earlier years should be separately disclosed rather than being adjusted in current tax.
Extraordinary items
The revised Schedule requires extraordinary items to be distinguished from exceptional items and shown separately on the face of the statement of profit and loss (with details in notes). As per AS 5, such items are rare e.g., attachment of property, loss of property due to earthquake.
Profit/(loss) from Discontinuing Operations

The disclosure requirements of AS 24, Discontinuing Operations, including the amount of pre-tax profit or loss from ordinary activities attributable to the discontinuing operation, and the income tax expense related thereto to be disclosed on the face of the Statement should be complied with. Apart from the above, AS 24 also requires disclosure of the amount of pre-tax gain or loss recognised on the disposal of assets or settlement of liabilities attributable to the discontinuing operation on the face of the Statement. Accordingly, such disclosures should also be made wherever applicable.
Earnings per equity share

Basic and diluted earnings per share, computed in accordance with AS 20, Earnings Per Share, should be disclosed on the face of the statements of profit and loss. In this regard, it is relevant to note that AS 20 requires the nominal value of equity shares to be disclosed along with the earnings per share figures; hence, the same would also need to be disclosed on the face.
Capacity and actual production disclosures not required

Quantitative disclosures regarding licensed capacity, installed capacity and actual production by manufacturing companies have been dispensed with in the revised Schedule.
Dividends and other appropriations

The pre-revised Schedule VI required the profit and loss account to disclose the appropriations from the profit including aggregate amount of dividends paid and/or proposed stating whether such amounts were subject to deduction of income-tax. This requirement is not fully carried forward in the revised Schedule. However, the revised Schedule requires the disclosure of the amount of dividends proposed to be distributed to equity and preference shareholders for the period and the related per share amount as a note to balance sheet. As mentioned earlier, in view of the requirements of AS 4, Contingencies and Events Occurring After the Balance Sheet Date read with the revised Schedule, proposed dividends for the year will have to be provided.
Provisions
As at present, the aggregate, if material, of the amounts set aside to provisions made for meeting specific liabilities, contingencies or commitments has to be shown separately in notes. Similar disclosure is required in respect of aggregate amounts withdrawn from the provisions of aforesaid nature no longer required. Unless they represent adjustments to the carrying values of assets, the amounts set aside to provisions should be recognised as an expense and provisions no longer required should be credited as income.
Imports/foreign exchange dividend remittances/ earnings and expenditure in foreign exchange, etc.
The following disclosures as required by the pre-revised Schedule have been retained: a. Value of imports, calculated on CIF basis, by the company during the financial year in respect of i. Raw materials ii. Components and spare parts iii. Capital goods. b. Expenditure in foreign currency during the financial year on account of royalty, know-how, professional and consultation fees, interest, and other matters. c. Total value of all imported raw materials, spare parts and components consumed during the financial year and the total value of all indigenous raw materials, spare parts and components similarly consumed and the percentage of each to the total consumption. d. The amount remitted during the year in foreign currencies on account of dividends with a specific mention of the total number of non-resident shareholders, the total number of shares held by them on which the dividends were due and the year to which the dividends related. e. Earnings in foreign exchange classified under the following heads: i. Export of goods calculated on FOB basis ii. Royalty, know-how, professional and consultation fees iii. Interest and dividend iv. Other income, indicating the nature thereof.
Reserves
Like the existing Schedule, the revised Schedule states that the following should be shown by way of notes: a. The aggregate, if material, of any amounts set aside or proposed to be set aside, to reserves, but not including provisions made to meet any specific liability, contingency or commitment known to exist at the date as to which the balance-sheet is made up. b. The aggregate, if material, of any amounts withdrawn from such reserves. It seems that the amounts transferred to each reserve from the opening balance of profit and loss and the profit for the period are required to be shown along with their aggregate. Similarly, all amounts withdrawn during the period from each reserve which had been created through transfers from profit and loss are required to be disclosed along with their aggregate. It may be noted that a reconciliation of opening and closing balances of profit and loss would be shown as a part of notes relating to reserves and surplus in the balance sheet.
Prior period items

Details of prior period items (as defined in AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies) are required to be shown in notes.
Value of imports on CIF basis It may be noted that this requirement does not include the import of finished goods and stores. However, it is required to show the value of imported capital assets even though the capital assets do not otherwise appear in the statement of profit and loss. The value of all imports of the relevant items made during the year, whether the imported items were consumed/ utilised or not, is required to be shown, irrespective of whether the imports are on rupee payment terms or against foreign currency. The value has to be shown on CIF basis, i.e., inclusive of cost, insurance and freight, even if the goods are insured or shipped by Indian concerns. In case it is not possible to disclose the value of imports on CIF basis, the value may have to be shown on FOB or some other basis. However, a note explaining the reasons for doing so should be given. An example of such a situation can be the case of a company which uses its own ships to carry the goods. A difficulty in determining the value of imports of a company may arise where the company purchases import entitlements, or where it purchases imported goods from the local market, or where it imports through another agency. It seems that the imports made by the company on the basis of import entitlements purchased by it will be covered under this clause. However, purchase of imported goods from the local market does not seem to require a disclosure. The imports through another agency have to be seen with reference to the fact whether such agency has imported the goods as an independent principal or whether it has done so as an agent of the company. In the former case, the company has merely purchased the imported goods from the agency which imported them as a principal. Hence, such transactions may not be considered as imports by the company. If, however, the importing agency has imported the goods on behalf of the company, the value of such imports should be disclosed.
The value of imports should also include goods which are in transit at the balance sheet date but have been recognised as purchases in accordance with the applicable accounting principles. Problem may, however, arise in the case of import of capital goods where delivery is in installments i.e., through part shipments from time to time and the agreement with the supplier does not ascribe separate values to different shipments. In such cases, the value of import of part shipments may be estimated on a reasonable basis. For the purpose of working out the CIF value of imports, it may be necessary to make approximations in suitable cases. For example, if the material is imported on FOB basis, a standard formula may be applied to convert the FOB values to CIF values, provided the formula is logical and reasonable and periodically benchmarked against actual experience. Expenditure in foreign currency during the financial year The disclosure should be made if the expenditure incurred by the company on royalty, know-how, professional and consultation fees, interest and other matters is in foreign currency. In other words, if no foreign currency expenditure is involved, disclosure is not required even though the specific services have been imported e.g., services received free of cost or against payment in Indian Rupees. Further, the amount to be disclosed would be the equivalent amount in Indian Rupees. Considering that the books of account are maintained on an accrual basis, the disclosure should be made on accrual basis. The amount of expenditure should be translated to Indian rupees on the basis of normal principles relating to translation of foreign currency transactions. Further, the disclosure should be made of the gross amount of the expenditure (and not the net amount after tax deduction at source).
While the requirement specifies the items in respect of which the disclosure is to be given, unlike other clauses (e.g., value of imports, foreign exchange earnings) it is not clear whether the disclosure has to be made in aggregate or separately for each item. In our view, the existing practice under pre-revised Schedule to give separate disclosures for each specified item should be continued. The residual item relating to other matters appears to be sufficiently exhaustive so as to cover any items for which foreign currency expenditure is involved and is not limited to other similar matters i.e., items of a nature similar to royalty, know-how, professional consultation fees and interest. However, it does not seem reasonable to disclose under this requirement, expenditure in foreign currency for an item whose import value has been disclosed in response to another requirement. Thus, to the extent the expenditure has been disclosed as part of disclosure of imports, it need not be included here again. For example, import of capital goods disclosed as part of CIF value of imports need not be disclosed under this requirement. However, foreign currency expenditure on the import of stores may not have been disclosed pursuant to requirement for disclosure of value of imports on the basis that while disclosure of value of imports of components and spare parts is required, value of imports of stores is not required to be disclosed. In such a case expenditure in foreign currency on import of stores should be disclosed here. Disclosure should also be made of any foreign currency expenditure on payment of taxes on income earned in that country in a case where the payment of such taxes involves actual remittance from India. Where, however, the taxes are paid overseas in foreign currency through deduction at source rather than by actual remittance from India, the taxes should be included as part of the foreign exchange earnings to be disclosed under the revised Schedule. Total value of all imported raw materials, spare parts and components consumed during the financial year and the total value of all indigenous raw materials, spare parts and components similarly consumed and the percentage of each to the total consumption The manner in which the imported materials are to be valued i.e., CIF basis or FOB basis or any other basis has not been laid down. It seems that it would be appropriate to make the disclosure on the basis of the actual purchase cost to the company of the imported materials (including incidental expenses directly related to the purchase of such materials) which have been consumed.
The disclosures under this requirement differ from the requirement to disclose CIF value of imports. The disclosure of the value of imports is made irrespective of whether or not the imported materials have been consumed during the year. However, the disclosures under this requirement are limited only to the value of the relevant imported materials consumed during the year. Reference may be made to the earlier discussion on what constitutes an import for a company. The disclosure is to be made in Indian currency by applying normal principles for the translation of foreign currency transactions. Since the requirement includes disclosure of the percentage of each to the total consumption, it seems that the consumption may be disclosed separately for (a) raw materials and (b) for spare parts and components. Care should be taken to ensure that the total consumption agrees with the figures in the statement of profit and loss. It is, however, noted that the revised Schedule requires disclosure of consumption of stores and spare parts as a composite amount. Thus, the disclosure under this requirement will not agree with the amount disclosed in the Statement unless here also spare parts and stores are disclosed separately. There can be a situation where the company recognises consumption on the basis of standard or pre-determined rates and then periodically makes an adjustment to reflect the total consumption as per actual cost. In such a case, there can be a practical challenge in allocating the price adjustment between imported and indigenous consumption. One way to deal with the situation could be to allocate the adjustment (debit or credit) between imported and indigenous consumption in the ratio of value of imported and indigenous consumption (prior to the adjustment). A similar problem may arise where an item is partly purchased locally and partly imported and stocks are not physically kept separate. In such cases, it appears to be permissible to assume that consumption is on a pro-rata basis, e.g., in the ratio of opening stock plus purchase. Internally manufactured components should not be included under this requirement even if they are manufactured from imported materials since the materials consumed for production of such intermediates would already have been considered as raw materials consumed.
Dividend in foreign currencies The disclosure is required for the dividend remitted during the accounting year in foreign currencies. Thus, if dividend has been paid to a non-resident shareholder in Indian Rupees, disclosure would not be required. Also, if on the basis of the instructions from a non-resident shareholder, the related dividend payable is deposited in a Rupee account with its bankers in India after necessary approvals (e.g., from RBI), no disclosure would be required for such payment since it is not made in foreign currency (even though the shareholder concerned may arrange for foreign currency remittance out of the rupee account). However, the company may at its option provide additional information regarding such dividends. Further, the amount to be disclosed in respect of foreign currency dividends is required to be stated in Indian Rupees, though the company may provide additional information regarding the amount of foreign currency, Since the reference is to the amount remitted, it seems that information is required to be given in the year of actual payment of dividend rather than in the year in which the dividend is proposed or declared. Such a disclosure would be on a cash basis. Since the information relating to the number of non-resident shareholders and the number of shares held by them is intended to be linked to the basic information relating to the dividends remitted, these details are not required in the year in which no dividend has been proposed/declared for the nonresident shareholders. Earnings in foreign exchange The foreign currency earnings should be disclosed on accrual basis. Where tax has been deducted from such income at source in the overseas country in which earnings have arisen, the more appropriate manner of disclosure would be that the foreign exchange earnings are disclosed gross of tax deducted at source (and not net of such tax) with a mention of the net of tax earnings and tax deducted at source. Considerations that apply in determining whether a purchase is an import by the company will also apply in determining whether a sale is an export by the company. A sale made by
the company through an agent to an overseas buyer is an export by the company.
Disclosures no longer mandatory

The following disclosures are not required by the revised Schedule: Interest payable/paid to managing director/manager. However, this disclosure may still be required under AS 18. Amounts reserved for repayment of loans and share capital. Details of managerial remuneration and computation of net profits in accordance with Section 349 of the Act. However, managerial remuneration would have to be disclosed to the extent required by AS 18. In case of non-provision for depreciation, disclosure in the notes of the fact that no depreciation has been provided along with the quantum of arrears of depreciation calculated as per Section 205(2) of the Act. This was in any case redundant in the context of requirements of AS 6.
Multiple activity companies

Where a company has multiple activities e.g., manufacturing and trading, it should comply with the various applicable requirements relating to each of its activities. For instance, in respect of its manufacturing activities, the company should comply with the requirements relating to a manufacturing company; with respect of its trading activities, it should comply with the requirements relating to that category of companies. However, if it is not possible to break up some of the required information, it would be sufficient compliance if that information is given against main activities with a suitable disclosure.
Implementation challenges
It appears that the regulators have attempted to align the revised Schedule VI to international practices to the extent feasible under the accounting standards notified presently. In this context there are a number of implementation challenges which companies could face in the first year of application of the revised Schedule. While some of these challenges are general in nature, there would be many specific issues faced by companies from different sectors with completely diverse operating environments in bringing the presentation of their financial information in the revised universal format. Increased onus is also placed on managements judgement in determining the presentation of assets and liabilities. The revised Schedule VI introduces significant conceptual changes specially with respect to classification of assets and liabilities into current and non-current and operating cycle of a company, which is likely to impact companies in all the sectors. In this section, we have attempted to provide our perspective on some sector specific challenges emanating from the requirements of revised Schedule VI.
Power sector
Effect on balance sheet Controlled special purpose entities: Increasingly, power sector entities, particularly in the renewable energy sector, operate using the special purpose vehicle (SPV) model because of its relative structural benefits. The revised Schedule VI requires disclosures for investments in controlled special purpose entities. However, the expression controlled special purpose entities has not been defined in the revised Schedule VI or notified Accounting Standards. As per ICAIs Guidance Note on revised Schedule VI, the disclosure requirements relating to investments in controlled SPEs would become applicable when this expression is defined/explained in notified ASs/ Schedule. Thus, until such time a company has a choice in the matter. If the company chooses to make relevant disclosure, it may do so as per the guidance contained in Ind AS 27 in this regard and disclose the fact. Another issue in this regard would be whether a particular SPV would need to be consolidated where consolidated financial statements are to be prepared. This would have to be resolved with reference to the criteria laid down in AS 21. Current versus non-current classification: Carbon credit/emission reduction schemes: The carbon credit/certified emission reduction (CER) schemes involve allocation of entitlements by regulatory bodies to individual entities based on certain prescribed qualifying eligibility criteria. Whilst the issue of classification of such CERs as an intangible asset or inventory along with the timing of recognition of such asset would have to be resolved on a consideration of the exact facts and circumstances of each case, an incremental dimension which is added by the revised Schedule is the determination of the current and non-current portions of the asset recorded in the balance sheet. In this connection, companies may have to take cognisance of their business-specific normal operating cycles, validity period of such assets in terms of realisation, the expected period for transfer/disposal, etc. to conclude on the classification.
Environmental obligations, earnest money deposits and mobilisation advances: Classification of earnest money deposits (collected from vendors), mobilisation advances (provided to contractors) and certain environment related obligations between current and non-current categories in the balance sheet will involve consideration of contractual/legal position, application of judgement and/or use of estimates.
Renewable purchase obligations: The power sector entities often encounter challenges with regard to the determination of the extent of purchase of renewable energy required to meet their statutory Renewable Purchase Obligations (RPOs). Failure to meet these obligations may result into the levy of enforcement charges by the State Commission on such entities. Obligations that have already accrued would need to be provided for. The revised Schedule VI, in addition to requiring disclosure with regard to capital commitments, also requires the disclosure of other commitments. In this context the issue would be whether power sector companies would have to disclose their RPOs relating to future periods as part of this disclosure requirement.
Classification and disclosure requirements relating to borrowings: There are many power projects in India which are funded substantially through debt. The revised Schedule requires a liability to be classified as current if the company does not have an unconditional right to defer the settlement for at least twelve months from the reporting date. Most of the debt arrangements provide for immediate repayment in the event of covenant default. The unconditional right to defer settlement for a period of at least 12 months could become a high hurdle for the highly leveraged power sector companies and therefore, some of the entities in this sector could witness reclassification of debt which was previously presented as secured or unsecured loans into current liabilities. When the transgression in the debt covenant is only minor and the loan has not been recalled by the date of approval of financial statements and the managements estimate based on past experience/discussion with the lender is that the loan would not be recalled, the situation should not result in current classification and in such circumstances the debt should be accounted in accordance with the substance of the situation. Borrowing costs: Hitherto, ancillary borrowing costs along with any discount or premium related to borrowings are amortised over the loan period, with the unamortised portion presented in the balance sheet under the head Miscellaneous expenditure to the extent not written off. There is no such separate head in the revised Schedule VI for presentation in the balance sheet. The revised Schedule allows additional line items to be added on the face or in the notes. Keeping this in view, such companies can disclose the unamortised portion of such expenditures under the head other current/ non-current assets, depending on whether the amount will be fully amortised in the next 12 months or thereafter.
Financing and funding structure: Presentation of preference capital: The power sector, with its ambitious infrastructure investment programs, attracts new investors who are often willing to provide alternative sources of funds such as convertible or redeemable preference share capital. revised Schedule VI introduces additional disclosures with regard to the rights, preferences and restrictions attached to each class of shares, including restrictions on the distribution of dividends and the repayment of capital. Such disclosures would need to be made by companies in the power sector.
Financial services sector

Effect on balance sheet Concept of controlled special purpose entities: A large number of financial services sector entities operate using the special purpose vehicle (SPV) model because of its relative structural benefits. The revised Schedule VI requires disclosures for investments in controlled special purpose entities. However, the expression controlled special purpose entities has not been defined in the revised Schedule VI or notified Accounting Standards. As per ICAIs Guidance Note on revised Schedule VI, the disclosure requirements relating to investments in controlled SPEs would become applicable when this expression is defined/explained in notified ASs/Schedule. Thus, until such time a company has a choice in the matter. If the company chooses to make relevant disclosure, it may do so as per the guidance contained in Ind AS 27 in this regard and disclose the fact.
Cash and cash equivalents: The revised Schedule VI has introduced an element of inconsistency in the concept of Cash and cash equivalents as compared to the definition under AS 3, Cash Flow Statements. The revised Schedule VI requires disclosure of Cash and cash equivalents on the face of the balance sheet and the break-up of it includes items such as Balances with Banks held as margin money or security against borrowings, guarantee etc. and bank deposits with more than twelve months maturity. Under AS 3, an investment normally qualifies as a cash equivalent only when it has a short maturity of three months or less from the date of acquisition. Accordingly deposits with original maturity of three months or less only should be classified as cash equivalents. Further, bank balances held as margin money or security against borrowings are not generally in the nature of demand deposits and hence, do not meet the definition of cash and cash equivalents. Thus, there exists apparent conflict between the requirements of the revised Schedule VI and those of AS 3 with respect to items that should form part of cash and cash equivalents. As laid down in the General Instructions, Para 1 of the revised Schedule, requirements of the Accounting Standards prevail over the revised Schedule and this may necessitate necessary modifications in the financial statements which may include addition, amendment, substitution or deletion in the head/sub-head or any other changes inter-se. Accordingly, the conflict can be resolved by changing the caption Cash and cash equivalents to Cash and bank balances, which may have two subheadings, viz., Cash and cash equivalents and Other bank balances. The former should include only the items that constitute cash and cash equivalents in accordance with AS 3 (and not as per the revised Schedule), while the remaining items may be included under the latter heading subject to a further classification as discussed below. Another issue that would arise pertains to bank deposits with more than 12 months maturity from the reporting date. If they are shown as above (under Other current bank balances), this would militate against the basic concept of distinction between current and non current items. There can be two views in this matter. One view can be that since such balances are specifically required to be shown under the head current assets, a company would have no option but to show them here. The other view can be that since only such items qualify as current assets which are expected to be realised within 12 months of the reporting date, only bank deposits which are due for realisation within 12 months of the reporting
date should be shown as other bank balances under current category. Those bank deposits which are due for realisation after 12 months of the reporting date are by definition a non current asset and should be shown under Other non current assets. In our opinion, the latter view is appropriate and in harmony with the conceptual basis of the revised Schedule and can be justified even on grounds of legal interpretation. Thus, balances with banks may get classified as below: a. Under Cash and cash equivalents if they are demand deposits or have original maturity of three months or less. b. Under a separate sub-heading Other bank balances if they are due for realisation within 12 months of the reporting date and do not qualify for classification under cash and cash equivalents. c. As a separate heading under other non-current assets, if they are not due for realisation within 12 months of the reporting date.
Classification of loans between current and noncurrent: The revised Schedule VI requires assets to be classified as current and non-current depending upon the expected realisation. In case of finance companies with significant lending activities, an issue arises whether the classification of loans should be based on contractual maturity or expected maturity. The revised Schedule refers specifically to expected realisation. Significant judgement and estimates will be involved in determining the expected realisation. In our view, the contractual maturity should be presumed to reflect the expected period of realisation unless there are indicators that realisation will be deferred beyond the contractual maturity period.
Effect on profit and loss account Definition of a finance company and disclosure of revenues: The revised Schedule VI requires different disclosures for revenues depending on whether a company is a finance company or not. Broking companies are generally exempted from requirements applicable to NBFCs companies. Thus, if such a broking company carries on proprietary trading, it may present the income from proprietary trading under other operating revenues.
IT-ITES sector
Effect on balance sheet Current versus non-current classification: Income tax paid in advance and provision for income taxes: Generally, IT/ITES companies have significant amount of disputed/ undisputed outstanding dues to income tax authorities. For example, the companies in this sector are typically involved in Transfer Pricing litigations (disputed). Additionally, advance tax dues (undisputed) are also not settled for significant periods. Classifications of various items into current and noncurrent would present a challenge since this would be dependent upon the nature and facts of each case. As an example, we may consider a situation where there is a net provision for current tax (i.e., net of advance tax). The very fact that a provision has been made indicates that the management construes the amount as more likely than not a part of its income tax liability for the year. Since the company does not have an unconditional right to defer settlement of this liability for at least 12 months after the reporting date, it should be classified as current. Another example could be of a net advance tax due for refund. Unless the past experience indicates that it would be realised within 12 months from the reporting date, this should be classified as non-current. Minimum alternate tax (MAT) credit and service tax credit receivable (input credit): Most of the IT/ITES companies pay MAT since they are exempt from tax under Section 10AA of the Income Tax Act, 1961. The presentation of MAT credit should be made as prescribed by the ICAI Guidance Note on Accounting for Credit available in respect of MAT under the Income Tax Act, 1961. To the extent recovery of MAT credit is expected within 12 months of the reporting date it should be classified as current. Similarly, challenge exists for most of the IT/ITES companies in classification of service tax credit receivable on input services between current and non-current. Generally, companies in the IT/ITES sector are unable to off-set their input related service tax credits against output related service tax dues as often the output services are tax exempt. Accordingly, most companies in IT/ITES sector apply for refund of input service tax. Though such refunds are theoretically due within a period of one year from the date of filing the claim, in practice, the realisation often takes a much longer period. Accordingly, the current /non-current classification of such service tax becomes a matter of judgement.
Classification of retirement benefits: IT/ITES companies are mostly manpower intensive with retirement benefits forming a significant element in the financial statements. The bifurcation of the retirement benefits related liabilities into current and non-current components would require a robust estimation process.
Share based payments: Share options outstanding account has been specifically recognised as a separate item under the head Reserves and surplus; even earlier it was generally so disclosed. In comparison to other sectors, IT-ITES sector companies more extensively use share based payments in the salary structure of employees.
Breach of loan covenants: The loan agreements entered into by IT/ITES companies generally have financial and non-financial covenants. As discussed earlier in the case of Power sector entities, there could be challenges in concluding the current versus non-current categorisation of such loans, should there be any transgressions in compliance with debt covenants.
Effect on profit and loss account Classification and presentation: The revised Schedule VI specifies the format for the statement of profit and loss. In addition, it requires classification of expenses based on their nature. While this may be a continuation of the present practice for most of the Indian companies, certain IT/ITES companies which presented functional classification on the face of the statement of profit and loss, would now be required to change their presentation. Functional classification may, however, be shown in the notes to accounts as additional disclosure.
Contingent liabilities and commitments: It seems that the disclosures relating to other commitments would include only those non-cancellable contractual commitments which in the professional judgement of the management are material and relevant to the understanding of financial statements. However, there may be varied interpretations of other commitments resulting in inconsistent disclosures within the industry by companies.
Real estate sector

Effect on balance sheet Investment property: Many real estate companies which are involved in construction and lease of office/retail space classify the buildings/office space/residential apartments under the head fixed assets. The revised Schedule VI requires a separate classification of investment property under the head long term investments. This raises the issue whether properties which are leased can only be classified as investment properties or whether they can also be classified as fixed assets. AS 13, defines an investment property as an investment in land or buildings that are not intended to be occupied substantially for use by or in the operations of the investing enterprise. AS 10 defines a fixed asset as an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business. It may be further noted that Para 3.2(iii) of AS 6 treats an asset held for rental to others as a depreciable asset. An investment property as per AS 13 is not to be depreciated as construed under AS 6. Hence, it can be argued that a property held for rental purposes can be classified as a depreciable asset which would appear under fixed assets. It seems that there is also the choice of classifying such a property as an investment property. Thus, the specific mention of the head investments property under non-current investments in revised Schedule VI does not change the existing position regarding classification of properties under lease. Capital work in progress including capital advances: Land and buildings held by a real estate company can be classified as fixed asset or inventory or investment property depending on the intended use of land/building. Where such land/building would be classified as fixed asset/CWIP and the company has given advances for these, the balances should be disclosed as capital advance under long-term loans and advances to the extent it does not represent delivery of land/work performed. Advance towards purchase of land: In the real estate industry, developers typically pay advances towards purchase of land which after a substantial period of time, get converted into owned land (or into jointly owned land in case of joint development programmes). This is typically the case due to pending land conversions, pending litigations on the land and delays in the start of the project. Under the revised Schedule VI, such advances are classified as capital advances under the head long term loans and advances till the relevant land can be recognised as an asset. Similarly, refundable deposits would also need a careful evaluation as to their nature to determine their appropriate classification.
Effect on profit and loss account Finance costs: Companies availing foreign currency borrowings for construction purposes are required to present under the head finance expenses, the impact of translation difference to the extent considered as interest cost. Hitherto, some companies classified this item under the head foreign exchange loss.
Oil and gas sector

Effect on balance sheet Peculiar nature of industry: Oil and gas industry with its huge upfront investment on exploratory activities is a challenging sector whose activities can be broadly divided into three categories, viz., upstream (extraction of oil and gas), midstream (transportation of oil and gas through pipelines) and downstream (refining and marketing of oil and gas). The peculiar nature of upstream activities necessitates industry-specific accounting principles in relation to expense recognition, measurement and disclosures. Considering uncertain outcome of upstream activities, this section deals with certain specific aspects, which the companies involved in upstream activities may face while implementing the revised Schedule VI. Application of guidance note: With regard to upstream oil and gas activities, the Guidance Note on Accounting for Oil and Gas Producing Activities (Guidance Note), issued by the ICAI, is the primary accounting literature. However, in case of any inconsistency between the requirements as laid down by the Guidance note and those of the revised Schedule VI, the requirements of revised Schedule VI would prevail. Prima-facie, there does not seem to be any inconsistency in disclosures though there are certain additional requirements in the guidance note. Method of accounting to affect the current versus non-current classification: The Guidance Note permits two methods of accounting, viz., Full Cost Method (FCM) and Successful Efforts Method (SEM). Under FCM, all costs incurred in acquiring mineral resources, exploration and development are capitalised, whereas, under SEM, only those costs that lead directly to the discovery, acquisition or development of specific, discrete oil and gas reserves are capitalised. Thus, the method of accounting could affect the classification of various items as current/ non-current in specific circumstances. For example, an advance given for exploratory geological and geophysical activities (G&G activities) would qualify as capital advance (to be disclosed as a part of long term loans and advances) for a company following FCM since its settlement would result in a non-current asset (capital work-in-progress). However, for a company following SEM, it would not be treated as capital advance since the company would expense the exploratory geological and geophysical costs as and when incurred. Classification of fixed assets: The revised Schedule VI requires separate disclosure of tangible and intangible assets. In upstream companies, apart from clearly identifiable tangible assets (e.g., vehicles, drilling rigs, etc.) and intangible assets (e.g., exploration licenses), there would be assets of such nature such as expenditure in construction of exploratory wells which may involve significant element of judgement in tangible and intangible asset classification. Jointly controlled assets: One of the key challenges which upstream oil and gas companies face is the absence of relevant information with respect to jointly controlled assets for the purpose of incorporation of the relevant share therein in standalone financial statements in accordance with AS 27 Financial Reporting of Interests in Joint Ventures. , Considering that compliance with the revised Schedule VI would require incremental information with respect to current/ non-current classification, upstream oil and gas companies would be required to proactively explain these requirements to the operators to avoid delays or inconsistencies in financial reporting.
Effect on profit and loss account Expense classification by nature: The revised Schedule VI follows the expense classification by nature and requires separate presentation of cost of materials consumed; employee benefits expense; depreciation and amortisation; and other expenses. Several companies in the upstream oil and gas sector present production expenses (aligned towards functional classification) as a separate line item in the profit and loss account which includes cost of labour; repairs and maintenance; materials; supplies; fuel and power; royalty; etc. In the context of this sector, these are considered as cost of oil and gas produced. This presentation may need to be reviewed in view of the requirements of the revised Schedule VI.
Transport and logistics sector

Effect on balance sheet Current versus non-current classification: Financing arrangements: Certain sub-sectors in the Transport and Logistics sector require significant capital expenditure (e.g., ship building, port terminals, transportation companies, etc.) and accordingly are heavily leveraged. Their long term debt arrangements typically have certain financial and operating covenants (e.g., debtequity ratio, current ratio, net current assets ratio, etc.). The revised Schedule VI may require a re-classification of certain liabilities from the existing classification of current liabilities to non-current liabilities and from secured/unsecured loans to current liabilities. The revised classification requirements, especially for liabilities, will require entities with significant debt to proactively re-negotiate solvency and liquidity related debt covenants with their lenders. - Advance received under a long term service contract: Where a shipping company receives upfront advance payment for journey to take place over say next 2 years, only that part of the advance payment will be classified as current for which the related service is expected to be performed within 12 months of the reporting date. Assets under Build, Operate and Transfer Model: The Build, Operate and Transfer model is widely prevalent in the Port sector. Under the requirements set out in revised Schedule VI, all intangibles are now required to be separately disclosed as part of Intangible assets. in this context, the classification of facilities constructed on a Build, Operate and Transfer Model (under public private partnerships), as tangible or intangible would seem to need evaluation, considering that Indian GAAP at present do not contain any specific enunciation on the subject.
Effect on profit and loss account Other operating revenue/other non-operating income: Shipping agencies/logistic companies would need to classify their income from non-core activities between these two categories. For example, income from refrigeration, being incidental to core operating activities, would warrant classification as other operating revenue.
Pharmaceuticals sector
Effect on balance sheet Controlled special purpose entities: Increasingly, pharmaceuticals sector entities operate using the special purpose vehicle (SPV) model because of its relative structural benefits. The revised Schedule VI requires disclosures for investments in controlled special purpose entities. However, the expression controlled special purpose entities has not been defined in the revised Schedule VI or notified Accounting Standards. As per ICAIs Guidance Note on revised Schedule VI, the disclosure requirements relating to investments in controlled SPEs would become applicable when this expression is defined/explained in notified ASs/ Schedule. Thus, until such time a company has a choice in the matter. If the company chooses to make relevant disclosure, it may do so as per the guidance contained in Ind AS 27 in this regard and disclose the fact. Current versus non-current classification: Research and development (R&D) arrangements: Various kinds of research and development and other collaboration arrangements are entered into by pharmaceutical companies. For example, a large manufacturer may just provide funds as loan to a research and development company with the stipulation that if the results are commercially viable, the company will have the first right of commercial exploitation thereon at a specified consideration. The initial payment in such cases may in substance be in nature of loan. Thus, the relevant arrangements would need specific analysis for the purpose of classification. Upfront payments made in pursuance of such collaboration arrangements would further require analysis for current/non-current classification. Contingent liabilities and commitments: Use of performance guarantees is widely prevalent in this industry and accordingly, the disclosure requirements of revised Schedule VI in this regard would be required to be considered. Third party manufacturing arrangements are extensively common in the industry. Any significant commitments under these contractual arrangements may need to be evaluated for disclosure under other commitments. Commitments made under research and development contracts that may result in acquisition of intangible assets may be significant and may need to be disclosed under other commitments.
Effect on profit and loss account Presentation of revenue: The distinction between income from services, other operating revenue and other income would need to be clearly established. Further, identification of principal and/ or ancillary revenue generating activities would require special consideration.
Media sector
Effect on balance sheet Intangible assets: Media companies typically recognise a number of intangible assets with significant balances, ranging from common intangible assets such as software assets, programme rights, films and television productions, pre-production assets, film library etc. Pursuant to the requirements of the revised Schedule VI, media companies would be required to re-classify these into intangibles from tangible fixed assets.
FMCG sector
Effect on balance sheet Inventories: FMCG companies often keep inventories of products which are expected to be sold even after a period of one year from the balance sheet date. Inventory which is expected to be sold within a period of one year from the balance sheet date or within the companys normal operating cycle, whichever is longer, would be classified as current. Classification of advances accepted from dealers/ distributors: Acceptance of dealer/distributor deposits is a common practice in the FMCG sector. While companies have intentions to continue long term relationships with such dealers/distributors, strategically, depending upon the volume of businesses with such dealers/distributors, companies may decide to terminate the dealership/ distributorship of specific dealers/distributors. Accordingly, it will be critical to evaluate the terms of the dealer/distributor agreements to determine whether the deposits accepted from the distributors would be current or non-current.
Telecom sector
Effect on balance sheet Intangible assets: Telecom companies incur various types of expenditure which may be in the nature of intangible asset e.g., commission paid in respect of a non-cancellable customer contract. The expenditure capitalised as intangible asset needs to be disclosed separately from tangible fixed assets under properly defined categories indicating the nature of each intangible asset. Impairment: Recent technological innovations and enhancements in telecom networks from 2G to 3G and 4G, significant investment to deliver the next generation broad band services and bundling of services such as television, broadband and telephone have considerably increased the probability of impairment charges. Investments: Telecom companies historically have used joint ventures as a means of sharing business risks and the costs of providing data communications with other telecoms or for entering new countries. Typically, interests are acquired through the joint application for a license. Under the requirements of revised Schedule VI, specific disclosures are required for investments in joint ventures and controlled special purpose entities. However, the expression controlled special purpose entities has not been defined in the revised Schedule VI or notified Accounting Standards. As per ICAIs Guidance Note on revised Schedule VI, the disclosure requirements relating to investments in controlled SPEs would become applicable when this expression is defined/explained in notified ASs/Schedule. Thus, until such time a company has a choice in the matter. If the company chooses to make relevant disclosure, it may do so as per the guidance contained in Ind AS 27 in this regard and disclose the fact. Thus, these disclosures assume significant importance for telecom industry.
Effect on profit and loss account Revenues: The revised Schedule VI mandates disclosure of revenue from: a) sale of products b) sale of services c) other operating revenues d) less: excise duty. Telecom companies enter into various revenue arrangements involving sale of multiple components/bundled contracts. A rigorous process of estimation is involved in bifurcating the revenues between the various components (goods and services). Thus, the requirements of revised Schedule VI to provide disaggregated disclosures of various components of revenues are likely to present significant challenges.
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. Printed in India.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. Printed in India.

AA Update Revised Schedule VI Feb12

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AA Update Revised Schedule VI Feb12

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ACCOUNTING AND AUDITING UPDATE

1 | Accounting and Auditing Update - February 2012

Accounting and Auditing Update - February 2012 | 2

Narayanan Balakrishnan Partner KPMG in India

3 | Accounting and Auditing Update - February 2012

Catching up with global trends

Accounting and Auditing Update - February 2012 | 4

Statement of profit and loss

5 | Accounting and Auditing Update - February 2012

Applicable to all companies

Applicability of general exemptions

Applicability to consolidated financial statements

Clause 41 and revised Schedule VI

Adherence to the specified nomenclature

Accounting and Auditing Update - February 2012 | 6

Revised Schedule VI and Interim Financial Statements as per AS 25

Applicability of Schedule VI to Public Issues and Rights Issues

7 | Accounting and Auditing Update - February 2012

Structure of Revised Schedule

Primacy of accounting standards/other requirements of the Act

Striking a balance between important information and excessive information

9 | Accounting and Auditing Update - February 2012

Form of balance sheet

Broad headings of balance sheet

Accounting and Auditing Update - February 2012 | 10

Issues relating to current/non-current classification

11 | Accounting and Auditing Update - February 2012

Accounting and Auditing Update - February 2012 | 12

13 | Accounting and Auditing Update - February 2012

Reserves and surplus

Accounting and Auditing Update - February 2012 | 14

Money received against share warrants

15 | Accounting and Auditing Update - February 2012

Share application money pending allotment

Accounting and Auditing Update - February 2012 | 16

17 | Accounting and Auditing Update - February 2012

Deferred tax liabilities

Other long-term liabilities

Accounting and Auditing Update - February 2012 | 18

Long term provisions

19 | Accounting and Auditing Update - February 2012

Accounting and Auditing Update - February 2012 | 20

Other current liabilities

21 | Accounting and Auditing Update - February 2012

Contingent Liabilities and Commitments and other notes

23 | Accounting and Auditing Update - February 2012

Accounting and Auditing Update - February 2012 | 24

25 | Accounting and Auditing Update - February 2012

Accounting and Auditing Update - February 2012 | 26

27 | Accounting and Auditing Update - February 2012

Long term loans and advances

29 | Accounting and Auditing Update - February 2012

Accounting and Auditing Update - February 2012 | 30

31 | Accounting and Auditing Update - February 2012

Statement of profit and loss

Concept of comprehensive income not introduced

Minimum information on the face of statement of profit and loss

33 | Accounting and Auditing Update - February 2012

Details by way of notes

Revenue from operations

Other operating revenues

Gross income under broad heads

35 | Accounting and Auditing Update - February 2012