REVISED SCHEDULE VI - RAISING PRESENTATION LEVEL BY INDIAN CORPORATES

A Paper

By

Mr. Ganesan Jaibal WRO 0317717

Ph: 8655132393 Email: ganesan_711@yahoo.co.in

Abstract: This paper deals with the study of the Revised Schedule VI. In the process of convergence with the International standards, India has amended the Schedule VI to the Companies Act, 1956 that deals with the presentation requirements in the companys financial statements. The paper studies the salient features of the revised Schedule. Early identification of challenges and opportunities help in the effective overcoming of the challenges and the meaningful seizure of the opportunities. With this in mind, the paper also speaks about the challenges and opportunities that the new legislation has unfolded for the chartered accountants. Objectives of the Paper: 1. To become conversant with the existing legal scenario in relation to the presentation requirements contained in Schedule VI of the Companies Act, 1956 2. To study the requirements of the Revised Schedule VI 3. To make a comparative study between the revised Schedule VI and the erstwhile Schedule for better comprehension 4. To understand and appreciate how the new requirements result in better presentation by the Indian corporate 5. To identify the challenges that have surfaced before Chartered Accountants on account of the introduction of the Revised Schedule VI 6. To identify the opportunities (for Chartered Accountants) embedded in the revision

Introduction: The current trend in the Accounting field being towards convergence of national standards with the IFRS, several amendments to the existing laws of the country were required for smooth convergence with the international standards. The Income Tax Act, 1961 and the Companies Act, 1956 were two major Acts that required such revision. In a major move, the Ministry of Corporate Affairs introduced the Revised Schedule VI vide Notification No. 447 (E) dated 28.02.2011. Page 2 of 11

From when does the Revised Schedule come into effect? The Revised Schedule VI shall come into effect for the balance sheet and profit & loss account to be prepared for the financial year commencing on or after 01st April 2011. Attention is invited to the words financial year. Hence, interim financial statements as also quarterly reports to stock exchanges during the financial year 2011-12 need not comply with the revised Schedule VI.

Clarity regarding prevailing Law

1. Accounting Standards (AS) and amendments to AS, ipso facto prevail over Schedule VI 2. Disclosure requirements specified in the Schedule are in addition to the disclosure

requirements specified in the AS 3. Various terms used in Revised Schedule VI will carry the meaning as defined in the applicable AS

Salient Features of the Revised Schedule VI

1. The Revised Schedule VI prescribes the format for the Balance Sheet and the Profit & Loss

account (to be in Vertical format only)

2. The principle of current / Non-current classification of assets / liabilities adopted to be In

line with concepts used in Ind AS (the Indian Accounting Standards converged with the IFRS) 3. Notes in lieu of Schedules for narrative description/breakup. 4. Line items prescribed are minimum requirements

Key Changes in the Revised Schedule VI Page 3 of 11

1. Sources and Application of funds changed to Equity & Liabilities and Assets
2. Profit & Loss account to be referred as Statement of Profit or Loss

3. No more Net Current Asset disclosure Current liabilities to be disclosed under Liabilities and not as a deduction under Assets of Balance Sheet 4. Part III Instructions replaced with general instructions for balance sheet and P&L separately ; Part IV Balance sheet abstract omitted 5. Miscellaneous Expenses (Asset) modified 6. Share holders funds Share capital

Disclosure requirements introduced / modified 1. Reconciliation of no. of shares outstanding at the beginning and at the end of the reporting period 2. List of each shareholder holding more than 5% shares specifying the no. of Shares 3. For the period of 5 years immediately preceding the balance sheet date: Aggregate no. and class of shares allotted as (i) fully paid up pursuant to contract(s) without payment being received in cash, (ii) allotted as fully paid up by way of bonus shares and shares bought back

Disclosure requirements deleted 1. Called up shares 2. Sources of Bonus issue

7. Share holders funds Reserves and Surplus (R&S) Disclosure requirements introduced / Modified
1.

Debenture Redemption Reserve, Revaluation Reserve, Share options outstanding account, amongst others, to be separate line items henceforth Page 4 of 11

2.

Changes in Surplus i.e., Balance in P&L -

3. Surplus to be Balance in Statement of P&L, disclosing allocations & appropriations

instead of Balance in P&L a/c after allocations 4. Debit balance in Statement of P&L to be shown as a negative figures under Surplus 5. If the resultant figure in R&S is negative after adjusting negative surplus, it has to be disclosed as such Disclosure requirements deleted 1. Sinking fund 2. Sources of Bonus issue 8. Non Current liabilities 1. Secured / Unsecured nature of Loans has to be disclosed ONLY in Notes to Accounts 2. Differentiation made between Long term and Short tem borrowings; Short term borrowings to be grouped under Current liabilities 3. Loans received from related parties to be disclosed; previously disclosure requirement was ONLY for loans received from Subsidiaries; (total to tally with AS-18 disclosure)
4. Terms of Repayment of loans and period & amount of continuing default as on BS

date in repayment of loan and interest to be stated 5. Bonds / Debentures: Shall be stated in descending order of maturity or conversion, starting from farthest redemption or conversion date, as the case may be 9. Other Current Liabilities Disclosure requirements introduced Page 5 of 11

Amounts shall be classified as: 1. Current maturities of long term debt, finance lease obligations 2. Interest on borrowings both due and not due; Interest accrued and due on Loans were previously classified under Loan funds 3. Income received in advance

4. Unpaid amounts w.r.t dividends, matured deposits & interest accrued thereon, matured debentures & interest accrued thereon Disclosure requirements deleted 1. Dues to Subsidiaries 10. Fixed Assets Disclosure requirements introduced 1. FA classified as Tangible Assets and Intangible assets 2. Intangible asset list of intangibles indicated - Includes Brands / trademarks, Computer software, Mastheads & publishing titles, mining rights, Copyrights & patents, Licenses and franchise etc., 3. Separate line item for Intangible assets under development Disclosure requirements deleted 1. Railway Siding & Livestock category of Tangible assets 2. Cost of Asset and Accumulated depreciation; only in the Notes to Accounts these details will be captured 3. Accounting treatment for exchange gain or loss relating to FA acquired from outside India 11. Investments Page 6 of 11

Disclosure requirements introduced 1. Investments are classified as Current and Non-current investments and grouped accordingly. 2. Investment in Mutual Funds to be shown separately 3. Investments in Subsidiaries, Associates, Joint ventures or controlled special purpose entities to be disclosed (including details of partly paid up shares)

Disclosure requirements deleted 1. Purchase / Sale during the year

12. Loans and Advances Disclosure requirements introduced 1. Following to be disclosed as a separate line item under L&A : Capital advances (Previously, grouped under CWIP) Security Deposits L&A to Related Parties (Previously, only Subsidiaries) L&A to Others

Disclosure requirements deleted The following were separate line items in Old Schedule VI: 1. Advances recoverable in cash or in kind or for value to be received / Balances with Central Excise / Bills of exchange 2. Maximum amount due by directors / other officers, during the year

13. Other Current Assets Disclosure requirements introduced Page 7 of 11

1. Following to be disclosed as a separate line item as Other Current assets under Non-Current Assets: Long term Trade Receivables (including trade receivables on deferred credit terms); Others (to specify nature)

2. To disclose the nature of the above as Secured, Unsecured and Doubtful 14. Inventories / Trade Receivables Inventories 1. Finished Goods and Stock in trade to be disclosed separately. Stock in trade shall be stock of goods acquired for trading. 2. Goods in transit to be disclosed under each head (RM, WIP, FG, Stock in trade, S&S, Loose tools etc) 3. In the case of all concerns having works in progress, works-in-progress under broad heads. Trade Receivables (TR) 1. Sundry Debtors to be referred Trade Receivables henceforth
2. TR - defined as dues arising from goods sold or services rendered in the normal

course of business only 3. Age of Debts to start from the due date for payment & more than six months debts shall be construed accordingly 15. Cash And Cash Equivalents Disclosure requirements introduced 1. Cheques and Cash on Hand Page 8 of 11

2. 3.

Earmarked balances with banks (Unpaid dividend) Bank balances held as Margin Money / Security against the borrowings, guarantees, other commitments

4. 5.

Repatriation restriction, if any Bank deposits with more than 12 months maturity

Disclosure requirements deleted 1. Balance with Scheduled Banks and Other Banks not required, henceforth 2. Bank Balances with Others in Current a/c, Call a/c and deposit a/c not required 3. Maximum amount o/s at any time during the year from each banker, other than Scheduled Banks

16. Presentation is based upon multiple step format 17. Classification of expenses is based upon function of expense method 18. Any item for which the expense exceed 1% of the revenues from operations of the Company or Rs. 1,00,000, whichever is higher, shall be shown as a separate and distinct item 19. Extra ordinary items are those that arise other than from ordinary activity of the company. 20. Exceptional items arise from ordinary activity, but are not expected to be recurring. 21. Discontinued operations where the cash flows of an asset are likely to come from disposal rather than from continuing use of the asset. 22. Revenue from operations is aggregate of Sale of products, Services & Other operating revenues (less) Excise duty Applicable for Companies other than finance co. 23. In respect of a finance company, revenue from operations shall include revenue from (a) Interest; and (b) Other financial services Page 9 of 11

24. Revenue under each of the above heads shall be disclosed separately by way of notes to accounts to the extent applicable.
25. Finance cost to include applicable net gain / loss on foreign currency transactions and

translation 26. Employee cost to show expense on ESOP and ESPP

27. Income from Investments No need to bifurcate and no TDS disclosure 28. Commitments: All Commitments (capital and otherwise) to be disclosed separately as

against capital commitment requirements in Old Schedule VI

What Challenges would Chartered Accountants face on account of the Revision?

1. Apprehension: However prepared the chartered accountant is, there would be

apprehension and anxiety as the compliance to the revised Schedule VI is being made for the first time. The challenge is to overcome such apprehension with confidence.
2. Early Deadline: Co-incidentally, this year, the SEBI has reduced the number of days from

the end of the financial year within which companies have to file their audited annual financial statements. This leaves professionals with very less time to prepare / audit the financial statements. The challenge is to complete the task in the limited time and at the same time, maintain the quality of work.
3. Practical Difficulties: There may arise some practical difficulties in the compliance with

the Revised Schedule VI. For example, Proposed Dividend is eliminated from the format. Does it mean provision doesnt have to be made?

What opportunities does the revision unfold for Chartered Accountants?

1. Increased demand for Assistance : The corporate sector looks upon at Chartered

Accountants as experts in the field of Accountancy and seeks their assistance especially at Page 10 of 11

times like this when a new legislation has to be complied with. It is a good opportunity for Chartered Accountants to take advantage of this and look forward to building lasting professional relationships.
2. Preparation for International Assignments: The revised Schedule VI is in line with the

international presentation requirements. Preparation of financial statements in the revised format or its audit would give Chartered Accountants enough experience and confidence to accept and successfully complete international assignments and thus fulfill their professional aspirations.

Wrap-up Point: The Revised Schedule VI definitely raises the presentation levels of the Indian corporates. The revision is a milestone in Indias program of convergence with international standards. It also poses a few challenges to Indian professionals and at the same time provides them with golden opportunities.

Key References:

The revised Schedule VI MCA Notifications

Page 11 of 11