Vivek Rajan. V

01. What is the date of applicability of the New Schedule VI?

The New Schedule VI is applicable to all companies for financial statements prepared for financial year commencing on or after 01.04.2011 except banking, insurance and electricity companies which are governed by their own reporting formats under the respective pronouncements.

02. What are the summary of differences between the New Schedule VI and the Old Schedule VI?

The summary of the differences between the New Schedule VI and the Old Schedule VI are presented in the following table in PART A, for Balance Sheet items. For the Profit and Loss account, format for presenting them is given in PART B (no such format was prescribed under Old Schedule VI). The requirements of the old Schedule VI continue to apply unless the contrary is specifically stated in this FAQ. If there is a conflict between the Accounting Standards and the New Schedule VI, the Accounting Standard shall prevail.

PART ABALANCE SHEET ITEMSOnly significant differences between New Schedule VI and Old Schedule VI and items that require additional disclosure requirements as compared to Old Schedule VI are covered in this table

Particulars [A]

New Schedule VI[B]

Old Schedule VI[C]

Share CapitalA.  The following should be additionally disclosed

ü Shares held by holding company or

ü Shares held by ultimate holding company including shares held by subsidiaries or associates of holding or ultimate holding company

ü Shares held by shareholders holding more than 5 % specifying the number of shares held

B. The following historical disclosures are to be given for transactions that occurred over the previous five years

ü Aggregate number and class of shares allotted as fully paid up pursuant to contracts(s) without payments being received in cash.

ü Aggregate number and  class of shares allotted as fully paid up by way of bonus shares

ü Aggregate number and class of shares bought back.

 

  • The requirements with respect to Clause A in Column B were not there.
  • The requirements with respect to Clause B in Column B were not restricted to five years
Reserves and SurplusSurplus – Balance in Profit & Loss Account

  1. The allocations and appropriations such as dividend, bonus shares and transfer to / from reserves should be disclosed under this head.
  2. Debit balance of the statement of profit and loss shall be shown as a negative figure under the head surplus and the balance of Reserves and Surplus after the above adjustment shall continue to be shown under this head even if the resulting figure is negative.
a)     The surplus in the profit and loss account is after appropriations and allocationsb)    The debit balance in the profit and loss account after adjustment against the free/ uncommitted reserves should be disclosed in the Assets side of Balance Sheet
Share Application Money Pending AllotmentThe following disclosures shall be made

  • The number of shares proposed to be issued
  • Amount of premium if any
  • The period before which  shares shall be allotted
  • The sufficiency of company’s authorized share capital to cover this
  • If the period pending allotment is beyond the period for allotment as mentioned in the document inviting application, then the following shall be disclosed

I. the period  for which it is outstanding

II. the reason for non allotment should be disclosed.

This disclosure requirement was not there in this reporting format.
Deferred tax Liabilities/ AssetsThis should be given as part of non-current liabilities /assets. As compared to Old Schedule VI, here the place of disclosure is indirectly stated.Deferred tax liabilities would be disclosed after unsecured loans and deferred tax assets would be disclosed after investments. This was not required by the schedule but was an Accounting Standard requirement.
Current LiabilitiesLiability will be classified as current liability if any one( and not all) of the following is satisfied01.it is expected to be settled in the company’s normal operating cycle(on most cases it will be less than 12 months)

02. it is held primarily for the purpose of being traded

03. it is due to be settled within 12 months after the reporting date.

04. the company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date

Note: Where the normal operating cycle cannot be identified , it  is assumed to have a duration of 12 months

The following items are item heads to be presented

i.            Short Term Borrowings

ii.            Trade Payables

iii.            Other Current liabilities

iv.            Short Term Provisions

If Trade payables cannot be classified as Current Liabilities, it can be classified as Long Term Liabilities

The item to be reported  under this head would beü Acceptances

ü Sundry Creditors

ü Others etc

The meaning and the terminology that was in use hitherto has been changed.

Current AssetsAn asset will be classified as a current assert only when it satisfies any of the following criteria01. It is expected to be realized in , or is intended for sale or consumption in the company’s normal operating cycle

02. it is held primarily for the purpose of being traded

03. it is expected to be realized within 12 months after the reporting date.

04. 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

Note: Where the normal operating cycle cannot be identified , it  is assumed to have a duration of 12 months

Trade Receivables

 Aggregate amount of Trade Receivables  outstanding for a period exceeding six months  from the date they are due for payment  should be separately stated

If Trade receivables cannot be classified as Current Assets, it can be classified as Long Term Trade Receivables under the head Non –Current Assets

Cash and Cash Equivalents  shall include apart from other items , the following

  1. Balances with Banks
  2. Cash on hand
  3. Earmarked balances with banks ( for unpaid dividend )shall be stated separately
  4. Balances with banks to the extent held as margin money or security against the borrowings , guarantees etc shall be disclosed separately
  5. Repatriation restrictions if any, in respect of cash and bank balances shall be separately stated.
The definition of the current assets has been changed and the terminology hitherto in use has undergone a change and breakup of balances as between schedule and non-schedule banks are dispensed with. 
Fixed Assets/ Capital work-in-progressCapital work-in-progress should include only those assets which are under construction becausea)     Capital Advance should be included under long term loans and advances and

b)    Intangible Assets under development that qualify for capitalization, should be stated separately

Capital work-in-progress included assets under construction, capital advances and intangible assets under development.
Investments regardless  of whether it is Non-Current Investment or Current InvestmentAggregate provision for diminution in value of investments should be disclosedThere weren’t such requirements in this reporting format.
Miscellaneous expenditure to the extent not written offThere is no specific disclosure requirementThere was specific disclosure requirement
Format of Balance SheetOnly Vertical Format is prescribed. For Format of Balance Sheet please refer Part -CVertical and Horizontal format was prescribed, but Vertical format was predominantly followed.

 

PART-B- PROFIT &LOSS ACCOUNT- The format for presentation is given below (no such format was prescribed under old Schedule VI)

ParticularsNote31.03.2011 (Rs.)31.03.2010 (Rs.)
Revenue from Operations
Other Income
Total Revenue
Expenses
    Cost of materials consumed
     Purchases of stock-in trade
      Changes in inventories of finished goods and work-in-progress and stock in trade
   Employee Benefit Expenses
Finance Cost
Depreciation and  amortization expenses
Other Expenses
Total Expenses
Profit before exceptional and extraordinary items and tax
Exceptional Items
Profit before extraordinary items
Extraordinary Items
Profit before tax
Tax Expense(1)  Current Tax

(2)  Deferred Tax

Profit/(loss) for the period from continuing operations
Profit/(loss) from discontinuing  operations
Tax Expense of discontinuing operations
Profit/(loss) from discontinuing  operations (after tax)
Profit/(loss) for the period
Earnings per equity share(1)  Basic

(2)  Diluted

 The significant points of differences between the old and New Schedule VI to the Companies Act, 1956 with respect to the Profit and Loss Accounts is summarized in the table given below

Particulars [A]

New Schedule VI[B]

Old Schedule VI[C]

Format for presentationFormat has been specified and minimum line items to  be presented has been specifiedNeither of the format or minimum line items were specified
Profit & Loss Account would end withCurrent Year ProfitAppropriations from profit if any
Classification of ExpensesBased on Nature of Expenses- E.g. Line Item “Employee Benefit Expenses”Based on nature or based on function
Criterion for separate disclosureAny item of income or expenditure which exceeds 1% of the revenue from operations or Rs.1, 00,000 whichever is higher shall be disclosed separately. Any item under which the expenses exceed 1% of total revenue of the company or Rs.5000 whichever is higher, shall be disclosed separately
Disclosures relating to managerial remunerationIt is withdrawn in this reporting formatThe computation under section 350 of the Companies Act, 1956 was to be given
Exceptional and Extraordinary ItemsIt is to be disclosed separatelyThere were no such requirements.
Quantitative detailsQuantitative details are not required to be given. But major heads of consumption like raw materials, goods purchased are to be given under broad heads. The value of raw materials consumed giving item wise breakup and indication of quantities thereof was required to be given.
Interest IncomeTDS for the Current Year and the previous year need not be given along the line itemTDS for the Current Year and the previous year was supposed to be given along the line item

 

PART-C- Format of Balance Sheet in New Schedule VI to the Companies Act, 1956

PARTICULARSNote31.03.2011 (Rs.)31.03.2010 (Rs.)
I.EQUITY AND LIABILITIES
Shareholders’ Fund
Share Capital
Reserves and Surplus
Money  received against share warrants
Share Application money pending allotment
Non-current liabilities
Long Term Borrowings
Deferred Tax liabilities(Net)
Other Long-term liabilities
Long-term provisions
Current liabilities
Short-term borrowings
Trade payables
Other current liabilities
Short-term provisions
TOTAL
II  ASSETS
Non-current assets
Fixed Assets
a.     Tangible Assets
b. Intangible Assets
c. Capital work-in-progress
d. Intangible assets under development
Non-current investments
Deferred tax assets(net)
Long-term loans and advances
Other Non-current assets
Current Assets
Current investments
Inventories
Trade receivables
Cash and Cash equivalents
Short-term loans and advances
Other current assets
TOTAL

Items given in bold and small font are sub-headings

Rounding off

There is a change in the manner in which the figures appearing in the Financial Statements should be rounded off and it is separately summarized in the following two tables.

Under New Schedule VI

Where the Turnover isRounding off permissible
Less than 100 Crore rupeesTo the nearest hundreds, thousands, lakhs or millions, or decimal thereof.
100 Crore rupees or moreTo the nearest lakhs, millions or crores, or decimals thereof

Consistency in rounding off methods intended to be followed in the years to come is strongly recommended

 Under Old Schedule VI

Where the Turnover isRounding off permissible
Less than 100 Crore rupeesTo the nearest hundreds or thousands or decimals thereof
100 Crore rupees or more but less than 500 Crore rupeesTo the nearest hundreds , thousands lakhs or millions , or decimals thereof
500 Crore rupees or moreTo the nearest hundreds , thousands, lakhs, millions or crores or decimals thereof

03. What needs to be done if there is a conflict between the Schedule to the Act and the Accounting Standard?

In the New Schedule VI to the Companies Act, 1956 if there is a conflict between the Schedule and the Accounting Standards, then the Accounting Standards will prevail.

04. Is there any other additional requirement under the New Schedule VI to the Companies Act, 1956?

In the New Schedule to the Companies Act, 1956, each item on the face of the Balance Sheet and Statement of Profit and Loss shall be cross-referenced to any related information in the notes. This would ensure that the coherency in the financial statements would be appreciated to a greater extent by the users of the financial statements.

05. Can some examples be cited relating to certain items and how they differ from the Old Schedule VI to the Companies Act, 1956?

Many examples can be cited, but for convenience only two examples are given here in the form of a table –

Name of the item &Reference to Accounting Standard [1]Treatment under Old Schedule VI[2]Treatment under New Schedule VI [3]Short Reason & reference to New Schedule VI [4]
Finance Lease-In the books of Lessee – Lease rental liability @ end of Year 1 – Lease Term 4 YearsEntire amount due would have been classified under Current Liabilities/ Other r Liabilities01. Lease rental payable within 1 year from the reporting date is to be classified as current liability and 02. Lease rentals payable for the remaining lease term should be classified under Non-Current LiabilitiesThe definition of current liabilities includes the lines italicized in column 3
Discount on issue of shares/ debenturesDiscount on issue of shares / debentures would be classified under the Assets side as a separate line itemThis is to  be shown as a adjustment against the Reserves and SurplusThough the schedule is silent on this, treatment can be in the same lines with respect to treatment of the debit balance in the profit and loss account.

06. How to ensure that there is a smooth transition from the Old Schedule VI to the Act to the New Schedule VI to the Companies Act, 1956?

The transition from the Old Schedule VI to the New Schedule VI is not difficult and to ensure that there is a smooth transition and to have a good learning curve one can prepare the financial statements of the FY 2010-11 that would have been in the Old Schedule VI, in the format and manner prescribed by the New Schedule VI to the act.

The above would be of greater significance when the audit for FY 2011-12 commences, as by that time the previous year’s figures for FY 2011-12 would have been captured in the New Schedule VI and a good base would also have been laid.

Request by the author Every effort has been made to avoid errors or omissions in this FAQ. In spite of this errors might have crept in. The readers are requested by the author, to bring to his notice any mistake or error for which act, the author shall be ever grateful.

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