Companies Act – Amendments in Schedule III & Related Issues

Companies Act – Amendments in Schedule III and Related Issues

Ministry of Corporate Affairs (MCA) has made amendments in Schedule III with effect from 1st of April, 2021 meaning thereby, these amendments are applicable for FY 2021-22. As per Sec.129 of The Companies Act, 2013, Schedule III provides a format for Financial Statements of companies and contains general instructions for preparation of Balance Sheet and Statement of Profit & Loss of a company. The Schedule III is divided into 3 divisions based on reporting for Financial Statements –

• Division I – Companies complying with Accounting Standards
• Division II – Companies complying with Indian Accounting Standards
• Division III – NBFCs complying with Indian Accounting Standards

Following list includes the amendments made – 

• In Division I – AS 

1. Rounding off of figures based on Total Income instead of Turnover –

Now companies have to compulsorily round off the figures appearing in the financial statement, earlier it was optional.

1. Total income < Rs.100 crores – round off to the nearest hundreds, thousands, lakhs or millions

2. Total income > Rs.100 crores – round off to the nearest lakhs, millions or crores

Note/Concern – The issue here is that The Companies Act does not provide definition for Total Income. There is amendment in P&L A/c where wording Total Revenue is substituted as Total Income. Hence it may imply the same total income for this amendment. But no such clarification is issued yet.

2. In part 1 – Balance Sheet (Face of Balance Sheet)

• Fixed assets/ Non-current Assets –

Current Wording	Amendment
Property, Plant and Equipment	Property, Plant and Equipment and Intangible Assets
Tangible Assets	Property, Plant and Equipment

Separate disclosure required for the reconciliation of Gross and Net Carrying Amounts of each class of assets at the beginning and at the end of the reporting period showing additions, disposals, acquisitions through business combinations, amount of change due to revaluation, other adjustments and related depreciation & impairment losses/ reversals.

During the year where assets are revalued and amount of change due to revaluation is 10% or more in aggregate of net carrying value of each class of asset, separate disclosure shall be provided. This amendment applies to both tangible as well as intangible assets.

In case of revaluation, the company shall disclose as to whether the revaluation is based on the valuation by a registered valuer as defined under rule 2 of the Companies (Registered Valuers and Valuation) Rules, 2017.

Note/Concern – Earlier no specific disclosure was required for reversals. Now it is required.

• Share capital –

A company shall disclose shareholding of promoters as below –

Shares held by promoters at the end of year				% change during the year
Sr. No.	Promoter Name	No. of shares	% of total shares
Total

 Details shall be given separately for each class of share.

% change shall be computed w.r.t. number of shares held at the beginning of the year. If shares are issued for the first time during the year, date of issue of such shares shall be considered.

• Long term borrowings –

Current maturities of long-term borrowings shall be disclosed separately under heading Short Term Borrowings.

Note/Concern – Earlier it was shown under Other Current Liabilities.

• Trade payables –

The following ageing schedule to be given for Trade payables due for payment –

(Amount in Rs.)

Particulars	Outstanding for following payments for due date of payment				Total
	< 1 year	1-2 years	2-3 years	> 3 years
MSME
Others
Disputed dues – MSME
Disputed dues – Others

Where no due date of payment is specified, date of transaction shall be considered for disclosure. Unbilled dues shall be separately disclosed.

Note/Concern – Typically ageing report is organised into separate time buckets representing 30-day period so that company can quickly recognize payments due in the present month, following month and so on. For the purpose of schedule III disclosure, separate bucketing has to be implemented into the system based on buckets < 1 year, 1-2 years, 2-3 years, > 3 years. This will ease out the reporting since the information required is available in the system.

• Other Non-Current Assets –

Security Deposits shall be shown as a separate line item.

Note/Concern – Security deposits omitted from Long Term Loans & Advances and inserted under Other Non-Current Assets.

Trade receivables outstanding – following ageing schedule shall be given –

(Amount in Rs.)

Particulars	Outstanding for following payments from due date of payment					Total
	< 6 months	6 months-1 year	1-2 years	2-3 years	> 3 years
Undisputed trade receivables – Considered good
Undisputed trade receivables – Considered doubtful
Disputed trade receivables – Considered good
Disputed trade receivables – Considered doubtful

Where no due date of payment is specified, disclosure shall be given from the date of transaction.

Unbilled dues shall be disclosed separately.

Note/Concern – The above table clearly indicates wide range of the period. It means the table accommodates current as well as non-current receivables. If the receivable is current (generally up to 1 year), ageing beyond 1 year cannot be available. Likewise for non-current receivables (generally beyond 1 year), ideally ageing below 1 year cannot be available.

As mentioned earlier for trade payables, here also time bucketing is required to be implemented into system so that at the end of reporting period, information is readily available.

• Borrowings –

At the balance sheet date, if the company has not used the borrowings from banks and financial institutions for the specific purpose for which it was taken, the company shall disclose the details of where these borrowings have been used.

• Additional Regulatory Information –
• Title deeds of immoveable property not held in the name of company – The company shall provide the details of all the immovable property (other than properties where the Company is the lessee and the lease agreements are duly executed in favour of the lessee) whose title deeds are not held in the name of the company and where such immovable property is jointly held with others, details are required to be given to the extent of the company’s share.

For Balance Sheet items like PPE, Investment Property, PPE retired from active use and held for disposal, Others; give following details in tabular form for Land & Building –

1. Gross carrying value

2. Title deeds held in the name of

• Whether title deed holder is promoter, director or relative of promoter/director or employee of promoter, director

1. Property held since which date

2. Reasons for not being held in the name of the company (also indicate if in dispute)

Note/Concern – Collection of all required documents and their detailed analysis is required.

• Where loans & advances are granted to promoters, directors, KMPs, related parties either severally or jointly with any other person – Where loans or advances are repayable on demand or without specifying any terms/period of repayment, for each type of borrower mentioned above, disclosures required are amount of loan or advance in the nature of loan outstanding, percentage to the total loans & advances in nature of loan.
• Capital-Work-in Progress (CWIP) and Intangible assets under development –

CWIP/ Intangible assets under development	Amount in CWIP for a period of				Total*
	< 1 year	1-2 years	2-3 years	> 3 years
Projects in progress Projects temporarily suspended

*Total should match with CWIP/ amount of Intangible assets under development mentioned in Balance Sheet.

For CWIP or Intangible assets under development whose completion is overdue or has exceeded its cost compared to its original plan, following completion schedule shall be given**

CWIP or Intangible Asset under development	To be completed in
	< 1 year	1-2 years	2-3 years	> 3 years
Project 1 Project 2

**Details of projects where activity has been suspended shall be given separately.

Note/Concern – Very detailed review of projects, their suspension, extension is required. Documentation should be in place to have these details handy at the end of reporting period.

• Where any proceedings have been initiated or pending against the company for holding any benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and the rules made thereunder, disclosure is required.
• Where the Company has borrowings from banks or financial institutions on the basis of security of current assets, it shall disclose – Whether quarterly returns or statements of current assets filed by the Company with banks or financial institutions are in agreement with the books of accounts. If not, summary of reconciliation and reasons of material discrepancies if any
• Where a company is a declared willful defaulter by any bank or financial Institution or other lender, details to be given.
• Disclosure of any transactions with companies struck off.
• Where any charges or satisfaction yet to be registered with Registrar of Companies beyond the statutory period, details and reasons thereof shall be disclosed.
• Ratios to be given – Current Ratio, Debt-Equity Ratio, Debt Service Coverage Ratio, Return on Equity Ratio, Inventory turnover ratio, Trade Receivables turnover ratio, Trade payables turnover ratio, Net capital turnover ratio, Net profit ratio, Return on Capital employed, Return on investment.

The company shall explain the items included in numerator and denominator for computing the above ratios. Further explanation shall be provided for any change in the ratio by more than 25% as compared to the preceding year.

Note/Concern – For the purpose of this disclosure, the above ratios have to be calculated for preceding FY 2020-21 also.

• Disclosure of utilization of borrowed funds & share premium to be given.
• Where a company has received any fund from any persons or entities including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the company shall directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries, the company shall disclose – Date and amount of fund received, date and amount of fund further advanced or loaned or invested other intermediaries or Ultimate Beneficiaries along with complete details of the other intermediaries’ or ultimate beneficiaries, date and amount of guarantee, security or the like provided to or on behalf of the Ultimate Beneficiaries, relevant provisions of the Foreign Exchange Management Act, 1999 and Companies Act has been complied with for such transactions and the transactions are not violative of the Prevention of Money-Laundering act, 2002.

Note/Concern – Having these details for disclosure purpose would require moderate number of efforts which would be time consuming.

3. In part II – Statement of Profit & Loss Account –

• Instead of Total Revenue, now the wording would be Total Income.
• In Revenue from Operations, new insertion is Grants or donations received (applicable in case of section 8 companies only).
• Undisclosed Income – The Company shall give details of any transaction not recorded in the books of accounts that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (such as, search or survey or any other relevant provisions of the Income Tax Act, 1961), unless there is immunity for disclosure under any scheme and also shall state whether the previously unrecorded income and related assets have been properly recorded in the books of account during the year.
• Corporate Social Responsibility (CSR) – Where the company covered under section 135 of the companies act, the following shall be disclosed with regard to CSR activities – amount required to be spent by the company during the year, amount of expenditure incurred, shortfall at the end of the year, total of previous years shortfall, reason for shortfall, nature of CSR activities, details of related party transactions, where a provision is made with respect to a liability incurred by entering into a contractual obligation, the movements in the provision during the year should be shown separately.
• Details of Crypto Currency or Virtual Currency transactions.

• In Division II – IND AS
• Equity Share Capital – Additional disclosure is Changes in Equity Share Capital due to prior period errors.
• Trade receivables – Ageing schedule shall be given along with additional classification into

Undisputed/ Disputed trade receivables – considered good

Undisputed/ Disputed trade receivables – having significant increase in credit risk

Undisputed/ Disputed trade receivable – credit impaired

• Trade Payable – Classification into MSME, Others, Disputed dues MSME, Disputed dues others
• The assets which are not grouped under given heads are to be clubbed under Other Financial Assets.
• In Division III – NBFC reporting based on IND AS

This will include all additional disclosures mentioned for Division II. It shall also disclose few ratios such as – CRAR, Tier I CRAR, Tier II CRAR, Liquidity Coverage ratio.

Thus, the overall analysis of these amendments conveys that reporting has been made more stringent to ensure that financial statements are more speaking and transparent.