Schedule III major changes for FY 2021-22-Division I

GUIDANCE NOTE ON DIVISION I – NON IND AS SCHEDULE III TO THE COMPANIES ACT, 2013

Pursuant to notification dated March 24, 2021 issued by Ministry of Corporate Affairs, which comprises amendments made in Schedule III to the Companies Act, 2013.

Below mentioned are few of the major changes which require significant consideration by the management:

1. Trade Payables-New ageing schedule has been introduced:

– Less than 1 year

– 1-2 years

– 2-3 years

– More than 3 years

1. Disputed¹ dues due to MSME and other than MSME require separate disclosures.

2. Payables for which no billing has been done till the end of the financial year i.e. March 31, 2022, needs to be disclosed separately.

• In order to tie-up the amounts presented in the ‘total’ column with the amounts presented in the financial statements or notes, two additional columns with heading ‘Unbilled’ and the heading ‘Not due’ shall be added before the ageing columns to separately disclose the amount for unbilled payables and the amount of trade payables which are not due, respectively. The ageing requirement shall not apply to these trade payables not due for payment.

2. Trade receivables- New Ageing schedule has been introduced:

– Less than 6 months

– 6 months-1 year

– 1-2 years

– 2-3 years

– More than 3 years

3. Trade receivables are further needs to be reclassified as follows:

(i) Undisputed Trade receivables – considered good;

(ii) Undisputed Trade Receivables – considered doubtful;

(iii) Disputed¹ Trade Receivables considered good; and

(iv) Disputed¹ Trade Receivables considered doubtful.

• dispute means a disagreement between two parties demonstrated by some positive evidence which supports or corroborates the fact of disagreement

 Trade receivables shall be sub-classified as:

(a) Secured, considered good;

(b) Unsecured considered good;

(c) Doubtful.

The amounts presented under disputed and undisputed categories for each category of credit profile should add up and match with the total amount presented in a separate disclosure for the same category of credit profile. For e.g., the amount of ‘Undisputed Trade Receivables – considered good’ and ‘Disputed Trade Receivables – considered good’ when added up should match with the added up amount of ‘Trade Receivables considered good – Secured’ and ‘Trade Receivables considered good – Unsecured’ provided as part of a separate disclosure

Receivables for which no billing has been done till the end of the financial year i.e. March 31, 2022, needs to be disclosed separately.

in order to tie-up the amounts presented in the ‘total’ column with the amounts presented in the financial statements or notes, two additional columns with heading ‘Unbilled’ and the heading ‘Not due’ shall be added before the ageing columns to separately disclose the amount for unbilled receivables and the amount of trade receivables which are not due, respectively. An entity could have an unconditional right to consideration before it invoices its customers, in which case it records an unbilled receivable. For example, this could occur if an entity has satisfied its performance obligations but has not yet issued the invoice

Relationship with struck off companies

For the transactions entered into with companies struck off under section 248 of the Companies Act, 2013 or section 560 of Companies Act, 1956, the Company shall disclose the following details:-

Name of struck off Company.

Nature of transactions with struck-off Company

– Investments in securities;

– Receivables;

– Payables;

– Shares held by struck off company; and

– Other outstanding balances (to be specified).

Balance outstanding

Note: the company shall disclose the amount outstanding as the gross carrying amount (without netting the provision for doubtful debts or impairment loss allowance) included in its respective balance sheet; If any transaction with a struck off company has happened during a financial year and settled / reversed /squared off, etc., during the same financial year such that the balance outstanding is NIL as at the end of the reporting period, the company is required to disclose those transactions as well in the similar format

Relationship with the Struck off company, if any, to be disclosed​

However, when providing the above disclosure, the details should not be included for those companies whose names were struck off during the financial year but an order had been passed by any adjudicating authority (for e.g., NCLT) restoring the company’s name before approval of the financial statements.

For this disclosure, a company is required to make a master data containing name, email address and location of every party with which company has entered any transaction during the year and then, it needs to be checked with the data issued by Registrar of Companies(i.e. List of companies struck off).

Disclosure of following ratios:

(a) Current Ratio,

(b) Debt-Equity Ratio,

(c) Debt Service Coverage Ratio,

(d) Return on Equity Ratio,

(e) Inventory turnover ratio,

(f) Trade Receivables turnover ratio,

(g) Trade payables turnover ratio,

(h) Net capital turnover ratio,

(i) Net profit ratio,

(j) Return on Capital employed,

(k) 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.

Illustrative format for disclosure- 

Ratio	Num-erator	Deno-minator	Current Year	Pre-vious Year	% Variance	Reason for vari-ance

Any undisclosed income related to 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.

Illustrative format for disclosure- 

Assessment Year	Section of the Act	Amount disclosed in tax return	Trans-action des-cription along with value treated as income	Asse-ssment status	Whether tran-saction recorded in books of accounts ?	FY in which Tran-saction is recorded

Depending upon the total income of the company, the figures appearing in the Financial Statements shall be rounded off as given below in the table. It is now compulsory to apply rounding off and a company cannot continue to disclose full figures. In order to apply the same, the rounding off requirement should be complied with:

Schedule III

• Total income < Rs. 100 Crores – Round off to the nearest hundreds, thousands, lakhs or millions or decimal thereof.
• Total income > Rs. 100 Crores – Round off to the nearest lakhs, millions or crores, or decimal thereof.

Additional information by way of notes: 

Nature of Company	Disclosures required
Manufacturing companies	Raw materials under broad heads Goods purchased under broad heads
Trading companies	Purchases of goods traded under broad heads
Companies rendering or supplying services	Gross income derived from services rendered under broad heads
Company that falls under more than one category	It will be sufficient compliance with the requirements, if purchases, sales and consumption of raw material and the gross income from services rendered are shown under broad heads.

Important note

All the disclosures are to be made for the previous financial year also (i.e. March 31, 2021).