The revised schedule VI would be applicable for the Balance Sheet and Profit and Loss Account to be prepared for the financial year commencing on or after 1-4-2011.
At a Glance
- Only vertical format is allowed for preparation of the Balance sheet and Profit & Loss Account.
- Requirements of Accounting Standards will override the Revised Schedule VI, if inconsistent.
- Information to be mandatorily given on the face of financial statements,
-Limited only to broad and significant items.
- Details by way of notes to accounts instead of the schedule format.
- Format of cash flow statement not prescribed
– Illustrative formats per AS 3.
- Various new disclosure requirements have been added which are more pertinent to balance sheet and few existing ones are removed. The disclosure requirements in respect to Profit & Loss have been significantly reduced.
- Format for Profit and Loss A/c is also provided which was not in old Schedule.
- Interim Financial Statement to be prepared according to Schedule VI as nothing is prescribed in Clause 41.
- Would apply equally to Consolidated Financial Information.
- Concept of Operating Cycle is introduced as one of the criteria for classification of assets and liabilities.
- Rounding Off limits revised and these limits are applicable to entire financial statements even on Notes.
Balance Sheet – Structural changes
- Change in Nomenculture – ‘Sources of Funds’ has been replaced with ‘Equity & Liabilities’.
- Debit balance of Profit & Loss Account to be shown as a deduction from ‘Reserve and Surplus’. Thus Shareholders’ Fund can be negative.
- Liabilities are to be classified as Current and non-current,
- Deferred payment liabilities and loan and advances from related parties to be shown separately under head ‘Long term Borrowings’.
- Provisions to be classified as Long term provisions and Short term provisions.
- Contingent Liabilities are distinguished from commitments.
- Change in Nomenculture – ‘Application of Funds’ has been replaced with ‘Assets’.
- Assets are to be classified as Current and non-current.
- There is separate head for Intangible Assets.
- ‘Sundry Debtors’ have been renamed as ‘Trade Receivables’
- Cash and cash equivalent are to be disclosed separately.
- Goods in transit are to be disclosed under relevant sub-head of Inventories.
Comparative Format of Balance Sheet
Key Concepts for the preparation of the Balance Sheet
An item is classified as current:
- If it is involved in the entity’s operating cycle, or
- Is expected to be realized/ settled within twelve months, or
- If it is held primary for trading, or
- Is cash or cash equivalent, or
- If entity does not have unconditional right to defer settlement of liability for at least 12 months after reporting period.
Other assets and liabilities are non current.
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 duration of 12 months.
- Reconciliation of the number of shares outstanding at the beginning and at the end of the
reporting period needs to be disclosed in notes.
- This clause requires number of shareholders holding more than 5 % shareholding and total number of shares hold by those shareholders needs to be disclosed in notes.
Share application money not exceeding issued capital and to the extent non-refundable shall be shown as Equity.
Its balance after adjusting negative balance of P&L a/c, if any, shall be shown under the head ‘Reserves and Surplus’ even if the resulting figure is in negative. Allocations and appropriations from P&L account shall be disclosed separately.
- Long term borrowings
– Terms of repayment of all loans shall be stated in notes.
– Period and amount of continuing default as on the balance sheet date in repayment of loans and interest, to be specified separately in each case. (same disclosures for Short term borrowings.)
- Other current liabilities
– Includes interest accrued & due and interest accrued but not due on borrowings within 12 months after the end of the reporting period. In other cases same should form part of non-current liability.
– Application money received for allotment and due for refund and interest accrued thereon.
– Trade payables (paid within 12 months from end of the reporting period).
- Fixed Assets – classified into Tangible and Intangible assets separately.
- Investments – details shall be given of the name of body corporate viz. subsidiaries, associates, joint ventures, controlled special purpose entities separately under each classification i.e.whether current or non – current.
- Long term Loans and advances – Wherever the security deposits,advances to related parties and others (except capital advances) are realized or adjusted beyond 12 months from the end of the reporting period should fall under the sub head category of non current assets.
- Trade receivables – realizable beyond 12 months from end of the reporting period.
- No separate disclosure for bank balance lying with Scheduled, Non-Scheduled banks and maximum amount outstanding.
- Trade receivables – realizable within 12 months from end of the reporting period.
Profit & Loss Account – Structural changes
- Classification of expenses by nature needs to be given.
- Profit or loss from Discontinuing operations needs to be shown separately on the face of the Statement of Profit and loss. Earlier this requirement was based on accounting standard and not Schedule VI.
- Detailed disclosures in notes for various line items.
- Any item of income/expense to be separately disclosed, if it exceeds higher of the 1% of “revenue from operations” or Rs.1 lakh.
- Quantitative disclosures relating to turnover, raw materials, purchases, installed capacity, actual production, details of managerial remuneration are to be dispensed with.
Key Concepts for the preparation of Profit and Loss Account
The list given below is not exhaustive in nature :-
- Information about expense on ESOP and ESPP to be disclosed.
- In case of manufacturing and Trading companies, following to be disclosed:
- Excise duty paid shall be disclosed in the notes.
– Raw material under broad heads.
– Goods purchased under broad heads.
– Goods traded by company under broad heads.
First Year of Application OF Revised Schdule VI
- Comparatives to be given.
- Additional effort to recast comparatives.
- Auditors to perform procedures.
- Notes to disclose fact of reclassification / regrouping.
- If certain comparative figures not available: disclose the fact.
Impact of revision in Schedule VI
The Revised Schedule VI is a step towards convergence with IFRS as it intends companies with IndAS/IFRS by using concepts such as current/ non-current classification, replacement of Schedules with Notes, etc. Better presentation and disclosures of data makes the financial statements user-friendly.