SCHEDULE-VI

A critical analysis of SCHEDULE-VI Project Report (Submitted for the Degree of B. com. Honors in Accounts under the University of Calcutta)

A Project Report
On

SCHEDULE-VI

Submitted by Name of the Candidate :- Nishant kr mishra Registration No. :- 053-1121-0289-10 Name of the College :- Jogesh Chandra Chaudhari College College Roll No. :- 3/GR3A/12/73 Supervised by Name of the Supervisor :- DEBAJYOTI DAS GUPTA Name of the College :- Jogesh Chandra Chaudhari College January 2013

SCHEDULE-VI

Supervisors Certificate
This is to certify that Mr. Nishant Kumar Mishra a student of B.com. Honors in accounting & finance /marketing / Taxation/computer Application in business of Jogesh Chandra Chaudhari College.. (Name of the college) under the university of Calcutta has worked under my supervision and guidance for his /her her project work and prepared with the title SCHEDULE-VI The project report, which he/she is submitting, is his/her genuine and original work to the best of my knowledge.

Students Declaration
I hereby declare that the Project work with the title (SCHEDULE -VI) Submitted by me for the Partial fulfillment of the degree of B.com. Honors in Accounting & finance/Marketing/Taxation/ computer Application in business under the University of Calcutta is my original work and has not been submitted earlier to any other University/institution for the fulfillment of the requirement for any course of study. I also declare that no chapter of this manuscript in whole or in part has been incorporated in this report from any earlier work done by me. However, extracts of any literature in the references. Place :- Kolkata Date: , Signature Name: .. Address......................... Registration No. ............ Roll No.

SCHEDULE-VI

Acknowledgement
I express my sincere thanks and deep sense of gratitude for the inspiring guidance and unfailing support rendered by my Teacher Prof. Debajyoti Das Gupta I am thankful to ProfD.D.G who extended a helping hand during the course of the project, whenever needed with various data and resources who have directly or indirectly contributed to the success of this project. Finally, I am grateful to SCHEDULE

- VI, to do this project.

SCHEDULE-VI

Table of contents

Chapters 1. Introduction

Topic

Introduction to revised schedule vi Key features of revised schedule vi balance sheet Key features of revised schedule vi statement of profit and loss Objectives for revising schedule vi

2. 3. 4. 5.

Conceptual Framework Analysis and interpretation of data Conclusions and recommendations Bibliography

SCHEDULE-VI

INTRODUCTION
INTRODUCTION TO REVISED SCHEDULE VI
Every company registered under the Act shall prepare its Balance Sheet, Statement of Profit and Loss and notes thereto in accordance with the manner prescribed in Schedule VI to the Companies Act, 1956. To harmonize the disclosure requirements with the Accounting Standards and to converge with the new reforms, the Ministry of Corporate Affairs vides Notification No. S.O. 447(E), dated 28th February 2011 replaced the existing Schedule VI of the Companies Act, 1956 with the revised one. Governments vide Notification No. F.N. 2/6/2008 C.L-V dated 30th March 2011 made the revised Schedule VI applicable to all companies for the financial year commencing from 01st April 2011. The requirements of the Revised Schedule VI however, do not apply to companies as referred to in the proviso to Section 211 (1) and Section 211 (2) of the Act, i.e., any insurance or banking company, or any company engaged in the generation or supply of electricity or to any other class of company for which a form of Balance Sheet and Profit and Loss account has been specified in or under any other Act governing such class of company.

Key Features of Revised Schedule VI Balance Sheet

SCHEDULE-VI

The revised schedule contains General Instructions, Part I Form of Balance Sheet; General Instructions for Preparation of Balance Sheet, Part II Form of Statement of Profit and Loss; General Instructions for Preparation of Statement of Profit and Loss. The Revised Schedule VI has eliminated the concept of schedule and such information is now to be furnished in the notes to accounts. The revised schedule gives prominence to Accounting Standards (AS) i.e. in case of any conflict between the AS and the Schedule, AS shall prevail. The revised schedule prescribes a vertical format for presentation of balance sheet therefore, no option to prepare the financial statement in horizontal format. It ensures application of uniform format. The Old Schedule VI required separate presentation of debtors outstanding for a period exceeding six months based on date on which the bill/invoice was raised whereas, the Revised Schedule VI requires separate disclosure of trade receivables outstanding for a period exceeding six months from the date the bill/invoice is due for payment. In the Old Schedule VI, details of only capital commitments were required to be disclosed. Under the Revised Schedule VI, other commitments also need to be disclosed.

Key Features of Revised Schedule VI Statement of Profit and Loss

The name has been changed to Statement of Profit and Loss as against Profit and Loss Account as contained in the Old Schedule VI. Unlike the Old Schedule VI, the Revised Schedule VI lays down a format for the presentation of Statement of Profit and Loss. This format of Statement of Profit and Loss does not mention any appropriation item on its face. Further, the Revised Schedule VI format prescribes such below the line adjustments to be presented under Reserves and Surplus in the Balance Sheet. As per revised schedule VI, any item of income or expense which exceeds one per cent of the revenue from operations or Rs.100, 000 (earlier 1 % of total revenue or Rs.5, 000), whichever is higher, needs to be disclosed separately. In respect of companies other than finance companies, revenue from operations need to be disclosed separately as revenue from (a) sale of products, (b) sale of services and (c) other operating revenues.

SCHEDULE-VI

Net exchange gain/loss on foreign currency borrowings to the extent considered as an adjustment to interest cost needs to be disclosed separately as finance cost. Break-up in terms of quantitative disclosures for significant items of Statement of Profit and Loss, such as raw material consumption, stocks, purchases and sales have been simplified and replaced with the disclosure of broad heads only. The broad heads need to be decided based on materiality and presentation of true and fair view of the financial statements.

Objectives for Revising Schedule VI

In November, 2008, the Ministry of Corporate Affairs issued an Explanatory Memorandum for revising Schedule VI to the Companies Act, 1956 which clearly stated its objectives as follows: (a) (b) To have a readable, useful, transparent and user friendly form of Schedule VI. To set out minimum disclosure requirements which are considered essential to ensure true and fair

presentation of the financial position and financial performance of the company and comparability both with the companys previous periods and with other companies. (c) The Balance Sheet and the Statement of Profit and Loss should not be burdened with too many

disclosure requirements. (d) To remove the requirements of disclosures no longer considered relevant in view of the changed

socio-economic structure and level of development of the economy. (e) To remove disclosure requirements which are meant for statistical purposes only e.g. Part IV of

Schedule VI. (f) To have inherent flexibility for amendments and industry/sector specific improvements from time to

time and to cater to industry/ sector specific disclosure requirements. (g) To harmonize and synchronize the general disclosure requirements with those prescribed in the

Accounting Standards by removing the existing inherent anomalies. (h) The specific disclosure requirements prescribed in the Accounting Standards are not incorporated

here so that amendment in the Accounting Standard does not necessitate an amendment in the Schedule (i) To attain compatibility and convergence with the International Accounting Standards and practice

SCHEDULE-VI

Conceptual Framework
MAJOR DISCLOSURES OMITTED UNDER REVISED SCHEDULE VI
a. Details of amount and quantity of turnover for each class of goods. b. Details pertaining to licensed /installed and production quantity. c. Details of opening and closing stock of goods d. Quantity related information related to raw material consumption e. Commission paid to sole selling agent and other selling agents. f. Cash discount separately. g. Details of arrear depreciation. h. Separation of investment income from trade investment and other income. i. Disclosure of TDS in respect of Interest income and investment income. j. Director remuneration disclosure under section 198. k. Computation of Net profit under section 349/350 of the Companies Act

SCHEDULE-VI

OTHER ADDITIONAL DISCLOSURE REQUIREMENTS

1. The amount of dividends proposed to be distributed to equity and preference shareholders for the period and the appropriation item in the profit & loss account but now revised schedule VI requires appropriation directly in the reserves schedule and additional disclosures by way of notes to accounts as above related amount per share shall be disclosed separately. Arrears of fixed cumulative dividends on preference shares shall also be disclosed separately. Earlier proposed dividends was shown as an 2. Where in respect of an issue of securities made for a specific purpose, the whole or part of the Amount has not been used for the specific purpose at the balance sheet date, there shall be Indicated by way of note how such unutilized amounts have been used or invested.

MAJOR DISCLOSURE REQUIREMENTS RETAINED UNDER REVISED SCHDULE VI

a. Value of imports calculated on C.I.F basis by the company during the financial year in respect of:(i) Raw materials; (ii) Components and spare parts; (iii) Capital goods; b. Expenditure in foreign currency during the financial year on account of royalty, know-how, Professional, consultation fees, interest, and other matters; c. Value of all imported raw materials, spare parts and components consumed during the financial Year and the value of all indigenous raw materials, spare parts and components similarly Consumed and the percentage of each to the total consumption; d. The amount remitted during the year in foreign currencies on account of dividends, with a specific mention of the number of non-resident shareholders, the number of shares held by them on which the dividends related; e. Earnings in foreign exchange classified under the following heads, namely:(i) Export of goods calculated on F.O.B. basis; (ii) Royalty, know-how, professional and consultation fees; (iii) Interest and dividend; (iv) Other income, indicating the nature f. Expenditure incurred on each of the following items, separately for each item:a. Consumption of stores and spare parts. b. Power and fuel. c. Rent. d. Repairs to buildings. e. Repairs to machinery. f. Insurance. g. Rates and taxes, excluding taxes on income. h. Miscellaneous expenses:

SCHEDULE-VI

AT A GLANCE 1. The privilege of having a balance sheet under horizontal or vertical format has been done away with. Option of only one format i.e vertical format is now available for preparation of the Balance Sheet. 2. Introduction of a new format for publishing profit & loss account. 3. Part III and part IV of the existing schedule VI has been done away with. 4. The disaggregation of information given in the Balance sheet and Profit Loss account now shall be disclosed in the notes to accounts instead of the schedule format as per existing schedule VI. 5. Various new disclosures have been added and few existing requirements have been removed. The additional disclosure requirements are more pertinent in case of balance sheet. The disclosure requirements in respect to Profit & Loss have been significantly reduced. 6. Under the new framework revised schedule VI will act as an additional requirement of disclosures along with the disclosure required by the Companies Act and the Accounting Standards. In other words the disclosure requirements of Notified Accounting Standards will prevail on the revised schedule VI disclosures where-ever there are conflicts. 7. Revised schedule VI gives the liberty of application of judgment in maintaining a balance between excessive details that may not assist the users of the financial statements and not providing too much important information as a result of too much aggregation. 8. Revised schedule VI disclosures are a major step towards convergence of International Financial Reporting Standard.

10

SCHEDULE-VI

9. Revised schedule VI strives for a more transparent presentation of the Companys Financial. Focus more on the liquidity aspect of the assets and liabilities of the company. 10. Current and non-current classification has been brought into for presentation of assets and liabilities in the balance sheet which is largely in line with the fundamental of used under Ind-AS/ IFRS. The same would require classification of assets and liabilities to be segregated into their current and noncurrent portions. 11. Previous years figures need to be given in the revised format along with the current financials. 12. The definitions prescribed under Notified Accounting standard shall be used for the purpose of terms used in the revised schedule VI. 13. The limits of rounding off (on the basis of turnover) have been increased and the revised limits are as follows Turnover Less than one hundred corers More than one hundred corers Rounding off To the nearest hundreds, thousands, lacks or millions, or decimals thereof. To the nearest lacks, millions or corers, or decimals thereof.

11

SCHEDULE-VI

ANALYSIS AND INTERPRETATION OF DATA

12

SCHEDULE-VI

REVISED SCHEDULE VI- A NEW BEGINNING?

The Revised Schedule was notified vide Notification No S.O. 447(E) dated 28th February 2011. This Notification provided for everything apart from the date from which the Revised Schedule would be applicable which was quickly rectified by Notification No S.O. 653(E) dated 30.3.2011 which clarified that The notification shall come into force for the Balance Sheet and Profit and Loss Account to be prepared for the financial year commencing on or after 1-4-2011. The use of the words financial year commencing on or after would invariably mean that the Revised Schedule would be applicable to all entities that end their financial years on or after 31st March 2012. As the Revised Schedule VI changes the presentation of assets and liabilities drastically, it mandates that even the previous year figures should be as per the Revised Schedule. Effectively, the Schedule would be applicable for the year ended 31st March 2011. The need for a Revised Schedule cannot be disputed. There have been a number of changes in the landscape of accounting standards over the last 20 years or so. India has moved closer to International Financial Reporting Standards (IFRS) with their Indian equivalents Ind-AS ready and waiting for the blessings of the powersto-be. IFRS standards focus on financial reporting (hence the name) and disclosures which to implement. Major Changes Current Assets It is expected to be realised in, or is intended for sale or consumption in the companys normal operating cycle It is held primarily for the purpose of being traded It is expected to be realised within 12 months after the reporting date 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 Current Liabilities It is expected to be settled in the companys normal operating cycle It is held primarily for the purpose of being traded It is due to be settled within 12 months after the reporting date The company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification

All assets that are not current assets would be classified as non-current assets. This requirement would ensure that the Balance-Sheet of an entity provides an accurate picture to investors and shareholders of the liquidity of the entity. It would impact banking ratios and banks would in turn have to relook at the way

13

SCHEDULE-VI

they would look at Current Ratio and Debt- Equity Ratio. As is the situation at present, Current Ratio would be looked into for short-term borrowings while the non-current ratio would cover long-term borrowings. Prevalence of Accounting Standards over the Schedule The other major change that the Revised Schedule VI brings to the table is the statements that the requirements of an accounting standard would prevail over the Schedule. This is a significant statement given that in the past there was no clarity on whether accounting standards or the Schedule would prevail in case they were at loggerheads. No Schedules in Schedule VI The Revised Schedule does away with the concept of Schedules and taking a cue from international standards asks us to begin the notes on accounts immediately after the Profit and Loss Account. One of the advantages of this is that all information pertaining to a disaggregated item is available in one place instead of being scattered all over the financial statements. Other significant changes brought in by the Revised Schedule VI are: The revised Schedule to apply to all companies following Indian GAAP until such companies are required to follow International Financial Reporting Standards (IFRS) converged Indian accounting standards (Ind AS). Part IV of the pre-revised Schedule (containing balance sheet abstract and general business profile) dispensed with. Format of cash flow statement not prescribed hence companies which are required to present this Statement (i.e., other than small and medium sized companies) to continue to prepare it as per AS 3, Cash Flow Statements. Disclosure requirements of various accounting standards also need to be complied with. Expenses in the Profit and Loss Account to be shown according to the nature of the expense rather than the function. Only vertical form of Balance-Sheet has been permitted. Quantitative disclosures relating to turnover, raw materials, purchases, etc. dispensed with. Other significant disclosures which have been dispensed with include capacity and actual production, calculation of managerial remuneration. Intangible fixed assets to be disclosed separately. Share options outstanding account recognized as part of reserves and surplus. Detailed disclosures required regarding defaults on borrowings. New and significant disclosures required regarding ownership of the company including all shareholdings above five percent of any class of shares. Investments no longer a broad head to be included under noncurrent and current assets categories; disclosures rationalised. All Capital Advances to be shown under Long- term Loans and Advances.

14

SCHEDULE-VI

Changes in New Schedule VI

Sr. Particulars No. Old Schedule Vi Revised Schedule Vi

Turnover of less than Rs. 100 Crs - R/off to the Turnover of less than Rs. 100 Crs - R/off nearest Hundreds, to the nearest Hundreds, thousands, lakhs thousands or decimal or millions or decimal thereof thereof Turnover of Rs. 100 Crs Rounding off of or more but less than Rs. 500 Crs - R/off to the Figures nearest Hundreds, appearing in thousands, lakhs or financial millions or decimal statement thereof Turnover of Rs. 100 Crs or more - R/off to the nearest lakhs, millionsor crores, or Turnover of Rs. 500 Crs decimal thereof or more - R/off to the nearest Hundreds, thousands, lakhs, millions or crores, or decimal thereof Current assets & Liabilities are shown Assets & Liabilities are to be bifurcated in Net Working together under application to current & Non-current and to be shown Capital of funds. The net working separately. Hence, net working capital will capital appears on balance not be appearing in Balance sheet. sheet. There was no bifurcation Fixed assets to be shown under non-current Fixed Assets required in to tangible & assets and it has to be bifurcated in to intangible assets. Tangible & intangible assets. Short term & long term Long term borrowings to be shown under borrowings are grouped non-current liabilities and short term Borrowings together under the head borrowings to be shown under current Loan funds sub-head liabilities with separate disclosure of Secured / Unsecured secured / unsecured loans. Period and amount of continuing default as on the balance sheet date in repayment of loans and interest to be separately specified Finance lease obligations Finance lease Finance lease obligations are to be grouped are included in current obligation under the head non-current liabilities liabilities

15

SCHEDULE-VI

Deposits

Investments

Loans & Advances

Deffered Tax Assets / Liabilities Cash & Bank Balances

10

11

Profit & Loss (Dr Balance)

Lease deposits to be disclosed as long term Lease deposits are part of loans & advances under the head nonloans & advances current assets Both current & nonCurrent and non-current investments are to current investments to be be discosed separately under current assets disclosed under the head & non-current assets respectively. investments Loans & Advances to be broken up in long Loans & Advance are term & short term and to be disclosed disclosed alongwith under non-current & current assets current assets respectively. Loans & Advance to Loans & Advance from related parties & subsidiaries & others to be others to be disclosed separately. disclosed separately. Deferred Tax assets / Deferred Tax assets / liabilities to be liabilities to be disclosed disclosed under non-current assets / separately liabilities as the case may be. Bank balances in relation to ermarked Bank balance to be balances, held as margin money against bifurcated in scheduled borrowings, deposits with more than 12 banks & others months maturity, each of these to be shown separately. Debit balance of Profit and Loss P&L debit balance to be Account to be shown as negative figure shown under the head under the head Surplus. Therefore, Miscellaneous expenditure reserve & surplus balance can be & losses. negative.

Creditors to be broken up It is named as Trade payables and there is in to micro & small 12 Sundry Creditors no mention of micro & small enterprise suppliers and other disclosure. creditors. Other current liabilities No specific mention for separate disclosure of Current maturities of long term debt No specific mention for separate disclosure of Current maturities of finance lease obligation Current maturities of long term debt to be disclosed under other current liabilities.

13

Current maturities of finance lease obligation to be disclosed.

16

SCHEDULE-VI

Separate line item 14 Disclosure criteria

any item under which expense exceeds one per any item of income / expense which cent of the total revenue of exceeds one per cent of the revenue the company or Rs. 5,000 from operations or Rs. 1,00,000, which which ever is higher; shall ever is higher; to be disclosed separately be disclosed separately Expenses in Statement of Profit and Loss to be classified based on nature of expenses

15

Expense classification

Function wise & nature wise

16 Finance Cost

Finance cost shall be classified as Finance cost to be interest expense, other borrowing costs classified in fixed loans & & Gain / Loss on foreign currency other loans transaction & translaton.

Foreign Gain / Loss on foreign Gain / Loss on foreign currency transaction 17 exchange gain / currency transaction to be to be separated into finance costs and other loss shown under finance cost expenses

18 Purchases

The purchase made and the opening & closing stock, giving break up in respect of each class of goods traded in by the company and indicating the quantities thereof.

Goods traded in by the company to be disclosed in broad heads in notes. Disclosure of quantitative details of goods is diluted

17

SCHEDULE-VI

CONCLUSIONS AND RECOMMENDATIONS

18

SCHEDULE-VI

Impact:
The structural changes brought in by the Revised Schedule would have an impact on every entity. The impact on the Balance-Sheet and Profit and Loss Account for significant industries is tabulated below: Industry Information Technology Balance-Sheet Impact Profit and Account Impact Current/Non-Current Classification Classification of Income-taxes expenses Classification of Service tax input by nature tax credit Share Options outstanding to be separately disclosed Classification of Investment property Classification of Capital Advances as long-term loans and Advances Current/non-current classification Expense due to adoption of Full Cost Method by or Successful Efforts Method nature classification Loss of

Real Estate

Extractive industries

Pharmaceutic Disclosure of investments in Presentation of revenue al controlled special purpose entities between service income Sector requirements of Ind-AS 27 and other operating revenue Conclusion The entities should gear up to face the realities of a Revised Schedule VI. The financial statements will look different from the previous ones which are bound to elicit queries from bankers, investors, analysts and active shareholders. An early test-run of the Revised Schedule would assist in getting a clear picture of how the financial statements look. Maintaining a tracker of how the differences between the old Schedule and the new one have been reflected in the financial statements would enable an entity to answer any queries quickly.

19