About Revised Schedule VI Ministry of Corporate Affairs has amended the schedule VI which is required to be implemented by the companies

from Financial Year 2011-12 along with regrouping last year figures. Following are the changes in Revised Schedule VI. 1. Source of fund shall be replaced by Equity and Liabilities. 2. Application of funds shall be replaced by Assets. 3. Shareholding of more than 5% shares in the company as on balance sheet date need to be disclosed separately. 4. Profit and Loss account shall be replaced by Statement of Profit and Loss. 5. Statement of Profit and Loss (Dr. Balance) shall be disclosed under head Reserves and Surplus. 6. Share Application money pending allotment is not a part of Shareholders Fund now. 7. Sundry Debtors shall be replaced by Trade Receivables. 8. In case trade receivables outstanding for a period exceeding 6 months from the date they become due for payment then separate disclosure required. 9. Tangible assets under lease are required to be separately specified under each class of assets. 10. Current liabilities will not be shown as deduction from Current Assets. 11. Assets and liabilities shall be bifurcated into Current and Non Current portion. 12. Miscellaneous Expenditure as a separate head does not exists now. Distinction between term Current and Non Current:An item is classified as current 1. If it is involved in the entitys operating cycle 2. Is expected to be realized / settled within 12 months. 3. If it is held primary for trading 4. Is cash or cash equivalents 5. If entity does not have unconditional right to defer settlement of liability for at least 12 months after reporting period. All other items are non current.

REVISED SCHEDULE VI: An Introduction As we all know that 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: 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. All Assets and liabilities classified into current and non-current and presented separately on the face of the Balance Sheet. Number of shares held by each shareholder holding more than 5% shares now needs to be disclosed. Details pertaining to aggregate number and class of shares allotted for consideration other than cash, bonus shares and shares bought back will need to be disclosed only for a period of five years immediately preceding the Balance Sheet date. Any debit balance in the Statement of Profit and Loss will be disclosed under the head Reserves and surplus. Earlier, any debit balance in Profit and Loss Account carried forward after deduction from uncommitted reserves was required to be shown as the last item on the asset side of the Balance Sheet. Specific disclosures are prescribed for Share Application money. The application money not exceeding the capital offered for issuance and to the extent not refundable will be shown separately on the face of the Balance Sheet. The amount in excess of subscription or if the Supplement on Revised Schedule VI Page 4 requirements of minimum subscription are not met will be shown under Other current liabilities. The term sundry debtors has been replaced with the term trade receivables. Trade receivables are defined as dues arising only from goods sold or services rendered in the normal course of business. Hence, amounts due on account of other contractual obligations can no longer be included in the trade receivables. The Old Schedule VI required separate presentation of debtors outstanding for a period exceeding si x 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.

 Capital advances are specifically required to be presented separately under the head Loans & advances rather than including elsewhere. Tangible assets under lease are required to be separately specified under each class of asset. In the absence of any further clarification, the term under lease should be taken to mean assets given on operating lease in the case of lessor and assets held under finance lease in the case of lessee. In the Old Schedule VI, details of only capital commitments were required t o 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. 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.

Revised Schedule VI: Features APPLICABILITY OF REVISED SCHEDULE VI Revised Schedule VI applicable to all companies for the financial year commencing from 01st April 2011. 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., 1. any insurance or banking company, or 2. any company engaged in the generation or supply of electricity or 3. 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.

Part 1 form of balance sheet- equity & LIABILITIES Figures at the end Figures at the end Note No. of current reporting of previous period reporting period

Particulars

(1)Shareholders Funds Share Capital Reserve & Surplus Money Reserved against share warrants

(2)Share Application money pending Allotment

(3)Non Current Liabilities Long Term Borrowings Deferred Tax Liabilities (Net) Other Long Term Liabilities Long Term Provisions

(4)Current Liabilitie Short Term Borrowings Trade Payables Other Current Liabilities Short Term Provisions TOTAL

PART 1 FORM OF BALANCE SHEET - ASSETS Figures at the Figures at the end of current end of previous reporting period reporting period

Particulars Non- Current Assets (a) Fixed Assets Tangible Assets Intangible Assets Capital Work in progress

Note No.

Intangible Assets under development (b) Non- Current Investments (c) Deferred Tax Assets (net) (d) Long Term Loans & Advances (e) Other Non-Current Assets Current Assets Current Investments Inventories Trade Receivables Cash and Cash Equivalents Short Term Loans and Advances Other Current Assets TOTAL FEATURES OF REVISED SCHEDULE VI BALANCE SHEET 1.Eliminated the concept of schedule and such information is now to be furnished in the notes to accounts. 2.In case of any conflict between the AS and the Schedule, AS shall prevail. 3.The revised schedule prescribes a vertical format for presentation of balance sheet. 4.All Assets and liabilities classified into current and non-current and presented separately on the face of the Balance Sheet. 5.Number of shares held by each shareholder holding more than 5% shares now needs to be disclosed. 6.Any debit balance in the Statement of Profit and Loss will be disclosed under the head Reserves and surplus. 7.The term sundry debtors has been replaced with the term trade receivables. 8.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. 9.Capital advances are specifically required to be presented separately under the head Loans & advances rather than including elsewhere. 10.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. Part II Statement of Profit & Loss

Particulars I. Revenue from Operations II. Other Income III. Total Revenue (I + II) IV. Expenses Cost of Material Consumed Purchases of Stock in Trade Changes in inventories of finished goods, Work in progress and stock in trade Employee Benefit expense Finance Costs Depreciation and amortization expense Other expenses

Figures at the end of Figures at the end of Note No. current reporting previous reporting period period

V. Profit Before Exceptional and extraordinary items and tax (III-IV) VI. Exceptional Items

Part II Statement of Profit & Loss Figures at the end of Figures at the end of Note No. current reporting previous reporting period period

Particulars VII. Profit Before extraordinary items and tax(V - VI) VIII. Extraordinary Items IX. Profit Before Tax (VII - VIII) X. Tax Expense Current Tax Deferred Tax

XI. Profit (loss) for the period from continuing operations (IX X) XII. Profit (loss) from discontinuing operations XIII. Tax expense of discontinuing operations XIV. Profit(loss) from discontinuing operations (after tax) (XII XIII) XV. Profit (loss) for the period (XI + XIV) XVI. Earnings per equity share 1.Basic 2.Diluted Features of Revised Schedule VI Statement of Profit 1.The name has been changed to Statement of Profit and Loss as against Profit and Loss Account as contained in the Old Schedule VI. 2.This format of Statement of Profit and Loss does not mention any appropriation item on its face. format prescribes such below the line adjustments to be presented under Reserves and Surplus in the Balance Sheet. 3.Any item of income or expense which exceeds 1% of the revenue from operations or Rs.100,000 whichever is higher, needs to be disclosed separately. 4.Revenue from operations need to be disclosed separately as revenue from (a) sale of products, (b) sale of services and (c) other operating revenues. 5.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. 6.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.

Revised Schedule VI - Paradigm shift and Impact The Revised Schedule VI which is to come with effect from 1.4.2011 is intended to mandate a presentation format which will facilitate showing what would have been accounted under the upcoming Ind AS regime as it is, without too much need to regroup or recalculate for the sake of an annual reporting. In other words we observe that while Ind AS will be governing all throughout the accounting cycle right from the recognition and measurement leading to disclosure, Revised Schedule will govern the way these financial items will be

presented. This article is also meant to bring out some insight into Revised Schedule VI and how it can be an effective arm of IFRS in the coming days. Automatic Synchronization with the AS in force: The General instructions to the Revised Schedule VI begins with a conflict resolving clause that wherever the requirements of the Act or the Accounting standard require any change in disclosures or treatment of any item the same shall be made and the requirements of the Schedule VI shall stand modified accordingly. Thus the Revised Schedule VI would get subordinated to the applicable Accounting Standards. Earlier the stand was different under the Companies (Accounting standards) Rules 2006 that wherever the Accounting standard was not in conformity with the law, the law would prevail and the financial statements will be prepared accordingly. However this has to be amended, otherwise there will be another controversy. An important and distinguishing aspect of Revised Schedule VI is that it not only gets overridden by AS but also gets modified accordingly. Earlier, the role of Schedule VI was a mixture of disclosure, presentation as well as accounting treatment requirement under certain circumstances (for e.g. adjustment of exchange differences to cost of the related asset). This has got changed to being a disclosure requirement over and above the AS disclosures and also mandating a presentation format (including P&L which was missing earlier). Thus all accounting treatments will be governed only by accounting standards. In one way Revised Schedule VI is a Derivative to the AS (or the Ind AS) in force. IFRS is known to be very dynamic nowadays with IASB deliberating and proposing a lot of changes. Since the newly notified Ind AS is meant to be converged version of IFRS, it has got to keep pace with the changes so that it gets globally accepted. This would mean that we are bound to see as many changes to the Revised Schedule VI due to this built-in corrective mechanism. If we consider the future situation to be dynamic, this conflict resolving clause is a welcome move because otherwise the issues will start mounting. Incremental disclosures: The disclosure requirement under the Revised Schedule VI is over and above what is being mandated by the relevant Accounting standard for the particular financial item. Thus disclosure is more comprehensive under this regime. For example a disclosure in financial statement regarding Inventories would be typically be consolidated with AS-2 on valuation of inventories as follows:

INVENTORIES 1. Accounting policy relating to Inventories 2. Total carrying amount of each classification of inventory as required under Revised Schedule VI with the value of Goods in transit under the relevant category 3. Mode of Valuation 4. Amount of inventory expensed in the year 5. Amount of inventory written down in the year 6. Reversal of inventory already written down that was earlier expensed. 7. Circumstances that lead to the reversal of the above write down 8. Carrying amount of inventory pledged as security for liabilities. Paradigm shift:

Already required by AS-2 Already required by AS-2 and Revised Schedule VI Revised Schedule VI Required by Ind AS-2 Required by Ind AS-2 Required by Ind AS-2 Required by Ind AS-2 Required by Ind AS-2

Some of the revolutionary changes with respect to presentation of financials which change the way things are looked at are as follows:

i. Schedules need not be prepared. Instead, information is required to be given in the form of additional line items and sub line items on the face of financial statements. ii. Disaggregation of items presented on the face of the financial statements will have to be given in the Notes to accounts with proper cross referencing to the relevant Notes. iii. Profit and Loss account need to be prepared in the vertical format presenting the expenses Nature wise only and not at the discretion of the company. iv. No more classification of assets or liabilities based on their nature. Instead we have only two broad classifications as Current and Non Current asset or liability as the case may be. v. For the first time, any debit balance in the Profit and loss account will be shown as deduction from Reserves and Surplus instead of on the Asset side. vi. Deferred tax items have been placed in the basket of Noncurrent items unlike earlier when they were a separate line item on the Balance Sheet. vii. Any item which is one percent of revenue operations or Rs.100000/- whichever is higher is to be disclosed as a separate item. This is a major shift since the earlier limit was only Rs.5000/-. viii. Exchange differences to the extent considered as an adjustment to interest cost are to be classified as Finance Cost. These are covered by AS-16 on borrowing cost. Most of the above are along the lines of the principles of IFRS. Balance need to be maintained between not missing out any important information and not crowding the financial statements with too much aggregation. IFRS Alignment: Ind AS-1 on Presentation of Financial Instruments introduces new set of criteria for classification of assets and liabilities as current and Noncurrent. As per paragraph 66 of this standard, 66 An entity shall classify an asset as current when: (a) It expects to realise the asset, or intends to sell or consume it, in its normal operating cycle; (b) It holds the asset primarily for the purpose of trading; (c) It expects to realise the asset within twelve months after the reporting period; or (d) The asset is cash or a cash equivalent (as defined in Ind AS 7) unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. An entity shall classify all other assets as non-current. The same criteria have been specified in the Revised Schedule VI for presentation as well. Earlier there were no such lucid definitions for current assets and liabilities. The above four criteria should be construed as being mutually exclusive. Operating cycle and its determination: Operating cycle has been defined as the time lapse between procurement of assets or goods for processing or trading and realisation of cash. For the purpose of Revised Schedule VI operating cycle will have to be calculated for each segment or division of operation that are significant which creates confusion as to what should be considered for the company as a whole. Under this situation it is difficult to arrive at a single

representative operating cycle. The relevant guidance note suggests that we can take the operating cycle to be 12 months. A couple of examples to elucidate as below: Assume that there are two vendors; Vendor A with 45 days credit and Vendor B with 18 months (related party) and customer C with 45 days credit. Also that the normal credit in the industry in either case is 45 days each. Operating cycle = Days of purchase + Days of sale i.e. 45+45 = 90 days In the above case, since the credit terms with vendor B is abnormal, it cannot be considered for assessment of operating cycle. Therefore the presentation as per Revised Schedule VI will be as follows; Payable to Vendor A: Current Liabilities Payable to Vendor B: Noncurrent Liabilities Assume that in the above example the normal credit term in the industry is as long as 18 months other things remaining the same the operating cycle is as follows, Operating cycle = 545+45 = approx. 590 days Payable to Vendor A: Current liabilities Payable to Vendor B: Current liabilities These examples should not be construed as conveying that any asset or liability for e.g. a loan given in the Balance sheet for that matter which has a maturity lesser than 18 months will become Current item. The idea here is that only those assets or liabilities which are closely related to the operating cycle will become a Current item. Thus for example if a shipping company with a normal operating cycle say 24 months obtains a working capital loan repayable within 18 months, this loan has to be treated as Current liability and not otherwise just because the maturity is beyond 12 months. Under Old Schedule VI this would have possibly got classified as Noncurrent which is a path breaking change. New Insertions: Some of the items inserted newly in the Revised Schedule VI seem to be augur well for going ahead with implementation of Ind-AS, 1. A new item called Adjustments to the carrying amount of Investments has been inserted in P&L. If Ind AS39 sets in, financial assets (say Investments) need to be classified as Held at Fair value through P&L or Held for Trading or Held to Maturity or Available for sale as appropriate. In the first and second case mentioned above changes in fair value are recorded in P&L. Though currently we can only think of a permanent diminution in value investment only, this could find a place in future. 2. In presenting the reconciliation for fixed assets as well as Intangible assets any addition on account of Business Combination need to shown as a separate line item. Business Combination is the word used in Ind AS 103 to describe a transaction on acquisition of assets and liabilities constituting a Business. 3. A separate category called Intangible asset comprising of various new intangibles such as Brands, Mining rights, Mastheads and publishing titles etc are introduced which are not mentioned in the earlier version. All these could be the necessitated by IFRS for e.g. because as per Ind AS 103 on Business combinations we are required to individually identify and value all assets including intangibles which meet the recognition criteria given in Ind AS-40 on Intangible assets. This is not so explicitly stated under AS-14 relating to Accounting for Amalgamations. This also led to many intangibles go unrecognised under earlier GAAP.

4. Under Noncurrent Investments there is a need to disclose the value of investments which are stated at other than cost basis indicating the basis of their valuation. This may also be required under Ind-AS 39 on Recognition and Measurement of Financial instruments which calls for different classification of investments and which are required to be accounted at fair value both at inception and subsequently. 5. Again, there is a separate category called Long term trade receivables being introduced. This essentially is necessitated due to the reason that as per definition noncurrent asset is a residual classification and therefore if there is a trade receivable not meeting the criteria of current asset it has to be presented under this heading. Exposure Draft on Guidance Note to the Revised Schedule VI: The ICAI has come out with an Exposure draft on Guidance note to the Revised Schedule VI. Some of the salient aspects and issues specially arising from Revised Schedule VI and clarified by this Guidance Note are given below: 1. There is an apparent inconsistency with AS-13 relating to investments which defines them as Current and Long term based on the date of actual investing, whereas Revised Schedule VI defines any Current asset as being expected to be realised within 12 months from reporting date. The clarification is that for the purpose of mere presentation as per the Schedule, the definition for Current asset and Noncurrent asset given therein will form the basis and not AS-13 which only governs accounting and disclosure. 2. Proposed Dividend does not find any place in the Revised Schedule VI unlike the earlier Old Schedule VI. This does not mean that Companies should not make provision for proposed dividend for the financial year to equity and preference shareholders. AS-4 on Contingencies and Events occurring after Balance sheet date still requires such provisioning. The fair conclusion is that Proposed dividend still has to be provided for but clubbed and presented under Provisions unlike earlier. 3. Revised Schedule VI introduces another line item called Other Commitments under disclosures relating to Contingent liabilities and Commitments. Other commitments means a host of revenue related commitments which if included will over load the financial statements and make it difficult for reader. Therefore entities are advised to include only those material non cancellable commitments as per the managements professional judgment such as Leases. In the opinion of Price Waterhouse Coopers, it seems even revenue commitments such as export obligations arising under EPCG Duty benefit schemes may have to be disclosed. Tough times ahead! 4. Trade receivables are now required to be aged based on their due date rather than the Billing date in the erstwhile Schedule VI. The Guidance note specifically clarifies that if no due date is specified, the normal credit term should be construed depending on the nature of goods or services and type of customer. 5. Details of Loans and advances given to related parties need to be given. The word details is to be construed as those required by AS-18 on Related party disclosure. Thus Revised Schedule VI does not call for any other additional details required over and above AS-18. 6. Earlier, dividend declared by the Subsidiary company was required to be recognised even if the same was after the Balance sheet date. But Revised Schedule VI aligns very well with AS-9 relating to revenue recognition by requiring that such dividends declared after the Balance sheet date should not be recognised. This is because as per AS-9 Dividend has to be recognised only when the right to receive it has been established. 7. In general, there are some items which were found in the Old Schedule VI and which are not found in the Revised Schedule VI. For example under Miscellaneous Expenditure items such as unamortised share issue

expenses etc were shown and now that has been done away with. The Guidance note suggests that such items be presented as additional line items in the Balance sheet which is permitted by the new Schedule. 8. One of the major changes is with regard to disclosures on raw materials and traded goods. The Revised Schedule VI requires these to be presented under Broad heads. The Guidance note clarifies some of the ambiguity found therein in the following ways: a. No quantitative disclosures required. b. Manufacturing companies need to give consumption figures though giving opening and closing stock figures is also encouraged. Goods purchased means traded goods if any. c. Considering the requirement to disclose gross income in case of a service company and sales in case of a company falling in more than one category, disclosure of sales of finished goods should also be made under broad heads d. The threshold limit to choose a particular item under this broad head could be taken as 10%. This perhaps could be the clue taken from a MCA notification dated 8.2.2011 which exempts manufacturing entities from paragraph 3(1)(a) and paragraph 3(1)(b) of the Old schedule VI subject to the condition that such raw material is less than 10% of the total value of purchase or consumption or turnover. Other Impact on Business: Since Revised Schedule VI brings in a lot of changes from reporting perspective, it is important to understand the other possible implications on the business of companies. There is a complete revamping of the presentation of assets and liabilities as discussed above. Current assets may turn out to be Noncurrent and vice versa. This might also change the current asset and quick ratios from what they would have been under earlier version. Borrowings from Banks are based on a host of ratio calculated both actual and projected. The impact due to Revised Schedule VI is obviously only until Ind-AS comes into force since then things will anyway get aligned. Similarly, since Trade receivables are to be classified based on the days passed from the Due date only rather than the Billing date, companies will be far relieved to present the affairs since the amount of old outstanding as exhibited by their Balance sheet will drop significantly. This also improves the liquidity assessment by financial institutions and Banks. Exchange differences to the extent they can be regarded as an adjustment to interest cost is to be disclosed under the head Finance costs in P&L. This will affect companies which have resorted to ECBs (External Commercial Borrowing). Basically this means that the interest rate in foreign currency gets closer to the local borrowing rate due to exchange rate fluctuation. This will affect the EBITDA (Earnings before Interest, Tax, Depreciation and Amortization) calculation since an item of expense which would have otherwise been shown under Administrative expense is now added to finance cost. When this happens, the enterprise value is affected to that extent since it is the function of Earnings of a standalone entity irrespective of financing.