IntroductionSimplicity and understandibility is one of the basic characteristics of Financial Statements.To Simplify the presentation of Balance Sheet and Profit and Loss Account, The Central Government, in exercise of the powers under section 641(1) of the Companies Act, 1956 has replaced the existing Schedule VI with the revised Schedule VI on the 28th February, 2011 pertaining to the preparation of Balance Sheet and Profit and Loss Account under the Companies Act, 1956. This Revised Schedule is based on existing non-converged accounting standard notified by company accounting standard rule, 2006. However a close analysis of the form, content and terminology of Revised Schedule VI is concerned, concept has been imparted from Indian Accounting Standard (Ind AS), approved by Ministry of Corporate Affairs without announcing applicability date. These 35 notified Indian Accounting Standard is based on International Financial Reporting Standards (IFRSs) issued by International Accounting Standard Board (IASB).
Effective DateNew Schedule VI is applicable for Balance Sheet and Profit / Loss Account prepared on or after 1.4.2011 for industry. As far as comparative of 31.3.2011 is concerned, question arise whether it should be presented as per old schedule VI or new schedule VI. The framework for preparation of financial statement prescribed comparability as one of the essential qualitative characteristics. Accordingly it is better to present comparative of 31.3.2011 as per new schedule VI.
Supermacy of Accounting StandardsWhenever conflict arise between accounting standard and new schedule VI in that case accounting standard will override the provision of Schedule VI as per general instructions number 1, 2 and 6. Case Decision : Simplex Concrete Piles (India) Ltd. vs. Union of India (2007) The Calcutta High Court held that Schedule VI to the Companies Act, 1956 deals with only presentation of the various items of income and expenses, assets and liabilities. It does not deal with recognition and measurement of various items of income and expenses, assets and liabilities. Recognition and measurement should be in accordance with the Accounting Standards notified vide the Companies (Accounting Standards) Rules, 2006. Thus, since AS and Schedule VI operate in different fields, the conflict between them should not arise. However, if they arise, then AS shall prevail.
Compulsion of Vertical Form of Balance Sheet and Profit & Loss AccountNew Schedule VI mandate vertical form of Balance Sheet and Profit & Loss Account, option of horizontal format like old Schedule VI has been deleted.
Notes to Account in place of SchedulesNew Schedule VI replace concept of preparing schedules for presentation of information, instead of that concept of notes to account has been introduced for presentation of detail relating to balance sheet, Profit & Loss Account and Summary of Accounting Policies.
Simplification of DisclosureAs per Old Schedule VI 1% of total revenue or Rs. 5,000 whichever is higher should be disclosed separately and not to be merged in the head of miscellaneous expense in profit and loss account. In the New Schedule VI the figure has been increased and it is now 1% of total revenue and Rs. 1,00,000 whichever is higher.
Rounding OffRevised norms of rounding off is as follows : Where turnover of the company in any financial year is : (i) (ii) less than Rs. 100 crores Rs. 100 crores or more Round off permissible To the nearest hundreds, thousands, lakhs or millions or decimals thereof To the nearest lakhs or millions or crores or decimals thereof
Applicability of Accounting StandardsAs per general instruction no. 6 New Schedule VI contain both terminology accounting standards and Indian Accounting Standards. Since applicability date of Indian Accounting Standard is still to be notified hence balance sheet and profit & loss account should contain the concept of accounting standard notified as per company accounting standard rule 2006. As and when applicability date of Ind AS will be notified by The Government concept of existing and Ind AS both will be applicable.
Features of Notes to AccountNotes to account should contain (i) Narrative description or disaggregations of items recognised in those statement (ii) Information about item that do not qualify for recognition in those statement Author Note : Features of notes to account is totally based on IAS / Ind AS 1 hence for more detail cross reference may be taken from IAS / Ind AS 1 Presentation of Financial Statements.
Balance SheetBalance Sheet of the entity present detail of Assets, Liabilities and Equities at the end of reporting period. Therefore, it is important that information provided in the balance sheet should be simple and understandable. It is also important that balance sheet must present true and fair picture of state of affairs of the business. Ministry of Corporate Affairs has considered the similar requirement and prescribed form and content of the Balance Sheet. A specimen format of prescribed balance sheet is depicted below : Particulars I. 1. EQUITY AND LIABILITIES Share holder Fund (a) Share Capital (b) Reserves and Surplus (c) Money received against share warrants Share application money pending allotment Non-current liabilities (a) Long-term borrowings (b) Deferred Tax Liabilities (Net) (c) Other Long term liabilities (d) Long term provisions Current Liabilities (a) Short-term borrowings (b) Trade Payable (c) Short-term Provision Total ASSETS Non-current Assets (a) Fixed Assets Tangible Assets Intangible Assets Capital work in progress Intangible under development (b) Non-current Investment (c) Deferred Tax Assets (Net) (d) Long-term Loans and Advances (e) Other Non-current Assets Current Assets (a) Current Investment (b) Inventories (c) Trade receivable (d) Cash and Cash equivalent (e) Short-term Loans and Advances (f) Other current assets Total Notes No. Figure of Figure of Current year Previous Year
Author Note : In case of consolidated financial statement minority interest should be presented in the head of shareholder fund.
Profit and Loss StatementEvaluator of Financial Statement is always concerned about the profit earned by the entities for investment prospective in the entity and financial performance of the entities. Profit of the year consists of profit from ordinary activities, extraordinary activities, continuing operation and discontinuing operation. A part of profit is also attributable to Government in current year and future year, therefore, it is necessary that detail of profit and loss should provide split of the profit from each and every activities. Ministry of Corporate Affairs has therefore considered the requirement of evaluator profit and loss account and prescribed mandatory reporting format of profit and loss statement which is depicted below : Particulars I. II. III. IV. Revenue from operations Other income Total Revenue (I + II) Expenses : Cost of materials consumed Purchases of Stock-in-Trade Changes in inventories of finished goods work-in-progress and Stock-in-Trade Employee benefits expense Finance costs Depreciation and amortization expense Other expenses Total expenses V. Profit before exceptional and extraordinary items and tax (III - IV) VI. Exceptional items VII. Profit before extraordinary items and tax (V - VI) VIII. Extraordinary Items IX. Profit before tax (VII - VIII) X Tax expense : (1) Current Tax (2) Deferred Tax XI. Profit (Loss) for the peirod from continuing operations (VII - VIII) 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 Author Note : Format of appropriation is not available in the format prescribed by the Ministry hence it can be presented below the line or separate schedule can be prepared in notes to account below reserve and surplus. Notes No. Figure of Figure of Current year Previous Year
Cash Flow StatementInstitute of Chartered Accountants of India has issued accounting standard 3 Cash Flow Statement which provides classification of activities and presentation of cash flow. Form and content of Cash Flow Statement has been prescribed in Accounting Standard 3. Ministry of Corporate Affairs has not prescribed the format for presentation of Cash Flow Statement hence, presentation of Cash Flow will be as per Accounting Standard 3.
Notes to AccountAs per general instruction no. 3 Notes to Account is required to be prepared for detail of information of item of balance sheet and profit & loss account. Ministry has prescribed the content of notes but presentation format has not been prescribed. Format for presentation of the notes should be prepared as per the requirement of the Industry. Based on content given by Ministry of Corporate Affairs specimen formats are detailed below for examination point of view. (1) Summary of Significant Accounting Policies (2) Share Capital Particulars Authorised Share Capital ............ equity shares @ ..... each. ............ Preference shares @ .... each Total Issued & Subscribed Share Capital ............ equity shares @ ..... each. ............ Preference shares @ .... each Total Paid-up Share Capital ............ equity shares @ ..... each. ............ Preference shares @ .... each Less : Calls unpaid by directors and other officers Add : Equity shares forfeited (Paid-up) Ad