Revised Schedule VI of the Companies Act, 1956 AN INSIGHT TO REVISED SCHEDULE VI OF THE COMPANIES...

Revised Schedule VI of the Companies Act, 1956

AN INSIGHT TO

REVISED SCHEDULE VI

OF

THE COMPANIES ACT, 1956CA. (Dr.) G.S. Grewal Slide 1

Revised Schedule VI of the Companies Act, 1956Approach in Discussion The presentation is prepared to meet the course requirement

of ISC. It should be noted that the treatment of Loss on Issue of

Shares, Loss on Issue of Debentures and Preliminary Expenses is different than treatment of CBSE. Key elements / issues of Revised Schedule VI, both for Balance

Sheet and Statement of Profit and Loss have been highlighted. The discussion of the key elements/issues are, in brief but

where considered otherwise, they are discussed in detail. Individual items of Statement of Profit and Loss and Balance

Sheet have been explained with the help of examples where considered appropriate.

Slide 2CA. (Dr.) G.S. Grewal

Revised Schedule VI of the Companies Act, 1956Companies Act, 1956 and Schedule VI

• Schedule VI is prescribed under the Companies Act, 1956.

• It has prescribed forms for preparing financial statements of a company i.e. (a) Balance Sheet; and

(b) Statement of Profit and Loss.


Revised Schedule VI of the Companies Act, 1956Is it mandatory to follow Schedule VI?• Section 211 of the Companies Act, 1956 prescribes

that: Balance Sheet and Profit and Loss Account (now titled Statement of Profit and Loss) shall be in the form setout in Schedule VI or as near thereto as circumstances admit.


Revised Schedule VI of the Companies Act, 1956Highlights of Revised Schedule VIGeneral1. In case, Revised Schedule VI is in conflict with law

and Accounting Standards, Provisions of Law and accounting standards will override Schedule VI.

2. Detail of each item of statement of Profit and Loss and Balance Sheet shall be given in Note duly referenced to the Balance Sheet or Statement of Profit and Loss.

3. Notes shall be part of the financial statements.


Revised Schedule VI of the Companies Act, 1956Highlights

STATEMENT OFPROFIT AND LOSS

and

BALANCE SHEET


Revised Schedule VI of the Companies Act, 1956Statement of Profit and Loss Statement of Profit and Loss is to be prepared in the

form prescribed in Schedule VI of the Companies Act, 1956.

Income to be classified as ‘Revenue from Operations’ and ‘Other Income’.

Expenses to be classified on the basis of its nature and not on the basis of activity.

The form of Statement of Profit and Loss does not provide for appropriation of profits.


Revised Schedule VI of the Companies Act, 1956Balance Sheet Only vertical form of Balance Sheet is prescribed. Assets and liabilities (including provisions) are to be

classified as into Non-current and Current. Non-current Liabilities, Current Liabilities, Non-current

Assets, Current Assets, Trade Payables and Trade Receivables have been defined.

Share Application Money Pending Allotment to be separately shown.

Balance of Statement of Profit and Loss, whether ‘positive’ or ‘negative’ is to be shown under ‘Reserve and Surplus’.

The head ‘Miscellaneous Expenditure’ has been deleted.


Revised Schedule VI of the Companies Act, 1956Accounting Treatment of Miscellaneous Expenditure Accounting treatment of following expenditure under the Revised Schedule VI is as discussed in the following slides:1. Preliminary Expenses (including Deferred Revenue

Expenditure);2. Discount or Loss on Issue of Shares;3. Share Issue Expenses; and4. Discount or Loss on Issue of Debentures.


Revised Schedule VI of the Companies Act, 1956Writing Off of Miscellaneous Expenditure

Miscellaneous Expenditure may be written off :

Either

(i) from Securities Premium Reserve as provided in section 78 (if it exists); or

(ii) from General Reserve (if it exists); or

(ii) from the Statement of Profit and Loss.

Slide 10 CA. (Dr.) G.S. Grewal

Revised Schedule VI of the Companies Act, 1956Writing Off of Miscellaneous Expenditure

Securities Premium Reserve may be used for the purposes provided in section 78 i.e. for:1. Issuing Fully Paid Bonus Shares;2. Writing off of Preliminary Expenses;3. Writing off discount allowed on issue of securities or

debentures of the company; and4. Premium payable on redemption of Redeemable

Preference Shares or Debentures.


Revised Schedule VI of the Companies Act, 1956Preliminary Expenses

Preliminary Expenses (including Deferred Revenue Expenditure)

Preliminary expenses and Deferred Revenue Expenditure is to be written off in the year they are incurred. either(i) from Securities Premium Reserve (if it exists); or(ii) from General Reserve (if it exists); or (iii) from the Statement of Profit and Loss

in the year in which it is incurred.


Revised Schedule VI of the Companies Act, 1956Discount or Loss on Issue of SharesDiscount or Loss on Issue of Shares (i.e. Discount on Issue of Shares and/or Premium Payable on Redemption of Preference Shares) are written off:

either(i) from Securities Premium Reserve (if it exists); or(ii) from General Reserve (if it exists); or (iii) from the Statement of Profit and Loss



Revised Schedule VI of the Companies Act, 1956Loss on Issue of DebenturesLoss on Issue of Debentures (i.e. Discount on Issue of Debentures and / or Premium Payable on Redemption of Debentures) are in the nature of borrowing costs. Accounting Treatment of Borrowing Cost is guided by AS 16, Borrowing Costs. It is written off:

either(i) from Securities Premium Reserve (if it exists); or(ii) from General Reserve (if it exists); or (iii) from the Statement of Profit and Loss



Revised Schedule VI of the Companies Act, 1956Meaning

“Terms”

Used in

STATEMENT OF PROFIT AND LOSS


Revised Schedule VI of the Companies Act, 1956Meaning of Terms Used in Statement of Profit and LossRevenue from Operations

It is the revenue earned from the business operations i.e. business activities. Examples of Revenue from Operations are:(a) Sale of goods;(b) Sale of services; (c) Other Operating revenues;

Other Income

It means revenue that is not revenue from operations. For example: Interest and dividend etc. for a Non – finance Companies.


Revised Schedule VI of the Companies Act, 1956Meaning of Terms Used in Statement of Profit and LossExpenses Expenses are classified or shown under the

heads discussed below:

Cost of Material Consumed

Under the head, consumption of raw materials to produce the goods is disclosed. As the title suggests, it relates to manufacturing companies.

Purchases of Stock – in – trade

Under the head, purchase of goods i.e. stock – in – trade i.e. goods traded in is disclosed.

Changes in Inventories of Finished Goods, WIP and Stock – in - trade

It is the difference between opening inventory (stock) and closing inventory (stock) of Finished Goods, WIP and Stock – in – trade. Opening and closing inventory of raw material is not dealt in the head as it is accounted in ‘Cost of Material Consumed’.


Revised Schedule VI of the Companies Act, 1956Meaning of Terms Used in Statement of Profit and Loss

Employees Benefit Cost

Expenses incurred on employees towards salary, wages, leave encashment, provident fund and staff welfare etc. are shown under the head.

Finance Cost Expenses incurred on interest on borrowings is disclosed or shown under this head. It should borne in mind that bank charges are not part of finance cost, it being payment towards service rendered by the bank. Bank Charges are included in Other Expenses.

Depreciation and Amortisation

Depreciation is charged on tangible fixed assets for its use over its useful life. Amortisation is associated with Intangible Assets and is the amount written off over its estimated useful life.

Other Expenses All expenses that do not fall in the above classification are shown under Other Expenses.



“Terms”

Used in

BALANCE SHEET(Equity and Liabilities Part)


Revised Schedule VI of the Companies Act, 1956Meaning of Terms Used in Equity and LiabilitiesShareholders’ Funds

Shareholders’ Funds includes (a) Share Capital;(b) Reserves and Surplus; and(c) Money Received against Share Warrants.

(a) Share Capital Share Capital is the amount received on the subscribed shares. Share Capital includes both Equity share Capital and Preference Share Capital.

(b) Reserves and Surplus

Reserves and Surplus includes the amount received as Securities Premium Reserve and the amount appropriated out of surplus of Statement of Profit and Loss.

(c) Money Received against Share Warrants

It is the amount that the company has received has against share warrants that shall be converted into shares on a future date at a pre-determined price.


Revised Schedule VI of the Companies Act, 1956Meaning of Terms Used in Equity and LiabilitiesShare Application Money Allotment

Share Application Money Pending Allotment means the amount received towards share application against which allotment shall be made.

Current Liabilities and Non – current Liabilities

Current Liabilities are those liabilities which are • expected to be settled in company’s normal

operating cycle; or • due to be settled within twelve month after the

reporting date i.e. Balance Sheet date; or • held primarily for the purpose of being traded; or • there is no unconditional right to defer settlement for

at least 12 months after the reporting date i.e. Balance Sheet date.

All other liabilities are Non – current Liabilities.


Revised Schedule VI of the Companies Act, 1956Meaning of Terms Used in Equity and Liabilities

Operating Cycle

Operating Cycle means the time between the acquisition of assets for processing and their realisation in cash or cash equivalents. Where operating cycle cannot be identified, it is assumed to be 12 months.

Long – term Borrowings

Long – term Borrowings means borrowings which are repayable after 12 months of date of borrowing.


Revised Schedule VI of the Companies Act, 1956Meaning of Terms Used in Equity and LiabilitiesDeferred Tax Liabilities (Net)

It is only a book entry i.e. not an actual liability. The entry is passed with the net effect of tax on difference between accounting income and taxable income which are temporary in nature. If accounting income is higher than the taxable income, it results in Deferred Tax Liability. In a Balance Sheet either Deferred Tax Liabilities (Net) or Deferred Tax Assets (Net) will appear.

Other Long term Liabilities

Long – term liabilities other than long term borrowings are shown as Other Long term Liabilities.

Long term Provisions

Provision is amount provided for a liability amount of which is not ascertained but is estimated. Provisions that are likely to be paid after 12 months of the date of Balance Sheet are shown as Long term Provisions.


Revised Schedule VI of the Companies Act, 1956Meaning of Terms Used in Equity and Liabilities

2. Current Liabilities

Current Liabilities are those liabilities that are payable within 12 from the date of the Balance Sheet. Current Liabilities are classified into:(a) Short term Borrowings;(b) Trade Payables;(c) Other Current Liabilities; and(d) Short term Provisions.

(a) Short term Borrowings

Short term Borrowing are the borrowings of the company which are payable with the 12 months of the date of borrowing.


Revised Schedule VI of the Companies Act, 1956Meaning of Terms Used in Equity and Liabilities(b) Trade Payables

Trade Payables is the amount payable for purchase of goods or services taken in the ordinary course of business.Trade Payables includes Sundry Creditors and Bills Payable.

(c) Other Current Liabilities

Liabilities that are payable within 12 months of the date of Balance Sheet and which are not classified as Short term Borrowings and Trade Payables are Other Current Liabilities.

(d) Short term Provisions

Provision is amount provided for a liability amount of which is not ascertained but is estimated. Provisions that are likely to be paid within 12 months of the date of Balance Sheet are shown as Short term Provisions.


Revised Schedule VI of the Companies Act, 1956Illustration: Classification of liability as non – current and current on the basis of Operating Cycle

Liability Operating Cycle(in months)

Average Payment Time (in months)

Classification

Trade Payables 10 8 Current Liabilities


Trade Payables 10 15 Non – current Liabilities


Trade Payables 18 24 Non – current Liabilities



“Terms”

Used in

BALANCE SHEET(Assets Part)


Revised Schedule VI of the Companies Act, 1956Meaning of Terms Used in AssetsCurrent AssetsandNon Current Assets

Current Assets are those assets which are • expected to be realised in or intended for sale or

consumption in the company’s normal Operating Cycle; or

• held primarily for the purpose of trading, or• expected to be realised within 12 months from

the reporting date or closing date i.e. Balance Sheet date; or

• It is cash and cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date i.e. Balance Sheet date.

All other assets are Non – current Assets.


Revised Schedule VI of the Companies Act, 1956Meaning of Terms Used in AssetsOperating Cycle Operating Cycle means the time between the

acquisition of assets for processing and their realisation in cash or cash equivalents. Where operating cycle cannot be identified, it is assumed to be 12 months.

Non – current Assets(a) Fixed Assets

Fixed assets are the assets owned by enterprise to enhance its earning capacity and not for resale. Fixed Assets are classified into four following classes:(a) Tangible Assets;(b) Intangible Assets;(c) Capital Work – in – progress;(d) Intangible Assets under Development.

(i) Tangible Fixed Assets

Tangible Fixed Assets are those assets which have physical existence i.e. they can be seen and touched.


Revised Schedule VI of the Companies Act, 1956Meaning of Terms Used in Assets (ii) Intangible Fixed Assets

Intangible Fixed Assets are those assets which do not have physical existence i.e. they cannot be seen or touched.

(iii) Capital Work – in – progress

Tangible Fixed assets that are under construction i.e. are not yet complete are classified or shown as Capital Work – in – progress.

(iv) Intangible Assets under Development

Intangible Fixed Assets that are under development i.e. are not yet complete are classified as Intangible Assets under Development.

(b) Non – current Investments

Non – current Investments are those investments which are made with the aim to hold it for a long time. They are further classified into Trade Investments and Non – trade Investments.Trade investments are the investments that are made in another company not being its subsidiary, for the purpose of promoting its own business.


Revised Schedule VI of the Companies Act, 1956Meaning of Terms Used in Assets (c) Deferred Tax Assets (Net)

Deferred Tax Assets (Net) like Deferred Tax Liability (Net) is a book entry i.e. it is not an actual asset. The entry is passed with the net effect of tax on difference between accounting income and taxable income which are temporary in nature. If accounting income is lower than the taxable income, it results in Deferred Tax Asset. In a Balance Sheet either Deferred Tax Liability (Net) or Deferred Tax Asset (Net) will appear.

(d) Long term Loans and Advances

Loans and Advances given by a company which are receivable in cash or in kind after a period of 12 months from the date of advance are classified as Long term Loans and Advances.

(e) Other Non – current Assets

All assets that receivable or recoverable after 12 months of the date of Balance Sheet which do not fall in the category of (a) to (d) above are classified or shown as Other Non – current Assets.


Revised Schedule VI of the Companies Act, 1956Meaning of Terms Used in Assets2. Current Assets Current Assets are those assets which fulfill any of

the four conditions prescribed by Revised Schedule VI of the Companies Act, 1956. The prescribed conditions are discussed earlier in slide 21. They are classified into following classes:(a) Current Investments;(b) Inventories;(c) Trade Receivables;(d) Cash and Cash Equivalents;(e) Short term Loans and Advances; (f) Other Current Assets.

(a) Current Investments

Current Investments are those investments of a company which are made with the purpose to sell within a period of 12 months of the date of Balance Sheet.


Revised Schedule VI of the Companies Act, 1956Meaning of Terms Used in Assets

(b) Inventories Inventories are goods held by a company to be consumed or sold in the normal course of its business. They include: (a) Raw Material;(b) Stock – in – trade;(c) Consumable Stores;(d) Loose tools;(e) Stores and spares.

(c) Trade Receivables

Trade Receivables means the amount receivable for sale of goods or services rendered in the ordinary course of its business. Trade Receivable includes both Sundry Debtors and Bills Receivable.


Revised Schedule VI of the Companies Act, 1956Meaning of Terms Used in Assets(d) Cash and Cash Equivalents

Cash and Cash Equivalents includes Cash in Hand, Cash at Bank, Cheques / Drafts in Hand, Earmarked Bank Balances, Balance lying as Margin Money, Deposits in banks with more than 12 months maturity.

(e) Short term Loans and Advances

Advances receivable by a company whether in cash or in kind within 12 months from the date of Balance Sheet are classified as Short term Loans and Advances.

(f) Other Current Assets

Current assets that are not classified in any of the above classifications (a) to (e) above are classified as Other Current Assets.


Revised Schedule VI of the Companies Act, 1956Illustration: Classification of asset as non – current and current on the basis of Operating Cycle

Asset Operating Cycle(in months)

Average Collection Time (in months)

Classification

Trade Receivables 11 10 Current Assets


Trade Receivables 11 15 Non – current Assets


Trade Receivables 20 24 Non – current Assets.


Revised Schedule VI of the Companies Act, 1956Form of Statement of Profit and Loss

Particulars Note No. Figures for the current reporting period

Figure for the previous reporting period

I. Revenue from Operations

II. Other Income

III Total Revenue (I + II)

IV. Expenses

(a) Cost of Material Consumed

(b) Purchase of Stock – in – trade

(c) Changes in Inventories of finished goods, Work – in – progress and stock – in – trade

(d) Employees Benefits Expenses

(e) Finance Cost

(f) Depreciation and Amortisation Expenses

(g) Other Expenses

Total Expenses

V. Profit before exceptional and extraordinary items and tax (III – IV)


Revised Schedule VI of the Companies Act, 1956Form of Statement of Profit and LossParticulars Note No. Figures for the

current reporting period

Figure for the previous reporting period

V. Profit before exceptional and extraordinary items and tax (III – IV)

VI. Exceptional Items

VII. Profit before extraordinary items and tax

VIII. Extraordinary Items

IX. Profit before tax

X. Tax Expense Current Tax

Deferred Tax

XI. Profit (loss) for the period from continued operations

XII Profit (Loss) from the discontinuing business

XIII Tax expenses of discontinuing operations

XIV. Profit (Loss) for the period

XV. Earnings per equity share (EPS and Diluted EPS)


Revised Schedule VI of the Companies Act, 1956Discussion on Heads of Accounts

Income is classified into:

(i) Revenue form Operations; and

(ii) Other Income.



Revenue from OperationsIt is revenue earned from the business operations (activities). For a manufacturing or trading company it includes: (a) Sale of Products; (b) Sale of Services; and (c) Other Operating Revenues (Say Sale of Scrap).

For a finance company it includes:(d) Interest; (e) Dividend; (c) Profit from sale of shares; and(d) Income from Other Financial Services.



Other IncomeOther Income includes revenue that is not revenue from operations. Other income is classified into:(a) Interest income;(b) Dividend income;(c) Profit on sale of investments; and(d) Other non-operating income.



Expenses are shown under the following heads:

(a) Cost of Materials Consumed: It relates to manufacturing companies and is computed as follows:

Opening Balance + Purchases – Closing Balance(b) Purchase of stock-in-trade: It relates to trading companies. (c) Changes in inventories of finished goods, WIP and Stock-in-trade.



(d) Employees Benefits Expenses: Expenses incurred on employees are classified or shown under the head. It includes expenses on Salary Wages, Leave Encashment, Staff Welfare Expenses Retirement Benefits etc.Employees Benefits Expenses may be further disclosed or shown as Direct Expenses (Wages and related costs or expenses) being part of Cost of Goods Sold and Indirect Expenses (Salaries and related costs or expenses).



(e) Finance Cost: Finance cost means expenses incurred on raising the loan and payment of interest on the borrowings, both Long – term borrowings and short – term borrowings.

It does not include Bank Charges, which are

shown as Other Expenses; it being the cost of services availed.



(f) Depreciation and Amortisation Expenses:The term ‘Depreciation’ is associated with tangible fixed assets and is the amount written off over the useful life of the tangible asset. For example:

depreciation written off on compute₹

The term ‘Amortisation’ is associated with intangible fixed assets and is the amount written off over the useful life of the intangible asset. For example:

Goodwill or patents being amortised.



(g) Other expenses: Expenses that do not fall in any of the above expenses are shown under Other Expenses. The expenses may be further classified into:

(i) Direct Expenses (such as Carriage Inwards, Octroi etc.) form part of the Cost of Goods Sold.

(ii) Indirect Expenses (such as Administration, Selling and Distribution etc.) form part of the Operating Expenses.

(iii) Activity wise Expenses (such as Printing & Stationery, Postage, Administration, Advertisement etc.)

(iv)Non – Operating Expenses. Expenses incurred for other than operating activities are non – operating expenses.


Revised Schedule VI of the Companies Act, 1956Form of Balance Sheet (Under Revised Schedule VI)

PARTICULARS NOTE NO.

CURRENT YEAR

PREVIOUS YEAR

I. EQUITY AND LIABILITIES

(1) Shareholders’ Funds (a) Share Capital (b) Reserves and Surplus (c) Money Received Against Share Warrants

(2) Share Application Money Pending Allotment

(3) Non – current Liabilities (a) Long – term Borrowings (b) Deferred Tax Liabilities (Net) (c) Other Long – term Liabilities (d) Long – term Provisions

(4) Current Liabilities (a) Short – term Borrowings (b) Trade Payables (c) Other Current Liabilities (d) Short – term Provisions TOTAL


Revised Schedule VI of the Companies Act, 1956Form of Balance Sheet (Under Revised Schedule VI)

PARTICULARS NOTE NO.

CURRENT YEAR

PREVIOUS YEAR

II. ASSETS

(1) Non – current Assets (a) Fixed Assets (i) Tangible Assets (ii) Intangible Assets (iii) Capital Work – in – progress (iv) Intangible Assets under Development

(b) Non – current Investments

(c) Deferred Tax Assets (Net)

(d) Long – term Loans and Advances

(e) Other Non – current Assets

(2) Current Asset (a) Current Investments (b) Inventories (c) Trade Receivables (d) Cash and Cash Equivalents (e) Short – term Loans and Advances (f) Other Current Assets


Revised Schedule VI of the Companies Act, 1956Discussion on Items in Liabilities Part of the Balance Sheet

Shareholders’ FundsShare CapitalShare Capital includes both Equity Share Capital and Preference Share Capital.Information disclosed in Notes to Account relating to Share Capital is as follows:(a) Authorised Capital;(b) Issued Capital;(c) Subscribed Capital;

Subscribed and fully paid up Subscribed but not fully paid up


Revised Schedule VI of the Companies Act, 1956Example 1: Share CapitalAB Ltd. has an authorised capital of Rs. 5,00,000 divided into 50,000 equity shares of Rs. 10 each.

It issued 10,000 Equity Shares of Rs. 10 each at par. All the shares were subscribed for and the due amount was received.

How will be Share Capital shown in the Balance Sheet of the company?


Revised Schedule VI of the Companies Act, 1956Solution: To be shown in the Balance Sheet as follows:

Balance Sheet of ………….as at: ……………………..

Particulars Note No. Rs.

I. EQUITY AND LIABILITIES Shareholders Funds Share Capital 1 1,00,000


Revised Schedule VI of the Companies Act, 1956Solution: It will be shown in the Notes as follows:

Note 1: Share Capital Rs.Authorised Share CapitalEquity Capital50,000 Equity Shares of Rs. 10 each 5,00,000

Issued Capital10,000 Equity Shares of Rs. 10 each 1,00,000

Subscribed CapitalSubscribed and fully paid up10,000 Equity Shares of Rs. 10 each 1,00,000


Revised Schedule VI of the Companies Act, 1956Example 2: Share CapitalGrand Ltd. has an authorised capital of Rs. 5,00,000 divided into 30,000 equity shares of Rs. 10 each and 2,000 Preference Shares of Rs. 100 each.

It issued 10,000 Equity shares and also 2,000 Preference Shares at par.

All shares offered were subscribed for and the money was duly received except final call of Rs. 3 per equity shares on 500 shares.




Balance Sheet of Grand Ltd.as at: ……………………..


I. EQUITY AND LIABILITIES Shareholders Funds Share Capital 1 298,500


Revised Schedule VI of the Companies Act, 1956Solution: It will be shown in the Notes as follows:Note 1: Share Capital Rs. Rs.

Authorised Share CapitalEquity Capital30,000 Equity Shares of ₹ 10 each2,000 Preference Shares of ₹ 100 each

3,00,0002,00,0005,00,000

Issued Capital10,000 Equity Shares of ₹ 10 each2,000 Preference Shares of ₹ 100 each

1,00,0002,00,0003,00,000

Subscribed CapitalSubscribed and fully paid up9,500 Equity Shares of ₹ 10 each2,000 Preference Shares of ₹ 100 each

Subscribed but not fully paid up500, Equity Shares of ₹ 10 eachLess: Calls – in – arrears

5,0001,500

95,0002,00,000

3,5002,98,500


Revised Schedule VI of the Companies Act, 1956Example 3: Share CapitalMatrix Ltd. is registered with an authorised capital of Rs. 5,00,000 divided into 50,000 equity shares of Rs. 10 each. It issued 10,000 equity shares of Rs. 10 each at par. Final call of Rs. 2 per share was yet to be called.

All shares offered were subscribed for and the money was duly received.




Balance Sheet of Matrix Ltd.as at: ……………………..

Particulars Note No. ₹



Revised Schedule VI of the Companies Act, 1956Solution: It will be shown in the Notes as follows:Note 1: Share Capital Rs.Authorised Share CapitalEquity Capital50,000 Equity Shares of Rs. 10 each 5,00,000


Subscribed CapitalSubscribed but not fully paid up10,000, Equity Shares of Rs. 10 each; Rs. 8 Called up 80,000


Revised Schedule VI of the Companies Act, 1956Example 4: Share CapitalJBM Ltd. is registered with an authorised capital of Rs. 5,00,000 divided into 50,000 equity shares of Rs. 10 each. It issued 10,000 equity shares of Rs. 10 each at par. Calls were made of Rs. 8 per share. All shares offered were subscribed for and the money was duly received except final call of Rs. 3 on 500 shares. How will be Share Capital shown in the Balance Sheet of the company?



Balance Sheet of JBM Ltd.as at: ……………………..




Revised Schedule VI of the Companies Act, 1956Solution: It will be shown in the Notes as follows:Note 1: Share Capital Rs. Rs.Authorised Share CapitalEquity Capital50,000 Equity Shares of Rs. 10 each 5,00,000


Subscribed CapitalSubscribed but not fully paid up10,000, Equity Shares of Rs. 10 each; Rs. 8 Called up Less: Calls – in – arrears 80,000

1,500 78,500


Revised Schedule VI of the Companies Act, 1956Example 5: Share CapitalM Ltd. has an authorised capital of Rs. 5,00,000 divided into 50,000 equity shares of Rs. 10 each. The company has existing issued and fully paid 15,000 shares of Rs. 10 each. It further issued 10,000 equity shares of Rs. 10 each at par. The money called was Rs. 8 per share. All shares were subscribed for and the money was duly received except final call of Rs. 3 per share on 1,000 shares. How will be Share Capital shown in the Balance Sheet of the company?



Balance Sheet of M Ltd.as at: ……………………..




Revised Schedule VI of the Companies Act, 1956Solution: It will be shown in the Notes as follows:Note 1: Share Capital Amount (Rs.) Amount (Rs.)

Authorised Share CapitalEquity Capital50,000 Equity Shares of Rs. 10 each 5,00,000


Subscribed CapitalSubscribed and fully paid up15,000, Equity Shares of Rs. 10 eachSubscribed but not fully paid up10,000, Equity Shares of Rs. 10 each; Rs. 8 Called up Less: Calls – in – arrears

80,0003,000

1,50,000

77,0002,27,000


Revised Schedule VI of the Companies Act, 1956Example 6: Share CapitalCasio Ltd. is registered with the capital: 1,00,000, Equity Shares of Rs. 10 each; and 50,000, 9% Preference Shares of Rs. 10 each.

It issued 90,000 Equity Shares and 50,000, 9% Preference Shares for subscription.

85,000 Equity Shares were subscribed on which the company had called Rs. 8. It did not receive first call of Rs. 2 on 3,000 shares, out of which 2,000 allotted to Atul were forfeited. Out of the forfeited shares 1,500 shares were reissued at Rs. 6, Rs. 8 paid up.

9% Preference Shares were fully paid up.

How will it be shown in balance sheet as per Revised Schedule VI?



Balance Sheet of Casio Ltd.as at: ……………………..




Revised Schedule VI of the Companies Act, 1956Solution: It will be shown in the Notes as follows:Note 1: Share Capital Amount (Rs.) Amount (Rs.)Authorised Share CapitalEquity Share Capital1,00,000 Equity Shares of Rs. 10 eachPreference Share Capital50,000, 9% Preference Share of Rs. 10 each

10,00,000

5,00,000 15,00,000

Issued Capital90,000 Equity Shares of Rs. 10 each50,000 9% Preference Share of Rs. 10 each

9,00,0005,00,000 14,00,000

Subscribed CapitalSubscribed and Fully Paid up50,000, 9% Preference Shares of Rs. 10 eachSubscribed and not Fully Paid up84,500 Equity Shares of Rs. 8 eachLess: Calls in Arrears (1,000 Shares X Rs. 2)

Add: Forfeited Shares Account

6,76,0002,000

6,74,0003,000

5,00,000

6,77,00011,77,000


Revised Schedule VI of the Companies Act, 1956Reserve and SurplusReserve is a portion of earnings, receipts or other surplus set aside for a specific purpose. Reserve and Surplus is part of Shareholders’ Funds. Revised Schedule VI has prescribed that reserves be shown under the following heads:(i) Capital Reserves (ii) Capital Redemption Reserve(iii) Securities Premium Reserve(iv) Debentures Redemption Reserve(v) Revaluation Reserve (vi) Share Options Outstanding (vii) Any Other Reserves (to specify the nature and purpose

of each reserve)Slide 67CA. (Dr.) G.S. Grewal

Revised Schedule VI of the Companies Act, 1956Reserves and SurplusAny Other ReserveRevised Schedule VI is flexible and allows a company to have reserves as per its requirements besides the six prescribed reserves. For example: a company may have following reserves :a) Workmen Compensation Reserve; orb) Investments Fluctuation Reserve;C) Statement of Profit and Loss is an important reserve because (i) it shows the profit or loss for the year; and (ii) appropriation of profit is made through this reserve.


Revised Schedule VI of the Companies Act, 1956Reserve and SurplusAll reserves must have information as to opening balance, addition / deletion and closing balance. The sum total of all the reserves is shown on the face of the Balance Sheet. Each item of Reserves and Surplus to have following details:Opening Balance xxxxx

Add: Addition xxxxx

xxxxx

Less: Deletion / Utilization xxxxx

Balance xxxxx


Revised Schedule VI of the Companies Act, 1956Amount of Reserves and Surplus – How shown Individual reserves are shown in the Note for

Reserves and Surplus giving details of opening balance; addition / deletion and closing balance.

Closing Balances under each reserve are totalled; and

The total is shown as one amount in the Balance Sheet.


Revised Schedule VI of the Companies Act, 1956Loss from Statement of Profit and Loss Current year’s loss is deducted from existing credit

balance in Statement of Profit and Loss under ‘Reserves and Surplus’.

If the existing balance is negative, current year’s loss is added to it.

The net amount after transfer whether positive or negative amount, it is shown as negative amount under the head Statement of Profit and Loss in the Note for Reserves and Surplus.


Revised Schedule VI of the Companies Act, 1956Appropriation of ProfitAppropriation of Profit out of Balance – Statement of Profit and Loss: Profit for the accounting period is transferred and added to the

existing Balance of Statement of Profit and Loss under Reserves and Surplus.

Thereafter appropriations for transfer to reserves and proposed dividend etc. is made as follows:

Opening Balance xxxAdd: Profit (Loss) for the Year xxx

xxxLess Appropriations to DDR Workmen Compensation Reserve Proposed Dividend

xxxxxxxxx xxx

Balance xxx


Revised Schedule VI of the Companies Act, 1956Example 1: on Reserves and Surplus

A company has a opening credit balance in Statement of Profit and Loss of Rs. 1,00,000. During the year, it earned a profit of Rs. 1,50,000. Questions:(i) How will it be shown in the Balance Sheet?(ii) What amount will be shown therein?





(1)Shareholders’ Funds (a) Reserves and Surplus 2 2,50,000


Revised Schedule VI of the Companies Act, 1956Solution:

1. Balance of Statement of Profit and Loss will be shown under Reserves and Surplus.2. The amount shown will be:

Statement of Profit and LossBalance – Statement of Profit & Loss Rs.

Opening 1,00,000

Add: Profit for the Period 1,50,000Balance (to be shown in the Balance Sheet) 2,50,000



A company has a opening credit balance in Statement of Profit and Loss of Rs. 1,00,000. During the year, it incurred loss of Rs. 1,50,000. Questions:(i) How will you show the balance of Statement of Profit and Loss in the Balance Sheet?(ii) What amount will be shown therein?





(1)Shareholders’ Funds (b) Reserves and Surplus 2 (50,000)



1. Balance of Statement of Profit and Loss will be shown under Reserves and Surplus as a negative amount.2. The amount shown will be:Statement of Profit and Loss Rs.Statement of Profit & Loss (Opening) 1,00,000Add: Profit (Loss) for the Period (1,50,000)Balance

(50,000)



A company has an opening debit balance in Statement of Profit and Loss of Rs. 1,00,000. During the year, it incurred a loss of Rs. 1,50,000.Questions: (i) How will you show the balance in Statement of Profit and Loss in financial statements?(ii) What amount will be shown therein?





(1)Shareholders’ Funds (a) Reserves and Surplus 2 (2,50,000)



1. Balance of Statement of Profit and Loss will be shown under Reserves and Surplus as a negative amount.2. The amount shown will be:Statement of Profit and Loss Rs.Statement of Profit and Loss (Opening) (1,00,000)Add: Profit (Loss) for the Period (1,50,000)Balance (to be shown in the Balance Sheet) (2,50,000)



A company has a opening credit balance in Statement of Profit and Loss of Rs. 1,00,000. During the year, it earned a profit of Rs. 75,000. It decided to transfer Rs.15,000 to Debenture Redemption Reserve (DRR) and also proposed to pay dividend of Rs. 25,000.Question:How will you show the appropriations in the financial statements?





(1)Shareholders’ Funds (a) Reserves and Surplus 2 1,50,000



It will be shown in the Note on Reserves and Surplus as follows:Statement of Profit and Loss Rs.Statement of Profit & Loss (Opening) 1,00,000Add: Profit for the Period 75,000

1,75,000Less: Appropriation Proposed Dividend 25,000 Transfer to DRR 15,000 40,000 Balance 1,35,000


Revised Schedule VI of the Companies Act, 1956Solution Contd/…

Debenture Redemption ReserveOpening Balance NilTransfer from Balance in Statement of Profit and Loss 15,000Balance 15,000Reserves and Surplus to be shown on the face of the Balance Sheet (Rs. 1,35,000 + Rs. 15,000) 1,50,000Current LiabilitiesShort – term Provisions Proposed Dividend 25,000



A company has opening credit balance in Statement of Profit and Loss of Rs. 1,00,000. During the year, it incurred loss of Rs. 1,50,000. It has a opening balance in Debenture Redemption Reserve of Rs. 60,000. Question:How will you show the two in the financial statements?





(1)Shareholders’ Funds (a) Share Capital (b) Reserves and Surplus 2 10,000



Reserves and SurplusDebenture Redemption Reserve (DRR)Opening Balance 60,000

Statement of Profit and LossStatement of Profit & Loss (Opening) 1,00,000Add: Profit for the Period (1,50,000)Balance (50,000)

Amount to be shown under Reserves and Surplus 10,000



A company has opening debit balance in Statement of Profit and Loss of Rs. 1,00,000. During the year, it earned a profit of Rs. 3,00,000. It decided to transfer Rs. 50,000 to Debenture Redemption Reserve (DRR) and also proposed to pay dividend of Rs. 25,000.Question:How will you show them in the financial statements?




Particulars Note No. Rs.1. Shareholders’ Funds (a) Reserves and Surplus 2 1,75,000



Reserves and SurplusStatement of Profit and Loss Rs.Statement of Profit and Loss (1,00,000)Add: Profit (Loss) for the Period 3,00,000Balance 2,00,000

Less: AppropriationsTransfer to DRR 50,000Proposed Dividend 25,000

75,000Balance – Statement of Profit and Loss 1,25,000


Revised Schedule VI of the Companies Act, 1956Solution Contd/…

Debentures Redemption Reserve (DRR) Opening Balance

Nil Transfer from Statement of Profit and Loss 50,000

50,000 Balance – Reserves and Surplus 1,75,000Current LiabilitiesShort – term Provisions Proposed Dividend

25,000 Slide 92CA. (Dr.) G.S. Grewal

Revised Schedule VI of the Companies Act, 1956Money Received Against Share Warrant A share warrant is a bearer document of title to shares

and can be issued only by public limited companies and that too as fully paid up.

A share warrant cannot be issued by a private company, because the share warrant are bearer security and bearer is entitled to the number of shares against the warrant. It is a negotiable document and is transferable by mere delivery.

The holder of the share warrant is entitled to receive dividend as declared by the company. Share warrant is accompanied by attached coupon for the payment of dividend.


Revised Schedule VI of the Companies Act, 1956Share Application Money Pending Allotment Share application money pending allotment is the

amount received as Share Application Money against which shares are to be allotted by the company.

Till the time shares are not allotted, amount remains in the account titled ‘Share Application Money Pending Allotment’.

Amount refundable to the applicants are shown as ‘Other Current Liabilities’ under Current Liabilities.


Revised Schedule VI of the Companies Act, 1956Non-Current Liabilities Non-current liabilities are classified under the following four sub-heads on the face of the balance sheet. i. Long-term Borrowingsii. Deferred Tax Liability (Net)iii. Other Long term Liabilitiesiv. Long-term Provisions.It may be noted that Deferred Tax Liability (Net) is classified as non-current without any consideration towards time.


Revised Schedule VI of the Companies Act, 1956Non-Current LiabilitiesLong – term BorrowingsBorrowings are classified as long – term borrowing or short – term borrowing on the basis of it becoming due for payment from the date of loan.For example:A term loan of Rs. 5,00,000 granted to a company repayable in 20 equal quarterly installments along with interest will be classified or shown as Long – term borrowing. It is so because it is repayable after more than 12 months from the date of Balance Sheet. On the other hand, Cash Credit limit allowed that is repayable within 12 months from the date of Balance sheet is classified or shown as Short term borrowing.


Revised Schedule VI of the Companies Act, 1956Examples of Long – term Borrowings

a. Bondsb. Debenturesc. Term loans

• from banks• from other parties

d. Deposits


Revised Schedule VI of the Companies Act, 1956Deferred Tax Liabilities (Net) and Deferred Tax Assets (Net)

Deferred Tax Liabilities or Deferred Tax Assets is a new entry on the face of the Balance Sheet.• It is only a book entry.• It is neither an actual Liability nor an actual asset.• In a Balance Sheet, either Deferred Tax Liabilities (Net)

or Deferred Tax Assets (Net) will appear.


Revised Schedule VI of the Companies Act, 1956Concept of Deferred Tax

• Deferred Tax Liabilities (Net) or Deferred Tax Assets (Net) is the amount of tax on difference between Accounting Profit and Taxable Profit arising because of items with timing difference.

Example: Depreciation method applied may be SLM to determine accounting profit. Income Tax Act, allows only WDV method. Therefore, depreciation debited in the books of accounts

and depreciation allowed under Income Tax Act will differ. As a result, difference between accounting profit and

taxable profit will arise.


Revised Schedule VI of the Companies Act, 1956Concept of Deferred Tax If Accounting Profit is higher than Taxable Profit

It will result in Deferred Tax Liability. Thus, an entry for Deferred Tax Liability will be passed. The

entry is passed with the amount of income tax on amount of difference between accounting profit and taxable profit.

In case of first entry or which has an effect of increasing the existing balance in Deferred Tax Liabilities, the journal entry passed is:

Statement of Profit and Loss … Dr. To Deferred Tax Liabilities (Net)

If the existing balance is debit balance i.e. Deferred Tax Assets (Net), the journal entry passed is:

Statement of Profit and Loss … Dr. To Deferred Tax Assets (Net)


Revised Schedule VI of the Companies Act, 1956Concept of Deferred TaxEffect on Reserves and SurplusLower amount is carried to Reserves and Surplus under Statement of Profit and Loss. Computation of Capital Employed: The amount of Deferred Tax Liabilities (Net) should be added to Reserves and Surplus. Computation of Net Profit Before Tax and Extraordinary Items in Cash Flow Statement: The difference between the Closing Balance and Opening Balance should be computed. If the difference is positive i.e. current year’s balance is higher add it to difference of Reserves and Surplus.If the difference is negative i.e. current year’s balance is higher deduct it from the difference of Reserves and Surplus.


Revised Schedule VI of the Companies Act, 1956Concept of Deferred Tax If Accounting Profit is Lower than Taxable Profit

It will result in Deferred Tax Asset. The entry is passed with the amount of income tax on

amount of difference between accounting profit and taxable profit. In case of first entry or which has an effect of decreasing the existing balance in Deferred Tax Assets, the journal entry passed

is: Deferred Tax Assets (Net) … Dr.

To Statement of Profit and LossIf the existing balance is credit balance i.e. Deferred Tax

Liabilities (Net), the journal entry passed is: Deferred Tax Liabilities (Net) … Dr.

To Statement of Profit and Loss


Revised Schedule VI of the Companies Act, 1956Concept of Deferred TaxEffect on Reserves and SurplusHigher amount is carried to Reserves and Surplus under Statement of Profit and Loss.Computation of Capital Employed: The amount of Deferred Tax Assets (Net) should be added to Reserves and Surplus. Computation of Net Profit Before Tax and Extraordinary Items in Cash Flow Statement: The difference between the Closing Balance and Opening Balance should be computed. If the difference is positive i.e. current year’s balance is higher deduct it from the difference of Reserves and Surplus.If the difference is negative i.e. current year’s balance is lower add it to the difference of Reserves and Surplus.


Revised Schedule VI of the Companies Act, 1956Other Long Term LiabilitiesLong – term Liabilities other than Long – term Borrowings are shown under this head. Other Long Term Liabilities shall be classified as:(a) Trade payables: Trade payable shall be classified as Other Long – term Liabilities if the purchases of goods and services are made on the terms that the payment is to be made after 12 months of the date of Balance Sheet.(b) Others: Any other Long –term Liability other than trade payables shall also be shown under ‘Other Long – term Liabilities’ but as a separate item.


Revised Schedule VI of the Companies Act, 1956Long-term ProvisionsProvision is a liability amount of which is not known but is estimated with substantial accuracy.On the other hand, Liability is a liability amount of which is ascertained. Provision of amount towards a liability that is likely to arise after more than 12 months from the date of Balance Sheet is shown as long – term provision. Examplesa. Premium Payable on Redemption of Debentures; b. Premium Payable on Redemption of Preference Shares;c. Provision for Retirement Benefits;d. Provision for Warranties.


Revised Schedule VI of the Companies Act, 1956Current LiabilitiesCurrent Liabilities are required to be sub-classified on the face of the balance sheet as below: i. Short-term borrowingsii. Trade payablesiii. Other current liabilitiesiv. Short-term provisions.


Revised Schedule VI of the Companies Act, 1956Short-term borrowingsShort-term borrowings are those borrowings which are payable within 12 months from the date of loan. Examples are:a) Loans repayable on demand form banks and from other

parties; andb) Deposits.In case, short – term borrowings are other than the above two classes, its nature should be specified.Important NoteLoan repayable within 12 months from the date of Balance Sheet out of the long – term borrowings shall not be classified as Short – term Borrowing. It shall be classified as ‘Current Maturities of Long – term Debts’ under ‘Other Current Liabilities’.


Revised Schedule VI of the Companies Act, 1956Trade PayableTrade payable is the amounts payable in respect of goods purchased or services taken in the ordinary course of business.

In case the terms of purchases or services taken requires payment to be made beyond a period of 12 months of the date of Balance Sheet, it shall be classified or shown as non-current liabilities, under Other Non-Current Liabilities.


Revised Schedule VI of the Companies Act, 1956Other current liabilitiesLiabilities that are not short – term borrowings or trade payables are shown under Other Current Liabilities. Following are shown as Other Current Liabilities:a) Current maturities of long-term debts;b) Interest accrued but not due on borrowings;c) Interest accrued and due on borrowings;d) Income received in advance;e) Calls-in-Advance;f) Unpaid dividends;g) Unpaid matured deposits and interest accrued thereon;h) Unpaid matured debentures and interest accrued thereon; andi) Other payables (specify nature).


Revised Schedule VI of the Companies Act, 1956Short-term ProvisionsProvision is a liability amount of which is not known but is estimated with substantial accuracy.On the other hand, Liability is a liability amount of which is ascertained. Provision of amount towards a liability that is likely to arise within 12 months from the date of Balance Sheet is shown as short – term provision. Examples:a. Provision for Doubtful Debts;b. Provision for Employee Benefits;c. Provision for Expenses;d. Provision for Tax;e. Proposed Dividend.


Revised Schedule VI of the Companies Act, 1956Non-Current AssetsAssets side of the Balance Sheet is divided into two parts: i.e. Non–current Assets and Current Assets. Non–current Assets are classified as follows: a) Fixed assets;b) Non-current investments;c) Deferred Tax Assets (net);d) Long-term Loans and Advances; and e) Other Non-current Assets.


Revised Schedule VI of the Companies Act, 1956Fixed AssetsRecognising the significance of intangible assets, the revised Schedule VI requires them to be presented separately from Tangible Fixed Assets. Fixed assets are sub-classified on the face of the Balance Sheet as follows: a) Tangible Assets;b) Intangible Assets; c) Capital work-in-progress; andd) Intangible Assets Under Development.


Revised Schedule VI of the Companies Act, 1956Non – current InvestmentNon-current investments are classified as Trade Investments and Other Investments. Trade Investments are those investments which are made a company in another company for the promotion of its own business. They are further classified as follows:a) Investment property;b) Investments in Equity Instruments;c) Investments in preference sharesd) Investments in Government or Trust securities;e) Investments in Debentures or Bonds;f) Investments in Mutual Funds;g) Investments in Partnership Firms; andh) Other non-current investments (specify nature)


Revised Schedule VI of the Companies Act, 1956Long Term Loan and AdvancesLong-term Loans and Advances are those advances which are recoverable in cash or kind beyond a period of 12 months from the date of Balance Sheet. They are classified as into:a) Capital Advances;b) Security Deposits;c) Loans and advances to related parties (giving details

thereof); andd) Other loans and advances (specify nature).


Revised Schedule VI of the Companies Act, 1956Other Non – current AssetsAll non–current assets which do not fall within the categories i.e. fixed assets, long – term investments and long–term loans and advances are classified as ‘Other Non-current Assets’. They shall be classified as:a) Long Term Trade Receivables (including trade

receivables on deferred credit terms) i.e. trade receivables payment of which is agreed to be received beyond a period of 12 months form the date of the Balance Sheet;

b) Any other non – current asset, nature of which shall be specified.


Revised Schedule VI of the Companies Act, 1956Current AssetsThese are classified into following categories on the face of the balance sheet: a) Current investments; b) Inventories;c) Trade receivables;d) Cash and cash equivalents;e) Short-term Loans and Advances; and f) Other Current Assets.


Revised Schedule VI of the Companies Act, 1956Current InvestmentCurrent investments are those investments which are made with the purpose to sell within 12 months of the date of Balance Sheet. Investments are classified into:a) Investments in Equity Instruments;b) Investment in Preference Sharesc) Investments in Government or Trust Securities;d) Investments in Debentures or Bonds;e) Investments in Mutual Funds;f) Investments in Partnership Firmsg) Other investments (nature needs to be specified).


Revised Schedule VI of the Companies Act, 1956InventoriesInventories are goods held by a company to be consumed or sold in the normal course of its business. They are classified into:a) Raw materials;b) Work-in-progress;c) Finished goods;d) Stock-in-trade; e) Stores and spares;f) Loose tools;g) Others (nature to be specified).


Revised Schedule VI of the Companies Act, 1956Trade ReceivableTrade receivables are receivables against sale of goods or services rendered in the ordinary course of business. Trade receivables are classified as current assets if they are expected to be realised within 12 months from the date of Balance Sheet or within the Operating Cycle of the business, whichever is longer.


Revised Schedule VI of the Companies Act, 1956Cash and Cash EquivalentsCash and Cash Equivalents is classified into:a) Balances with Bankb) Cheques, drafts on handc) Cash in Handd) Others (nature to be specified)e) Earmarked Balances with Banks (Unpaid Dividend)

f) Balances with Banks as Margin Money or Security against borrowings, guarantees and other

commitments etc.g) Bank Deposits with more than 12 months maturity.


Revised Schedule VI of the Companies Act, 1956Short-term Loans and AdvancesShort term loans and advances These need to be sub-classified in the notes as:

- Loans and advances to related parties (giving details thereof)- Others (specifying nature).


Revised Schedule VI of the Companies Act, 1956Other Current AssetsOther current assets is the residuary heading, which covers current assets that do not fall into any of the other ‘current asset’ categories. Examples of items that may be included in this category are unbilled revenue; interest accrued on investments, to the extent due for realisation within 12 months from the reporting date. Constituents of ‘other current assets’ are to be presented in the notes.


THANK YOU

Please be free to write to us on:CA. (Dr.) G. S. Grewal: [email protected] : gsgrewal@outlook .com

123 CA. (Dr.) G.S. Grewal

mailto:[email protected]

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Revised Schedule VI of the Companies Act, 1956 AN INSIGHT TO REVISED SCHEDULE VI OF THE COMPANIES...

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