issues in revised schedule vi - sushrut chitale 15072012

8/10/2019 Issues in Revised Schedule VI - Sushrut Chitale 15072012

1/64

Issues in Revised Schedule VIIssues in Revised Schedule VI

SUSHRUT CHITALE

205A, AGRAWAL SHYAMKAMAL, VILE PARLE EAST, MUMBAI -400057Landline: +91-22-2614 3127 website: www.mmchitale.com

15 July 201215 July 2012


2/64

Overview of Presentation Background and Applicability

Significant Features

Major Changes

Structure of Revised Schedule VI

Form of Balance Sheet

Statement of Profit and Loss

Comparison with Existing Schedule VI

SUSHRUT CHITALE 2


3/64

Background and Applicability

Revised Schedule VI is primarily necessitated due to the following

reasons:

To harmonize and synchronize with IFRS/Ind AS

Comparison of financial statements with global companies

Liquidity Based Presentation-Current vs. Non-current

classification

Enhancing the disclosure requirements - Changes in outdated

disclosures and eliminate redundant disclosures

SUSHRUT CHITALE 3


4/64


Notification for Schedule VI was issued by MCA vide S.O.No.441

dated March 21, 1961.

Ministry of Corporate Affairs issued Original Notification

S.O.No.447(E) dated February 28, 2011 specifying requirements

of Revised Schedule VI. This was amended on March 30, 2011

specifying applicability for financial statements commencing on

or after April 1, 2011.

Guidance Note to Revised Schedule VI to the Companies Act, 1956

issued by ICAI(Dec. 2011).

ICAI has also come out with FAQs on revised schedule VI

SUSHRUT CHITALE 4


5/64


Applicable to all Companies, except those referred to in Proviso to

Section 211(1) and Section 211(2) of the Companies Act,1956,i.e. Banking Companies or

Insurance Companies or

Electricity Companies,

which are required to prepare financial statements in a format

.

However, neither the Electricity Act, 2003 nor the Rules framed

thereunder prescribe any specific format, hence Electricity

Companies are to follow Revised Schedule VI.

SUSHRUT CHITALE 5


6/64


Question: CALENDAR YEAR

A company prepares its financial statements for calendar year

2011, but prepares its tax accounts as per financial year FY12?

Whether, revised schedule VI will be applicable for financial

statements for FY12?

Yes, Revised Schedule VI is applicable for the financial year

commencing from on or after 1 April,2011. So for tax accounts,

revised schedule VI will be applicable.

SUSHRUT CHITALE 6


7/64


Question: IPO/FPO FILINGS

A company wants to file for IPO/FPO in July 2012. Whetherfinancial statements (including past 5 years numbers) should beprepared using revised schedule VI or old schedule VI?

As per MCAs General Circular No.62/2011 dated 5th

September,2011, the presentation of financial statements for them e purpose o n a u c er ur er u c er ur ng

FY 2011-12 maybe in the format of Old Schedule VI under theCompanies Act, 1956, as reclassifying previous years figures inaccordance with Revised Schedule VI would be difficult and makecomparables unrealistic. However, for period beyond 31st March2012, they would prepare only in the new format as prescribed bythe present Schedule VI of the Companies Act, 1956.

SUSHRUT CHITALE 7


8/64


Vertical Format only. Horizontal Format is withdrawn.

Format of Profit and Loss is introduced for the first time.

Part IV Balance Sheet Abstract and Companys Business Profile

Omitted.

Based on Accounting Standards.

Concept of Schedules eliminated.

n orma on n o es w ross e erenc ng.

Simplification of Disclosure Requirements.

Striking Balanceto be maintained between providing excessivedetails and not providing important information as a result of toomuch aggregation.

Rounding off (where opted for) simplified.

Explicit requirement to use the same unit of measurement

uniformly throughout the financial statements.

SUSHRUT CHITALE 8


9/64


Requirements of the Act and/or Notified Accounting Standards will

prevail over the Schedule.

Minimum requirements are specified. They are in addition to and not

in substitution of the disclosure requirements specified in the

Accounting Standards .

t er sc osures as requ re y ompan es ct an ot er ega

requirements shall be made in the notes to accounts.

Comparatives (including corresponding amounts and notes) for

the immediately preceding reporting period shall also be given.

Terms Used herein shall be as per the applicable Accounting Standards.

The Schedule shall standmodified in accordance with any changesin

treatment or disclosure as per the Act/ Accounting Standards.SUSHRUT CHITALE 9


10/64

Major Changes in Balance Sheet

Equity and Liabilities will be written instead of Sources of Funds.

Assets will be written instead of Application of Funds. Liabilities & assets will be classified under two heads Current and Non

Current.

Fixed Assets will be classified into Tangible Assets and Non-TangibleAssets. Movement during the year is to be given in addition to Openingand Closing Balances on the face of the Balance Sheet.

Money received against share warrants is a new line item in equity. It isc ass e as a separate component o qu ty.

Share Application Money pending allotment is a new line item which is

classified in between equity and liabilities.

Deferred Tax Assets/Liability(Net) shall be classified under the head

Non-Current Assets / Non-Current Liabilities. Debit Balance of Profit & Loss A/c or Accumulated Losses will be shown

as a negative figure under Reserves & Surplus.

Current maturities of a long term borrowing will have to be classifiedunder the head Other Current Liabilities.

SUSHRUT CHITALE 10


11/64

Major Changes in Profit and Loss

Now termed as Statement of Profit and Loss for the year ended.

Format specified in Revised Schedule. Disclose by nature of expense. Functional classification is prohibited.

Exceptional and extraordinary itemsneed to be disclosed separately

on the face of the Statement of Profit and Loss.

Theitemsto be disclosed underRevenue from Operationshave been

specifically indicated for both finance companies and others.

Any item of income or expenditure which exceedsone percent of the

revenue from operations or Rs. 100,000, whichever is higher

should be disclosed separately.

SUSHRUT CHITALE 11


12/64

Disclosures No Longer Required

Investments purchased and sold during the year.

Investments, Sundry Debtors and Loans and Advance pertainingto companies under the same management.

Break up of Bank Balances between Scheduled and Other banks,

break up between current account, call account and deposit

accounts, Details of names, amount, maximum amounts with non-

scheduled bank.

Commission, brokerage and non-trade discounts paid to selling

agents.

Managerial Remuneration u/s. 198 and computation of net profits

for calculation of commission. Information on licensed capacity, installed capacity and actual

production.

SUSHRUT CHITALE 12


13/64

Structure of Existing Schedule VI

Part I Form of the Balance Sheet

Option betweenA. Horizontal Form and

B. Vertical Form

General Instructions for preparation of Balance Sheet

Part II Requirements as to Profit and Loss Account

Part III Interpretation for the purpose of Parts I and II ofSchedule VI unless the context otherwise requires

Part IV Balance Sheet abstract and Companys General businessprofile

SUSHRUT CHITALE 13


14/64

Structure of Revised Schedule VI

General Instructions


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

SUSHRUT CHITALE 14


15/64


(Rupees in)

Particulars Note

No.

Current

Reporting

period

Previous

Reporting

period

I EQUITY AND LIABILITIES

(1) Shareholders Funds

a S are Capita

(b) Reserves and Surplus

(c) Money received against Share

Warrants

(2) Share Application Money pending

allotment

SUSHRUT CHITALE 15


16/64


(Rupees in)Particulars Note

No.

Current

Reporting

period

Previous

Reporting

period


3 Non-Current Liabilities

(a) Long-Term Borrowings

(b) Deferred Tax Liabilities (Net)

(c) Other Long Term Liabilities

(d) Long-Term Provisions

SUSHRUT CHITALE 16


17/64


(Rupees in)

Particulars NoteNo.

CurrentReporting

period

PreviousReporting

period


(4) Current Liabilities

(a) Short-Term Borrowings

(b) Trade Payables

(c) Other Current Liabilities

(d) Short-Term Provisions

TOTAL

SUSHRUT CHITALE 17


18/64


(Rupees in)

Particulars Note

No.

Current

Reporting

period

Previous

Reporting

period

I ASSETS

(1) Non-Current Assets

(a) Fixed Assets

(i) Tangible Assets

(ii) Intangible Assets

(iii) Capital Work-In-Progress

(iv) Intangible Assets under Development

SUSHRUT CHITALE 18


19/64


(Rupees in)

Particulars Note

No.

Current

Reporting

period

Previous

Reporting

period

II ASSETS

(1) (b) Non-Current Investments

(c) Deferred Tax Assets (net)

(d) Long-Term Loans and Advances

(e) Other Non-Current Assets

(2) Current Assets

(a) Current Investments

(b) Inventories

SUSHRUT CHITALE 19


20/64


(Rupees in)

Particulars Note

No.

Current

Reporting

period

Previous

Reporting

period

II ASSETS

(c) Trade Receivables

(d) Cash and Cash Equivalents

(e) Short-Term Loans and Advances

(f) Other Current Assets

TOTAL

See accompanying notes to financial statements

SUSHRUT CHITALE 20


21/64

Share Capital

Disclosure for each class of share capital (different classes of

preference shares to be treated separately) : Number and Amount of shares authorized,

Number of shares issued, subscribed and fully paid, and

subscribed but not fully paid,

Par Value per share,

beginning and at the end of the reporting period,

Rights, preferences and restrictions attaching to each class of

shares,

Shares held by entire chain of Subsidiaries and Associates starting

from holding company and ending right upto the ultimate holding

company,

SUSHRUT CHITALE 21


22/64

Share Capital

Share holding details ofmore than 5 % shares specifying the

names of shareholders and number of shares held as on theBalance Sheet date,

Shares reserved for issue under options and contracts/

commitments for the sale of shares/disinvestment, including the

terms and amounts,

Aggregate number and class of shares allotted as fully paid up

pursuant to contracts without consideration being received in

cash, including bonus shares and shares bought back, for a period

of immediately preceding 5 years,

Terms (including date of conversion) of any securities convertibleinto equity/ preference shares issued,

Calls unpaid by Directors and Officers,

Forfeited Shares (amount originally paid up).

SUSHRUT CHITALE 22


23/64

Share Capital

Question: PREFERANCE SHARES-LIABILITY OR EQUITY

Revised Schedule VI states that different classes of PreferenceShares are to be treated separately. Whether Preference Shares

should be presented as share capital or a company compulsorily

needs to decide whether they are liability or equity based on its

economic substance using AS-31?

Revised Schedule VI deals with only presentation and disclosure

requirements. Accounting for various items is governed by AS.

However, asAS-30,31 and 32 on Financial Instruments are yet

to be notifiedand Section 85(1) of the Act refers to PreferenceShares as a kind of Share Capital, they will have to be classified as

Share Capital.

SUSHRUT CHITALE 23


24/64

Reserves and Surplus

Classified as:- Capital Reserves, Capital Redemption Reserve,

Securities Premium Reserve, Debenture Redemption Reserve,Revaluation Reserve, Share Options Outstanding Account,

Other Reserves (residual),

Surplus, i.e. balance in Statement of P&Ldisclosing allocations

and appropriationssuch as dividend, bonus shares and transfer

to/from reserves etc.

Movementunder each Reserve is to be shown,

Reserves specifically represented by earmarked investments shall

be termed as Fund.

Debit balance of statement of profit and loss to be shown as anegative figure under the head Surplus.

SUSHRUT CHITALE 24


25/64

Money Received Against Share Warrants

Issued to promoters and others, in case of listed companies, in

terms of Guidelines for Preferential Issues (i.e. SEBI(ICDR)Guidelines, 2009.

AS 20 defines Share Warrants as financial instruments which

give the holder the right to acquire equity shares.

Disclosed as a separate line item, since shares are yet to be

allotted against the same.

SUSHRUT CHITALE 25


26/64

Share Application Money Pending Allotment

Disclosed between Shareholders Fund and Non-Current

Liabilities. Share application moneynot exceeding the issued capital and

to the extent non-refundablecan only be classified under this

head as Equity.

Other amounts to the extentrefundable, including interest to

be classified as Other Current Liabilities.

If a companys Authorized Share Capital is not sufficient to cover

allotment of fresh shares on account of share application money

to be disclosed under Other Current Liabilities.

Other disclosures include: Terms & conditions, No. of sharesproposed to be issued, premium, if any, period before which

shares shall be allotted, reasons, including period, in case it is

pending beyond the period of allotment.

SUSHRUT CHITALE 26


27/64

Non-Current Liabilities

LONG-TERM BORROWINGS:

Classified as Bonds/Debentures, Term Loans from banks andother parties, Deferred payment liabilities, Deposits, Loans and

advances fromrelated parties, Long term maturities of finance

lease obligations, Other loans and advances.

Further sub-classification into Secured and Unsecured specifying

the nature of security, rate of interest and other terms of

repayment.

Loans guaranteed by directors and others to be specified.

Period and amount of continuingdefaultas on the balance sheet

date in repayment of loans and interest, to be specifiedseparately in each case.

SUSHRUT CHITALE 27


28/64

Non-Current Liabilities

DEFERRED TAX LIABILITES(NET):

AS 22 simply specifies that they should be presented separately.Now, to be specifically disclosed under Non-Current Liabilities.

OTHER LONG TERM LIABILITIES:

Classified as Trade Payables and Others.

LONG TERM PROVISIONS:

Classified into Provision for Employee Benefits and Others.

AS-15 governs the measurement of various employee benefitobligations, but classification as Current and Non-Current

Liability will be governed by Revised Schedule VI.

SUSHRUT CHITALE 28


29/64

Current Liability

A liability shall be classified as current when it satisfies anyof

the following criteria: it is expected to be settled in the companysnormal operating

cycle;

it is held primarily for the purpose of being traded;

it is due to be settled withintwelve monthsafter the reporting

date; or e company oes no ave an uncon ona r g o e er

settlementof the liability for at least twelve months after thereporting date.

All other liabilities shall be classified as Non-Current.

SUSHRUT CHITALE 29


30/64

Current vs. Non Current Liabilities

Classification will depend on facts of each case, rights/obligations

of parties, past experience, etc.

EXAMPLES

If Loan is repayable within 12 months Current.

oan s repaya e a er mon s an e company s

expected to exercise option available to it to pre-pay Current.

If Loan is not repayable after 12 months and if the company is not

expecting to exercise option available to repay Non-Current.

SUSHRUT CHITALE 30


31/64

Operating Cycle

An Operating Cycle is the time between the acquisition of

assets for processing and their realization in cash or cashequivalents.

Where the normal operating cycle cannot be identified, it is

assumed to be of duration of 12 months.

Generally, it is calculated as:

Average Inventory Holding Period

(+) Average Production Period

(+) Average Collection Period

Creditors payment period is not reduced while computing

operating cycle

SUSHRUT CHITALE 31


32/64

Operating Cycle

Question: OPERATING CYCLE

An entity manufactures passenger vehicles. Time betweenpurchasing of raw materials for manufacture & completion of

manufacture and delivery to customers is 11 months. Dues are

settled after period of 8 months from date of sale. Will Inventory

and the Trade Receivables be Current or Non-Current in nature?

Both Inventory and Trade Receivables would be classified under

Current Assets as the Operating Cycle is of 19 months (11

months + 8 months).

Question:Q. Can operating cycle be calculated for each customer

separately?

Q. Whether normal operating cycle be considered or actual?

Q. Should the operating cycle be disclosed in Notes to Accounts?SUSHRUT CHITALE 32


33/64

Trade Payables

A payable shall be classified as a trade payable if it is in respect of

the amount due on account of goods purchased or servicesrendered in the normal course of business.

Payables towards the purchase of Capital items, amounts due

under Statutory Obligations, etc. are not Trade Payables

classified as Other Current Liabilities.

Acceptances are disclosed as Trade Payables.

Trade Payable is to be bifurcated as Current & Non-Current based

on principles of Current/ Non-Current classification.

Question:

Q. Where should salary payable to employees be disclosed?SUSHRUT CHITALE 33


34/64

Current Liabilities

Classified as Short Term Borrowings, Trade Payables, Other

Current Liabilities and Short Term Provisions Short Term Provisions are further classified as Provision for

employee benefits and others (eg., provision for dividend,

taxation, warranties, etc.)

Question: DISCLOSURE FOR PROPOSED DIVIDEND

As er Revised Schedule VI ro osed dividend is re uired to be

disclosed only in the notes. Whether it is required to be provided

for?

AS-4 requires dividends to be stated in respect of the period covered

by the financial statements, whether proposed or declared after theBalance Sheet date even before approval of the financial

statements.Hence, Proposed Dividend is required to be provided

for, unless AS-4 is revised.

SUSHRUT CHITALE 34


35/64

Non -Current Assets

FIXED ASSETS:

Classified as Tangible and Intangible Assets. Capital Work-in-Progress and Intangible Assets Under

Developmentare to be separately disclosed.

Assets underlease are to be separately specified under each class

of assets

,

including adjustments made on account of borrowing costs and

foreign exchange fluctuations, acquisitions through business

combinations are to be separately disclosed.

Details of Reduction /Increase in value of assets due to reductionin capital or revaluation of assets are to be disclosed for a period

ofsubsequent 5 years.

SUSHRUT CHITALE 35


36/64

Non-Current Assets

NON-CURRENT INVESTMENTS:

Classified as Trade Investments and Other Investments Further classified as Investment in Property, Financial

Instruments, Partnership firms, Other Investments.

In case of Investment in Partnership Firms, names of firms

alongwith names of partners, total capital and share of each

artner is to be iven.

LLP is a body corporate and not a partnership firm to be

disclosed under Other Investments.

Aggregate amount of quoted/unquoted investments , market

value thereof, provision for dimunition in value of investments isalso to be disclosed.

SUSHRUT CHITALE 36


37/64

Non-Current Assets

DEFERRED TAX ASSETS(NET)

LONG-TERM LOANS AND ADVANCES:

Classified as Capital Advances, Security Deposits, Loans and

Advances to related parties,

Further sub-classification under Secured & Unsecured considered

Allowances for bad and doubtful loans to be made

Loans and advances due by directors, officers of the company and

their associated are to be disclosed separately.

OTHER NON-CURRENT ASSETS:

Classified as Long Term Trade Receivables and Others.

SUSHRUT CHITALE 37


38/64

Current Assets

An asset shall be classified as current when it satisfies anyof the

following criteria: It expects to realise the asset, or intends to sell or consume it, in

normal operating cycle,

It holds asset primarily for the purpose oftrading,

It is expected to be realised within 12 months after reporting

eriod

It iscash and cash equivalents, unless it is restricted from being

exchanged or used to settle a liability for at least twelve months

after the reporting date.

All others are to be treated as Non-current.

SUSHRUT CHITALE 38


39/64

Trade Receivables

A receivable shall be classified as a Trade Receivable if it is inrespect of the amount due on account of goods sold or

services rendered in the normal course of business.

Trade Receivables outstanding for a period of 6 months from thedate they are due for paymentshould be separately shown.

(Old Schedule VI required separate presentation of debtorsou s an ng or a per o excee ng mon s .e. ase on ngdate) and other debtors.)

Question:

Q. Can effective credit period be considered or actual creditperiod as per invoice / contract be considered?

SUSHRUT CHITALE 39


40/64

Current Assets

CURRENT INVESTMENTS: Same principles of classification &

disclosure as applicable to Non-Current Investments.

INVENTORIES:Classified as Raw Materials, WIP, Finished Goods,

Stock-in-Trade, Stores & Spares, Loose Tools & Others.

Goods-in-Transitto be disclosed separately under relevant sub-

head.

Mode of valuation is to be stated.

TRADE RECEIVABLES: Further sub-classified as Secured and

Unsecured considered good and Doubtful.

Question:

Q. There may be certain loose tools / stores which are in nature

of slow moving inventory? Will they be still disclosed as

current assets?SUSHRUT CHITALE 40


41/64

Current Assets

CASH AND CASH EQUIVALENTS:

Classified as:-Balances with banks, Cheques/drafts on hand, Cash

on hand, Others (specify nature).

Earmarked balanceswith banks (eg., for unpaid dividend)to be

separately stated

Separate disclosure for Balances with banks to the extent held as

mar in mone or securit a ainst the borrowin s uarantees

other commitments, etc.

Repatriation restrictions, if any, in respect of cash and bank

balances to be separately stated.

Separate disclosure for Bank deposits with more than 12months maturity .

SUSHRUT CHITALE 41


42/64

Current Assets

AS-3 defines Cash equivalents as short-term(within 3 months

maturity), highly liquid investments that are readily convertibleinto known amount of cash.

To resolve the conflict between AS-3 and Revised Schedule VI, it is

recommended to have 2 sub-headings, viz., Cash and Cash

Equivalents and Other Bank Balances.

SHORT-TERM LOANS AND ADVANCES:

Same principles of classification and other disclosure

requirements as are applicable to Long-Term Loans and

Advances.

OTHER CURRENT ASSETS: Residual line-item which incorporates current assets that do not

fit into any other asset categories (Eg., Unbilled Revenue,

Unamortised premium on forward contracts, etc.)

SUSHRUT CHITALE 42


43/64

Contingent Liabilities And Commitments

Two separate classifications:(As a footnote to Balance Sheet)

Contingent liabilities to be classified as: Claims against the company not acknowledged as debt,

Guarantees,

Other money for which the company is contingently liable.

Commitments to be classified as: Estimated amount of contracts remaining to be executed on

capital account and not provided for,

Uncalled liability on shares and other investments partly paid,

Other commitments (specify nature) which will include, non-cancellable contractual commitments, cancellation of which

results in a penalty disproportionate to the benefits involved.

SUSHRUT CHITALE 43


44/64

Particulars Note

No.

Current

Reporting

period

Previous

Reporting

period

I Revenue from Operations

II Other Income

III Total Revenue ( I + II )


(Rupees in)

IV Expenses:

Cost of Material Consumed

Purchases of Stock-in-Trade

Changes in Inventories of Finished

Goods, Work- in-Progress and Stock-

in-Trade

SUSHRUT CHITALE 44



45/64

Particulars Note

No.

Current

Reporting

period

Previous

Reporting

period

Employee Benefit Expense

Finance Costs

Depreciation and Amortization

Expense


(Rupees in)

er xpenses

Total Expenses

V Profit before Exceptional and

Extraordinary Items and tax (III IV)

VI Exceptional Items

SUSHRUT CHITALE 45

P II F f S f P fi d L


46/64

Particulars Note

No.

Current

Reporting

period

Previous

Reporting

period

VII Profit before Extraordinary Items and Tax

(V VI)

VIII Extraordinary Items

IX Profit before Tax VII VIII


(Rupees in)

X Tax Expense:

(1) Current Tax

(2) Deferred Tax

XI Profit /(Loss) for the period from Continuing

Operations (VII VIII)

SUSHRUT CHITALE 46

P II F f S f P fi d L


47/64


(Rupees in)

Particulars Note

No.

Current

Reportingperiod

Previous

Reportingperiod

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

See accompanying notes to the financial statements

SUSHRUT CHITALE 47

Cl ifi ti b t f ti


48/64

Classification by nature vs function

Revised Schedule VI requires companies to classify expenses by

nature and not be function. An example out of Infosys financialstatements for FY11 and FY12 is presented below:

FY11

Consolidated Profit and loss Account

Income from software services, products & XX

FY12

Consolidated Statement of Profit and Loss

I ncome from software services and products XX

Other income XX

Revised Schedule VIOld Schedule VI

SUSHRUT CHITALE 48

Software development and business process

management expenses

XX

Gross Profit XX

Selling and marketing expenses XX

General and administration expenses XX

EBITDA XX

Total revenue XX

Expenses

Employee benefit expenses XX

Cost of technical sub-contractors XX

Travel expenses XX

Cost of software packages & others XXCommunication expenses XX

Professional charges XX

Depreciation XX

Other expenses XX

Profit before tax XX

R F O ti


49/64

Revenue From Operations

A Non-Finance Company shall disclose separately, revenue from:

Sale of Products,

Sale of Services,

Other Operating Revenues

Less:

Excise Duty

A Finance Company shall disclose separately, revenue from:

Interest, and

Other Financial Services

SUSHRUT CHITALE 49

Oth O ti R


50/64


Question: REVENUE FROM OPERATIONS VS. OTHER INCOME

A Company engaged in manufacture and sale of industrial and

consumer products, also has a real estate arm and is continuously

engaged in leasing of real estate properties.

Rent in such a case will be classified as Other Operating Income

Another Consumer Products Company, owns a 12 storied building

and temporarily lets out one floor on rent which is currently not

in use. In such a case, how should such lease rent should be

accounted?

Rent in such case shall be classified as Other Income, since this is

not a routine operating activity for the company.

SUSHRUT CHITALE 50

Oth O ti R


51/64


Question: REVENUE FROM OPERATIONS VS. OTHER INCOME

In case of an auto component manufacturing company, whether

profit on sale of fixed asset and sale of manufacturing scrap

should be classified as Other Operating Revenue?

Profit on sale of fixed asset Other Income

.

Revenue arising from principal or ancillary revenue- generating

activities would be classified under Other Operating Revenues.

SUSHRUT CHITALE 51

R F O ti


52/64

Revenue From Operations

Question: INDIRECT TAXES

Whether revenue of the company should be presented as net of

indirect taxes such as Vat, Service Tax, etc. as required by Revised

Schedule VI for Excise Duty?

If the company is acting as a principaland hence responsible for

a in tax on its own account-revenue ma also be rossed u or

the tax billed to the customer and the tax payable may be shown as

an expense or ,if it is acting as an agenti.e. simply collecting and

paying tax on behalf of government authorities, then revenue

should be presented net of taxes.However, in case of VAT, the guidance note specifically states that

VAT is collected on behalf of Government authorities. Hence, VAT

should not be included either as revenues or as expenses.

SUSHRUT CHITALE 52

Oth I


53/64

Other Income

Disclosure showing separately:

Interest Income (In case of Non-Finance Companies)

Dividend Income

Net Gain/Loss on sale of Investments

Other non-operating income (net of expenses directly attributable

to such income)

Classification of income would also depend on the purpose for

which the particular asset is acquired/held.

SUSHRUT CHITALE 53

Other Income


54/64

Other Income

Question: DIVIDEND FROM SUBSIDIARY COMPANIES

What would be the treatment of dividend from Subsidiary

Companies, as unlike the Old Schedule VI, the Revised Schedule

VI, does not prescribe any accounting treatment ?

Dividend Income from Subsidiary Companies should be

recognized in accordance with AS-9i.e. only when the right to

receive the same is established on or before the Balance Sheetdate.

For example A subsidiary company approves payment of

dividend at its AGM held on 30 June 2012. This dividend shall be

considered as income by the holding company in the financialyear 2012-2013, even though it is declared out of the profits of

the year ended 31stMarch 2012.

SUSHRUT CHITALE 54

Other Income


55/64

Other Income

SHARE IN PROFITS/LOSS IN PARTNERSHIP FIRMS/LLP/

SUBSIDIARY COMPANIES /ASSOCIATES

No specific requirement to disclose separately, unlike Old

Schedule VI.

However, disclosure should be made on Accrual Concept, i.e.

when accounted for b the Associates.

Should be guided by AS-21 (Subsidiaries), AS-23 (Associates) and

AS-27(Consolidated Financial Statements) .

In case of differences between the reporting dates,

adjustments to be made for significant transactions and if thedifference is more than 6 months, disclosure is required.

SUSHRUT CHITALE 55

Expenses


56/64

Expenses

Disclosure is to be made on the face of Statement of Profit and

Loss : Cost of Materials Consumed.

Purchases of Stock-in-Trade: Goods purchased normally with the

intention to resell or trade-in.

Changes in Inventories of Finished Goods, Work-in-Progress and

Stock-in-Trade: Se arate disclosure is re uired.

Employee Benefit Expense: In addition to Salary & Wages,

Contribution to PF and Other Funds, Staff Welfare, Expense on

ESOP/ESPP is to be disclosed separately.

Finance Costs: Besides, Interest Expense and Other BorrowingCosts, Applicable Net Gain/Loss on Foreign Currency Transactions

and Translation.

SUSHRUT CHITALE 56

Expenses


57/64

Expenses

Depreciation and Amortization Expense.

Other Expenses: Any item of expenditure which exceeds 1% of theRevenue from Operations or Rs.1,00,000, whichever is higher is to

be separately disclosed.

Besides, under Other Expenses: Separate disclosure for

Consumption of stores and spare parts, Power and fuel, Rent,

Repairs to building and machinery, Insurance, Rates and taxes(excluding taxes on income) and Miscellaneous expenses is

required.

Tax Expense: Bifurcated into Current Tax and Deferred Tax. In

case of MAT, disclosure in this regard should be made:

Current Tax (MAT)

Less: MAT Credit Entitlement

Net Current Tax

SUSHRUT CHITALE 57

Expenses


58/64

Expenses

Question: SUBSTITUTION OF LINE

ITEMS The Revised Schedule VI specifies a

format for statement of profit and loss.

Whether any additional line items, sub-

line items, sub-totals can be inserted in

the format to suit the sector /

FY12

Statement of Profit and Loss Account

INCOME

Service Revenue XX

Other Income XX

Total XX

OPERATING EXPENDITURE

requirements of the Company?

Yes, additional line items, sub-line

items, sub-totals can be inserted.

Similarly, existing prescribed format

can be substituted in case the nature of

the business of the company so

demands. For example, in a telecom

company, the statements of profit and

loss is illustrated herein:

SUSHRUT CHITALE 58

Personnel Expenditure XX

Network expenses & IT Outsourcing cost XX

License Fees & WPC Charges XX

Roaming & Access charges XX

Subscribver acquisition & servicing expenditure XX

Advertisement & business promotion expenses XX

Administration & other expenses XX

EBITDA XX

Appropriations


59/64

Appropriations

Question: DIVIDEND DECLARED BY COMPANY

The Revised Schedule VI specifies a format for statement of profitand loss. In such a scenario, where should dividends declared be

disclosed?

Dividends declared should be disclosed under the notes

containing reserves & surplus. This is illustrated below:

SUSHRUT CHITALE 59

Profit and Loss Account

Net Profit for the year XX

Balance brought forward XX

Amount Available for Appropriations XX

Appropriations

Interim dividend XX

Proposed final dividend XX

Tax on dividend XX

General reserve XX

Balance carried to balance sheet XX

Reserves & Surplus

Surplus in Statement of profit and loss XX

Opening Balance XX

Add: Profit for the year XX

Less: Appropriations

Interim dividend XX

Proposed final dividend XX

Tax on dividend XX

General reserve XX

Balance in statement of profit and loss XX

Additional Information


60/64


Additional information regarding aggregate expenditure and

income: Adjustments to the carrying amount of investments.

Net gain or loss on foreign currency transaction and translation

(other than considered as finance cost).

Payments to the auditor.

.

Purchases, Sales, Consumption of Raw Material, Work-in-Progress

and the Gross Income from Services rendered as applicable are

to be shown under broad heads. Broad Heads to be decided

taking into account the concept of materiality and presentation oftrue and fair view of financial statements. (10% of total value is

generally considered as acceptable threshold limit).

SUSHRUT CHITALE 60



61/64


The aggregate, if material, of any amounts set aside or proposed

to be set aside to reserve and any amounts withdrawn from suchreserves.

The aggregate, if material, of the amounts set aside to provisions

made for meeting specific liabilities, contingencies or

commitments and any amounts withdrawn from such provisions,

as no longer required. Provisions for losses of Subsidiary Companies.

SUSHRUT CHITALE 61

Other Disclosures


62/64

Other Disclosures

Statement of Profit and Loss shall also contain by way of a note:

Value of imports calculated on C.I.F basis by the companyduring the financial year in respect of Raw Materials, Components

and spare parts, Capital goods;

Expenditure in foreign currency during the financial year on

account of ro alt know-how rofessional and consultation fees

interest, and other matters;

Total value if allimported and indigenousraw materials, spare

parts and components consumed during the financial year andthe percentage of each to the total consumption;

SUSHRUT CHITALE 62

Other Disclosures


63/64

Other Disclosures

The amountremitted during the yearin foreign currencies on

account ofdividendswith a specific mention of the total numberof non-resident shareholders, the total number of shares held by

them on which the dividends were due and the year to which the

dividends related;

Earnings in foreign exchange classified as: Export of goodscalculated on F.O.B. basis, Royalty, know-how ,professional and

consultation fees, Interest & Dividend and Other Income,

indicating the nature thereof.

SUSHRUT CHITALE 63


64/64

Sushrut Chitale

Mukund M Chitale & Co.

205A, Agrawal Shyamkamal Building,Vile Parle East, Mumbai 400057

Tel: 91-22-26143127/ 91-22-26143130

Email: [email protected]

Website: www.mmchitale.com

issues in revised schedule vi - sushrut chitale 15072012

Documents