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The practical application of the New Schedule VI throws up several questions, the answers to which may not be straight forward. Through the medium of the blog I intend to set out an overview of the key changes and implications, critical issues and some perspectives thereon. In three parts I will first list down some important changes related to the Balance Sheet, second part will cover key changes to Profit and Loss account and the last part will be some practical issues and perspectives.
Ten Important Changes to the Balance Sheet – New Schedule VI way
1. The new schedule VI prescribes a vertical format for presentation of balance sheet. Thus, a company will not have an option to use horizontal format for presentation of financial statements.
2. The Balance Sheet presentation will now be Current and Non-Current classification. This is more in line with the Ind AS/ IFRS concept of presentation of financial statements. The application of this classification will require assets and liabilities to be broken into their current and non-current portions. Examples are:
a. Long term sundry debtors will have to be classified under the head ‘Other Non Current Assets’;
b. In case of distillery/ winery, wines in the process of maturing will be current assets even if it takes several years to mature;
c. For a builder, buildings under construction are current assets.
3. Number of shares held by each shareholder holding more than 5% shares now needs to be disclosed. Any specific indication of the date of holding is not available, then such information will be based on shares held as on the balance sheet date.
4. Details pertaining to aggregate number and class of shares allotted for consideration other than cash, bonus shares and shares bought back will be disclosed if such an event has occurred during a period of five years immediately preceding the balance sheet date.
5. Any debit balance in Profit and Loss Account will be disclosed under ‘Reserves & Surplus’ on the liability side of the balance sheet. Earlier P and L account was shown on the asset side of the balance sheet.
6. Share application money pending allotment is a new concept called ‘quasi-equity’. The application money not exceeding the capital offered for issuance and to the extent not refundable will be shown separately on the face of the balance sheet. The amount in excess of subscription or if the requirements of minimum subscription is not met will be shown under ‘Other current liabilities’.
7. Sundry Debtors replaced with the new term ‘Trade Receivables’. This term is defined as dues arising only from goods sold or services rendered in the normal course of business. Hence amount due on account of other contractual obligations, which were earlier included in sundry debtors, can no longer be included in trade receivables.
8. Capital advances are required to be presented separately under ‘Loans & Advances’ rather than as a part of capital work-in-progress or fixed assets.
9. All defaults in repayment of loans and interest to be specified account wise. Earlier such disclosure was required in CARO (Companies Auditor’s Report Order) section of audit report and only for defaults in repayment of dues to financial institution, bank and debenture holders.
1. Some of the additional disclosure requirements:
a. Terms of repayment of loans and period;
b. Investments in capital of partnership firms, names of the firms with names of all their partners, total capital and the shares of each partner;
c. Aggregate provision for diminution in value of investments – separately for long term and current investments;
d. Stock-in-trade held for trading purposes – separately from other finished goods;
e. Rights, preferences and restrictions attached to each class of shares including restrictions on the distribution of dividends and repayment of capital.
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