AN INSIGHT TO REVISED SCHEDULE VI OF THE COMPANIES ACT, 1956

1. AN INSIGHT TO REVISED SCHEDULE VI OF THE COMPANIES ACT, 1956 CA. (Dr.) G.S. GrewalSlide 1

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

3. Companies 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. CA. (Dr.) G.S. Grewal

4. Is it mandatory to follow Schedule VI? Section 211 of the Companies Act, 1956 prescribes that: Balance Sheetand 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. CA. (Dr.) G.S. Grewal

5. Highlights of Revised Schedule VI General In case, Revised Schedule VI is in conflict with law and Accounting Standards, Provisions of Law and accounting standards will override Schedule VI. 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. Notes shall be part of the financial statements. CA. (Dr.) G.S. Grewal

6. Highlights STATEMENT OF PROFIT AND LOSS and BALANCE SHEET CA. (Dr.) G.S. Grewal

7. Statement 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. CA. (Dr.) G.S. Grewal

8. Balance 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. CA. (Dr.) G.S. Grewal

9. Accounting Treatment of Miscellaneous Expenditure Accounting treatment of following expenditure under the Revised Schedule VI is as discussed in the following slides: Preliminary Expenses (including Deferred Revenue Expenditure); Discount or Loss on Issue of Shares; Share Issue Expenses; and Discount or Loss on Issue of Debentures. CA. (Dr.) G.S. Grewal

10. Writing Off of Miscellaneous Expenditure Miscellaneous Expenditure may be written off : Either from Securities Premium Reserve as provided in section 78 (if it exists); or from General Reserve (if it exists); or (ii) fromthe Statement of Profit and Loss. CA. (Dr.) G.S. Grewal

11. Writing Off of Miscellaneous Expenditure Securities Premium Reserve may be used for the purposes provided in section 78 i.e. for: Issuing Fully Paid Bonus Shares; Writing off of Preliminary Expenses; Writing off discount allowed on issue of securities or debentures of the company; and Premium payable on redemption of Redeemable Preference Shares or Debentures. CA. (Dr.) G.S. Grewal

12. Preliminary 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 from Securities Premium Reserve (if it exists); or from General Reserve (if it exists); or (iii) from the Statement of Profit and Loss in the year in which it is incurred. CA. (Dr.) G.S. Grewal

13. Discount or Loss on Issue of Shares Discount 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 from Securities Premium Reserve (if it exists); or from General Reserve (if it exists); or (iii) from the Statement of Profit and Loss in the year in which it is incurred. CA. (Dr.) G.S. Grewal

14. Loss on Issue of Debentures Loss 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 from Securities Premium Reserve (if it exists); or from General Reserve (if it exists); or (iii) from the Statement of Profit and Loss in the year in which it is incurred. CA. (Dr.) G.S. Grewal

15. Meaning “Terms” Used in STATEMENT OF PROFIT AND LOSS CA. (Dr.) G.S. Grewal

16. Meaning of Terms Used in Statement of Profit and Loss CA. (Dr.) G.S. Grewal

17. Meaning of Terms Used in Statement of Profit and Loss CA. (Dr.) G.S. Grewal

18. Meaning of Terms Used in Statement of Profit and Loss CA. (Dr.) G.S. Grewal

19. Meaning “Terms” Used in BALANCE SHEET (Equity and Liabilities Part) CA. (Dr.) G.S. Grewal

20. Meaning of Terms Used in Equity and Liabilities CA. (Dr.) G.S. Grewal

21. Meaning of Terms Used in Equity and Liabilities CA. (Dr.) G.S. Grewal

22. Meaning of Terms Used in Equity and Liabilities CA. (Dr.) G.S. Grewal

23. Meaning of Terms Used in Equity and Liabilities CA. (Dr.) G.S. Grewal

24. Meaning of Terms Used in Equity and Liabilities CA. (Dr.) G.S. Grewal

25. Meaning of Terms Used in Equity and Liabilities CA. (Dr.) G.S. Grewal

26. Illustration: Classification of liability as non – current and current on the basis of Operating Cycle CA. (Dr.) G.S. Grewal

27. Meaning “Terms” Used in BALANCE SHEET (Assets Part) CA. (Dr.) G.S. Grewal

28. Meaning of Terms Used in Assets CA. (Dr.) G.S. Grewal

29. Meaning of Terms Used in Assets CA. (Dr.) G.S. Grewal

30. Meaning of Terms Used in Assets CA. (Dr.) G.S. Grewal

31. Meaning of Terms Used in Assets CA. (Dr.) G.S. Grewal

32. Meaning of Terms Used in Assets CA. (Dr.) G.S. Grewal

33. Meaning of Terms Used in Assets CA. (Dr.) G.S. Grewal

34. Meaning of Terms Used in Assets CA. (Dr.) G.S. Grewal

35. Illustration: Classification of asset as non – current and current on the basis of Operating Cycle CA. (Dr.) G.S. Grewal

36. Form of Statement of Profit and Loss CA. (Dr.) G.S. Grewal

37. Form of Statement of Profit and Loss CA. (Dr.) G.S. Grewal

38. Discussion on Heads of Accounts Income is classified into: Revenue form Operations; and Other Income. CA. (Dr.) G.S. Grewal

39. Discussion on Heads of Accounts Revenue from Operations It is revenue earned from the business operations (activities). For a manufacturing or trading company it includes: Sale of Products; Sale of Services; and Other Operating Revenues (Say Sale of Scrap). For a finance companyit includes: Interest; Dividend; Profit from sale of shares; and Income from Other Financial Services. CA. (Dr.) G.S. Grewal

40. Discussion on Heads of Accounts Other Income Other 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. CA. (Dr.) G.S. Grewal

41. Discussion on Heads of Accounts Expenses are shown under the following heads: 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. CA. (Dr.) G.S. Grewal

42. Discussion on Heads of Accounts (d) Employees Benefits Expenses:Expensesincurred 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 furtherdisclosedorshown asDirect Expenses (Wages and related costs or expenses) being part of Cost of Goods Sold and Indirect Expenses (Salaries and related costs or expenses). CA. (Dr.) G.S. Grewal

43. Discussion on Heads of Accounts 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. CA. (Dr.) G.S. Grewal

44. Discussion on Heads of Accounts 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. CA. (Dr.) G.S. Grewal

45. Discussion on Heads of Accounts • 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 activitiesare non – operating expenses. CA. (Dr.) G.S. Grewal

46. Form of Balance Sheet (Under Revised Schedule VI) CA. (Dr.) G.S. Grewal

47. Form of Balance Sheet (Under Revised Schedule VI) CA. (Dr.) G.S. Grewal

48. Discussion on Items in Liabilities Part of the Balance Sheet Shareholders’ Funds Share Capital Share Capital includes both Equity Share Capital and Preference Share Capital. Information disclosed in Notes to Account relating to Share Capital is as follows: Authorised Capital; Issued Capital; Subscribed Capital; Subscribed and fully paid up Subscribed but not fully paid up CA. (Dr.) G.S. Grewal

49. Example 1: Share Capital AB 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? CA. (Dr.) G.S. Grewal

50. Solution: To be shown in the Balance Sheet as follows: Balance Sheet of …………. as at: …………………….. CA. (Dr.) G.S. Grewal