Frequently Asked Questions on Schedule VI

1. Frequently Asked Questions on Schedule VI CA. (Dr.) G.S. Grewal

2. Shareholders’ Funds How is Share Capital shown under Schedule VI? A. Share Capital is shown as a single amount against Share Capital on the face of the Balance Sheet. The details are given with respect to each class of shares in the Notes to Accounts on Share Capital classifying them into: ‘Shares Subscribed and Fully Paid up’, and ‘Shares Subscribed but not Fully paid up’ CA. (Dr.) G.S. Grewal

3. Shareholders’ Funds How is the requirement to show ‘Nominal Value’ and ‘Called up Amount’ of the share fulfilled? A. Itis shown as follows: Authorised Capital: 1,00,000 Equity Shares of ₹ 10 each Issued Capital: 90,000 Equity Shares of ₹ 10 each Subscribed Capital: Subscribed But Not Fully Paid up 80,000 Equity Shares of ₹ 10 each; ₹ 7 Called up CA. (Dr.) G.S. Grewal

4. Shareholders’ Funds When are the shares classified as ‘Subscribed and Fully Paid Up? A. Shares are classified as ‘Subscribed and Fully Paid Up’ when the entire nominal i.e., facevalue of the share is called up and is also received by the company. CA. (Dr.) G.S. Grewal

5. Shareholders’ Funds When are shares classified as ‘Subscribed But Not Fully Paid Up? A. Shares are classified as ‘Subscribed But Not Fully Paid Up’ under two situations: when the company has called up the entire nominal or face value of the share but has not received it. The shares on which the amount is not received are classified as ‘Subscribed But Not Fully Paid Up’; and when the company has not called the entire nominal or face value of the share. CA. (Dr.) G.S. Grewal

6. Shareholders’ Funds How is Calls – in – arrears shown in the Balance Sheet? A. It is shown in the Notes to Accounts as deduction from the amount under ‘Shares Subscribed But Not Fully Paid Up’ as follows: Notes to Accounts: Share Capital Authorised Capital: Issued Capital: Subscribed Capital: Subscribed But Not Fully Paid up: 5,000 Equity Shares of ₹ 10 each 50,000 Less: Calls – in – arrears 10,000 40,000 CA. (Dr.) G.S. Grewal

7. Shareholders’ Funds A company has called ₹ 8 against its nominal or face value of the share. The company received the called up amount. How will it be classified? It will be classified as ‘Subscribed But Not Fully Paid up’ because the accounts are maintained for the company. From the company’s point of view, shares are not fully paid up. CA. (Dr.) G.S. Grewal

8. Shareholders’ Funds Can a company has capital under ‘Subscribed and Fully Paid Up’ and also ‘Subscribed But Not Fully Paid Up’? Yes, It is possible under following situations: (i) when a company has issued only one class of shares and has called the entire nominal or face value but some of the shareholders have not paid the amount. Shares on which amount is not received are classified as ‘Subscribed But Not Fully Paid up’ CA. (Dr.) G.S. Grewal

9. Shareholders’ Funds When a company has two or more classes of shares, one class of shares may be fully paid up and thus, will be classified as ‘Subscribed and Fully Paid’ while Another may not be fully called up or where called up may not fully paid up. In both the cases it be classified as ‘Subscribed But Not Fully Paid’. CA. (Dr.) G.S. Grewal

10. Shareholders’ Funds A company issued 50,000 Equity Shares of ₹ 10 each and called up ₹ 10 per share. It did not receive final call of ₹ 2 on 2,500 shares. How will you show it in the Balance Sheet? It will be shownas follows: Notes to Accounts: Share Capital Authorised Capital; Issued Capital Subscribed Capital Subscribed and Fully Paid up 47,500 Equity Shares of ₹ 10 each 4,75,000 Subscribed But Not Fully Paid up 2,500 Equity Shares of ₹ 10 each; ₹ 10 Called 25,000 Less: Calls–in–arrears (2,500 5,000 20,000 4,95,000 CA. (Dr.) G.S. Grewal

11. Shareholders’ Funds – Reserves and Surplus Can a Company have reserves other than those specified in Schedule VI? Yes, a company can have reserves other than those specified in Schedule VI. Schedule VI of the Companies Act is made flexible by including an entry Any Other Reserves (to specify the natureand purposeof each reserve). Examples: Investment Fluctuation Reserve, Workmen Compensation Reserve, Tax Reserve, Subsidy Reserve, etc. CA. (Dr.) G.S. Grewal

12. Shareholders’ Funds – Reserves and Surplus Q. Is there a difference between Statement of Profit and Lossand Balance in Statement of Profit and Loss? A. Yes. Statement of Profit and Loss is a statement from which profit earned or loss incurred during the year is known. Balance in Statement of Profit and Loss is a reserve representing balance in the reserve. It includes opening Balance and current year’s profit or loss. CA. (Dr.) G.S. Grewal

13. Shareholders’ Funds – Reserves and Surplus What is the journal entry when amount is appropriated from Balance in Statement of Profit and Loss (say) towards DRR? A. Journal Entry passed is: Balance in Statement of Profit & Loss A/c …Dr. To DRR (Being the amount transferred to DRR) CA. (Dr.) G.S. Grewal

14. Shareholders’ Funds – Reserves and Surplus What entry is passed when Preliminary Expenses are written off? It may be written off (i) from Securities Premium Reserve; or (ii) from Statement of Profit and Loss. When it is written off from Securities Premium Reserve the journal entry is: Securities Premium Reserve A/c …Dr. To Preliminary Expenses A/c (Being the amount of Preliminary Expenses written off from Securities Premium Reserve) CA. (Dr.) G.S. Grewal

15. Shareholders’ Funds – Reserves and Surplus When it is written off from Statement of Profit and Loss, the journal entry is: Statement of Profit and Loss …Dr. To Preliminary Expenses A/c (Being the Preliminary Expenses Account closed by transfer to Statement of Profit and Loss) CA. (Dr.) G.S. Grewal

16. Shareholders’ Funds – Reserves and Surplus What entry is passed when Discount on Issue of Shares, Discount on Issue of Debentures is written off? They may be written off (i) from Securities Premium Reserve; or (ii) from Statement of Profit and Loss. If it is written off from Securities Premium Reserve the journal entry passed is: Securities Premium Reserve A/c …Dr. To Discount on Issue of Shares A/c or Loss on Issue of Debentures A/c (Being the amount of Preliminary Expenses written off) CA. (Dr.) G.S. Grewal

17. Shareholders’ Funds – Reserves and Surplus If it is written off from Statement of Profit and Loss, it is to be written off in more than one accounting period. Let us take an example of Loss on Issue of Debentures of (say) ₹ 1,00,000 to be written off in 10 years. Thus, the first entry will be: Loss on Issue of Debentures A/c …Dr. 1,00,000 To …. % Debentures A/c 1,00,000 (Being the Loss on Issue of Debentures) CA. (Dr.) G.S. Grewal

18. Shareholders’ Funds – Reserves and Surplus Second entry will be to write off 1/10th of Loss on Issue of Debentures to Statement of Profit and Loss. The journal entry will be: Statement of Profit and Loss … Dr. 10,000 To Loss on Issue of Debentures A/c 10,000 (Being 1/10th of Loss on Issue of Debentures written off) Balance ₹ 90,000 will be shown in the Balance Sheet.Next year when again a portion is written off: Statement of Profit and Loss … Dr. 10,000 To Loss on Issue of Debentures A/c 10,000 (Being 1/10th of Loss on Issue of Debentures written off) Balance ₹ 80,000 will be shown in the Balance Sheet. CA. (Dr.) G.S. Grewal

19. Shareholders’ Funds – Share Warrants What are ‘Share Warrants’? A. The term ‘Share Warrants’ is defined in Companies (Accounting Standards) Rules, 2006 as follows: “Share Warrants are financial instruments which gives the holder the right to acquire equity shares”. CA. (Dr.) G.S. Grewal

20. Shareholders’ Funds – Share Warrants Why is ‘Money Received against Share Warrants’ classified as ‘Shareholders’ Funds’? A. Share Warrants effectively represent the amount which would ultimately become part of equity share capital when converted into equity shares. Till the time they are converted into shares these are not shown as share capital but as a separate line item i.e., ‘Amount received against Share Warrants’. CA. (Dr.) G.S. Grewal

21. Share Application Money Pending Allotment Q. What amount is shown against ‘Share Application Money Pending Allotment’? A. Outof the total Share Application Money received only that much amount is shown against ‘Share Application Money Pending Allotment’ against which shares will be allotted by the company. Money received by the company as share Application Money against which shares will not be allotted i.e., amount will be refunded is shown as Other Current Liability. CA. (Dr.) G.S. Grewal

22. Share Application Money Pending Allotment Q. Share Application Money Pending Allotment is neither been grouped as Shareholders’ Funds nor as Non - current Liability. What is the nature of this line item? A. In essence, Share Application Money Pending Allotment is in the nature of Equity because the amount shown against it is the amount which will definitely be converted into Share Capital. It is shown to highlight it on the face of Balance Sheet. CA. (Dr.) G.S. Grewal

23. Share Application Money Pending Allotment Q. Why should the amount of ‘Share Application Money Pending Allotment’ included in Shareholders’ Funds and Capital Employed for accounting ratios when Liabilities Approach is followed? A. It is the amount received by a company against which the company will definitely allot shares. It is shown as a separate line item because the date of Balance Sheet has fallen in between the date when amount was received and the date when shares are allotted. Therefore, it is included in Shareholders’ Funds and Capital Employed. CA. (Dr.) G.S. Grewal

24. Debentures Issued as Collateral Security Q. How are Debentures Issued as Collateral Security shown in the Balance Sheet, if entry is not passed? A. It is shown in the Notes to Accounts for Loan secured by the debentures by way of a noteas follows: CA. (Dr.) G.S. Grewal

25. Debentures Issued as Collateral Security Q. How are Debentures Issued as Collateral Security shown in the Balance Sheet, if entry is passed? A. It is shown in the Notes to Accounts for Loan secured by the debentures as follows: CA. (Dr.) G.S. Grewal

26. Long – term Borrowings On what basis borrowings are classified as Long – term Borrowings? A. Borrowings which are payable after 12 months of the date of Balance Sheet or after the period of Operating Cycle are classified as Long – term Borrowings. CA. (Dr.) G.S. Grewal

27. Long – term Borrowings Is part of Long – term Borrowings due for payment within 12 months or the period of Operating Cycle shown as Short – term Borrowings under Current Liability? A. Long – term Borrowings which becomes due for payment within 12 months of the date of Balance Sheet or within the period of Operating Cycle are shown as Current Liability. The amount is not shown as Short – term Borrowings but under Other Current Liabilities as ‘Current Maturities of Long – term Debts’. CA. (Dr.) G.S. Grewal

28. Long – term Borrowings Q. What does Trade Investments mean? A. Trade Investmentis not defined in the Act or Accounting Standards or New Schedule VI. It can be understood as investment made by a company in shares or debentures of another company, to promote its trade or business. CA. (Dr.) G.S. Grewal

29. Deferred Tax Liabilities (Net) Q. Why is Deferred Tax Liabilities (Net) included in Shareholders’ Funds and Capital Employed for accounting ratios? A. It is only a book entry and it comes into existence by reducing the profit or increasing the loss. In effect, it leads to decreased profit or increased loss carried to the Balance Sheet. As a result Shareholders' Funds and also Capital Employed gets affected. It therefore, is included in Shareholders' Funds and Capital Employed when Liabilities Approach is followed. CA. (Dr.) G.S. Grewal

30. Deferred Tax Assets(Net) Q. Why is Deferred Tax Assets (Net) deducted from Shareholders’ Funds and Capital Employed for accounting ratios? A. Following the same analogy as in the case of Deferred Tax Liabilities (Net), in leads to increased profit carried forward or decreased loss carried forward. As a result Shareholders' Funds and also Capital Employed gets affected. It therefore, is deducted from Shareholders' Funds and also Capital Employed when Liabilities Approach is followed. It is not considered when Assets Approach is followed. CA. (Dr.) G.S. Grewal

31. Fictitious Assets What types of Fictitious Assets can exist under the new Schedule VI? A. Fictitious Assets that exists under the new Schedule VI are: a) Share Issue Expenses; b) Discount on Issue of Shares; c) Premium Payable on Redemption of Shares; d) Discount on Issue of Debentures; e) Premium Payable on Redemption of Debentures; or Loss on Issue of Debentures CA. (Dr.) G.S. Grewal

32. Fictitious Assets Is the accounting treatment of all fictitious assets same? A. No, the accountingis different for fictitious assets relating to shares and those relating to debentures. CA. (Dr.) G.S. Grewal

33. Fictitious Assets What is the accounting treatment of fictitious assets related to shares? A. Fictitious assets relating to shares i.e., Share Issue expenses, Discount on Issue of shares and Premium Payable on Redemption of Shares can be written off either (i) from Securities Premium Reserve; or (ii) from the Statement of Profit and Loss in 3 to 5 years. CA. (Dr.) G.S. Grewal

34. Fictitious Assets What is the accounting treatment of fictitious assets related to debentures? A. Fictitious assets relating to debentures can be written off either (i) from Securities Premium Reserve; or (ii) from the Statement of Profit and Loss during the life of the debentures. CA. (Dr.) G.S. Grewal

35. Fictitious Assets A company has a balance in Securities Premium Reserve but is not adequate to write off fictitious assets completely. Can fictitious assets be written off partly from Securities Premium Reserve (say up to the balance) and balance from Statement of Profit and Loss? A. Yes,it can be so written off. CA. (Dr.) G.S. Grewal

36. Fictitious Assets Is the amount of fictitious assets not yet written off required to be shown as Non – current Assets and Current Assets? If yes, how is it shown? A. Fictitious assets not yet written off i.e., Unamortised Fictitious Assets are shown in part as Non – current Asset and in part as Current Asset. The amount that will be written off after 12 months of the date of Balance Sheet or after the period of Operating Cycle is shown as Non– current Asset. The amount that will be written off within 12 months of the date of Balance Sheet is shown under Other Current Asset. CA. (Dr.) G.S. Grewal

37. Current Assets Q. What are Current Assets? A. Current assets are those assets which fulfil any of the following criteria: it is expected to be realised in, or is intended for sale or consumption in, the company's normal operating cycle; or it is held primarily for the purpose of being traded; or it is expected to be realised within 12 months after the reporting date; or it is cash and cash equivalents unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date. CA. (Dr.) G.S. Grewal

38. Current Liabilities Q. What are Current Liabilities? A. Current liabilities are those liabilities which fulfils any of the following criteria: it is expected to be settled in company's normal operating cycle; or it is held primarily for the purpose of being traded; or it is due to be settled within 12 months after the reporting date; or the company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. CA. (Dr.) G.S. Grewal

39. Classification of Items in Schedule VI CA. (Dr.) G.S. Grewal

40. Classification of Items in Schedule VI CA. (Dr.) G.S. Grewal

41. Classification of Items in Schedule VI CA. (Dr.) G.S. Grewal

42. THANK YOU www.tsgrewal.co.in Please be free to write to us on: Dr. (CA.) G. S. Grewal: cagsgrewal@gmail.com , ShriR. K. Khosla: khoslark179b@gmail.com CA. (Dr.) G.S. Grewal