4.a. schedule vi revised (1)

Company’s Financial Statements

Requirements of Schedule VI

of the Companies Act, 1956

Company Accounts

It is the collective responsibility of Board of Directors (BoD) to maintain books of accounts of the company. BoD can delegate this responsibility to Chief Financial Officer (CFO) or Chief Accounts Officer (CAO) or Company Secretary (CS), if any person is qualified – either a Chartered Accountant or a Cost Accountant or any other prescribed qualification.

Company Accounts

• Accounts must be maintained in such a manner to record in a systematic way:

• All receipts and payments of transactions,

• Purchases, expenses, sales and income,

• Assets and liabilities,

• Such other records as may be necessary and prescribed by Companies Act.

Company Accounts

• CFO or CAO or CS should prepare the following, at regular intervals:

• Receipts and payments account,

• Income and Expenditure account, or Profit and Loss account,

• Statement of Affairs or Statement of Financial Position or Balance Sheet.

Company Accounts

• Accounts must strictly follow accrual concept. Must also conform to all applicable Accounting Standards prescribed by Institute of Chartered Accountants of India (ICAI) or National Accounting Standards Board (NASB), constituted by Ministry of Corporate Affairs (MCA).

• Accounts must show true and fair view of financial position of the company for the period.

Company Accounts

• Company must send to members (shareholders) at annual intervals (normally for year ending 31st March or such year end date as decided by BoD):

• Balance Sheet, Profit and Loss A/c., Cash Flow statement of holding co., all subsidiary companies and consolidated accounts of holding company,

• Auditors’ Report, Directors’ Report and additional information as prescribed, General Balance Sheet Profile. These are printed and circulated (called Annual Report) along with notice of AGM.

Company Accounts

• In case of a company listed in stock exchange, the following additional reports must be sent to members with Annual Report:

• Corporate Governance Report and compliance certificate by PCS or statutory auditor,

• Management Discussion & Analysis (MDA),• Shareholder Information• It is customary (but optional) to give statistical

information for 5 or 10 years to show progress of company.

Company Accounts

• Accounts must be authenticated by Company Secretary and signed by CFO or CAO. These must be signed by Managing Director or whole-time directors, if any, or any two directors (including Chairman), authorized by Board. Accounts will be certified by auditor.

Auditors’ Report

• Auditor must be a member of the Institute of Chartered Accountants of India. It can be obtained after passing the examination.

• He has to audit the accounts and certify that:• He has received all the information for audit,• Company has maintained the books of accounts

properly as required by Companies Act,• The B/S and PL A/c., and C/F Statement are in

agreement with books of accounts of company,

Auditors’ Report

• Auditor has to report that:• Balance Sheet shows the state of affairs of

the company at the year end date, • Profit and Loss Account shows the profit or

loss for the year ended on the date,• Cash flow statement shows the summarized

cash flows for the year ended on that date,• Directors are not disqualified to be director.

Auditors’ Report

• If auditor passes any adverse remark, it is qualified report. In case of such qualified report, directors must explain (in Directors’ Report or Notes to the Accounts) the reasons for such qualification and what action they will take to resolve these or how will they deal with it.

• Auditor will have to give report as required by Companies Auditors’ Report Order (CARO), 2003. Normally this is given as an annexure to Auditors’ Report.

Directors’ Responsibility Statement

• Proper accounting records are maintained.• These comply with provisions of

Companies Act and Accounting Standards.• They give true and fair view of state of

affairs, profit and cash-flows for the year.• Internal control systems are in place to

safeguard assets and to prevent and detect fraud and irregularities.

Company Accounts

• Accounts are presented in the Annual General Meeting (AGM) and adopted by members / shareholders by voting after discussion. Normally this is done after Chairman of the company makes his speech. Questions, queries are answered and doubts clarified. Members also approve dividend proposed by BoD.

Schedule VI

• Companies Act prescribes that accounts must be presented in a format given in Schedule VI to the Act.

• Company is at liberty to chose either a vertical format or horizontal format for financial statements.

• Financial statements consist of Profit & Loss Account, Balance Sheet, Cash flow statement and other information as required by Act.

Schedule VI

• Accounts are grouped under different heads. These are named schedules.

• Conventionally, schedules start from Share Capital and end with Current liabilities & Provisions in case of Balance Sheet, and start from Sales and end with interest & Financial charges in case of Profit & Loss Account.

Share Capital

• Requirements: Authorized capital: number of shares, face value of each share.

• Issued capital: distinguish between various classes of capital.

• Subscribed capital: distinguish between various classes of capital.

• Shares allotted as fully paid up pursuant to a contract without payments being received in cash.

Shares Capital

• Shares issued as fully paid up by way of bonus shares. Specify the source from which bonus shares are issued,e.g. capitalization of profits or reserves or from Share Premium Account.

• Deduct : Calls unpaid I) by directors and ii) by others

• Add : Forfeited shares (amount originally paidup must be mentioned). Capital profit on reissue of forfeited shares must be transferred to Capital Reserves.

Share Capital

• Term of redemption or conversion of any preference capital should be stated, with earliest date of redemption or conversion.

• Any option on unissued share capital should be specified.

• Particulars of different classes of preference shares should be given.

• Redeemed debentures for which company has powers to reissue, should be given.

Share Capital

• In case of subsidiary companies, number of shares held by holding company and ultimate holding company and it subsidiaries shall be separately stated in respect of subscribed capital.

• This info. must be certified by management and auditor need not verify correctness.

• If company’s debentures are held by nominee or a trustee, nominal amount of debenture & amount at which they are stated in BS, must be stated.

Share Capital – addl disclosures

• Money received against share warrants.

• Number of shares held by each shareholder in excess of 5% together with their names.

• No of bonus shares / shares allotted without payment being received in cash / shares bought back during the 5 years immediately preceding the date of B/S.

Share Capital – addl disclosures

• Rights, preferences and restrictions attaching to each class of shares including restrictions on distribution of dividends and repayment of capital.

• These disclosures w.e.f. 1st April, 2011.

Reserves and Surplus

• 1. Capital Reserves

• 2. Capital Redemption Reserves

• 3. Securities Premium Account, showing details of utilization and the year of utilization.

• 4. Other reserves, specifying the nature of each reserve and the amount.


• Deductions: Debit balance in Profit and Loss Account, if any. Deduction from uncommitted reserves only.

• 5. Surplus in Profit and Loss Account, after providing for proposed allocation, namely dividend, bonus and reserves.

• 6. Proposed addition to reserves• 7. Sinking Funds


• Additions and deductions since last balance sheet should be shown under each head.

• The word ‘Fund’ should be used only where such reserve is specifically represented by earmarked investments.

• Where any amount is retained by way of providing for any known liability, and is in excess in the opinion of the BoD, such excess shall be treated as ‘reserve’.


• “Capital reserve” shall not include any reserve free for distribution and “revenue reserve” shall mean all reserves, which are not “capital reserves”.

• “Reserve” shall not include any “provision”, provision cannot be grouped under shareholders’ funds.

Reserves &Surplus - disclosures

• Share Option Outstanding Account to be shown under Reserves and Surplus.

• Debit Balance in PLA/c. needs to be shown as a negative figure under “Surplus”. Hence, Reserves & Surplus may have a negative figure.

• W.e.f.1st April, 2011.

Deferred Tax Liability

• If amount of deferred tax liability is more than amount of deferred tax asset, latter can be shown as a deduction and net amount of liability be shown.

Secured Loans

• 1. Debentures• 2. Loans and advances from Banks• 3. Loans and advances from subsidiaries• 4. Other Loans and Advances• Loans from directors and managers should

be shown separately.• ‘Manager’ here is a ‘manager’ appointed

under Companies Act.

Secured Loans

• Nature of security offered for loans should be specified.

• Interest accrued and due should be included under appropriate sub-heads.

• Where loans have been guaranteed by director or manager or any other person, it should be stated under each sub-head and also aggregate amount of such loans and guarantees provided.

Unsecured Loans

• 1. Fixed Deposits, 2. Loans and Advance from subsidiaries, 3. Short term loan and advances i) from Banks and ii) from others, 4. Other Loans and Advances I) from Banks, and ii) from others.

• All disclosure requirements mentioned under ‘Secured Loans’ will also apply to ‘Unsecured Loans’. Disclosure of guarantee amount does not apply to Fixed Deposits.

Borrowings –Long &Short Term

• Long term borrowing be shown under Non-Current Liabilities and short term borrowing under current liabilities, with disclosure of secured or unsecured loans.

• Current maturities of long term debt, interest accrued and due and interest accrued but not due on borrowings be shown under current liabilties.

Borrowings –Long & Short Term

• Terms of repayment of loans

• Period and amount of continuing default as on B/S date in repayment of loans and interest shall be specified separately in each case.

• Loans and advances taken from related parties.

• Disclosure w.e.f. 1st April, 2011.

Current Liabilities

• 1. Acceptances• 2. Sundry Creditors: i) total outstanding dues of

small industrial undertakings, ii) total outstanding dues of creditors other than small scale industrial undertakings.

• 3. Subsidiary companies• 4. Advance payments and unexpired discounts for

the portion for which value has still to be given.

Current Liabilities

• Advance payments and Unexpired portion of discounts will apply to companies in the business of Newspapers, Fire Insurance, Theatre, Clubs, Banking, Steamship companies, etc.

• 5. Unclaimed dividends

• 6. Other liabilities

Current Liabilities

• In case of small scale industrial undertakings to whom company owes any sum together with interest outstanding for more than 30 days are to be disclosed.

• 7. Interest accrued, but not due on loans.• “Liability” shall include all liabilities in

respect of expenditure contracted for and all disputed or contingent liabilities.

Current Liabilities

• Trade Payables

• Income received in advance

• W. e. f. 1st April, 2011

Non-Current Liabilities

• Trade payables

• Income received in advance

• Disclosure w.e.f. 1s April, 2011.

Provisions

• 8. Provision for taxation

• 9. Proposed dividend

• 10. For contingencies

• 11. Provident Fund Scheme

• 12. For insurance, Pension and similar staff benefit schemes.

• 13. Other provisions

Provisions

• “Provision” means any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets, or retained by way of providing for any known liability of which amount cannot be determined with substantial accuracy.

Provisions

• Short term provisions and long term provisions, providing details of provision for employee benefits and others – disclosure w.e.f. 1st April, 2011.

Fixed Assets

• Expenditure to be distinguished between:

• 1. Goodwill, 2. Land, 3.buildings, 4. Leaseholds, 5.Railway-sidings, 6. Plant and machinery, 7. Furniture & fittings, 8. Development of property, 9. Patents, trade marks and designs, 10. Live stock, and, 11. Vehicles.

Fixed Assets

• Original cost, additions and deductions during the year, depreciation provided or written off till end of the year under each subhead of asset should be shown.

• Where original cost could not be ascertained, without unreasonable expense or delay, valuation shown by the books shall be given (after providing depreciation – net amount). Where asset is sold, gross block & accumulated depn. shall be shown as a deduction.

Fixed Assets

• Where sums have been written off on a reduction of capital or a revaluation of assets, every balance sheet subsequent to reduction or revaluation shall show reduced figure with date of reduction in place of original cost, for 5 years. Even when increase in value is made, similar disclosure should be made for 5 years.

Fixed Assets

• Where fixed assets have been acquired from a foreign country, and in consequence of a change in rate of exchange at any time after acquisition, there has been increase or reduction in liability for payment to supplier or for loan raised for the purpose of acquisition, such difference should be adjusted to the original cost of the asset.

Fixed Assets

• Shown under Non-Current Assets.

• Bifurcate into Tangible and Intangible Assets.

• Intangible asses under development.

• Discloure requirement w.e.f. 1st April, 2011.

Capital Commitments

• In the erstwhile Schedule VI, details of capital commitments were required to be disclosed. Under revised Schedule VI, all commitments need to be disclosed.

• W.e.f. 1st April, 2011.

Investments

• 1. Investment in Govt. or Trust securities• 2. Investments in shares, debentures and bonds,

showing separately fully paid or partly paid shares,etc. distinguishing different classes of shares, and investment in subsidiaries.

• 3. Immovable properties• 4. Investment in capital of partnership firms. • 5. Balance of unutilized money raised by issue.

Investments

• Show nature of investments and mode of valuation, e.g. cost or market value.

• Aggregate amount of company’s quoted investments and their market value.

• Aggregate amounts of company’s unquoted investments.

• How unutilized moneys from public issue have been invested.

Investments

• Should be classified as “trade” & “other” investments. Names of bodies corporate should be shown and in case of corporate bodies under same management, those should be separately shown. Nature and extent of investments in each body corporate, including purchases and sales should be shown. (This is not applicable for investment companies.)

Investments

• In case of investment in capital of partnership firm, names of firms with names of all partners of firm, total capital, and shares of each partner should be given.

• “Quoted investment” means investment for which permission has been given by any stock exchange for dealing in SE.

Investments – Addl. Disclosures

• W.e.f. 1st April, 2011: 1.Current and Non-current investments be sown separately under current assets and non-current assets respectively. 2. Investment in capital of partnerships – names of the firm, names of partners, total capital and share of each partner. 3. Provision for diminution in value –current & non-current investments.

Investments – Addl. Disclosures

• W.e.f. 1st April, 2011:

• Under each class of investment, names of body corporate, whether subsidiary, associates, joint ventures, controlled special purpose entities, in whom investments have been made and nature and extent of investment made in each such body corporate, showing partly paid investments.

Investments – Disclosures

• These disclosures no more required.

• W.e.f. 1st April, 2011, information on investments purchased and sold during the year are not required to be given.

• Similarly, investments in companies under same management – not required to be given.

Current Assets

• 1.Interest accrued on investments.

Current Assets - Inventories

• 2. Stores and spare parts

• 3. Loose tools

• 4. Stock-in-trade

• 5. Work-in-process

• Mode of valuation, including work-in-progress, shall be stated.

Current Assets – Stock-in-Trade

• Stock-in-Trade, in respect of goods acquired for trading purposes, separately from other finished goods (manufactured goods).

• Goods-in-Transit under relevant sub-head of inventories.

Current Assets – Sundry Debtors

• 6. Sundry debtors – Debts outstanding for more than 6 months and Other debts.

- Debts considered good and secured,

- Debts considered good but company does not hold any security, other than personal security of debtor,

- Debts considered doubtful or bad.

Sundry Debtors

• Debt due by directors or other officers or any of them either severally or jointly with any other person.

• Debts due by firms and private companies in which any director is a partner or a director or a member.

• Debts due from other companies under same management, with names of companies – this is not required to be given from 1st April, 2011.

Sundry debtors

• Maximum amount due by director any time during the year.

• Provision should not exceed the amount of debts considered doubtful or bad. Excess provision should be transferred to ‘Reserves and Surplus’ under separate head ‘Reserve for Doubtful or Bad Debts.’).

Trade Receivables

• Trade Receivables is defined as “dues arising from goods sold or services rendered in the normal course of business.” Hence, amounts due on account of other contractual obligations, which were earlier included under Sundry Debtors, can no longer be included in the Trade Receivables.


Trade Receivables

• Aggregate amount of Trade Receivables outstanding for more than 6 months from the date they became due to be shown separately, as against past requirement of disclosing debtors outstanding for more than 6 months from the invoice date.

• W.e.f 1st April, 2011.

Trade Receivables

• Long Term Trade Receivables, including Trade Receivables on deferred credit terms, be shown under Other Non-Current Assets.

• W.e.f.1st April, 2011.

Current Assets – Cash & Bank Balances

• 7A. Cash balance on hand, • 7B.Bank balances: • i) with scheduled banks, ii) with others.• Balance with banks in current accounts, call

accounts, deposit accounts.• Names of bankers other than scheduled

banks, and balances lying with each. • Scheduled bank, as declared by RBI.

Cash and Bank Balances

• Cash and Cash equivalents should be shown.


Bank balances

• Maximum amounts outstanding at any time during the year, with each non-scheduled bank – names, balances and maximum amount, etc - requirement deleted from 1.4.2011.

• Nature of interest of any director or his relative in each bank other than scheduled bank. Any unused money out of proceeds of public issue, and how invested?

Current Assets – Loans & Advances

• 8.(a) Advances and Loans to subsidiaries (b) Advances and loans to partnership firms in

which company or any of its subsidiaries is a partner.

• 9. Bills of Exchange• 10. Advances receivable in cash or in kind or for

value to be received, e.g. rates, taxes insurance etc.• 11. Balance with customs, Port Trust etc. (where

payable on demand)


• Instructions regarding “Sundry Debtors” apply to “Loans & Advances” also.

• Amounts due from other companies under same management, with names of companies, the maximum amount due from everyone of these at any time during the year – deleted from 1st April, 2011.

Current Assets - Loans and Advances

• Current accounts with Directors and Manager, whether debit or credit, shall be shown separately.

• If any of the current assets, loans & advances do not have value on realization, in ordinary course of business, at least equal to the amount they are shown in balance sheet, the fact that BoD is of that opinion shall be stated. (upto 31st March, 2011)

• Loans and Advance provided to related parties – long term and short term – w.e.f. 1st April, 2011.


• Capital advances to be shown under the head “Long Term Loans and Advances”.

• Security Deposits to be disclosed as “Long Term Loans and Advances” under the head “Non-Current Assets”.

• W. e. f. 1st April, 2011.

Deferred Tax Asset

• If amount of deferred tax asset is more than amount of deferred tax liability, latter can be shown as a deduction and net amount of Deferred Tax Asset be shown.

Misc.Expenditure–not written off

• 1. Preliminary expenses.• 2. Expenses including commission or

brokerage or underwriting commission for subscription of shares or debentures.

• 3. Discount allowed on the issue of shares or debentures.

• 4. Interest paid out of capital during construction period, stating rate of interest.

Misc.Expenditure-not written off

• 5. Development expenditure not adjusted.

• 6. Other sums specifying nature.

Dr. Balance in Profit & Loss A/c.

• Debit balance of Profit and Loss Account after deducting uncommitted reserves, if any, should be shown as net amount carried forward.

• As per Revised Schedule VI, debit balance in PL A/c. needs to be shown as a negative figure under “Surplus.” Hence, Reserves and Surplus can have a negative balance.

Contingent Liabilities

• 1. Claims against the company, not acknowledged as debts.

• 2. Uncalled liability on shares partly paid.• 3. Arrears of fixed cumulative dividends• Period for which dividends are in arrears to

be shown for each class of share separately. Gross amount (before TDS, if any) and if tax-free, such fact should be stated.

Contingent Liabilities

• 4. Estimated amount of contracts remaining to be executed on capital account and not provided for.

• 5. Other moneys, for which contingently liable.• Guarantees provided by company on behalf of

directors or other officers shall be stated with amount and general nature of guarantees.

• Note: Contingent liabilities can be given as a footnote to Balance sheet or under ‘Notes to the Accounts.’

Capital & Other Commitments

• W.e.f. 1st April, 2011

• In the erstwhile Schedule VI, details of capital commitments were required to be disclosed. Under revised Schedule VI, all commitments need to be disclosed.

Notes to Accounts

• Info. required to be given in schedules, can be given in a separate schedule called ‘Notes to Accounts’ with cross reference of note number to schedule number and schedule number to note number.

• Management reply and explanation to auditors’ observations can be put under ‘notes to accounts’.

Rounding off

• Condition and Rules for Rounding off:

• Turnover less than Rs.100 crores - Nearest hundreds or thousands, or decimals.

• Rs.100 – 500 crores - Nearest hundreds, thousands, lakhs or millions, or decimals.

• Rs.500 crores & above - Nearest hundreds, thousands, lakhs, millions, or crores, etc.

B/S Abstract & General Business Profile

• Schedule VI – Part IV requires following info. to be given:

• 1. Regn. details: No., state code, BS date.• 2. Capital raised during the year – public

issue / rights issue / bonus issue / private placement.

• 3. Position of Mobilization and Deployment of Funds: total assets and total liabilities

Balance Sheet Abstract

• Sources of funds: Paid up capital, Reserves & Surplus, Secured Loans and Unsecured Loans.

• Application of Funds: Net Fixed Assets, Investments, Net Current Assets, Misc. Expenditure, Accumulated losses.

• This is deleted from 1st April, 2011 and no more applicable.

Performance of Company

• Turnover, Total expenditure, Profit before tax, Profit after tax, Earning per share, Dividend@ %.

• Generic Names of 3 Principal Products / Services of the Company (as per monetary terms) – Item Code no. (ITC) Code and Product description.

• ITC – Indian Trade Classification, based on harmonized commodity description and coding system, by Ministry of Commerce, Directorate General of Commercial Intelligence & Statistics.

Company with subsidiaries

• Section 212 requires that the following info.must be given by holding company:

• Name of the subsidiary companies• Financial year ending on (date)• Number of shares held by holding company

in subsidiary company – specify equity or preference or other type of shares and nominal value

Subsidiary companies

• The net profit or loss of subsidiary so far as it concerns members of holding company

• a) dealt with in accounts of holding company (amounts) : for the financial year and for previous financial year

• b) not dealt with in accounts of holding company (amounts) : for the financial year and for previous financial year.

Subsidiary companies

• Changes in interest of holding company during the financial year.

• Number of shares held.• Material changes between two financial years: (for

example):• Fixed assets (net additions), Investments• Moneys lent by subsidiary to holding co.• Money borrowed by subsidiary from holding

company.

Companies which have issued ADR or GDR

• In case of companies which have issued ADR or GDR, accounts are prepared as required by US GAAP or UK GAAP or GAAP applicable in that country and amounts may be given US $ in million or US $ billion or in GB Pounds in million or billion or in currency of that country.

• Form F (Securities Exch.Com.in USA)

Other requirements

• In case of companies listed in stock exchanges, many other disclosure requirements as per various clauses of listing agreement will have to be additionally printed and published for information of investors. Banking, SEB, Insurance & such other companies will have to follow formats prescribed by regulatory bodies.

Schedule VI – Part II

• Profit & Loss Account (PL) shall set out various items relating to income and expenditure arranged under most convenient heads and shall disclose the following information.

• PL shall be made out as to clearly disclose result of working of company and shall disclose every material feature – credits and debits or expenses of transactions of non-recurring or exceptional nature.

Profit & Loss Account - Turnover

• The aggregate amount for which sales are effected, giving sales of each class of goods dealt by company, giving quantities of sales of each class separately.

Excise duty on manufactured goods and sales returns are deducted from Gross Sales / Turnover and sales, net of returns and excise duty, will have to be shown. Excise duty cannot be shown as expenditure in PL.

Turnover

• If company has more industrial licenses, for different products, categorization of turnover will be as per licenses.

• If company has many licenses for same product, sales of all such factories can be combined together under one class of product. Where turnover of one class of product does not exceed 10% of total turnover, those products can be combined and shown under ‘others’ with or without quantity.

Revenue from operations

• In case of companies other than finance companies, revenue from operations need to be disclosed separately as revenue from:

• (a) sale of products

• (b) sale of services, and

• © other operating revenues.


Limit for disclosure

• Any item of income / expense which exceeds one per cent of the revenue from operations or Rs.1,00,000/- which ever is higher, be disclosed separately.


Income from Services

• In case of company providing or rendering services, gross income derived should be shown.

• Suitable and appropriate classification of services can be done and income reported for each class of service.

Other income

• Income from trade and other investments and income tax deducted at source (TDS).

• Other income by way of interest should be shown as gross amounts and TDS.

• Dividend from subsidiary companies, & TDS.• Income from investment in partnership, & in case

of loss, whether debited to PL or not.• Miscellaneous income. W. e. f. 1st April, 2011,

disclosure of TDS amount is not required.

Expenses

• Expenses in the Statement of Profit and Loss to be classified on the basis of nature of expenses.

• W.e.f.1st April, 2011

Material Consumption

• In case of manufacturing companies, value of raw material consumed, giving item-wise break up and indicating quantities. Basic and important raw materials shall be shown. In case of other items, such as intermediates and components, individually not forming value more than 10% of total, can be shown (total value) without indicating quantities.

Revised Schedule VI(w.e.f 1st April, 2011)

• Disclosure requirements relating to break-up in terms of quantitative disclosures for significant items of Profit & Loss A/c. such as raw material consumption, stocks, purchases & sales have been simplified and replaced with the disclosure of Purchases, Sales, Consumption of Raw Materials, Gross Income from Services, and Work-in-Progress under “broad heads” only.

Revised Schedule VI(w.e.f 1st April, 2011)

• The determination and identification of such broad heads needs to be done based on materiality and presentation of true and fair view of the financial statements.

Work-in-progress or work-in-process

• Amount of WIP completed at the commencement and at the end of the year.

• This is shown as “Increase or decrease in Work-in-process”.

• Some companies show increase / decrease in WIP along with increase / decrease in finished goods stock.

Goods purchased for Trading

• Purchases made, opening and closing stocks, giving break up of each class of goods, traded in by the company indicating quantities should be shown.

Manufacturing expenses

• Consumption of stores and spare parts

• Power and fuel

• Job work charges or labor charges for processing company’s materials outside factory.

Employment Costs

• Salaries, wages and bonus• Contribution to provident and other funds• Workmen and staff welfare expenses (to the extent

not adjusted from any provision or reserve)• No. of employees drawing salaries more than

prescribed limit (Rs.24 Lakh p.a.or Rs.2 Lakh p.m.) and breakup of expenditure.

Employment Costs


• Expense on Employees Stock Option Scheme (ESOP) and Employee Stock Purchase plan (ESPP) to be shown separately as part of Employee Benefits Expense.

Other expenses

• Rent, repairs to buildings, repairs to machinery, insurance, rates and taxes (excluding taxes on income), miscellaneous expenses.

• Any individual item of expenditure exceeding one percent of total revenue, shall be shown separately and not combined with any other head and shown under “Misc. Expenditure”.

Other expenses

• 1. Commission paid to sole selling agents (as per section 294), if any & Commission paid to other selling agents. 2. Brokerage and discount on sales, other than usual trade discount. 3.Trade discount is deducted from sales and sales shown net of discount. These requirements deleted from 1st April, 2011.

Other expenses

• Auditors’ remuneration:• Amounts paid to auditors as fees, expenses

or otherwise for services rendered:• a) as auditor,• b) as adviser in any other capacity in

respect of: - Taxation matters, company law matters, management services & in any other manner.

Adjustments relating to earlier years (AREY)

• Bad debts written off, but recovered subsequently.

• Extra provision for taxation of profits of earlier years or write back.

• Write off of excess provisions or additional provisions for earlier years’ transactions..

• This can be shown as an appropriation.

Managerial remuneration

• Managerial remuneration as per section 198.• Other allowances and commission including

guarantee commission, with details.• Any other perquisites or benefits in cash or kind,

stating approximate value, if possible.• Pensions, gratuities, payment s from provident

funds, compensation for loss of office, consideration for retirement from office.

Managerial remuneration

• Method of computation of managerial remuneration and commission payable on net profits of company. ‘Net profits’ in this context means profit before tax and before debiting such managerial remuneration to PL. Remuneration should not exceed 5% of net profits for one whole-time director and 11% for all directors considered together. This is deleted from 1st April, 2011 and no more applicable.

Depreciation

• Depreciation, renewals, diminution in value of fixed assets.

• Method adopted for providing depreciation.• If no provision is made, state the fact and

quantum of arrears of depreciation, by way of a note.

• Profit or loss on sale or disposal of fixed assets or loss on impairment of fixed assets.

Interest and financial charges

• Interest on debentures

• Interest on fixed loans (loans for fixed period)

• Interest payable to managing director or manager.

• Other financial charges

Finance Cost (w.e.f.1stApril,2011)

• Net Exchange gain/loss on foreign currency borrowings to the extent considered as an adjustment to interest cost needs to be disclosed separately as a finance cost.

• Finance cost shall be classified as Interest expense, Other borrowing costs, and Gain/loss on foreign currency transaction and translation.

Taxation

• Charge for income tax and other tax on profits, method of computation, distinguishing between income tax and other taxes (such as Fringe Benefit Tax (FBT), Deferred Tax Expense or Deferred Tax Income), taxes imposed elsewhere and relief available, if any.

• Taxation provision written back, if any.

PL Appropriation A/c.

• Revised Schedule VI stipulates that transfer from / to reserves have to be shown under the heading Reserves and Surplus only. Hence, there is no requirement of presenting a separate Profit & Loss Appropriation A/c.

• Changes w. e. f. 1st April, 2011:

Appropriations

• Amounts reserved for repayment of preference share capital, debentures, loans or reserve created for the purpose.

• Amount set aside as reserves to meet any specific liability or contingency or commitment known to exist on date of B/S.

• Amount withdrawn from any reserve.

Proposed dividend

• Aggregate amount of dividends proposed, showing interim and final dividend and whether such dividend is subject to deduction of income tax or not.

• Now dividend is subject to Dividend Distribution Tax (DDT) and such DDT payable by company is shown under ‘Taxation’.

Proposed Dividend

• As per Revised Schedule VI, Proposed Dividend needs to be disclosed in the Notes to Accounts as a commitment.

• This change w.e.f. 1st Appril, 2011.

Abnormal items, etc.

• Effect of the following on PL of the company: Abnormal items of expenditure or income, such as loss on account of fire, loss or profit on sale of machinery, penalty by government, etc. should be disclosed separately.

• Non-recurring income or expenditure• Exceptional items of income or expenditure• Effect of changes in accounting policies.• Effect of transactions not normally undertaken by

company.

Exceptional & Extra-Ord. Items

• Exceptional & Extra-Ordinary Items need to be disclosed separately on the face of the Statement of Profit and Loss. Details of the same, as also of any prior period items should be disclosed in the Notes to the Accounts.

Profit/Loss on Discontinuing Operations

• Profit / Loss before and after tax from discontinuing operations and the tax expense from discontinuing operations need to be disclosed separately on the face of the Statement of Profit and Loss.

• W. e. f .1st April, 2011.

Significant Accounting Policies

• Policies followed by company and deviations from generally accepted accounting practices will have to be clearly and unambiguously disclosed here, for benefit of investors and analysts. Reasons for deviations should be explained.

Additional Information

• Information which cannot be conveniently given in PL or BS in respective schedules are given under additional information.

• These additional information form an integral part of PL and BS.

Licensed, Registered & Installed Capacity, Production

• Licensed capacity, if license is in force.

• Registered capacity – with DGTD or any other authority, Installed capacity.

• Actual production in quantities, for each class of product for which license is issued or capacity registered and installed.

• W.e.f. 1st April, 2011, these disclosures are not required.

Sales and closing stock

• Quantity and value of sales of each class of goods, suitably classified / categorized.

• Quantity and value of closing stock of each class of goods, suitably classified / categorized.

Consumption of materials

• Break up into indigenous materials and imported materials and respective percentages to total consumption.

CIF value of imports

• Break up into:

• Raw materials,

• Components and spare parts

• Capital goods,

• CIF = Cost, Insurance, and Freight.

Expenditure in foreign currency

• On account of:

• Royalty,Technical know-how, Professional consultation fees, Interest , Other matters.

• Amount remitted in foreign currency on account of dividend to non-resident shareholders, no.of shareholders and no. of shares held, year for which dividend related.

FOB value of exports

• Export realization after deducting freight paid on shipment or airfreight charges, insurance. Domestic freight from factory to port and transit insurance need not be deducted for FOB value.

• FOB = Free On Board

Earnings in foreign currency

• Royalty,

• Know-how,

• Professional and consultation fees

• Interest and dividend

• Other income, indicating nature.

Related party transactions

• Names of related parties and nature of relation – subsidiary or associate company or business entity, key management personnel.

• Nature of transaction – purchases, sales or expenses reimbursed, remuneration paid

• Outstanding balances at the end of the year.

Segment-wise information of sales, results, capital employed

• Required to be given as per clause 49 of listing agreement with stock exchange.

• Income and expenditure which cannot be allocated to any segment, can be shown as unallocated and added to or deducted from profits to arrive at net profit.

• Same treatment to ‘capital employed’ also.

General instructions

• Corresponding amounts for previous year should be given for every item of Balance Sheet and Profit & Loss Account.

• Note should be given regarding regrouping of accounts of previous year, to bring those in conformity with current year’s figures.

• Place and date of signatures of directors and auditors to financial statements.

Any questions ?

• If there is any variation between text book and this presentation, text book should be followed for the purpose of examination.

• For Indian Companies Act, text book written with reference to Companies Act in India should be referred ( and not any book by foreign author or book published in foreign country).

• PPT is not a substitute for text book.

• Thank you