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Revised Schedule VI –Applicable to small companies

Impact Seminar

ICAI, Bangalore

April 18 2012

सुख दखु समे कृत्वा लभ अलभो जय अजयौ । तत् युद्दाय युजस्व न एवं पापं अवाप्सस्यसस

Treating alike pain & pleasure, gain & loss, victory & defeat, engage yourself in battle. Thus you will incur no sin.

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Approach to Schedule VI

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Saral Schedule VI – 2008 Turnover< Rs 50 crores Debt < Rs 10 crores Not a bank or financial institution Not listed Not a holding or subsidiary of a company which is not a

small company Level II and Level III companies SMC as per Companies ( Accounting Standards) Rules

2006

Small company?

Simple and user-friendly

Not be burdened with too many disclosure requirements

Minimum disclosure requirements

Compatibility and convergence with international accounting standards and practices

Saral Schedule VI..Concepts

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Generally assumed that

will not have particularly complex transactions;

do not have public accountability

do not hold assets in a fiduciary capacity for a broad group of outsider

accountability is limited to owners and government authorities/agencies

Users and their information needs are limited

Saral Schedule VI

AS 3

AS 17 encouraged to follow

AS 21

AS 23

AS 27

Exempt Accounting Standards SMC

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Short-term compensated absences to the extent they deal with accumulating compensated absences which are non-vesting

Not required to discount amounts due > 12 months from reporting date

Defined benefit plans- Projected unit credit method, discounts rate and actuarial method used

Long term liability- same as above

Disclosure relaxationsAS 15- Employee Benefits

Reconciliation between minimum lease payments and PV

Other disclosures on MLP

General description of lessees significant leasing arrangements

AS 19 –LeasesDisclosures not required

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Diluted EPS not needed- AS 20

AS 28- Impairment of Assets- reasonable estimated of value-in-use instead of PV

AS 29 –Provisions- reconciliation statement for each class of provision.

Other relaxations

Requirements of the Act/Accounting standards will prevail over the Schedule

Minimum requirements- line-items, sub-line items, sub-totals at discretion of entity

- EBDITA- Current Assets/Liabilities- Provisions made by NBFC No Schedules! Only notes on accounts Terms used shall be as per Accounting Standards Comparatives ( including notes on accounts)

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Main Principles

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Notes on accounts

- narrative descriptions or disaggregations of items recognised in those statements;

information about items that do not qualify for recognition in those statements

Cross-referencing

Only vertical form

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Main Principles

a balance shall be maintained between providing excessive detail that may not assist users of financial statements and not providing important information as a result of too much aggregation.

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Main Principles

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Turnover Rounding Off

< Rs 100 crores To the nearest hundreds, thousands, lakhs or millions, or decimals thereof

> Rs 100 crores To the nearest lakhs, millions or crores, or decimals thereof.

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Rounding Off

Rounding off opted for shall be used consistently

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Schedule VI

Major Changes Cosmetic Changes

Disclosure Changes

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Current Assets, Current Liabilities and Investments

Current and non-current

Only vertical form

Debit Balance in Profit and Loss Account- no longer on Assets side

Related party disclosures

No Balance-Sheet extract and general business profile

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Major changes

Criteria ( Any)

it is expected to be realised in, or is intended for sale or consumption in, the company’s normal operating cycle;

it is held primarily for the purpose of being traded;

it is expected to be realised within twelve months after the reporting date; or

it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date

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Current Asset

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it is expected to be settled in the company’s normal

operating cycle;

it is held primarily for the purpose of being traded;

it is due to be settled within twelve months after the reporting

date; or

the company does not have an unconditional right to defer settlement of

the liability for at least twelve months after the reporting date. Terms of a

liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not

affect its classification

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Current Liability

If does not meet the definition, non-current

Default operating cycle= 12 months

Trade Receivable/Trade Payable= goods or services received/sold

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Current Assets/Liabilities

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Operating Cycle

Held for trading

12-month criteria

Key words

Operating Cycle ( OC) XYZ Limited

Criteria

365 day year Credit period of creditors= 16 days Average debtors o/s= Rs 480,000 Raw materials consumed= Rs

44,00,000 Total Production Cost= Rs

100,00,000 Total Cost of sales= Rs 105,00,000 Sales= Rs 160,00,000 Inventory: Raw Materials= 320,000 WIP = 350,000 Finished Goods = 260,000

OC

Age of RM= 27 days

WIP = 13 days

FG = 9 days

Debtors = 11 days

----------

Total 60 days

Less: Creditors 16 days

--------------

OC 44 days

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In the previous example, as on 31st March 2012, XYZ Limited has a Debtor of Rs 5 lakhs who is expected to pay in 75 days time.

Would this Debtor be classified as Current or non-current?

Question?

Inventory held for long

Creditor has a right to demand payment due to violation of debt agreement

Employee Benefits

- bonus, leave encashment, gratuity

Multiple Businesses

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Classification

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XYZ Ltd has inventory of raw material that has not moved for more than 2 years worth Rs 10 lakh. It has classified Rs 3 lakhs as slow and non-moving inventory

XYZ Ltd has a term loan of Rs 50 lakhs from No Bank. It is to pay Rs 2 lakhs every month as repayment. As of 31 March 2012 it has not paid 3 continuous instalments. It paid all the 4 instalments in May 2012.

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Current/non-current

BA Ltd has a gratuity scheme as per which a person is entitled to 22 days pay for every completed month of service. The company has a workforce of 1000 and it has been observed that an average of 5 employees leave the company every year. An average of 10 employees join the company every year.

How would you classify into Current/Non-current?

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Current/Non-current

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AB Ltd has a leave encashment scheme as per which an employee is entitled to carry forward 10 days leave every year. 50% of this can be encashed in the next financial year. Out of a workforce of 200, it has been observed that an average of 8 employees encash the leave every year.

If the employees do not encash the leave by the end of the next financial year, the encashment lapses.

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Current/non-current

Service tax input tax credit

TDS Receivable for AY 2008-09.

Inter-corporate deposit that is overdue for payment as on 31st March 2012 by 6 months.

Income tax refund due for AY 2009-10. The Inspector has informed that he will do the needful soon.

Classify into Current/Non-current

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Investments

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Schedule VI

Current/non-current

12 months from Balance-Sheet date

Presentation norms

AS 13

Current/Long-term

One year from date of investment

No presentation norms

Schedule VI will prevail

Cash and Cash equivalents

Revised Schedule VI

Balances with Banks held as margin

Security against borrowings , guarantees etc

Bank deposits> 12 months maturity

AS- 3 – Cash Flow Statements

Short-term, highly liquid investments

Readily convertible into cash

Insignificant changes to value

3 months

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Notes on Accounts

Ind-AS 10

AS 4?

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Proposed Dividend

Sources of Funds

Application of Funds

Cash and Bank Balances

Profit and Loss Account

Sundry Debtors

Sundry Creditors

Equity and Liabilities

Assets

Cash and Cash equivalents

Statement of Profit and Loss

Trade Receivable

Trade Payable

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Cosmetic Changes

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XYZ Co LtdBalance Sheet as at Rs in crores

I. EQUITY AND LIABILITIES

1) SHAREHOLDERS FUNDS

Note No

Figures atthe end of the current reporting period

Figures at the end of the previousreporting period

a) Share Capital xxxx yyyy

b) Reserves and Surplus xxxx yyyy

c) Money received against share warrants

xxxx yyyy

2) Share Application pending allotment

xxxx yyyy

3) Non-current Liabilities xxxx yyyy

a) Long-term borrowings xxxx yyyy

b) Deferred Tax Liabilities ( Net)

xxxx yyyy

c) Other Long-term liabilities

xxxx yyyy

4) CurrentLiabilities

Note No Figures at the end of current reporting period

Figures at the end of the previousreporting period

a) Short-term borrowings

xxxx yyyy

b) Trade Payables xxxx yyyy

c) Other Current Liabilities

xxxx yyyy

d) Short-termprovisions

xxxx yyyy

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Assets

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Assets ` in crores

Non-Current Assets

1) a) Fixed Assets xxx

i) Tangible Assets xxx

ii) Intangible Assets xxx

iii) Capital work-in-progress xxx

iv) Intangible assets under development xxx

b) Non-current investments xxx

c) Deferred tax assets ( net) xxx

d) Long-term loans and advances xxx

e) Other non-current assets xxx

2) Current Assets

a) Current Investments xxx

b) Inventories xxx

c) Trade Receivables xxx

d) Cash and cash equivalents xxx

e) Short-term loans and advances xxx

f) Other current assets xxx

TOTAL xxx

See accompanying notes to financial statements

Authorised, Issued, Subscribed and paid-up

Reco statement

Rights, preferences and restrictions attaching to each class of shares

Terms of conversion along with earliest date of conversion in descending order starting from farthest such date

Shareholding> 5%

Shares reserved for issue under options

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The Shares story

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For a period of five years

- Shares issued pursuant to contracts without cash consideration

- Number and class of bonus shares

- Number and class of shares bought back

Source of bonus shares- removed

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The Shares story

Additions Deletions

Debenture Redemption Reserve, Revaluation Reserve, Share Options outstanding

After providing for proposed allocation eg:

Disclosing Allocations such as dividends, bonus shares and transfer to and from Reserves

If debit balance of profit and loss account is in excess of uncommitted reserves, the same shall be shown as Assets

Debit Balance of Profit and Loss Account Sinking Fund

Share Application pending allotment Proposed additions to Reserves

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Reserves and Surplus

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Capital Reserve

Capital Redemption Reserve

Securities Premium Reserve

Debenture Redemption Reserve

Revaluation Reserve

Share Options outstanding account

Other Reserves ( specify)

Surplus i.e., balance in Statement of Profit and Loss disclosing allocations and appropriations such as dividend, bonus shares and transfer to/ from reserves, etc.;(Additions and deductions since last balance sheet to be shown under each of the specified heads);

A reserve specifically represented by earmarked investments shall be termedas a “fund”.

Debit balance of statement of profit and loss shall be shown as a negativefigure under the head “Surplus”. Similarly, the balance of “Reserves and Surplus”,after adjusting negative balance of surplus, if any, shall be shown under the head“Reserves and Surplus” even if the resulting figure is in the negative

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Reserves and Surplus

Long term borrowings

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Presentation Bonds/Debentures Term Loans

- from Banks- from other parties

Deferred payment liabilities Deposits Loans and Advances from

related parties Long term maturities of

finance leases Other loans and advances (

nature to be specified)

Disclosure Loans guaranteed by directors

and others Bonds/Debentures in

descending order of maturity or conversion starting from farthest date

Terms of repayment Period and amount of

continuing default as on the Balance Sheet date in repayment of loans and interest, shall be specified separately in each case

Classify into Secured/Unsecured with nature of security for each loan

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Other Long-term Liabilities

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Other LT Liabilities

Trade Payables

Others

Delayed payment as per MSMED Act – to be disclosed

Other LT provisions

Provision for employee benefits

Others

Application money not exceeding capital offered

To the extent not refundable

Amount in excess of subscription

Requirements of minimum subscription are not met-Other current liabilities

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Share application money disclosure

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Current Liabilities

Short-term borrowings

Trade Payables

Other current

liabilities

Short term provisions

1. Loans repayable on demand-Banks

-0ther parties2. Loans and

Advances from related parties

3. Deposits4. Other loans and

advancesSecured/Unsecured

1. Employee Benefits

2. Others

(a) Current maturities of long-term debt

(b) Current maturities of finance lease obligations;

(c) Interest accrued but not due on borrowings;

(d) Interest accrued and due on borrowings;

(e) Income received in advance;

(f) Other payables (specify nature).

(g) Unpaid matured debentures and interest accrued thereon;

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Other Current Liabilities

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Fixed Assets

Non-current investments

Deferred tax assets ( net)

Long-terms loans and advances

Other non-current assets

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Non-Current Assets

Fixed Assets

Tangible Assets

Intangible Assets

Capital work in

progress

Intangible Assets under Development

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Non-Current Assets

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Goodwill; Brands /trademarks; Computer software; Mastheads and publishing titles; Mining rights; Copyrights, and patents and other intellectual property rights,

services and operating rights; Recipes, formulae, models, designs and prototypes; Licences and franchise; Others (specify nature)

Reconciliation StatementSums written off

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Intangible Assets

Assets

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Tangible Assets

Railway Sidings, Development Property, Livestock and Leasehold Assets

Disclosure

Assets under Lease

Assets acquired in Business Combinations

Reco statement

Intangible Assets

Computer software;

Mastheads and publishing titles;

Mining rights

Recipes, formulae, models, designs and prototypes;

Licenses and franchise

Disclosure

Reco Statement

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Trade Investments

- Investment Property, Investment in mutual funds, shares, debentures etc

- Investment in controlled SPE’s

- Amount of quoted investments, market value, provision for diminution in value

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Non-Current Investments

Capital Advances

Security Deposits

Loans and advances to related parties (giving details thereof);

Other loans and advances (specify nature).

Classified into secured and unsecured ( considered good)and doubtful

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Long-term loans and advances

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Long-term Trade Receivables

Others

Classification into secured, unsecured and doubtful

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Other non-current assets

Investments in Equity Instruments;

Investment in Preference Shares;

Investments in Government or trust securities;

Investments in debentures or bonds;

Investments in Mutual Funds;

Investments in partnership firms;

Other investments (specify nature)

Bodies corporate

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Current Investments

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The basis of valuation of individual investments;

Aggregate amount of quoted investments and market value thereof;

Aggregate amount of unquoted investments;

Aggregate provision made for diminution in value of investments.

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Current Investments

Raw materials

Work-in-progress

Finished goods

Stock-in-trade (in respect of goods acquired for trading)

Stores and spares

Loose tools

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Inventories

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Outstanding for a period of six months from the date they are due for payment

Secured, considered good

Unsecured, considered good

Doubtful

Allowance for bad and doubtful debts

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Trade Receivables

Goods in transit under relevant head in Inventory

Trade Receivables outstanding for a period exceeding six months from the date they are due for payment

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Other provisions

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Cash and Cash equivalents

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Presentation

Balances with banks

Cheques, drafts on hand

Cash on hand

Others (specify nature).

Disclosure

Earmarked balances with banks

held as margin money or security against the borrowings, guarantees, other commitments

Repatriation restrictions

Bank deposits with more than twelve months maturity

To related parties

Others ( specify nature)

Secured, considered good

Unsecured, considered good

Doubtful

Allowance for bad and doubtful debts

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Short-term loans and advances

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Claims against the company not acknowledged as debt Guarantees Other money for which the company is contingently liable. 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). Are performance guarantees/counter-guarantees

contingent liabilities?

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Contingent Liabilities

Statement of Profit and Loss

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Particulars Note No Figures at the end of the current reporting period

Figures at the end of the previous reporting period

I. Revenue from Operations

II. Other Income

TOTAL REVENUE

Expenses:•Cost of materials consumed•Purchases of Stock-in-Trade•Changes in inventories of finished goods work-in-progress and Stock-in-Trade •Employee benefits expense •Finance costs•Depreciation and amortisationexpense•Other expenses

Total expenses

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Format

Profit before exceptional and extraordinary items and tax

Exceptional items

Profit before extraordinary itemsand tax

Extraordinary items

Profit before tax

Tax expense:(1) Current tax (2) Deferred tax

Profit (Loss) for the period fromcontinuing operations

Profit/(loss) from discontinuing operations

Profit/(loss) from Discontinuing operations (after tax)

Profit (Loss) for the period

Earnings per Share-Basic-Diluted

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Profit and Loss Account

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AS 24- Profit before tax ( including continuing and discontinuing operations)

Schedule VI- Profit from continuing operations only

----------------------------------------------------------------------------------------- Profit (Loss) for the period from continuing operations Profit/(loss) from discontinuing operations Profit/(loss) from Discontinuing operations (after tax)

AS 24 vs Schedule VI?

Interest Income

Dividend Income

Net gain/loss from investments

Other non-operating income

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Other Income

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Any item of expenditure which exceeds one percent of the revenue from operations or Rs 1,00,000, whichever is higher- separate line or sub-line item

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Expenses

Interest expense;

Other borrowing costs;

Applicable net gain/loss on foreign currency transactions and translation

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Finance Costs

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Employee Benefits Expense

(i) salaries and wages,

(ii) contribution to provident and other funds,

(iii) expense on Employee Stock Option Scheme (ESOP) and Employee Stock Purchase Plan (ESPP)

(iv) staff welfare expenses.

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Additional Disclosures

Sale of products

Sale of services

Other operating revenues

Less: Excise Duty

VAT, Service tax not part of Revenue

Forex gains- other operating revenue?

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Revenue from operations

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Amounts set aside to reserves

Amounts withdrawn from Reserves

Amounts set aside/withdrawn from specific provisions

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Aggregate (if material) disclosures

Consumption of stores and spare parts

Power and fuel

Rent

Repairs to buildings

Repairs to machinery

Insurance

Rates and taxes, excluding, taxes on income

Miscellaneous expenses

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Disclosures ( even if not material)

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Exceptional vs Extraordinary items

Prior Period items

Ordinary activities of the business- Exceptional items

Not ordinary activities of the business- Extraordinary

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Profit and Loss

Profit and Loss

Taxation impact

Profit and Loss after Tax

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Discontinuing operations

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Net worth > Rs 500 crore/ Turnover > Rs 1000 crore/ Net Profit of > Rs 5 crore

At least 2% of the average net profits made during the three immediately preceding three years

Schedule VII

Disclosure

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CSR

Share in profits/losses of partnership firm- separately disclosed

Share in profits/losses of LLP- disclosed when declared

Share in profits/losses of AOP

Standards on Consolidation, Associates, joint ventures

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Profit and Loss Account

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Schedule VI applicable

Details of minority interest within equity

Disclosure of details of investments in subsidiaries, associates and joint ventures- net assets and share in profit and loss

Disclosure of reasons for not consolidating

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Consolidation

As : Auditor,

For taxation matters

For company law matters

For management services

For other services

For reimbursement of expenses

: In any other capacity

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Payment to Auditors

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Disclosures relating to managerial remuneration and computation of net profits for calculation of commission;

Information relating to licensed capacity, installed capacity and actual production

Information on investments purchased and sold during the year

Investments, sundry debtors and loans & advances pertaining to companies under the same management

Maximum amounts due on account of loans and

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Disclosures removed

Nature of company Disclosure required

Manufacturing companies •Raw materials under broad heads•Goods purchased under broad heads

Trading companies Purchases of goods traded underbroad heads

Companies rendering orsupplying services

Gross income derived from servicesrendered under broad heads

Company that falls in morethan one category

purchases, sales and consumption of raw material and the gross income from services rendered are shown under broadheads

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Additional information

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‘broad heads shall be decided taking into account the concept of materiality and presentation of true and fair view of financial statements ‘

The 10% rule?

So, what are broad heads?

CIF Value of imports made by the company

foreign exchange earnings and expenditure

Total value of all imported/indigenous raw material, spare parts and components

Capital and other commitments?

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Notes

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Ratios?

Costs?

Benefits?

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Impact

Financial statements are responsibility of management

Advise of auditor

Fair interpretation without being overly technical

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ICAI Guidance Note

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Walk-through Schedule VI Balance-Sheet

Test run

Specific items requiring attention

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The way forward

Finally, Thank you for a patient hearing!

Mohan.lavi@gmail.com+ 91 97313 01958

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