Vasai Branch of WIRC
Changes in Schedule VI – 16.08.2011
The Ministry of Corporate Affairs has revised the Schedule VI of the Companies Act, 1956 on
3 rd
march 2011 and has made it applicable for all the companies for the financial statements to be prepared from 01.04.2011.
In the article following, we shall see various issues surrounding the Schedule VI, its revision and its applicability with measures for compliance therewith.
HISTORY
Schedule VI, as we are aware, prescribes the Form of Balance Sheet and Profit and Loss
Account with detailed instructions for its compliance. This was inserted vide amendment act of 1960. This schedule is as old as the act itself. Thereafter, various changes were introduced in order to make it relevant and to keep pace with time. Having prescribed presentation and disclosure aspect of financial statements, the requirements have started falling short of expectations of users of financial statements.
EROSION IN UTILITY OF SCHEDULE VI
However, with the advent of business, the Schedule VI started loosing its utility as the contents started getting outdated and the required disclosures were either not given or were regulated by other laws and/or notifications.
This was seriously felt with new standards being issued on the topic of deferred taxes, intangibles, leases, consolidation, discontinuing operations, impairment, provisions, deferred revenue/expenditure being required to be considered and assuming importance in the wake of financial crisis. More and more people, particularly, users and investors along with the analysts started feeling and expressing the deficiencies of Schedule VI.
Schedule VI contains detailed disclosures requirements and a detailed format for the Balance
Sheet. However, as we are aware, it does not contain the format for profit and loss account.
Thus, a company can prepare an easy format on the profit and loss account and comply with the requirements of the act. Similarly, the statistical data contained in Part IV of Schedule VI is meaningless for shareholders. Most importantly, the provisions were superior to the
Accounting Standards, when it came to address conflicts between them. Some of its information like licenced capacity, foreign currency earnings, CIF value of imports etc., were found redundant and could have been obtained separately by regulators rather than making
Schedule VI bulky and cumbersome.
The evolution of businesses, increased spate of mergers and acquisitions, new requirements of corporate governance needing disclosures and newer concepts getting introduced in accounting necessitated that Schedule VI be either revamped or changed drastically.
However, Schedule VI also would need to be constantly updated for new standards that may be introduced in the future and wherever existing standards are improved. Such modifications would necessitate the changes to be introduced through change in legislation by constantly resorting to introduction of bill and obtaining the consent of parliament. This elaborate procedure itself would make compliance very tedious, slow, inflexible and costly.
CA Vijay Joshi 1

Vasai Branch of WIRC
Changes in Schedule VI – 16.08.2011
On the other hand, with the promulgation of New Accounting Standards, IAS 1 to IAS 35 on the lines of International Accounting Standards, it had become necessary to shift the presentation and disclosure requirements to be legislated by way of a Schedule VI to the act in its present form.
This has led to the present Schedule VI being scrapped and replaced with the Revised
Schedule VI.
CHRONOLOGY OF EVENTS
The chronology of events leading to introduction of Revised Schedule can be traced to
October 2007, when ICAI released concept paper on convergence with IFRS laying down the roadmap, with a view to make India IFRS compliant.
In the last quarter ended September 2009, the MCA nominated President of ICAI as member of
IFRS Core Group under the Chairmanship of Secretary (MCA). In November 2009, ICAI came out with indicative implementation programme for the same.
The meeting of Core Group for convergence of Indian Accounting Standards with IFRS was held on 11 th January 2010, which was attended by officials from Ministry of Finance, SEBI, RBI,
IRDA, C&AG, ICAI, Industry Representatives and other experts. Thereafter, on 22 nd
January
2010, MCA issued a press release announcing a roadmap to IFRS Convergence in India commencing 1 st
April 2011.
MCA also issued FAQ on 4 th
May 2010 and sought final public comments/suggestions mid
December 2010 on PMO’s suggestion.
On 17 th
February 2011, MCA issued a Press Release mentioning therein that all accounting standards, Schedule VI and XIV are ready and shall be released shortly.
MCA notified 35 Converged Accounting Standards on 25 th February 2011. However, the press release clarified that Implementation schedule in a phased manner shall be announced at a later date to be confirmed after clearance from revenue and other departments on issue such as tax etc.
On 2 nd
March 2011, MCA announced the Revised Schedule VI for all companies and clearly highlighting that this has nothing to do with Indian converged standards. Further, the revised
Schedule VI is expected to be applied by all corporate for year ending 31 st march 2011 as well as previous for comparatives.
On 14 th
March 2011, the applicability date/period was removed from the website and was reinstated on 18 th
March 2011 with mere announcement that the Revised Schedule VI shall be effective from 1 st
April 2011.
APPLICABILITY OF REVISED SCHEDULE VI
It can, thus, be seen that the Revised Schedule Vi shall be applicable for all accounts prepared on or after 1 st
April 2011 meaning thereby that the same shall be applicable for
Accounting Period ending on or after 1 st
April 2011 with previous year comparatives.
CA Vijay Joshi 2

Vasai Branch of WIRC
Changes in Schedule VI – 16.08.2011
NEW SCHEDULE VI – EXPLANATION
The Schedule VI’ to the Companies Act, 1956 has been prepared on the following concepts:
(a) To have a ‘readable, useful, transparent and user friendly’ form of Schedule VI.
(b) To set out minimum disclosure requirements which are considered essential to ensure true and fair presentation of the financial position and financial performance of the company and comparability both with the company’s previous periods and with other companies.
(c) The Balance Sheet and the Statement of Profit and Loss should not be burdened with too many disclosure requirements.
(d) To remove the requirements of disclosures no longer considered relevant in view of the changed socio-economic structure and level of development of the economy.
(e) To remove disclosure requirements which are meant for statistical purposes only e.g.
Part IV of Schedule VI.
(f) To have inherent flexibility for amendments and industry/sector specific improvements from time to time and to cater to industry/sector specific disclosure requirements.
(g) To harmonize and synchronize the general disclosure requirements with those prescribed in the Accounting Standards by removing the existing inherent anomalies.
(h) The specific disclosure requirements prescribed in the Accounting Standards are not incorporated here so that amendment in the Accounting Standard does not necessitate an amendment in the form of Schedule VI.
(i) To attain compatibility and convergence with the International Accounting Standards and practices.
Thus, it can be seen that the revised Schedule VI seeks to attain the above objects. A comparison of Revised Schedule VI with the old Schedule VI would make some of the concepts clearer and provide an overview of the contents bringing out relevance of amendments.
COMPARISON – OLD v/s NEW – SCHEDULE VI
The old schedule was more rigid with the structure of Balance Sheet and its contents having been defined in Horizontal Format, which were permitted to be in vertical format from 12 th
March 1979. However, the new Revised Schedule VI is closer to present day requirements and accepts its position subordinate to Accounting Standards.
Let us have a look at some of the points for comparison of both schedules.
CA Vijay Joshi 3

Vasai Branch of WIRC
Changes in Schedule VI – 16.08.2011
1. BALANCE SHEET
Sr.
No.
Particulars
1 Law v/s AS
2
3
4
5
6
7
8
9
10
Old Schedule VI Revised Schedule VI
Tagging Profit & Loss a/c and Balance
Sheet
Presentation of
Balance Sheet
Profit & Loss
(Dr Balance)
In case of difference between
Accounting Standard and
Schedule, Schedule prevailed over AS
No tagging was required line item wise via notes
Balance Sheet was divided into Sources of Fund and
Application of Fund
P&L debit balance to be shown under the head
Miscellaneous expenditure & losses.
In case of difference between
Accounting Standard and Schedule, AS will prevail over Schedule
Tagging and cross reference is required to be done each line item wise via notes
Balance Sheet is divided into Equity &
Liabilities and Assets which is further divided into Non-Current and Current
Debit balance of Profit and Loss
Account to be shown as negative figure under the head Surplus.
Therefore, reserve & surplus balance can be negative.
Separate Disclosure is required on the
Face of Balance Sheet for Share
Warrants & Share Application Money
Share Warrants &
Share Application
Money
No Separate Disclosure was required on the Face of
Balance Sheet for Share
Warrants & Share Application
Money
Share Holders Details No such details was required to be given
Working Capital Net Current Assets i.e.
Working Capital is to be shown on the face of Balance sheet
Fixed Assets No bifurcation was required except for Capital work-inprogress.
Borrowings
Loans & Advances
No Separate Disclosure was required in the Schedule for the additions or deletions by way of revaluation
Short term & long term borrowings are grouped together under the head Loan funds sub-head Secured /
Unsecured
Loans & Advance to subsidiaries & others to be disclosed separately.
Details of Shareholders holding more than 5% needs be to given
Current Asset and Current Liabilities needs to be shown separately
Bifurcation required for:-
Tangible assets
Intangible assets
Capital work-in-progress
Intangible assets under development
Separate Disclosure is required in the
Schedule for the additions or deletions by way of revaluation
Long term borrowings to be shown under non-current liabilities and short term borrowings to be shown under current liabilities with separate disclosure of secured / unsecured loans.
Loans & Advance from related parties
& others to be disclosed separately.
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11
12
13
2.
Vasai Branch of WIRC
Changes in Schedule VI – 16.08.2011
Sundry Debtors o/s than 6 months
6 months overdue calculation was done from the date of
Invoice
Cash & Bank Balances Bank balance to be bifurcated in scheduled banks & others
Miscellaneous
Expenditure
Miscellaneous Expenditure (to the extent not written off) had to be shown separately on the face
PROFIT & LOSS ACCOUNT
6 months overdue calculation has to be done from the due date of
Payment
Bank balances in relation to earmarked balances, held as margin money against borrowings, deposits with more than 12 months maturity, each of these to be shown separately.
No such disclosure is mentioned to be given on the face
Particulars Old Schedule VI Revised Schedule VI Sr.
No.
1
2
3
4
5
6
7
Presentation
Separate line item
Disclosure criteria
Other Income
No Specific format was prescribed
No specific mention for disclosure relating to discontinuing operation
One per cent of the total revenue or Rs. 5,000 whichever is higher; shall be disclosed separately
No specific disclosure for other non-operative income was given
Manufacturing Expenses
(Except Inventory) were shown separately
Specific format has been prescribed
Specific mention for disclosure relating to discontinuing operation on the face
One per cent of the total revenue or
Rs. 1,00,000, whichever is higher; to be disclosed separately
Other Non-operating income needs to be shown NET of expenses
Manufacturing
Expenses
Quantitative Details Break up in respect of each class of goods manufactured
/ traded in by the company and indicating the quantities thereof is to be given
Payment to
Managerial Persons
Any payment made to
Managerial Persons such as managerial remuneration, pension etc were required to be disclosed on the face
Profit and Loss
Appropriation
All appropriations were required to be shown under P
& L Appropriation.
Manufacturing Expenses (Except
Inventory) , Admin and Selling
Expenses are clubbed together and shown under the head other expenses
Goods manufactured / traded in by the company to be disclosed in broad heads in notes. Disclosure of quantitative details of goods is diluted
No such disclosure is required to be made
Appropriations are shown directly under the head Reserves & Surplus in
Balance sheet.
Source: Internet Article
CA Vijay Joshi 5

Vasai Branch of WIRC
Changes in Schedule VI – 16.08.2011
HIGHLIGHTS OF REVISED SCHEDULE VI
The first major change that emerges in the Revised Schedule VI concerns the manner of disclosure of Current Assets and Current Liabilities in the Balance Sheet. Under the old schedule, Current Assets & Liabilities were shown together under Application of Funds and the Net Working Capital appeared on Balance Sheet. Under the Revised Schedule, this does not hold true since Assets & Liabilities are to be segregated into Current & Non-current and are required to be shown separately.
This requirement would call for changes in the way some of the items are disclosed. For instance, the Revised Schedule VI calls for disclosure of Long-term borrowings Non-Current
Liabilities and Short Term Borrowings under Current Liabilities with separate disclosure of
Secured and Unsecured Loans. Also, Current and Non-Current Investments are to be disclosed separately under Current Assets & Non-Current Assets respectively. Loans & Advances would also be required to be segregated in Long Term and Short Term and disclosed under Non-
Current Assets and Current Assets respectively
Also, under the old schedule, Fixed Assets and Current Assets were shown with no bifurcation under Fixed Assets for Tangible and Intangible Assets. However, under the Revised Schedule
VI, Fixed assets to be shown under non-current assets and bifurcated as under:
1. Tangible assets
2. Intangible assets
3. Capital work-in-progress
4. Intangible assets under development
Currently, all Investments are disclosed under the head Investments. However, under the
Revised Schedule, Current and Non-Current Investments would be required to be disclosed separately under Current Assets and Non-Current Assets respectively.
Moreover, this would also have implication in the manner of disclosure in case of Leases.
Under the current schedule, Finance lease obligations are included in Current Liabilities and
Lease Deposits under Loans and Advances. However, Finance lease obligations would be required to be grouped under the Non-Current Liabilities and Lease Deposits would be required to be disclosed as Long Term Loans & Advances under Non-Current Assets under the
Revised Schedule. Current maturities of Finance Lease obligation would also need to be disclosed
Sundry Debtors and Sundry Creditors would be shown as Trade Receivables (Current Assets) and Trade payables (Current Liabilities). The accumulated losses included in debit balance of
Profit and Loss A/c. in the Balance Sheet, which was shown under "Miscellaneous Expenditure
(to the extent not written off or adjusted)", is to be now shown as negative figure under the head "Reserves and Surplus"
The Revised Schedule VI has also touched upon the materiality aspects in case of manner disclosure of expense items. Under the current schedule, any item of expense which exceeds
1% of the Total Revenue of the company or Rs.5,000/- (whichever is higher) is required to be disclosed separately. However, under the Revised Schedule, this requirement has been changed to 1% of the Revenue from Operations or Rs. 100,000, (whichever is higher).
CA Vijay Joshi 6

Vasai Branch of WIRC
Changes in Schedule VI – 16.08.2011
ROLE OF CHARTERED ACCOUNTANTS
A Chartered Accountant, whether in his role as Statutory Auditor or as Accountant, has a very important role to play in compliance.
ICAI is yet to come out with a Guidance Note on the Revised Schedule VI and until such time, it is important for every Chartered Accountant that he familiarizes himself with the revisions and guides the accountants at his office or his client’s office for compliance with the new
Schedule VI.
As auditor, he is under obligation to ensure the compliance with Accounting Standards as updated from time to time and hence, it is his prime most duty to ensure compliance with the
Accounting Standards. It is interesting to note that in case of conflict between Schedule VI and Ind AS, the AS shall prevail over Schedule VI.
Similarly, in the Audit Report issued under SA 700, an auditor certifies that the Balance Sheet is drawn up in conformity of the requirements of Companies Act, 1956 and complies with relevant Accounting Standards. Newly issued Ind AS-1 on Presentation of Financial Statements also requires that the financial statements presented should conform to Ind As and Auditor should report the departures.
Apart from above, the preparation of financial statements, different classifications of various accounting items, their treatment under different heads requires changes in accounting software as well as system of reporting from the point of view of managements. A Chartered
Accountant has an important role to play in smooth transition in this area.
ISSUES IN REVISED SCHEDULE – VI
The first issue relates with the compliance since many Companies had commence process of
First time conversion to IFRS and MCA has issued revised Schedule VI as well as new Ind AS requiring huge efforts for those Companies for compliance therewith. This is important since the Original compliance date set by NCA itself was 1 st April 2011.
The revised Schedule VI prescribes a vertical format for presentation of balance sheet. Thus, a company will not have option to use horizontal format for presentation of financial statements.
Another issue relates with distinction between ‘Current’ and Non-Current’ classifications. As against the hitherto understanding, the revised definition of ‘Current’ relates the classification with the periodicity of time. Thus, any asset, which is expected to be realised within the period of twelve months after the reporting date, is ‘Current Asset’. All other assets are ‘Non-Current’ asset. Similarly, every liability, which is due to be settled within the period twelve months after reporting date, is ‘Current’ liability. All other liabilities are ‘Non-
Current’ liability. There are numbers of issues surrounding this revised classifications and a
Chartered Accountant has to practically deal with the newer situations while auditing.
CA Vijay Joshi 7

Vasai Branch of WIRC
Changes in Schedule VI – 16.08.2011
One more issue relates with the revised format and its applicability. Thus, for every Financial
Statement, which is reported after 1 st
April 2011, is now mandated to be reported in the format prescribed in revised Schedule VI. Hence, one has to exercise proper care for appropriate compliance. Another issue arising out this relates to previous year figures for the purpose of comparison, which also are required to be reported in the new format. Thus, though the Revised Schedule VI has been reported to be applicable for Financial Statements reported after 1 st
April 2011, the same has become applicable for the period 1 st
April 2010 to
31 st
March 2011.
Any debit balance in P&L account will be disclosed under the head “Reserves and surplus.”
Earlier, any P&L debit balance carried forward after deduction from uncommitted reserves was required to be shown on the asset side of the balance sheet.
The term “sundry debtors” has been replaced with the term “trade receivables.” Trade receivables are defined as dues arising only 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 in the sundry debtors, can no longer be included in the trade receivables.
The earlier Schedule VI required separate presentation of debtors (i) outstanding for a period exceeding 6 months (i.e., based on billing date) and (ii) other debtors, in a Schedule to the balance sheet. However, the revised Schedule VI requires separate disclosure of “trade receivables outstanding for a period exceeding 6 months from the date they became due for payment.”
In the earlier Schedule VI, details of capital commitments were required to be disclosed.
Under the revised Schedule VI, all commitments need to be disclosed.
Unlike the earlier version, the revised Schedule VI lays down a format for the presentation of
P&L account. This format of P&L account does not list any appropriation item on its face.
Further, the revised Schedule VI format prescribes below the line adjustments to be presented under “Reserves and Surplus” in the balance sheet. The classification of expenses is based on their nature and not on their function.
In addition to specific disclosures prescribed in the P&L account, any item of income or expense which exceeds 1% of the revenue from operations or `100,000, whichever is higher, needs to be disclosed separately.
The existing Schedule VI required the parent company to recognize dividends declared by subsidiary companies even after the date of the balance sheet if they were pertaining to the period ending on or before the balance sheet date. Such requirement no longer exists in revised Schedule VI. Accordingly, as per AS 9 Revenue Recognition, dividends should be recognized as income only when the right to receive dividends is established by the balance sheet date.
In respect 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 (c) other operating revenues.
CA Vijay Joshi 8

Vasai Branch of WIRC
Changes in Schedule VI – 16.08.2011
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.
Break-up in terms of quantitative disclosures for significant items of P&L account such as raw material consumption, stocks, purchases and sales have been simplified and replaced with the disclosure of “broad heads” only. The broad heads need to be decided based on materiality and presentation of true and fair view of the financial statements.
Many such issues can be cited and will have to be addressed by an Auditor, pending clarifications/guidance from MCA or ICAI.
IMPLICATIONS OF CHANGES FOR DIFFERENT SEGMENTS OF PUBLIC
As for the users and readers of financial statements, the revised Schedule VI also has posed a challenge in as much that the format having undergone a change as well as its contents, the users will have to adjust themselves to the new format.
The bankers will have to learn afresh the computation of NWC (Net Working Capital) since the same will not be readily available on the face of Balance Sheet.
Tax authorities will have to adjust themselves with the new format though Form 3CD shall continue to give the required information. In this connection, attention is drawn to the fact about computation of Book Profit for levy of MAT. Similarly, the computation of arrears of depreciation, provision of dividend, other provisions will have to be redefined since the difference between provision and short term liability has undergone the change.
Investors and Financial Analysts will have to educate themselves with the new format and the contents of disclosures for the purpose of drawing the conclusion.
SEBI will have to issue clarifications for changes in the format of reporting and modification in format for compliance with Clause 41 of Listing Agreement.
Accountants will have to get used to the new format. The major issue for fresh accountants/students of accountancy, professors shall be to cope with the new format even though during the school/college curriculum, the old Schedule VI and its peculiarities were mastered through the 5-year course. The industry shall face real difficulty for the time to come in this regard.
CONCLUSION
Though Bhagavad-Gita propagates that only thing that is constant is change, the issues surrounding the change have to be dealt with at different levels. The element of speed has caught everyone with surprise and as stated earlier, this revision has impacted every one related even remotely, with Financial Statements, in one way or the other. The guidance note from ICAI and/or clarifications from MCA also shall smoothen the process of adaptation for change.
CA Vijay Joshi 9