Revised Schedule VI of the Companies Act, 1956
AN INSIGHT
TO
REVISED SCHEDULE VI
OF
THE COMPANIES ACT, 1956
CA. (Dr.) G.S. Grewal
Slide 1
Revised Schedule VI of the Companies Act, 1956
Approach in Discussion
 The presentation is prepared to meet the course
requirement of ISC.
It should be noted that the treatment of Loss on Issue of
Shares, Loss on Issue of Debentures and Preliminary
Expenses is different than treatment of CBSE.
 Key elements / issues of Revised Schedule VI, both for
Balance Sheet and Statement of Profit and Loss have been
highlighted.
 The discussion of the key elements/issues are, in brief but
where considered otherwise, they are discussed in detail.
 Individual items of Statement of Profit and Loss and
Balance Sheet have been explained with the help of
examples where considered appropriate.
CA. (Dr.) G.S. Grewal
Slide 2
Revised Schedule VI of the Companies Act, 1956
Companies Act, 1956 and Schedule VI
• Schedule VI is prescribed under the Companies Act,
1956.
• It has prescribed forms for preparing financial
statements of a company i.e.
(a) Balance Sheet; and
(b) Statement of Profit and Loss.
CA. (Dr.) G.S. Grewal
Slide 3
Revised Schedule VI of the Companies Act, 1956
Is it mandatory to follow Schedule VI?
• Section 211 of the Companies Act, 1956 prescribes
that:
Balance Sheet and Profit and Loss Account (now
titled Statement of Profit and Loss) shall be in the
form setout in Schedule VI or as near thereto as
circumstances admit.
CA. (Dr.) G.S. Grewal
Slide 4
Revised Schedule VI of the Companies Act, 1956
Highlights of Revised Schedule VI
General
1. In case, Revised Schedule VI is in conflict with law
and Accounting Standards, Provisions of Law and
accounting standards will override Schedule VI.
2. Detail of each item of statement of Profit and Loss
and Balance Sheet shall be given in Note duly
referenced to the Balance Sheet or Statement of
Profit and Loss.
3. Notes shall be part of the financial statements.
CA. (Dr.) G.S. Grewal
Slide 5
Revised Schedule VI of the Companies Act, 1956
Highlights
STATEMENT OF
PROFIT AND LOSS
and
BALANCE SHEET
CA. (Dr.) G.S. Grewal
Slide 6
Revised Schedule VI of the Companies Act, 1956
Statement of Profit and Loss
 Statement of Profit and Loss is to be prepared in the
form prescribed in Schedule VI of the Companies Act,
1956.
 Income to be classified as ‘Revenue from Operations’
and ‘Other Income’.
 Expenses to be classified on the basis of its nature and
not on the basis of activity.
 The form of Statement of Profit and Loss does not
provide for appropriation of profits.
CA. (Dr.) G.S. Grewal
Slide 7
Revised Schedule VI of the Companies Act, 1956
Balance Sheet
 Only vertical form of Balance Sheet is prescribed.
 Assets and liabilities (including provisions) are to be
classified as into Non-current and Current.
 Non-current Liabilities, Current Liabilities, Non-current
Assets, Current Assets, Trade Payables and Trade
Receivables have been defined.
 Share Application Money Pending Allotment to be
separately shown.
 Balance of Statement of Profit and Loss, whether ‘positive’
or ‘negative’ is to be shown under ‘Reserve and Surplus’.
 The head ‘Miscellaneous Expenditure’ has been deleted.
CA. (Dr.) G.S. Grewal
Slide 8
Revised Schedule VI of the Companies Act, 1956
Accounting Treatment of Miscellaneous Expenditure
Accounting treatment of following expenditure under the
Revised Schedule VI is as discussed in the following slides:
1. Preliminary Expenses (including Deferred Revenue
Expenditure);
2. Discount or Loss on Issue of Shares;
3. Share Issue Expenses; and
4. Discount or Loss on Issue of Debentures.
CA. (Dr.) G.S. Grewal
Slide 9
Revised Schedule VI of the Companies Act, 1956
Writing Off of Miscellaneous Expenditure
Miscellaneous Expenditure may be written off :
Either
(i)
from Securities Premium Reserve as provided in
section 78 (if it exists); or
(ii) from General Reserve (if it exists); or
(ii) from the Statement of Profit and Loss.
CA. (Dr.) G.S. Grewal
Slide 10
Revised Schedule VI of the Companies Act, 1956
Writing Off of Miscellaneous Expenditure
Securities Premium Reserve may be used for the
purposes provided in section 78 i.e. for:
1. Issuing Fully Paid Bonus Shares;
2. Writing off of Preliminary Expenses;
3. Writing off discount allowed on issue of securities or
debentures of the company; and
4. Premium payable on redemption of Redeemable
Preference Shares or Debentures.
CA. (Dr.) G.S. Grewal
Slide 11
Revised Schedule VI of the Companies Act, 1956
Preliminary Expenses
Preliminary Expenses
(including Deferred Revenue Expenditure)
Preliminary expenses and Deferred Revenue Expenditure is
to be written off in the year they are incurred.
either
(i) from Securities Premium Reserve (if it exists); or
(ii) from General Reserve (if it exists); or
(iii) from the Statement of Profit and Loss
in the year in which it is incurred.
CA. (Dr.) G.S. Grewal
Slide 12
Revised Schedule VI of the Companies Act, 1956
Discount or Loss on Issue of Shares
Discount or Loss on Issue of Shares (i.e. Discount on
Issue of Shares and/or Premium Payable on
Redemption of Preference Shares) are written off:
either
(i) from Securities Premium Reserve (if it exists); or
(ii) from General Reserve (if it exists); or
(iii) from the Statement of Profit and Loss
in the year in which it is incurred.
CA. (Dr.) G.S. Grewal
Slide 13
Revised Schedule VI of the Companies Act, 1956
Loss on Issue of Debentures
Loss on Issue of Debentures (i.e. Discount on Issue of
Debentures and / or Premium Payable on Redemption of
Debentures) are in the nature of borrowing costs. Accounting
Treatment of Borrowing Cost is guided by AS 16, Borrowing
Costs. It is written off:
either
(i) from Securities Premium Reserve (if it exists); or
(ii) from General Reserve (if it exists); or
(iii) from the Statement of Profit and Loss
in the year in which it is incurred.
CA. (Dr.) G.S. Grewal
Slide 14
Revised Schedule VI of the Companies Act, 1956
Meaning
“Terms”
Used in
STATEMENT OF PROFIT AND LOSS
CA. (Dr.) G.S. Grewal
Slide 15
Revised Schedule VI of the Companies Act, 1956
Meaning of Terms Used in Statement of Profit and Loss
Revenue
from
Operation
s
It is the revenue earned from the business
operations i.e. business activities. Examples of
Revenue from Operations are:
(a) Sale of goods;
(b) Sale of services;
(c) Other Operating revenues;
Other
Income
It means revenue that is not revenue from
operations. For example: Interest and dividend
etc. for a Non – finance Companies.
CA. (Dr.) G.S. Grewal
Slide 16
Revised Schedule VI of the Companies Act, 1956
Meaning of Terms Used in Statement of Profit and Loss
Expenses
Expenses are classified or shown under the
heads discussed below:
Cost of Material
Consumed
Under the head, consumption of raw materials to
produce the goods is disclosed. As the title
suggests, it relates to manufacturing companies.
Purchases of
Stock – in – trade
Under the head, purchase of goods i.e. stock – in
– trade i.e. goods traded in is disclosed.
Changes in
Inventories of
Finished Goods, WIP
and Stock – in - trade
It is the difference between opening inventory
(stock) and closing inventory (stock) of Finished
Goods, WIP and Stock – in – trade. Opening and
closing inventory of raw material is not dealt in
the head as it is accounted in ‘Cost of Material
Consumed’.
CA. (Dr.) G.S. Grewal
Slide 17
Revised Schedule VI of the Companies Act, 1956
Meaning of Terms Used in Statement of Profit and Loss
Employees Benefit Expenses incurred on employees towards salary,
Cost
wages, leave encashment, provident fund and staff
welfare etc. are shown under the head.
Finance Cost
Expenses incurred on interest on borrowings is disclosed or
shown under this head. It should borne in mind that bank
charges are not part of finance cost, it being payment
towards service rendered by the bank. Bank Charges are
included in Other Expenses.
Depreciation and
Amortisation
Depreciation is charged on tangible fixed assets for its use
over its useful life. Amortisation is associated with Intangible
Assets and is the amount written off over its estimated useful
life.
Other Expenses
All expenses that do not fall in the above classification are
shown under Other Expenses.
CA. (Dr.) G.S. Grewal
Slide 18
Revised Schedule VI of the Companies Act, 1956
Meaning
“Terms”
Used in
BALANCE SHEET
(Equity and Liabilities Part)
CA. (Dr.) G.S. Grewal
Slide 19
Revised Schedule VI of the Companies Act, 1956
Meaning of Terms Used in Equity and Liabilities
Shareholders’
Funds
Shareholders’ Funds includes
(a) Share Capital;
(b) Reserves and Surplus; and
(c) Money Received against Share Warrants.
(a) Share Capital Share Capital is the amount received on the
subscribed shares. Share Capital includes both
Equity share Capital and Preference Share Capital.
Reserves and Surplus includes the amount received
(b) Reserves
as Securities Premium Reserve and the amount
and Surplus
appropriated out of surplus of Statement of Profit
and Loss.
It is the amount that the company has received has
(c) Money
against share warrants that shall be converted into
Received
shares on a future date at a pre-determined price.
against Share
Warrants
CA. (Dr.) G.S. Grewal
Slide 20
Revised Schedule VI of the Companies Act, 1956
Meaning of Terms Used in Equity and Liabilities
Share Application Share Application Money Pending Allotment means
Money Allotment the amount received towards share application against
which allotment shall be made.
Current Liabilities Current Liabilities are those liabilities which are
and Non – current • expected to be settled in company’s normal
Liabilities
operating cycle; or
• due to be settled within twelve month after the
reporting date i.e. Balance Sheet date; or
• held primarily for the purpose of being traded; or
• there is no unconditional right to defer settlement
for at least 12 months after the reporting date i.e.
Balance Sheet date.
All other liabilities are Non – current Liabilities.
CA. (Dr.) G.S. Grewal
Slide 21
Revised Schedule VI of the Companies Act, 1956
Meaning of Terms Used in Equity and Liabilities
Operating
Cycle
Operating Cycle means the time between
the acquisition of assets for processing and
their realisation in cash or cash equivalents.
Where operating cycle cannot be identified,
it is assumed to be 12 months.
Long – term
Borrowings
Long – term Borrowings means borrowings
which are repayable after 12 months of date
of borrowing.
CA. (Dr.) G.S. Grewal
Slide 22
Revised Schedule VI of the Companies Act, 1956
Meaning of Terms Used in Equity and Liabilities
Deferred Tax
Liabilities (Net)
It is only a book entry i.e. not an actual liability. The
entry is passed with the net effect of tax on
difference between accounting income and taxable
income which are temporary in nature. If accounting
income is higher than the taxable income, it results
in Deferred Tax Liability. In a Balance Sheet either
Deferred Tax Liabilities (Net) or Deferred Tax Assets
(Net) will appear.
Other Long
term Liabilities
Long – term liabilities other than long term
borrowings are shown as Other Long term Liabilities.
Long term
Provisions
Provision is amount provided for a liability amount of
which is not ascertained but is estimated. Provisions
that are likely to be paid after 12 months of the date
of Balance Sheet are shown as Long term Provisions.
CA. (Dr.) G.S. Grewal
Slide 23
Revised Schedule VI of the Companies Act, 1956
Meaning of Terms Used in Equity and Liabilities
2. Current
Liabilities
Current Liabilities are those liabilities that are
payable within 12 from the date of the Balance
Sheet.
Current Liabilities are classified into:
(a) Short term Borrowings;
(b) Trade Payables;
(c) Other Current Liabilities; and
(d) Short term Provisions.
(a) Short term Short term Borrowing are the borrowings of the
Borrowings company which are payable with the 12 months
of the date of borrowing.
CA. (Dr.) G.S. Grewal
Slide 24
Revised Schedule VI of the Companies Act, 1956
Meaning of Terms Used in Equity and Liabilities
Trade Payables is the amount payable for
purchase of goods or services taken in the
ordinary course of business.
Trade Payables includes Sundry Creditors and
Bills Payable.
Liabilities that are payable within 12 months
(c) Other
of the date of Balance Sheet and which are
Current
not classified as Short term Borrowings and
Liabilities Trade Payables are Other Current Liabilities.
(d) Short term Provision is amount provided for a liability
Provisions amount of which is not ascertained but is
estimated. Provisions that are likely to be paid
within 12 months of the date of Balance
Sheet are shown as Short term Provisions.
(b) Trade
Payables
CA. (Dr.) G.S. Grewal
Slide 25
Revised Schedule VI of the Companies Act, 1956
Illustration: Classification of liability as non – current
and current on the basis of Operating Cycle
Liability
Operating Cycle
(in months)
Average Payment
Time (in months)
Classification
Trade Payables
10
8
Current Liabilities
Trade Payables
10
12
Current Liabilities
Trade Payables
10
15
Non – current
Liabilities
Trade Payables
18
15
Current Liabilities
Trade Payables
18
24
Non – current
Liabilities
CA. (Dr.) G.S. Grewal
Slide 26
Revised Schedule VI of the Companies Act, 1956
Meaning
“Terms”
Used in
BALANCE SHEET
(Assets Part)
CA. (Dr.) G.S. Grewal
Slide 27
Revised Schedule VI of the Companies Act, 1956
Meaning of Terms Used in Assets
Current Assets
and
Non Current
Assets
Current Assets are those assets which are
• expected to be realised in or intended for sale or
consumption
in the company’s normal
Operating Cycle; or
• held primarily for the purpose of trading, or
• expected to be realised within 12 months from
the reporting date or closing date i.e. Balance
Sheet date; or
• It is cash and cash equivalent unless it is
restricted from being exchanged or used to settle
a liability for at least 12 months after the
reporting date i.e. Balance Sheet date.
All other assets are Non – current Assets.
CA. (Dr.) G.S. Grewal
Slide 28
Revised Schedule VI of the Companies Act, 1956
Meaning of Terms Used in Assets
Operating Cycle Operating Cycle means the time between the
acquisition of assets for processing and their
realisation in cash or cash equivalents.
Where operating cycle cannot be identified, it is
assumed to be 12 months.
Fixed assets are the assets owned by enterprise to
Non – current
enhance its earning capacity and not for resale. Fixed
Assets
(a) Fixed Assets Assets are classified into four following classes:
(a) Tangible Assets;
(b) Intangible Assets;
(c) Capital Work – in – progress;
(d) Intangible Assets under Development.
Tangible Fixed Assets are those assets which have
(i) Tangible
Fixed Assets physical existence i.e. they can be seen and touched.
CA. (Dr.) G.S. Grewal
Slide 29
Revised Schedule VI of the Companies Act, 1956
Meaning of Terms Used in Assets
Intangible Fixed Assets are those assets which do
(ii) Intangible
Fixed Assets not have physical existence i.e. they cannot be seen
or touched.
Tangible Fixed assets that are under construction i.e.
(iii) Capital
are not yet complete are classified or shown as
Work – in
Capital Work – in – progress.
– progress
Intangible Fixed Assets that are under development
(iv) Intangible
Assets under i.e. are not yet complete are classified as Intangible
Assets under Development.
Development
(b) Non – current Non – current Investments are those investments
which are made with the aim to hold it for a long
Investments
time. They are further classified into Trade
Investments and Non – trade Investments.
Trade investments are the investments that are
made in another company not being its subsidiary,
for the purpose of promoting its own business.
CA. (Dr.) G.S. Grewal
Slide 30
Revised Schedule VI of the Companies Act, 1956
Meaning of Terms Used in Assets
Deferred Tax Assets (Net) like Deferred Tax Liability
(c) Deferred
(Net) is a book entry i.e. it is not an actual asset. The
Tax Assets
entry is passed with the net effect of tax on
(Net)
difference between accounting income and taxable
income which are temporary in nature. If accounting
income is lower than the taxable income, it results in
Deferred Tax Asset. In a Balance Sheet either
Deferred Tax Liability (Net) or Deferred Tax Asset
(Net) will appear.
Loans and Advances given by a company which are
(d) Long term
receivable in cash or in kind after a period of 12
Loans and
months from the date of advance are classified as
Advances
Long term Loans and Advances.
(e) Other Non – All assets that receivable or recoverable after 12
months of the date of Balance Sheet which do not fall
current
in the category of (a) to (d) above are classified or
Assets
shown as Other Non – current Assets.
CA. (Dr.) G.S. Grewal
Slide 31
Revised Schedule VI of the Companies Act, 1956
Meaning of Terms Used in Assets
2. Current Assets Current Assets are those assets which fulfill any of
the four conditions prescribed by Revised Schedule
VI of the Companies Act, 1956. The prescribed
conditions are discussed earlier in slide 21. They are
classified into following classes:
(a) Current Investments;
(b) Inventories;
(c) Trade Receivables;
(d) Cash and Cash Equivalents;
(e) Short term Loans and Advances;
(f) Other Current Assets.
Current Investments are those investments of a
(a) Current
Investments company which are made with the purpose to sell
within a period of 12 months of the date of Balance
Sheet.
CA. (Dr.) G.S. Grewal
Slide 32
Revised Schedule VI of the Companies Act, 1956
Meaning of Terms Used in Assets
(b) Inventories Inventories are goods held by a company to
be consumed or sold in the normal course of
its business. They include:
(a) Raw Material;
(b) Stock – in – trade;
(c) Consumable Stores;
(d) Loose tools;
(e) Stores and spares.
Trade Receivables means the amount
(c) Trade
Receivables receivable for sale of goods or services
rendered in the ordinary course of its
business. Trade Receivable includes both
Sundry Debtors and Bills Receivable.
CA. (Dr.) G.S. Grewal
Slide 33
Revised Schedule VI of the Companies Act, 1956
Meaning of Terms Used in Assets
(d) Cash and Cash Cash and Cash Equivalents includes Cash in Hand,
Cash at Bank, Cheques / Drafts in Hand, Earmarked
Equivalents
Bank Balances, Balance lying as Margin Money,
Deposits in banks with more than 12 months
maturity.
Advances receivable by a company whether in cash
(e) Short term
or in kind within 12 months from the date of Balance
Loans and
Sheet are classified as Short term Loans and
Advances
Advances.
(f) Other Current Current assets that are not classified in any of the
above classifications (a) to (e) above are classified as
Assets
Other Current Assets.
CA. (Dr.) G.S. Grewal
Slide 34
Revised Schedule VI of the Companies Act, 1956
Illustration: Classification of asset as non – current
and current on the basis of Operating Cycle
Asset
Operating Cycle
(in months)
Average Collection
Time (in months)
Trade Receivables
11
10
Current Assets
Trade Receivables
11
12
Current Assets
Trade Receivables
11
15
Non – current
Assets
Trade Receivables
20
15
Current Assets
Trade Receivables
20
24
Non – current
Assets.
CA. (Dr.) G.S. Grewal
Classification
Slide 35
Revised Schedule VI of the Companies Act, 1956
Form of Statement of Profit and Loss
Particulars
Note No.
Figures for the
current reporting
period
Figure for the
previous
reporting period
I. Revenue from Operations
II. Other Income
III Total Revenue (I + II)
IV. Expenses
(a)
Cost of Material Consumed
(b)
Purchase of Stock – in – trade
(c)
Changes in Inventories of finished goods,
Work – in – progress and stock – in – trade
(d)
Employees Benefits Expenses
(e)
Finance Cost
(f)
Depreciation and Amortisation Expenses
(g)
Other Expenses
Total Expenses
V. Profit before exceptional and extraordinary items and tax (III – IV)
CA. (Dr.) G.S. Grewal
Slide 36
Revised Schedule VI of the Companies Act, 1956
Form of Statement of Profit and Loss
Particulars
Note No.
Figures for the
current reporting
period
Figure for the
previous
reporting period
V. Profit before exceptional and extraordinary items and tax (III – IV)
VI. Exceptional Items
VII. Profit before extraordinary items and tax
VIII. Extraordinary Items
IX. Profit before tax
X. Tax Expense Current Tax
Deferred Tax
XI. Profit (loss) for the period from continued operations
XII Profit (Loss) from the discontinuing business
XIII Tax expenses of discontinuing operations
XIV. Profit (Loss) for the period
XV. Earnings per equity share (EPS and Diluted EPS)
CA. (Dr.) G.S. Grewal
Slide 37
Revised Schedule VI of the Companies Act, 1956
Discussion on Heads of Accounts
Income is classified into:
(i) Revenue form Operations; and
(ii) Other Income.
CA. (Dr.) G.S. Grewal
Slide 38
Revised Schedule VI of the Companies Act, 1956
Discussion on Heads of Accounts
Revenue from Operations
It is revenue earned from the business operations (activities).
For a manufacturing or trading company it includes:
(a) Sale of Products;
(b) Sale of Services; and
(c) Other Operating Revenues (Say Sale of Scrap).
For a finance company it includes:
(a) Interest;
(b) Dividend;
(c) Profit from sale of shares; and
(d) Income from Other Financial Services.
CA. (Dr.) G.S. Grewal
Slide 39
Revised Schedule VI of the Companies Act, 1956
Discussion on Heads of Accounts
Other Income
Other Income includes revenue that is not revenue from
operations.
Other income is classified into:
(a) Interest income;
(b) Dividend income;
(c)
Profit on sale of investments; and
(d) Other non-operating income.
CA. (Dr.) G.S. Grewal
Slide 40
Revised Schedule VI of the Companies Act, 1956
Discussion on Heads of Accounts
Expenses are shown under the following heads:
(a) Cost of Materials Consumed: It relates to
manufacturing companies and is computed as
follows:
Opening Balance + Purchases – Closing Balance
(b) Purchase of stock-in-trade: It relates to trading
companies.
(c) Changes in inventories of finished goods, WIP and
Stock-in-trade.
CA. (Dr.) G.S. Grewal
Slide 41
Revised Schedule VI of the Companies Act, 1956
Discussion on Heads of Accounts
(d)
Employees Benefits Expenses: Expenses incurred
on employees are classified or shown under the
head. It includes expenses on Salary Wages, Leave
Encashment, Staff Welfare Expenses Retirement
Benefits etc.
Employees Benefits Expenses may be further
disclosed or shown as Direct Expenses (Wages
and related costs or expenses) being part of Cost
of Goods Sold and Indirect Expenses (Salaries
and related costs or expenses).
CA. (Dr.) G.S. Grewal
Slide 42
Revised Schedule VI of the Companies Act, 1956
Discussion on Heads of Accounts
(e)
Finance Cost: Finance cost means expenses
incurred on raising the loan and payment of
interest on the borrowings, both Long –
term
borrowings and short – term borrowings.
It does not include Bank Charges, which are
shown as Other Expenses; it being the cost of
services availed.
CA. (Dr.) G.S. Grewal
Slide 43
Revised Schedule VI of the Companies Act, 1956
Discussion on Heads of Accounts
(f)
Depreciation and Amortisation Expenses:
The term ‘Depreciation’ is associated with tangible
fixed assets and is the amount written off over the
useful life of the tangible asset. For example:
depreciation written off on compute₹
The term ‘Amortisation’ is associated with intangible
fixed assets and is the amount written off over the
useful life of the intangible asset. For example:
Goodwill or patents being amortised.
CA. (Dr.) G.S. Grewal
Slide 44
Revised Schedule VI of the Companies Act, 1956
Discussion on Heads of Accounts
(g) Other expenses: Expenses that do not fall in any of the
above expenses are shown under Other Expenses. The
expenses may be further classified into:
(i) Direct Expenses (such as Carriage Inwards, Octroi etc.)
form part of the Cost of Goods Sold.
(ii) Indirect Expenses (such as Administration, Selling and
Distribution etc.) form part of the Operating Expenses.
(iii) Activity wise Expenses (such as Printing & Stationery,
Postage, Administration, Advertisement etc.)
(iv)Non – Operating Expenses. Expenses incurred for other
than operating activities are non – operating expenses.
CA. (Dr.) G.S. Grewal
Slide 45
Revised Schedule VI of the Companies Act, 1956
Form of Balance Sheet (Under Revised Schedule VI)
PARTICULARS
I.
NOTE
NO.
CURRENT
YEAR
PREVIOUS
YEAR
EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital
(b) Reserves and Surplus
(c) Money Received Against Share Warrants
(2) Share Application Money Pending Allotment
(3) Non – current Liabilities
(a) Long – term Borrowings
(b) Deferred Tax Liabilities (Net)
(c) Other Long – term Liabilities
(d) Long – term Provisions
(4) Current Liabilities
(a) Short – term Borrowings
(b) Trade Payables
(c) Other Current Liabilities
(d) Short – term Provisions
CA. (Dr.) G.S. Grewal
TOTAL
Slide 46
Revised Schedule VI of the Companies Act, 1956
Form of Balance Sheet (Under Revised Schedule VI)
PARTICULARS
NOTE
NO.
CURRENT
YEAR
PREVIOUS
YEAR
II. ASSETS
(1) Non – current Assets
(a) Fixed Assets
(i) Tangible Assets
(ii) Intangible Assets
(iii) Capital Work – in – progress
(iv) Intangible Assets under Development
(b) Non – current Investments
(c) Deferred Tax Assets (Net)
(d) Long – term Loans and Advances
(e) Other Non – current Assets
(2) Current Asset
(a) Current Investments
(b) Inventories
(c) Trade Receivables
(d) Cash and Cash Equivalents
(e) Short – term Loans and Advances
(f) Other Current Assets
CA. (Dr.) G.S. Grewal
Slide 47
Revised Schedule VI of the Companies Act, 1956
Discussion on Items in Liabilities Part of the
Balance Sheet
Shareholders’ Funds
Share Capital
Share Capital includes both Equity Share Capital and
Preference Share Capital.
Information disclosed in Notes to Account relating to
Share Capital is as follows:
(a) Authorised Capital;
(b) Issued Capital;
(c) Subscribed Capital;
Subscribed and fully paid up
Subscribed but not fully paid up
CA. (Dr.) G.S. Grewal
Slide 48
Revised Schedule VI of the Companies Act, 1956
Example 1: Share Capital
AB Ltd. has an authorised capital of Rs. 5,00,000
divided into 50,000 equity shares of Rs. 10 each.
It issued 10,000 Equity Shares of Rs. 10 each at
par. All the shares were subscribed for and the
due amount was received.
How will be Share Capital shown in the Balance
Sheet of the company?
CA. (Dr.) G.S. Grewal
Slide 49
Revised Schedule VI of the Companies Act, 1956
Solution: To be shown in the Balance Sheet as follows:
Balance Sheet of ………….
as at: ……………………..
Particulars
I. EQUITY AND LIABILITIES
Shareholders Funds
Share Capital
CA. (Dr.) G.S. Grewal
Note No.
Rs.
1
1,00,000
Slide 50
Revised Schedule VI of the Companies Act, 1956
Solution: It will be shown in the Notes as follows:
Note 1:
Share Capital
Rs.
Authorised Share Capital
Equity Capital
50,000 Equity Shares of Rs. 10 each
5,00,000
Issued Capital
10,000 Equity Shares of Rs. 10 each
1,00,000
Subscribed Capital
Subscribed and fully paid up
10,000 Equity Shares of Rs. 10 each
1,00,000
CA. (Dr.) G.S. Grewal
Slide 51
Revised Schedule VI of the Companies Act, 1956
Example 2: Share Capital
Grand Ltd. has an authorised capital of Rs. 5,00,000 divided
into 30,000 equity shares of Rs. 10 each and 2,000 Preference
Shares of Rs. 100 each.
It issued 10,000 Equity shares and also 2,000 Preference
Shares at par.
All shares offered were subscribed for and the money was
duly received except final call of Rs. 3 per equity shares on
500 shares.
How will be Share Capital shown in the Balance Sheet of the
company?
CA. (Dr.) G.S. Grewal
Slide 52
Revised Schedule VI of the Companies Act, 1956
Solution: To be shown in the Balance Sheet as follows:
Balance Sheet of Grand Ltd.
as at: ……………………..
Particulars
I. EQUITY AND LIABILITIES
Shareholders Funds
Share Capital
CA. (Dr.) G.S. Grewal
Note No.
Rs.
1
298,500
Slide 53
Revised Schedule VI of the Companies Act, 1956
Solution: It will be shown in the Notes as follows:
Note 1:
Share Capital
Rs.
Rs.
Authorised Share Capital
Equity Capital
30,000 Equity Shares of ₹ 10 each
2,000 Preference Shares of ₹ 100 each
3,00,000
2,00,000
5,00,000
Issued Capital
10,000 Equity Shares of ₹ 10 each
2,000 Preference Shares of ₹ 100 each
1,00,000
2,00,000
3,00,000
Subscribed Capital
Subscribed and fully paid up
9,500 Equity Shares of ₹ 10 each
2,000 Preference Shares of ₹ 100 each
Subscribed but not fully paid up
500, Equity Shares of ₹ 10 each
Less: Calls – in – arrears
CA. (Dr.) G.S. Grewal
95,000
2,00,000
5,000
1,500
3,500
2,98,500
Slide 54
Revised Schedule VI of the Companies Act, 1956
Example 3: Share Capital
Matrix Ltd. is registered with an authorised capital
of Rs. 5,00,000 divided into 50,000 equity shares of
Rs. 10 each.
It issued 10,000 equity shares of Rs. 10 each at par.
Final call of Rs. 2 per share was yet to be called.
All shares offered were subscribed for and the
money was duly received.
How will be Share Capital shown in the Balance
Sheet of the company?
CA. (Dr.) G.S. Grewal
Slide 55
Revised Schedule VI of the Companies Act, 1956
Solution: To be shown in the Balance Sheet as follows:
Balance Sheet of Matrix Ltd.
as at: ……………………..
Particulars
I. EQUITY AND LIABILITIES
Shareholders Funds
Share Capital
CA. (Dr.) G.S. Grewal
Note No.
₹
1
80,000
Slide 56
Revised Schedule VI of the Companies Act, 1956
Solution: It will be shown in the Notes as follows:
Note 1:
Share Capital
Rs.
Authorised Share Capital
Equity Capital
50,000 Equity Shares of Rs. 10 each
5,00,000
Issued Capital
10,000 Equity Shares of Rs. 10 each
1,00,000
Subscribed Capital
Subscribed but not fully paid up
10,000, Equity Shares of Rs. 10 each; Rs. 8 Called up
CA. (Dr.) G.S. Grewal
80,000
Slide 57
Revised Schedule VI of the Companies Act, 1956
Example 4: Share Capital
JBM Ltd. is registered with an authorised capital of
Rs. 5,00,000 divided into 50,000 equity shares of
Rs. 10 each.
It issued 10,000 equity shares of Rs. 10 each at par.
Calls were made of Rs. 8 per share. All shares
offered were subscribed for and the money was
duly received except final call of Rs. 3 on 500
shares.
How will be Share Capital shown in the Balance
Sheet of the company?
CA. (Dr.) G.S. Grewal
Slide 58
Revised Schedule VI of the Companies Act, 1956
Solution: To be shown in the Balance Sheet as follows:
Balance Sheet of JBM Ltd.
as at: ……………………..
Particulars
I. EQUITY AND LIABILITIES
Shareholders Funds
Share Capital
CA. (Dr.) G.S. Grewal
Note No.
Rs.
1
78,500
Slide 59
Revised Schedule VI of the Companies Act, 1956
Solution: It will be shown in the Notes as follows:
Note 1:
Share Capital
Rs.
Rs.
Authorised Share Capital
Equity Capital
50,000 Equity Shares of Rs. 10 each
5,00,000
Issued Capital
10,000 Equity Shares of Rs. 10 each
1,00,000
Subscribed Capital
Subscribed but not fully paid up
10,000, Equity Shares of Rs. 10 each; Rs. 8 Called up
Less: Calls – in – arrears
CA. (Dr.) G.S. Grewal
80,000
1,500
78,500
Slide 60
Revised Schedule VI of the Companies Act, 1956
Example 5: Share Capital
M Ltd. has an authorised capital of Rs. 5,00,000
divided into 50,000 equity shares of Rs. 10 each.
The company has existing issued and fully paid 15,000
shares of Rs. 10 each.
It further issued 10,000 equity shares of Rs. 10 each
at par. The money called was Rs. 8 per share. All
shares were subscribed for and the money was duly
received except final call of Rs. 3 per share on 1,000
shares.
How will be Share Capital shown in the Balance Sheet
of the company?
CA. (Dr.) G.S. Grewal
Slide 61
Revised Schedule VI of the Companies Act, 1956
Solution: To be shown in the Balance Sheet as follows:
Balance Sheet of M Ltd.
as at: ……………………..
Particulars
I. EQUITY AND LIABILITIES
Shareholders Funds
Share Capital
CA. (Dr.) G.S. Grewal
Note No.
Rs.
1
2,27,000
Slide 62
Revised Schedule VI of the Companies Act, 1956
Solution: It will be shown in the Notes as follows:
Note 1:
Share Capital
Amount (Rs.) Amount (Rs.)
Authorised Share Capital
Equity Capital
50,000 Equity Shares of Rs. 10 each
5,00,000
Issued Capital
25,000 Equity Shares of Rs. 10 each
2,50,000
Subscribed Capital
Subscribed and fully paid up
15,000, Equity Shares of Rs. 10 each
Subscribed but not fully paid up
10,000, Equity Shares of Rs. 10 each; Rs. 8 Called
up
Less: Calls – in – arrears
CA. (Dr.) G.S. Grewal
1,50,000
80,000
3,000
77,000
2,27,000
Slide 63
Revised Schedule VI of the Companies Act, 1956
Example 6: Share Capital
Casio Ltd. is registered with the capital: 1,00,000, Equity Shares of
Rs. 10 each; and 50,000, 9% Preference Shares of Rs. 10 each.
It issued 90,000 Equity Shares and 50,000, 9% Preference Shares
for subscription.
85,000 Equity Shares were subscribed on which the company had
called Rs. 8. It did not receive first call of Rs. 2 on 3,000 shares, out
of which 2,000 allotted to Atul were forfeited. Out of the forfeited
shares 1,500 shares were reissued at Rs. 6, Rs. 8 paid up.
9% Preference Shares were fully paid up.
How will it be shown in balance sheet as per Revised Schedule VI?
CA. (Dr.) G.S. Grewal
Slide 64
Revised Schedule VI of the Companies Act, 1956
Solution: To be shown in the Balance Sheet as follows:
Balance Sheet of Casio Ltd.
as at: ……………………..
Particulars
I. EQUITY AND LIABILITIES
Shareholders Funds
Share Capital
CA. (Dr.) G.S. Grewal
Note No.
Rs.
1
11,77,000
Slide 65
Revised Schedule VI of the Companies Act, 1956
Solution: It will be shown in the Notes as follows:
Note 1:
Share Capital
Authorised Share Capital
Equity Share Capital
1,00,000 Equity Shares of Rs. 10 each
Preference Share Capital
50,000, 9% Preference Share of Rs. 10 each
Issued Capital
90,000 Equity Shares of Rs. 10 each
50,000 9% Preference Share of Rs. 10 each
Subscribed Capital
Subscribed and Fully Paid up
50,000, 9% Preference Shares of Rs. 10 each
Subscribed and not Fully Paid up
84,500 Equity Shares of Rs. 8 each
Less: Calls in Arrears (1,000 Shares X Rs. 2)
Add: Forfeited Shares Account
CA. (Dr.) G.S. Grewal
Amount (Rs.)
Amount (Rs.)
10,00,000
5,00,000
15,00,000
9,00,000
5,00,000
14,00,000
5,00,000
6,76,000
2,000
6,74,000
3,000
6,77,000
11,77,000
Slide 66
Revised Schedule VI of the Companies Act, 1956
Reserve and Surplus
Reserve is a portion of earnings, receipts or other surplus set
aside for a specific purpose. Reserve and Surplus is part of
Shareholders’ Funds. Revised Schedule VI has prescribed that
reserves be shown under the following heads:
(i) Capital Reserves
(ii) Capital Redemption Reserve
(iii) Securities Premium Reserve
(iv) Debentures Redemption Reserve
(v) Revaluation Reserve
(vi) Share Options Outstanding
(vii) Any Other Reserves (to specify the nature and purpose
of each reserve)
CA. (Dr.) G.S. Grewal
Slide 67
Revised Schedule VI of the Companies Act, 1956
Reserves and Surplus
Any Other Reserve
Revised Schedule VI is flexible and allows a company to
have reserves as per its requirements besides the six
prescribed reserves. For example: a company may have
following reserves :
a) Workmen Compensation Reserve; or
b) Investments Fluctuation Reserve;
C) Statement of Profit and Loss is an important reserve
because
(i) it shows the profit or loss for the year; and
(ii) appropriation of profit is made through this reserve.
CA. (Dr.) G.S. Grewal
Slide 68
Revised Schedule VI of the Companies Act, 1956
Reserve and Surplus
All reserves must have information as to opening balance,
addition / deletion and closing balance. The sum total of all
the reserves is shown on the face of the Balance Sheet. Each
item of Reserves and Surplus to have following details:
Opening Balance
xxxxx
Add: Addition
xxxxx
xxxxx
Less: Deletion / Utilization
xxxxx
Balance
xxxxx
CA. (Dr.) G.S. Grewal
Slide 69
Revised Schedule VI of the Companies Act, 1956
Amount of Reserves and Surplus – How shown
 Individual reserves are shown in the Note for
Reserves and Surplus giving details of opening
balance; addition / deletion and closing balance.
 Closing Balances under each reserve are totalled;
and
 The total is shown as one amount in the Balance
Sheet.
CA. (Dr.) G.S. Grewal
Slide 70
Revised Schedule VI of the Companies Act, 1956
Loss from Statement of Profit and Loss
 Current year’s loss is deducted from existing credit
balance in Statement of Profit and Loss under
‘Reserves and Surplus’.
 If the existing balance is negative, current year’s loss is
added to it.
 The net amount after transfer whether positive or
negative amount, it is shown as negative amount under
the head Statement of Profit and Loss in the Note for
Reserves and Surplus.
CA. (Dr.) G.S. Grewal
Slide 71
Revised Schedule VI of the Companies Act, 1956
Appropriation of Profit
Appropriation of Profit out of Balance – Statement of Profit
and Loss:
 Profit for the accounting period is transferred and added to
the existing Balance of Statement of Profit and Loss under
Reserves and Surplus.
 Thereafter appropriations for transfer to reserves and
proposed dividend etc. is made as follows:
Opening Balance
xxx
Add: Profit (Loss) for the Year
xxx
xxx
Less Appropriations to
DDR
Workmen Compensation Reserve
Proposed Dividend
xxx
xxx
xxx
Balance
CA. (Dr.) G.S. Grewal
xxx
xxx
Slide 72
Revised Schedule VI of the Companies Act, 1956
Example 1: on Reserves and Surplus
A company has a opening credit balance in
Statement of Profit and Loss of Rs. 1,00,000.
During the year, it earned a profit of Rs. 1,50,000.
Questions:
(i) How will it be shown in the Balance Sheet?
(ii) What amount will be shown therein?
CA. (Dr.) G.S. Grewal
Slide 73
Revised Schedule VI of the Companies Act, 1956
Balance Sheet of M Ltd.
as at: ……………………..
Particulars
Note No.
Rs.
(1)Shareholders’ Funds
(a) Reserves and Surplus
2
2,50,000
CA. (Dr.) G.S. Grewal
Slide 74
Revised Schedule VI of the Companies Act, 1956
Solution:
1. Balance of Statement of Profit and Loss will be shown
under Reserves and Surplus.
2. The amount shown will be:
Statement of Profit and Loss
Balance – Statement of Profit & Loss
Rs.
Opening
1,00,000
Add: Profit for the Period
1,50,000
Balance (to be shown in the Balance Sheet) 2,50,000
CA. (Dr.) G.S. Grewal
Slide 75
Revised Schedule VI of the Companies Act, 1956
Example 2: on Reserves and Surplus
A company has a opening credit balance in
Statement of Profit and Loss of Rs. 1,00,000.
During the year, it incurred loss of Rs. 1,50,000.
Questions:
(i) How will you show the balance of Statement
of Profit and Loss in the Balance Sheet?
(ii) What amount will be shown therein?
CA. (Dr.) G.S. Grewal
Slide 76
Revised Schedule VI of the Companies Act, 1956
Balance Sheet of M Ltd.
as at: ……………………..
Particulars
Note No.
Rs.
(1)Shareholders’ Funds
(b) Reserves and Surplus
2
(50,000)
CA. (Dr.) G.S. Grewal
Slide 77
Revised Schedule VI of the Companies Act, 1956
Solution:
1. Balance of Statement of Profit and Loss will be shown
under Reserves and Surplus as a negative amount.
2. The amount shown will be:
Statement of Profit and Loss
Rs.
Statement of Profit & Loss (Opening)
1,00,000
Add: Profit (Loss) for the Period
(1,50,000)
Balance
(50,000)
CA. (Dr.) G.S. Grewal
Slide 78
Revised Schedule VI of the Companies Act, 1956
Example 3: on Reserves and Surplus
A company has an opening debit balance in
Statement of Profit and Loss of Rs. 1,00,000.
During the year, it incurred a loss of Rs. 1,50,000.
Questions:
(i) How will you show the balance in Statement
of Profit and Loss in financial statements?
(ii) What amount will be shown therein?
CA. (Dr.) G.S. Grewal
Slide 79
Revised Schedule VI of the Companies Act, 1956
Balance Sheet of M Ltd.
as at: ……………………..
Particulars
Note No.
Rs.
(1)Shareholders’ Funds
(a) Reserves and Surplus
2
(2,50,000)
CA. (Dr.) G.S. Grewal
Slide 80
Revised Schedule VI of the Companies Act, 1956
Solution:
1. Balance of Statement of Profit and Loss will be shown
under Reserves and Surplus as a negative amount.
2. The amount shown will be:
Statement of Profit and Loss
Rs.
Statement of Profit and Loss (Opening)
(1,00,000)
Add: Profit (Loss) for the Period
(1,50,000)
Balance (to be shown in the Balance Sheet) (2,50,000)
CA. (Dr.) G.S. Grewal
Slide 81
Revised Schedule VI of the Companies Act, 1956
Example 4: on Reserves and Surplus
A company has a opening credit balance in Statement
of Profit and Loss of Rs. 1,00,000. During the year, it
earned a profit of Rs. 75,000. It decided to transfer
Rs.15,000 to Debenture Redemption Reserve (DRR)
and also proposed to pay dividend of Rs. 25,000.
Question:
How will you show the appropriations in the financial
statements?
CA. (Dr.) G.S. Grewal
Slide 82
Revised Schedule VI of the Companies Act, 1956
Balance Sheet of M Ltd.
as at: ……………………..
Particulars
Note No.
Rs.
(1)Shareholders’ Funds
(a) Reserves and Surplus
2
1,50,000
CA. (Dr.) G.S. Grewal
Slide 83
Revised Schedule VI of the Companies Act, 1956
Solution:
It will be shown in the Note on Reserves and Surplus as
follows:
Statement of Profit and Loss
Rs.
Statement of Profit & Loss (Opening)
1,00,000
Add: Profit for the Period
75,000
1,75,000
Less: Appropriation
Proposed Dividend
25,000
Transfer to DRR
15,000
40,000
Balance
1,35,000
CA. (Dr.) G.S. Grewal
Slide 84
Revised Schedule VI of the Companies Act, 1956
Solution Contd/…
Debenture Redemption Reserve
Opening Balance
Nil
Transfer from Balance in Statement of
Profit and Loss
15,000
Balance
15,000
Reserves and Surplus to be shown on the
face of the Balance Sheet (Rs. 1,35,000 + Rs. 15,000) 1,50,000
Current Liabilities
Short – term Provisions
Proposed Dividend
25,000
CA. (Dr.) G.S. Grewal
Slide 85
Revised Schedule VI of the Companies Act, 1956
Example 5: on Reserves and Surplus
A company has opening credit balance in
Statement of Profit and Loss of Rs. 1,00,000.
During the year, it incurred loss of Rs. 1,50,000. It
has a opening balance in Debenture Redemption
Reserve of Rs. 60,000.
Question:
How will you show the two in the financial
statements?
CA. (Dr.) G.S. Grewal
Slide 86
Revised Schedule VI of the Companies Act, 1956
Balance Sheet of M Ltd.
as at: ……………………..
Particulars
Note No.
Rs.
(1)Shareholders’ Funds
(a) Share Capital
(b) Reserves and Surplus
2
10,000
CA. (Dr.) G.S. Grewal
Slide 87
Revised Schedule VI of the Companies Act, 1956
Solution:
Reserves and Surplus
Debenture Redemption Reserve (DRR)
Opening Balance
Statement of Profit and Loss
Statement of Profit & Loss (Opening)
Add: Profit for the Period
Balance
60,000
1,00,000
(1,50,000)
(50,000)
Amount to be shown under
Reserves and Surplus
CA. (Dr.) G.S. Grewal
10,000
Slide 88
Revised Schedule VI of the Companies Act, 1956
Example 6: on Reserves and Surplus
A company has opening debit balance in Statement of
Profit and Loss of Rs. 1,00,000. During the year, it
earned a profit of Rs. 3,00,000. It decided to transfer
Rs. 50,000 to Debenture Redemption Reserve (DRR)
and also proposed to pay dividend of Rs. 25,000.
Question:
How will you show them in the financial statements?
CA. (Dr.) G.S. Grewal
Slide 89
Revised Schedule VI of the Companies Act, 1956
Balance Sheet of M Ltd.
as at: ……………………..
Particulars
1. Shareholders’ Funds
(a) Reserves and Surplus
CA. (Dr.) G.S. Grewal
Note No.
Rs.
2
1,75,000
Slide 90
Revised Schedule VI of the Companies Act, 1956
Solution:
Reserves and Surplus
Statement of Profit and Loss
Statement of Profit and Loss
Add: Profit (Loss) for the Period
Balance
Rs.
(1,00,000)
3,00,000
2,00,000
Less: Appropriations
Transfer to DRR
50,000
Proposed Dividend
25,000
Balance – Statement of Profit and Loss
75,000
1,25,000
CA. (Dr.) G.S. Grewal
Slide 91
Revised Schedule VI of the Companies Act, 1956
Solution Contd/…
Debentures Redemption Reserve (DRR)
Opening Balance
Transfer from Statement of Profit and Loss
Balance – Reserves and Surplus
Current Liabilities
Short – term Provisions
Proposed Dividend
CA. (Dr.) G.S. Grewal
Nil
50,000
50,000
1,75,000
25,000
Slide 92
Revised Schedule VI of the Companies Act, 1956
Money Received Against Share Warrant
 A share warrant is a bearer document of title to shares
and can be issued only by public limited companies and
that too as fully paid up.
 A share warrant cannot be issued by a private
company, because the share warrant are bearer
security and bearer is entitled to the number of shares
against the warrant. It is a negotiable document and is
transferable by mere delivery.
 The holder of the share warrant is entitled to receive
dividend as declared by the company. Share warrant is
accompanied by attached coupon for the payment of
dividend.
CA. (Dr.) G.S. Grewal
Slide 93
Revised Schedule VI of the Companies Act, 1956
Share Application Money Pending Allotment
 Share application money pending allotment is the
amount received as Share Application Money against
which shares are to be allotted by the company.
 Till the time shares are not allotted, amount remains in
the account titled ‘Share Application Money Pending
Allotment’.
 Amount refundable to the applicants are shown as
‘Other Current Liabilities’ under Current Liabilities.
CA. (Dr.) G.S. Grewal
Slide 94
Revised Schedule VI of the Companies Act, 1956
Non-Current Liabilities
Non-current liabilities are classified under the following
four sub-heads on the face of the balance sheet.
i. Long-term Borrowings
ii. Deferred Tax Liability (Net)
iii. Other Long term Liabilities
iv. Long-term Provisions.
It may be noted that Deferred Tax Liability (Net) is
classified as non-current without any consideration
towards time.
CA. (Dr.) G.S. Grewal
Slide 95
Revised Schedule VI of the Companies Act, 1956
Non-Current Liabilities
Long – term Borrowings
Borrowings are classified as long – term borrowing or short
– term borrowing on the basis of it becoming due for
payment from the date of loan.
For example:
A term loan of Rs. 5,00,000 granted to a company repayable
in 20 equal quarterly installments along with interest will be
classified or shown as Long – term borrowing. It is so
because it is repayable after more than 12 months from the
date of Balance Sheet.
On the other hand, Cash Credit limit allowed that is
repayable within 12 months from the date of Balance sheet
is classified or shown as Short term borrowing.
CA. (Dr.) G.S. Grewal
Slide 96
Revised Schedule VI of the Companies Act, 1956
Examples of Long – term Borrowings
a. Bonds
b. Debentures
c. Term loans
• from banks
• from other parties
d. Deposits
CA. (Dr.) G.S. Grewal
Slide 97
Revised Schedule VI of the Companies Act, 1956
Deferred Tax Liabilities (Net) and Deferred
Tax Assets (Net)
Deferred Tax Liabilities or Deferred Tax Assets is a new
entry on the face of the Balance Sheet.
• It is only a book entry.
• It is neither an actual Liability nor an actual asset.
• In a Balance Sheet, either Deferred Tax Liabilities (Net)
or Deferred Tax Assets (Net) will appear.
CA. (Dr.) G.S. Grewal
Slide 98
Revised Schedule VI of the Companies Act, 1956
Concept of Deferred Tax
• Deferred Tax Liabilities (Net) or Deferred Tax Assets (Net) is
the amount of tax on difference between Accounting Profit
and Taxable Profit arising because of items with timing
difference.

Example:
Depreciation method applied may be SLM to determine
accounting profit.
Income Tax Act, allows only WDV method.
Therefore, depreciation debited in the books of accounts and
depreciation allowed under Income Tax Act will differ.
As a result, difference between accounting profit and taxable
profit will arise.
CA. (Dr.) G.S. Grewal
Slide 99
Revised Schedule VI of the Companies Act, 1956
Concept of Deferred Tax
 If Accounting Profit is higher than Taxable Profit
It will result in Deferred Tax Liability.
Thus, an entry for Deferred Tax Liability will be passed. The entry is
passed with the amount of income tax on amount of difference
between accounting profit and taxable profit.
In case of first entry or which has an effect of increasing the existing
balance in Deferred Tax Liabilities, the journal entry passed is:
Statement of Profit and Loss
… Dr.
To Deferred Tax Liabilities (Net)
If the existing balance is debit balance i.e. Deferred Tax Assets (Net),
the journal entry passed is:
Statement of Profit and Loss
… Dr.
To Deferred Tax Assets (Net)
CA. (Dr.) G.S. Grewal
Slide 100
Revised Schedule VI of the Companies Act, 1956
Concept of Deferred Tax
Effect on Reserves and Surplus
Lower amount is carried to Reserves and Surplus under
Statement of Profit and Loss.
Computation of Capital Employed: The amount of Deferred
Tax Liabilities (Net) should be added to Reserves and Surplus.
Computation of Net Profit Before Tax and Extraordinary
Items in Cash Flow Statement: The difference between the
Closing Balance and Opening Balance should be computed.
If the difference is positive i.e. current year’s balance is higher
add it to difference of Reserves and Surplus.
If the difference is negative i.e. current year’s balance is
higher deduct it from the difference of Reserves and Surplus.
CA. (Dr.) G.S. Grewal
Slide 101
Revised Schedule VI of the Companies Act, 1956
Concept of Deferred Tax
 If Accounting Profit is Lower than Taxable Profit
It will result in Deferred Tax Asset.
The entry is passed with the amount of income tax on amount of
difference between accounting profit and taxable profit.
In case of first entry or which has an effect of decreasing the
existing balance in Deferred Tax Assets, the journal entry passed is:
Deferred Tax Assets (Net)
… Dr.
To Statement of Profit and Loss
If the existing balance is credit balance i.e. Deferred Tax Liabilities
(Net), the journal entry passed is:
Deferred Tax Liabilities (Net)
… Dr.
To Statement of Profit and Loss
CA. (Dr.) G.S. Grewal
Slide 102
Revised Schedule VI of the Companies Act, 1956
Concept of Deferred Tax
Effect on Reserves and Surplus
Higher amount is carried to Reserves and Surplus under Statement
of Profit and Loss.
Computation of Capital Employed: The amount of Deferred Tax
Assets (Net) should be added to Reserves and Surplus.
Computation of Net Profit Before Tax and Extraordinary Items in
Cash Flow Statement: The difference between the Closing Balance
and Opening Balance should be computed.
If the difference is positive i.e. current year’s balance is higher
deduct it from the difference of Reserves and Surplus.
If the difference is negative i.e. current year’s balance is lower add
it to the difference of Reserves and Surplus.
CA. (Dr.) G.S. Grewal
Slide 103
Revised Schedule VI of the Companies Act, 1956
Other Long Term Liabilities
Long – term Liabilities other than Long – term Borrowings
are shown under this head. Other Long Term Liabilities
shall be classified as:
(a) Trade payables: Trade payable shall be classified as
Other Long – term Liabilities if the purchases of goods
and services are made on the terms that the payment is
to be made after 12 months of the date of Balance Sheet.
(b) Others: Any other Long –term Liability other than
trade payables shall also be shown under ‘Other Long –
term Liabilities’ but as a separate item.
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Long-term Provisions
Provision is a liability amount of which is not known but is
estimated with substantial accuracy.
On the other hand, Liability is a liability amount of which is
ascertained.
Provision of amount towards a liability that is likely to arise
after more than 12 months from the date of Balance Sheet is
shown as long – term provision.
Examples
a. Premium Payable on Redemption of Debentures;
b. Premium Payable on Redemption of Preference
Shares;
c. Provision for Retirement Benefits;
d. Provision for Warranties.
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Current Liabilities
Current Liabilities are required to be sub-classified on the
face of the balance sheet as below:
i. Short-term borrowings
ii. Trade payables
iii. Other current liabilities
iv. Short-term provisions.
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Short-term borrowings
Short-term borrowings are those borrowings which are
payable within 12 months from the date of loan. Examples
are:
a) Loans repayable on demand form banks and from other
parties; and
b) Deposits.
In case, short – term borrowings are other than the above
two classes, its nature should be specified.
Important Note
Loan repayable within 12 months from the date of Balance
Sheet out of the long – term borrowings shall not be
classified as Short – term Borrowing. It shall be classified as
‘Current Maturities of Long – term Debts’ under ‘Other
Current Liabilities’.
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Trade Payable
Trade payable is the amounts payable in respect of goods
purchased or services taken in the ordinary course of
business.
In case the terms of purchases or services taken requires
payment to be made beyond a period of 12 months of
the date of Balance Sheet, it shall be classified or shown
as non-current liabilities, under Other Non-Current
Liabilities.
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Other current liabilities
Liabilities that are not short – term borrowings or trade
payables are shown under Other Current Liabilities. Following
are shown as Other Current Liabilities:
a) Current maturities of long-term debts;
b) Interest accrued but not due on borrowings;
c) Interest accrued and due on borrowings;
d) Income received in advance;
e) Calls-in-Advance;
f) Unpaid dividends;
g) Unpaid matured deposits and interest accrued thereon;
h) Unpaid matured debentures and interest accrued
thereon; and
i) Other payables (specify nature).
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Short-term Provisions
Provision is a liability amount of which is not known but is
estimated with substantial accuracy.
On the other hand, Liability is a liability amount of which is
ascertained.
Provision of amount towards a liability that is likely to arise
within 12 months from the date of Balance Sheet is shown as
short – term provision.
Examples:
a.
b.
c.
d.
e.
Provision for Doubtful Debts;
Provision for Employee Benefits;
Provision for Expenses;
Provision for Tax;
Proposed Dividend.
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Non-Current Assets
Assets side of the Balance Sheet is divided into two parts:
i.e. Non–current Assets and Current Assets. Non–current
Assets are classified as follows:
a) Fixed assets;
b) Non-current investments;
c) Deferred Tax Assets (net);
d) Long-term Loans and Advances; and
e) Other Non-current Assets.
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Fixed Assets
Recognising the significance of intangible assets, the
revised Schedule VI requires them to be presented
separately from Tangible Fixed Assets.
Fixed assets are sub-classified on the face of the Balance
Sheet as follows:
a) Tangible Assets;
b) Intangible Assets;
c) Capital work-in-progress; and
d) Intangible Assets Under Development.
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Non – current Investment
Non-current investments are classified as Trade Investments and
Other Investments.
Trade Investments are those investments which are made a
company in another company for the promotion of its own
business. They are further classified as follows:
a) Investment property;
b) Investments in Equity Instruments;
c) Investments in preference shares
d) Investments in Government or Trust securities;
e) Investments in Debentures or Bonds;
f) Investments in Mutual Funds;
g) Investments in Partnership Firms; and
h) Other non-current investments (specify nature)
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Long Term Loan and Advances
Long-term Loans and Advances are those advances which
are recoverable in cash or kind beyond a period of 12
months from the date of Balance Sheet.
They are classified as into:
a) Capital Advances;
b) Security Deposits;
c) Loans and advances to related parties (giving details
thereof); and
d) Other loans and advances (specify nature).
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Other Non – current Assets
All non–current assets which do not fall within the
categories i.e. fixed assets, long – term investments and
long–term loans and advances are classified as ‘Other
Non-current Assets’. They shall be classified as:
a) Long Term Trade Receivables (including trade
receivables on deferred credit terms) i.e. trade
receivables payment of which is agreed to be received
beyond a period of 12 months form the date of the
Balance Sheet;
b) Any other non – current asset, nature of which shall
be specified.
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Current Assets
These are classified into following categories on the face
of the balance sheet:
a) Current investments;
b) Inventories;
c) Trade receivables;
d) Cash and cash equivalents;
e) Short-term Loans and Advances; and
f) Other Current Assets.
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Current Investment
Current investments are those investments which are
made with the purpose to sell within 12 months of the
date of Balance Sheet. Investments are classified into:
a) Investments in Equity Instruments;
b) Investment in Preference Shares
c) Investments in Government or Trust Securities;
d) Investments in Debentures or Bonds;
e) Investments in Mutual Funds;
f) Investments in Partnership Firms
g) Other investments (nature needs to be specified).
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Inventories
Inventories are goods held by a company to be
consumed or sold in the normal course of its business.
They are classified into:
a) Raw materials;
b) Work-in-progress;
c) Finished goods;
d) Stock-in-trade;
e) Stores and spares;
f) Loose tools;
g) Others (nature to be specified).
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Trade Receivable
Trade receivables are receivables against sale of goods or
services rendered in the ordinary course of business.
Trade receivables are classified as current assets if they
are expected to be realised within 12 months from the
date of Balance Sheet or within the Operating Cycle of the
business, whichever is longer.
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Cash and Cash Equivalents
Cash and Cash Equivalents is classified into:
a) Balances with Bank
b) Cheques, drafts on hand
c) Cash in Hand
d) Others (nature to be specified)
e) Earmarked Balances with Banks (Unpaid Dividend)
f) Balances with Banks as Margin Money or Security
against borrowings, guarantees and other commitments
etc.
g) Bank Deposits with more than 12 months maturity.
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Short-term Loans and Advances
Short term loans and advances
These need to be sub-classified in the notes as:
- Loans and advances to related parties (giving details
thereof)
- Others (specifying nature).
CA. (Dr.) G.S. Grewal
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Revised Schedule VI of the Companies Act, 1956
Other Current Assets
Other current assets is the residuary heading, which
covers current assets that do not fall into any of the other
‘current asset’ categories.
Examples of items that may be included in this category
are unbilled revenue; interest accrued on investments, to
the extent due for realisation within 12 months from the
reporting date. Constituents of ‘other current assets’ are
to be presented in the notes.
CA. (Dr.) G.S. Grewal
Slide 122
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