CASE STUDY
1
Case study – applicability of sch.vi
The financial year of RPJ Ltd. is calendar year i.e. Jan-Dec
every year. Explain when Rev. Sch. VI will be required to be
applied by the company.
ANSWER –
Revised Schedule VI shall apply for the Balance Sheet and Profit and Loss
Account to be prepared for the “financial year commencing on or after
1.4.2011”
Therefore Rev. Sch. VI to be applied from FY 2012 i.e. Jan-Dec
2012 and not Jan-Dec 2011 since early application of the same
is not permitted.
2
Case study – share capital
•
Mr. OVS is a shareholder of GS Co Ltd. During the year he purchased some
shares of GS Co Ltd which elevated his share holding to more than 5%. He
subsequently sold the shares resulting dilution in his holding. He holds 4%
equity shares of the company as on the balance sheet date. Whether the
company is required to disclose the shareholding of Mr.OVS as on the
balance sheet date under Revised schedule VI? How would your opinion
differ if he also holds 2% preference shares as on the balance sheet date?
• ANSWER
 Revised schedule VI does not indicate the date of holdings.
 Guidance Note of ICAI – Consider the holdings as on last day of the financial
year.
 Therefore, if Mr.OVS holds more than 5% during the financial year but not as
much on the balance sheet date the disclosure is not required.
 The condition of holding shall apply to each class of shares independently.
 Therefore no disclosure required for preference capital of 2% also.
3
CASE STUDY – SHARE APPLICATION
 X ltd has Rs.50 crores as issued, subscribed and paid-up capital. The company
has Rs.100 crores of authorized capital. The company has made an issue of
capital through private placement of Rs.20 crores on 15th March 2012. However,
the company has received Rs.30 crores as share application money from
applicants and as on 31st March the share capital is yet to be allotted. Discuss
how the same will be disclosed under the requirements of revised schedule VI?
ANSWER
 Share application money < issued capital only to be disclosed below
share capital.
 Rs.20 crores = issued capital is disclosed as “Share Application Money
pending allotment” (separate line item on face of BS)
 Excess Rs.10 crores recd. beyond issued capital is a Current Liability
 Other current liability.
4
CASE STUDY – SHARE APPLICATION
 X ltd came out with an IPO in March 2012 of Rs.50 crores. The closing date of
receipt of share application money from the applicants was fixed at 25th March
2012. On the closing date, only 20% of the issue was subscribed which was less
than the minimum subscription prescribed. Discuss how the share application
money collected will be disclosed under Rev. Sch.VI.
ANSWER
 Share application money < Min. subscription is liable to be
refunded.
 Company does not have unconditional right to defer settlement
beyond 12 months from BS date.
 Reflect the entire amount of Rs.10 crores (20% of Rs.50 cr) as a
current liability.
5
CASE STUDY – CURRENT ASSETS
• Company XYZ Ltd. produces aviation spares.
• The time taken from initial purchase of raw materials till the
completion of final production of the spares and delivery thereof
after quality certification is on an average 10 months.
• Once the sales are concluded to the buyer, normal credit terms
provide for payment of the dues within 6 months from date of
delivery.
• One of the spare parts produced are not much in demand and
have been lying in inventory since past 2 years. The
management does not expect the same to be disposed of in the
near future also.
Explain how the company will reflect the inventory and trade
6
receivables in the balance sheet.
CASE STUDY - ANSWER
• Normal operating cycle = 10 months + 6 months (time for
procurement of inputs for processing and ultimate
realisation in cash of the finished product).
• As per definition of current assets – all inventory will be
classified as current since it is realised within operating
cycle. (though some of it will not be realised within 12
months from BS date)
• Trade receivables – expected to be realised within
normal operating cycle. So classified as a current asset
 Trade receivables.
7
CASE STUDY – CURRENT LIABILITIES
Y Ltd has FCCBs worth Rs.100 crore which are due to mature on 31st December
2012. While preparing the financial statements for the year ending 31 March 2012,
it is expected that the FCCB holders will not exercise the option of converting the
same to equity shares. How should the company classify the FCCB on 31st March
2012? Will your answer be different if the company expects that FCCB holders will
convert their holding into equity shares of Y Ltd?
ANSWER
 Terms of a liability resulting in settlement in equity will not affect classification if
option is with counterparty.
 Expectation of company has no relevance in classification.
 Therefore in both cases, Y Ltd should classify the FCCBs as current liabilities on
31st March 2012.
8
CASE STUDY – BORROWINGS
• EFG Ltd. has taken a 7 year term loan from bank against security
of plant & machinery. 3 years of the loan are over as on 1st April
2011 and opening balance of the loan is Rs.5.50 crores.
• The principal repayment per year is approx. Rs.2 crores. But last
2 months installments are unpaid as of 31st March 2012.
• As per terms, loan would be liable to be recalled in case of failure
to adhere to loan terms which include submission of quarterly
performance indicators.
• During 2011-2012, EFG Ltd. did not submit any statements, but
bank has not issued any notice for recalling the loan.
Explain how the loan would be disclosed as per Rev. Sch. VI.
9
CASE STUDY – ANSWER
• Term loan is basically a non-current liability. However, in case
terms of the loan are violated then the loan becomes repayable
on demand.
• Demand loans form part of Current Liability. But based on past
experience, in case of such small defaults, bank never recalls the
loan.
• So classification as at reporting date – Non-current Liabilities 
Long term borrowings. Disclose the nature of security as plant &
machinery. Also disclose the continuing default in repayment only
(not required for other covenants)
• NOTE – Current portion of the loan i.e. Rs.2 crores payable in
2012-2013 is a Current Liability  Other current liabilities.
10
CASE STUDY – BORROWINGS
In the above case, would the disclosure change if, and how:
1. The Bank serves a recall notice on 15th March 2012.
2. The Bank serves a recall notice on 24th April 2012 and the
BSPL are adopted by the Board on 19th April 2012.
3. The Bank serves a recall notice on 19th April 2012 and the
BSPL are adopted by the Board on 24th April 2012.
ANSWER
1. The loan becomes a demand loan. Will be classified as Current
Liability. However, for previous year, continue in non-current.
2. Notice is not received before accounts are signed. Answer
remain same as previous slide – non-current liability.
3. Default is during the year. Notice is served after BS date but
before signing accounts. As per AS-4, reflect in Current Liability.
11
CASE STUDY – EMPLOYEE BENEFITS
• PQR Ltd. has defined benefit gratuity plans funded by a trust. As
at 31st March 2012, it has 65 employees.
• As per actuarial assumptions, attrition rate is 2% and around 4
employees are reaching retirement age during 2012-2013.
• Total accumulated casual leaves which can be availed within 180
days from the end of the year = 1500  valued at Rs.25 lakhs.
• Gratuity portion amounting to employees excepted to leave =
Rs.2.50 crores as provided by actuary.
• Bonus for the year 2011-2012 payable to the employees during
June of next year = Rs.20 lakhs.
Explain how the above components of employee liabilities would be
disclosed under Rev. Sch. VI.
12
CASE STUDY – ANSWER
• Bonus for the year 2011-2012, Rs.20 lakhs already accrued and
is therefore classified as Current Liability  Other current
liabilities.
• Short term compensated absences valued at Rs.25 lakhs –
employees have already earned the right to take leaves.
Therefore classified as Current Liability  Other current liabilities.
• Gratuity liability valued actuarially is usually a long term benefit as
per AS-15. Presentation as per Rev. Sch. VI is to be split between
current and non-current portion.
• Gratuity payable to employees expected to leave during next 12
months – Current Liabilities  Short Term Provisions
• Gratuity payable to others – Non-Current Liabilities  Long Term
Provisions.
13
CASE STUDY - DEPOSITS
 Z Ltd. is an automobile manufacturer. It has various retail outlets across
the country which are managed by authorised dealers.
 As per policy of the company, it requires the dealers to give a dealer
deposit of Rs.1.00 crore per dealer. As on 31st March 2011, there are 27
dealers across the country and a deposit of Rs.27 crores is collected from
them.
 Due to lower sales, the company decides on 18th Feb 2012 to terminate
the dealership of 4 dealers and intimates them its decision to do so.
 As per dealership agreement, deposits are repayable within 90 days from
termination by either parties subject to settlement of all dues.
 Of the 4 dealers terminated, 1 dealer has filed a suit in the Court against
this action. The company expects that it will be a long drawn Court case.
Explain how the deposits will be reflected in the Bal. Sheet of Z Ltd. as on
31st March 2012 as per Rev. Sch. VI.
14
CASE STUDY - ANSWER
 3 terminated dealers are entitled to get their deposits refunded within
90 days from the date of termination of 18th Feb. i.e. 17th May 2012.
Since the company does not have unconditional right to defer
settlement beyond 12 months from the BS date, Rs. 3 crores will be
reflected as Current Liability  Short term borrowings  Deposits.
 Out of 4 dealers terminated, repayment of Rs.1 crore is not expected
to happen within 12 months from BS date since the matter is in Court.
Therefore Rs.1 crore will form part of Non-current liability  Long term
borrowings.
 Rest Rs.23 crores will also be a part of Non-current liability  Long
term borrowings.
15
CASE STUDY – TRADE PAYABLES
• HPK Ltd. has purchased during the year 2011-2012 raw materials
worth Rs.7.50 crores on credit and payment is outstanding amounting
to Rs.5.50 crores.
• Of above, an amount of Rs.0.75 crores is payable to suppliers
registered under the MSME Act as small enterprises.
• It has also purchased fixed assets amounting to Rs.10 crores for
which payment is yet to be made to the supplier.
• Interest on loans accrued = Rs.0.10 crores and TDS payable =
Rs.0.25 crores.
• All the amounts are payable within 12 months from the reporting date.
Till March 2011, all the above formed part of Sundry Creditors.
Explain the disclosure requirements as per Rev. Sch. VI.
16
CASE STUDY – ANSWER
• Under Rev. Sch. VI, sundry creditors replaced with Trade Payables.
“Trade payables” = amount due on account of goods purchased or
services received in the normal course of business.
• Rs.5.50 crores of creditors for raw materials are only Trade payables.
Creditors for fixed assets (Rs.10 crores), Accrued interest on loans
(Rs.0.10 crores) and TDS payable (Rs.0.25 crores) are Current
liabilities  Other Current liabilities.
• MSMED Act 2006 requires disclosure of debts due to MSME creditors.
Disclose as follows in Current Liabilities Trade payables:
17
CASE STUDY – FIXED ASSETS
• MNT Ltd. has commenced construction of its own factory building and as
per a certificate from its architect and chartered engineer, as on 31st
March 2012 construction is complete to the extent of 66% amounting to
Rs.12 crores.
• It has also ordered for specialised equipment with a value of Rs.1 crore
for which advance payment has been made on 23rd March 2012 and
delivery and installation is expected to be complete by 10th April 2012.
• The present factory building is not being used by MNT Ltd. and is given
on operating lease to TRP Ltd. for a 5 year term.
• The administrative office building is taken on a 60 year lease which
qualifies as a finance lease.
Explain how the above would be disclosed in the BSPL of MNT Ltd.
18
CASE STUDY – ANSWER
• Factory building forming part of buildings is a tangible fixed asset.
However, it is partially complete upto 66%. Disclosed as Fixed Asset 
Capital Work-in-progress.
• Advances given for purchase of machinery no longer qualify as Capital
WIP as unlike old Sch. VI. Therefore Rs.1 crore forms part of NonCurrent Assets  Long Term Loans and Advances  Capital Advances.
• Assets under lease are to be shown separately – Includes those taken
on finance lease and those given on operating lease.
• Therefore under tangible assets, disclose both –
• Admin building (taken on finance lease)
• Factory building (given on operating lease)
19
CASE STUDY - INVESTMENTS
 XYZ Ltd., an oil extraction company has the following investments in its
portfolio as on 31st March 2012. The company purchases all the
investments with a view of holding it for long term.
• Debentures of R Ltd. – Rs.1.00 crores redeemable on 31st March 2020.
• Listed Equity shares of G Ltd. – Rs.0.35 crores, MV – Rs.0.38 crores.
• Listed NCDs of X Ltd. purchased on 15th June 2011 – Rs.2 crores,
redeemable 50% on 14th June 2012 and balance on 14th June 2013.
Market value on 31st March 2012 is Rs.1.85 crores.
• Investment in the equity capital of Z Ltd., a subsidiary – Rs.5 crores.
 In addition to the above, it also has a plot of land acquired in 1984 for
Rs.0.25 crores which is neither intended to be used for the operations of
XYZ Ltd nor intended to be sold immediately, but to be held in the long
term for capital appreciation.
Explain how the above would be disclosed under Rev. Sch. VI.
20
CASE STUDY - ANSWER
 Investment classification is decided under AS-13. Rev. Sch. VI only deals
with presentation aspects. Since all investments are to be held for long
term. AS-13 valuation principles will apply.
 Presentation will be as per liquidity as follows:
• Debentures of R Ltd. – Non-current assets Non-current Investments.
• Shares of G Ltd. – Non-current assets Non-current Investments
• NCDs of X Ltd. – Rs.1 crore redeemable within 12 months from BS
date – Current Assets  Current Investments  Others
• NCDs of X Ltd. – Rs.1 crore redeemable beyond 12 months from BS
date – Non-Current Assets  Non-Current Investments.
• Market value in both the cases to be disclosed.
• Investment in Z Ltd.,– Rs.5 crores – Non-current Non-Current
Investments  Trade Investments. Disclose details of subsidiary.
• Investment in land for capital appreciation is investment property as per
AS-13 - Non-current assets Non-current Investments.
21
CASE STUDY – TRADE RECEIVABLES
• ABC Ltd. manufactures and supplies polymers and rexins
required in various industries as raw materials.
• The customers of ABC Ltd. include certain overseas
parties. Normal credit period allowed to the overseas
buyers is 180 days.
• On 22nd March 2012, sales equivalent to USD 25,000 are
made to KLM Plc. In UK. Due to regulatory sanctions,
KLM Plc is restricted from remitting funds outside UK till
30th Sept. 2013.
• Explain how Trade receivables will be reflected in BS of
ABC Ltd. for 31st March 2012.
22
CASE STUDY – ANSWER
• Normal credit period for overseas customers is 180 days.
• All Trade receivables expected to be realised within 12
months from BS date should be reflected as current.
• It is known that KLM Plc. Will not be realised within 12
months from BS date.
• Out of total trade receivables, equivalent of USD 25000
will be classified as non-current and the rest will be
classified as current.
23
CASE STUDY – TRADE RECEIVABLES
• Discuss how the below mentioned data would be
disclosed under Old and Revised Schedule VI
Invoice
number
Invoice
date
101
201
301
401
501
601
701
801
Total
25-09-11
08-10-11
24-10-11
22-09-11
21-10-11
12-09-11
14-09-11
06-11-11
Outstanding
amount
as
31.03.2012
lacs)
7.00
4.00
2.00
5.00
4.00
10.00
2.00
5.00
39.00
Credit
on Period
(In Days)
(In
15
15
30
45
45
10
60
90
24
CASE STUDY – ANSWER
•
Debtors under Old Schedule VI classified as > and < 6 months on bill date basis.
•
Trade receivables under Rev. Sch. VI classified as > and < 6 months on due
date basis. (Important: Last year’s data needs to be reclassified)
•
Accordingly presentation is as under:
25
CASE STUDY – CASH & CASH EQUIVALENT
 D Ltd. has the following cash and bank balances. Explain how these will be
disclosed in the BSPL for 2011-2012 as per Rev. Sch. VI.
 Cash on hand – Rs.0.03 crores
 Balances with scheduled bank in current account – Rs.2.45 crores
 Balances with non-scheduled bank in current account – Rs.1.64 crores
 Rupee converted balance in EEFC account – Rs.6.80 crores
 Term deposits of banks – Rs.3.75 crores (Rs.1 crore maturing on 30th
June 2013)
 Unpaid dividend account of 2010-2011 – Rs.0.45 crores.
Of the above, FDs worth Rs.0.75 crores are placed as margin money for bank
guarantees. The EEFC account has been placed under restriction from RBI.
In addition D Ltd. also holds some highly liquid money market instruments which
can be realised anytime within 3 months.
CASE STUDY – ANSWER
“Cash Equivalent” = short term highly liquid investments readily convertible into
“known amount of cash” and are subject to insignificant risk of changes in
vaIue.
Money market invt., highly liquid – Yes, but convertible into known amounts of
cash – No. Therefore not a cash equivalent.
27
EXAMPLE - OTHER COMMITMENTS
28
CASE STUDY - REVENUES
• XYZ Ltd. a company engaged in the manufacture and sale of
automobiles has the following revenues during the year:
• Sale of vehicles – Rs.200 crores
• Sale of vehicle spares – Rs.45 crores
• Revenue from servicing – Rs.15 crores
• Interest on fixed deposits – Rs.2 crores
• Rental income from let out property – Rs.6 crores
• Dividend on investment – Rs.0.50 crores
• Sale of scrap – Rs.0.12 crores.
• Profit on sale of property – Rs.1.50 crores
Explain how the revenues will be reflected under Rev. Sch. VI.
29
CASE STUDY - ANSWER
30
FINANCE COMPANY - ILLUSTRATION
31
CASE STUDY – REVENUES
XYZ Ltd. a company engaged in
the manufacture and sale of
textiles also has one real estate
arm, which is in the business of
giving real estate properties on
lease. Rent income from the
leasing of the assets is to be
classified as --- ????
XYZ Ltd. a textile company owns
a 10 floor building. It does not
require one floor and so gives it
on rent. Rent income from the
leasing of the single floor in the
10 floor building is to be
classified as --- ????
This income arises from
operating activity, though
secondary. Therefore it is a
part of Operating revenues.
This
income
arises
incidentally,
not
from
operating activity, Therefore it
is a part of Other Income.
32
CASE STUDY – FINANCE COST
BCD Ltd. is involved in laying of transmission lines for various power
companies. It has the following borrowing related costs during the year
2011-2012. Show how these will be disclosed under Revised Schedule VI.
• Interest on term loans from banks – Rs.6.50 crores
• Processing fees for the term loans – Rs.1.00 crore
• Commitment fee for non utilisation of CC limits – Rs.0.25 crores
• Implicit finance charge on leased assets – Rs.2.00 crores
• Upfront commission for bank guarantee – Rs.0.50 crores
• Interest on debentures issued – Rs.3.00 crores
• Interest on USD loan taken for construction of specialised equipment (a
qualifying asset) – Rs.7.50 crores. Of the above, Rs.7.25 crores is
eligible for capitalisation as per AS-16.
• Exchange loss not eligible for capitalisation – Rs.0.35 crores
33
CASE STUDY – ANSWER
34
CASE STUDY – ITEMS IN P&L
PQR Ltd. has earned a total revenue from operations of Rs.120 crores. It
has the following ledger heads in its trial balance:
 Rent paid – Rs.6.00 crores
 Insurance of factory building – Rs.0.75 crores
 Internal audit fees – Rs.0.10 crores
 Legal fees – Rs.0.50 crores
 Power and fuel – Rs.1.25 crores
 ISO certification fee – Rs.0.25 crores
 Property tax paid – Rs.0.60 crores.
 Travelling & conveyance – Rs.1.40 crores
 Income tax penalty – Rs.0.50 lakhs
Explain how these items will be disclosed in the statement of profit and
loss for 2011-2012.
35
CASE STUDY – ANSWER
 As per Note 5(vi) of Rev. Sch. VI, following items will be disclosed
separately in the statement of P&L irrespective of quantum  Rent paid – Rs.6.00 crores
 Insurance of factory building – Rs.0.75 crores
 Power and fuel – Rs.1.25 crores
 Property tax paid – Rs.0.60 crores
 For rest of the items separate disclosure for items exceeding Rs.1.20
crores is required (higher of Rs.1 lakh and Rs.1.20 crore). Accordingly,
travelling & conveyance, Rs.1.40 crores is separately disclosed.
 Internal audit fees – Rs.0.10 crores, Legal fees – Rs.0.50 crores and
ISO certification fee – Rs.0.25 crores can be clubbed under Other
Expenses since below threshold.
 Income tax penalty – not meeting the threshold, but can qualify as an
extraordinary / exceptional item - required to be disclosed separately as
per materiality.
36
CASE STUDY – P&L PRESENTATION
VC Ltd. has incurred the following expenses during the year 2011-2012.
show how these will be presented in the statement of P&L for the year
2011-2012
• As a result of a long drawn wage settlement and revision negotiations,
the company has agreed to grant a wage hike of 7% every year
retrospectively from 01.04.2009 and the cumulative impact of the said
negotiations amounts to Rs.17 crores payable before June 2012.
• 5 employees had retired during the year 2010-2011. Due to their long
association with the company, the management granted an ex-gratia
bonus of Rs.2 crores during March 2011. However, the same was
accounted for during 2011-2012 when the payment was actually made.
• There was huge damage to property due to earthquake. This had to be
expensed out by Rs.1.75 crores. No insurance was available.
• An old office building was sold for a profit of Rs.5 crores.
37
CASE STUDY – ANSWER
The ex-gratia amounts to a prior period item since it was omitted from being
provided during 2010-2011. The same will be included in the employee
expenses but separately disclosed in Notes as a prior period item.
Disclosure on the face of P&L is not mandatory as per Rev. Sch. VI.
38
CASE STUDY - DIVIDEND
The Board of A Ltd. has proposed a dividend for the year 2011-2012 on
18th April 2012, of Rs.5 per share totalling to Rs.10 crores. Its subsidiary
has also proposed a dividend of Rs.2 per share and A Ltd. holds 50 lakh
shares. How will these items be disclosed in the BSPL of A Ltd.
ANSWER –
• No requirement in Rev. Sch VI to provide for proposed div. AS-4 will
override, provision for proposed div. will be made in the books as on
31st March 2012. Disclose as appropriations under Reserves & Surplus
and also as current Liability  Short Term Provision
• In old Sch. VI, dividends from subsidiary – accounted in the same year.
This requirement is dispensed with in Rev. Sch. VI. So AS-9 will apply.
• Dividend from subsidiary will be recognised when right to receive div. is
established i.e. in AGM of subsidiary in 2012-2013.
• Disclose change in accounting policy as a result of this amendment
39
and quantify the impact.
CASE STUDY – OTHER INFORMATION
During FY 2011-12, X Ltd imported raw material costing Euro 25000 from Germany
for manufacturing rubber tubes. Freight and insurance incurred till the goods are
received at Indian customs area was INR 2.50 lakhs. The payment to the exporter is
to be made in EURO. The rate persisting on the date of purchase was Euro 1 = INR
70. During the year, X Ltd also exported goods worth USD 9000 on CIF basis which
includes freight and insurance upto the destination of USD 200. For export 1 USD
= Rs.52. Discuss disclosure requirement as per revised schedule VI.
If these goods are purchased by the company from a supplier in India who has
imported such goods from abroad then whether it will affect the disclosure
requirement for X Ltd.?
40
CASE STUDY – ANSWER
 The CIF value of import is the cost plus freight and insurance associated with the
goods imported.
 Cost of imports = Euro 25000 X Rs.70 = Rs.17.50 lakhs
 Insurance + freight = Rs.2.50 lakhs
 CIF Value of imports = Rs.20 lakhs (disclosed in INR in Notes to accounts)
 CIF value of goods exported = USD 9000 X Rs.52 = Rs.4.68 lakhs
 Freight & Insurance = USD 200 X Rs.52 = Rs. 0.10 lakhs
 Disclosure is required for FOB Value of Exports
 FOB Value = CIF Value (Rs.4.68 lakhs) – Freight & Insurance (0.10 lakhs)
41
 FOB Value of Exports = Rs.4.58 lakhs (disclosed in INR in Notes to Accounts)
DISCLOSURES NO LONGER REQUIRED
 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 advances from directors or
officers of the company
 Commission, brokerage and non-trade discounts
42