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Financial Statements of a Company. Module 1: Equity & Liabilities. Revised Schedule VI Companies Act, 1956 . What is Schedule VI ?.
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Financial Statements of a Company Module 1: Equity & Liabilities
What is Schedule VI ? • Schedule VI to the Companies Act, 1956 deals with the form of Balance Sheet and Statement of Profit and Loss and classified disclosure (through Notes to Accounts) to be made therein • It applies uniformly to all the companies registered under the Companies Act, 1956, for the preparation of financial statements of an accounting year.
Schedule VI (Revised) • The original schedule VI, with minor amendments from time to time, has been in force for more than fifty years. • To keep pace with the changes in the economic philosophy leading to privatizationand globalization and consequent desired changes/ reforms in the corporate financial reporting practices, the Ministry of Corporate Affairs, GOI, has revised the above mentioned schedule • The text of the Revised Schedule VI to the Companies Act, 1956 came into force for the Balance Sheet and Profit and Loss Account to be prepared for the financial year commencing on or after 1/4/2011. • The primary focus of the revision has been to bring the disclosures in financial statements at par, or at least very close, to the international corporate reporting practices.
SALIENT FEATURES • A vertical format for presentation of balance sheet • Classification of Balance Sheet items into current and non-current categories. • A vertical format of Statement of Profit and Loss with classification of expenses based on nature. • The revised schedule VI has eliminated the concept of “Schedules” and such information is now to be furnished in terms of “Notes to Accounts” • While preparing the Balance-Sheet. “Cash and Cash Equivalents‟ will be shown under “Current Assets‟, and include the following: • Balances with banks • Cheques, drafts on hand; • Cash on hand; • Others
Disclosure of Share Capital Note: Calls-in-Advance are shown under the head ‘Other Current Liabilities
Other Disclosures • Shares allotted for consideration other than cash are shown in ‘Notes on Share Capital’ • Share Forfeiture A/c is added to Subscribed Capital • Capital Reserve is shown under the head Reserves & Surplus Back
1.B Shareholders Funds - Reserves & Surplus • Reserves are amounts set aside out of profits for future uncertainties • Shown as a consolidated amount in the Balance Sheet • Reserves prescribed under Companies Act: • Capital Reserve • Capital Redemption Reserve • Securities Premium Reserve • Debenture Redemption Reserve • Revaluation Reserve • Share Options Outstanding Account • Other Reserves • Statement of Profit & Loss • Details of reserves to be shown in Notes to Accounts as Opening Balance, Additions/Deletions, Closing Balance
1.C Shareholder’s Funds: Money received against share warrants
2. Share Application Money Pending Allotment • Refers to amount received by the company towards share application where allotment of shares is yet to be done • Shown between Shareholder’s Funds & Non-current Liabilities • Application money received where shares are not to be allotted (e.g. Oversubscription) and money to be refunded OR when minimum subscription has not been achieved are shown under Other Current Liabilities (under the head current liabilities) Back
3. Current Liabilities & 4.Non-Current Liabilities Current Liabilities Non-Current Liabilities are those which are not Current Liabilities
Try this yourself.... • Classify the following as current or non-current liabilities • Operating cycle of a company is 10 months & expected time of settlement is 8 months • Operating cycle of a company is 10 months & expected time of settlement is 12 months • Operating cycle of a company is 10 months & expected time of settlement is 15 months • Operating cycle of a company is 18 months & expected time of settlement is 15 months • Operating cycle of a company is 18 months & expected time of settlement is 24 months
