schedule-VI-revised

Introduction

Section 211(1) of the Companies Act, 1956 requires all companies to draw up the Balance Sheet and Statement of Profit and Loss account as per the form set out in Schedule VI. The pre-revised Schedule VI was introduced in 1976.

As mentioned in the Foreword of the ICAI Guidance Note on Revised Schedule VI to the Companies Act, 1956 (ICAI GN), “to make Indian business and companies competitive and globally recognisable, a need was felt that format of Financial Statements of Indian corporates should be comparable with international format. Since most of the Indian Accounting Standards are being made at par with the international Accounting Standards, the changes to format of Financial Statements to align with the Accounting Standards will make Indian companies competitive on the global financial world. Taking cognisance of imperative situation and need, the Ministry of Corporate Affairs revised the existing Schedule VI to the Companies Act, 1956”.

The Ministry of Company Affairs (MCA) vide Notification dated 28th February 2011 notified the format of Revised Schedule VI. Further vide Notification dated 30th March 2011, it was clarified that the “The new format shall come into force for the Balance Sheet and Profit and Loss Account to be prepared for the financial year commencing on or after 1st April 2011”.

The ICAI GN issued in December 2011 gives detailed guidance on the Revised Schedule VI and the manner in which the various instructions contained in Revised Schedule VI are to be interpreted.

The structure of Revised Schedule VI is as under:

(a) General Instructions

(b) Part I — Form of Balance Sheet

(c) General Instructions for preparation of Balance Sheet

(d) Part II —Form of Statement of Profit and Loss

(e) General Instructions for preparation of Statement of Profit and Loss

It should be noted that besides the format for preparation of Balance Sheet and Profit and Loss statement as notified by the Revised Schedule VI, there are other disclosure requirements also. These disclosures are:

(a) Disclosures as per the notified Accounting Standards i.e., as per the Companies (Accounting Standards) Rules, 2006;

(b) Disclosures under the Companies Act, 1956 (e.g., on buyback of shares — section 77, political contributions — section 293, etc.);

(c) Disclosures under Statutes (e.g., as per the Micro, Small and Medium Enterprises Development Act, 2006);

(d) Disclosures as per other ICAI pronouncements (e.g., disclosure on MTM exposure for derivatives);

(e) In case of listed companies, disclosures under Clause 32 of the Listing Agreement (e.g., Loans to associate companies, etc.)

Applicability of the Revised Schedule VI

As mentioned in the Notification dated 30th March 2011, financial statements for all companies have to be prepared using the format given by Revised Schedule VI for financial years commencing on or after 1st April 2011.

A company having its financial year ending on, say, 30th June 2011, 30th September 2011 or 31st December 2011 cannot adopt the new format since their financial years have not commenced on or after 1st April 2011. Since the format of Revised Schedule VI is a statutory format, a company cannot decide to follow the same even on a voluntary basis. However, if a company decides to prepare its financial statements from 1st April 2011 to 31st December 2011 (i.e., for a period of 9 months), it will have to prepare the same using the format of Revised Schedule VI.

All companies registered under the Companies Act, 1956 have to prepare their financial statements using Revised Schedule VI. However, proviso to section 211 exempts banking companies, insurance companies and companies engaged in generation or supply of electricity from following the said format since these are governed by their respective statutes. However, since the Electricity Act 2003 and the Rules thereunder do not prescribe any format for preparing financial statements, such companies will have to follow the format laid down by the Revised Schedule VI till a separate format is prescribed.

Listed companies require to publish information on quarterly and annual basis in the prescribed format in terms of clauses 41(l)(ea) and 41(l)(eaa) of the Listing Agreement. These formats are inconsistent with formats under the Revised Schedule VI. However, since the formats are statutory formats as per the Listing Agreement, the same will have to be followed till the time a new format is prescribed under Clause 41 of the Listing Agreement.

Companies which are in the process of making an issue of shares (IPO/FPO) have to file ‘offer documents’ containing among other details, financial information of the last 5 years. The formats of Balance Sheet and Statement of Profit and Loss prescribed under the SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2009 (‘ICDR Regulations’) are inconsistent with the format of the Balance Sheet/Statement of Profit and Loss in the Revised Schedule VI. However, since the formats of Balance Sheet and Statement of Profit and Loss under ICDR Regulations are only illustrative, to make the data comparable and meaningful for users, companies will be required to use the Revised Schedule VI format to present the restated financial information for inclusion in the offer document. It may also be noted that the MCA had vide General Circular No. 62/2011, dated 5th September 2011 has clarified that ‘the presentation of Financial Statements for the limited purpose of IPO/FPO during the financial year 2011-12 may be made in the format of the pre-revised Schedule VI under the Companies Act, 1956. However, for period beyond 31st March 2012, they would prepare only in the new format as prescribed by the present Schedule VI of the Companies Act, 1956’.

Revised Schedule VI requires that except in the case of the first financial statements (i.e., for the first year after incorporation), the corresponding amounts for the immediately preceding period are to be disclosed in the Financial Statements including the Notes to Accounts. Accordingly, corresponding information will have to be presented starting from the first year of application of the Revised Schedule VI. Thus, for the Financial Statements for the financial year 2011-12 corresponding amounts need to be given for the financial year 2010-11. This will require all companies to take an extra effort to compile the corresponding amounts for 2010-11 for disclosing in Revised Schedule VI prepared for the financial year 2011-12.

All companies whether private or public, whether listed or unlisted, and irrespective of their size in terms of turnover, assets, etc. (other than those mentioned in para 9 above) will have to adhere to the new format of financial statements from 2011-12 onwards. Many small or family-owned companies which are run as an extension of partnerships will have difficulties in adopting the new formats since they may not have the necessary trained manpower or infrastructure for such changeover.

Major principles as per Revised Schedule VI

Revised Schedule VI has eliminated the concept of ‘Schedules’. Such information will now have to be provided in the ‘Notes to accounts’. Accordingly, the manner of cross-referencing to various other information contained in financial statements will also be changed to ‘Note number’ as against ‘Schedule number’ in pre-revised Schedule VI.

As per general instructions contained in the Revised Schedule VI, the terms used shall carry the meanings as per the applicable Accounting Standards (AS). As per the ICAI GN, the applicable AS for this purpose shall mean the AS notified by the Companies (Accounting Standards) Rules, 2006.

Revised Schedule VI requires that if compliance with the requirements of the Companies Act, 1956 (Act) and/or AS requires a change in the treatment or disclosure in the financial statements, the requirements of the Act and/or AS will prevail over Revised Schedule VI.

As per preface to the AS issued by ICAI, if a particular AS is not in conformity with law, the provisions of the said law or statute will prevail. Using this principle, disclosure requirements of existing Schedule VI were considered to prevail over AS. However, since the Revised Schedule VI gives specific overriding status to the requirements of AS notified by the Companies (Accounting Standards) Rules, 2006, the same would prevail over the Revised Schedule VI.

There are several instances of conflict between provisions of the Revised Schedule VI and the notified AS e.g., definition of Current Investments as per the Revised Schedule VI and AS-11, definition of Cash and Cash Equivalents as per the Revised Schedule VI and AS-3, treatment of proposed dividend as per the Revised Schedule VI and AS-4, etc. In all such cases, provisions of the AS will prevail over the Revised Schedule VI.

The nomenclature for the Profit and Loss account is now changed to ‘Statement of Profit and Loss’. Also, only the vertical format is prescribed for both Balance Sheet and the Statement of Profit and Loss.

The format of the Statement of Profit and Loss as per the Revised Schedule VI does not contain disclosure of appropriations like transfer to reserves, proposed dividend, etc. These are now to be disclosed in the Balance Sheet as part of adjustments in ‘Surplus in Statement of Profit and Loss’ contained in ‘Reserves and Surplus’. Further, debit balance of ‘profit and loss account’, if any, is to be disclosed as a reduction from ‘Reserves and Surplus’ (even if the final figure of Reserves and Surplus becomes negative).

It is clarified by the Revised Schedule VI that the requirements mentioned therein are minimum requirements. Thus, additional line items, sub-line items and sub-totals can be presented as an addition or substitution on the face of the financial statements if the company finds them necessary or relevant for understanding of the company’s financial position. Also, in preparing the financial statements, a balance will have to be maintained between providing excessive detail that may not assist users of the financial statements and not providing important information as a result of too much aggregation.

Revised Schedule VI requires use of the same unit of measurement uniformly throughout the financial statements and ‘Notes to Accounts’. Rounding off requirements, if opted, are to be followed uniformly throughout the financial statements and ‘Notes to Accounts’. The rounding off requirements as per prerevised Schedule VI and as per the Revised Schedule VI are summarised in the following table:

Some disclosures no longer required in the Revised Schedule VI

The disclosure requirements as per the Revised Schedule VI do not contain several disclosures which were required by pre-revised Schedule VI. Some of these are:

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

(b) Information relating to licensed capacity, installed capacity and production;

(c) Information on investments purchased and sold during the year;

(d) Investments, sundry debtors and loans & advances pertaining to companies under the same management;

(e) Maximum amounts due on account of loans and advances from directors or officers of the company;

(f) Commission, brokerage and non-trade discounts; and

(g) Information as required under Part IV of pre-revised Schedule VI.

Major changes in the format of Balance Sheet

Equity and Liabilities

A new disclosure requirement regarding details of number of shares held by each shareholder holding more than 5% shares in the company is inserted by the Revised Schedule VI. The ICAI GN has clarified that in the absence of any specific indication of the date of holding, such information should be based on shares held as on the Balance Sheet date. For this disclosure, the names of the shareholders would be normally available from the Register of Members required to be maintained by every company.

Details pertaining to number of shares issued as bonus shares, shares bought back and those allotted for consideration other than cash needs to be disclosed only for a period of five years immediately preceding the Balance Sheet date including the current year. Under the pre-revised Schedule VI requirement is to disclose such items at all times.

In case of listed companies, share warrants are issued to promoters and others in terms of SEBI guidelines. Since such warrants are effectively and ultimately intended to become part of capital, Revised Schedule VI requires that the same be disclosed as part of the Shareholders’ funds as a separate line-item —‘Money received against share warrants.’ In case the said warrants are forfeited, the amount already paid up would be transferred to ‘Capital Reserve’ and disclosed as part of ‘Reserves and Surplus’.

There are specific disclosures required by the Revised Schedule VI for ‘Share Application money pending allotment’. It has been also stated that share application money not exceeding the issued capital and only to the extent not refundable is to be included under ‘Equity’ and share application money to the extent refundable is to be separately shown under ‘Other current liabilities’. Disclosures required regarding share application, whether included under ‘Equity’ or under ‘Other current liabilities’ are as under:

(a) terms and conditions;

(b) number of shares proposed to be issued;

(c) the amount of premium, if any;

(d) the period before which shares are to be allotted;

(e) whether the company has sufficient authorised share capital to cover the share capital amount on allotment of shares out of share application money;

(f) Interest accrued on amount due for refund;

(g) The period for which the share application money has been pending beyond the period for allotment as mentioned in the share application form along with the reasons for such share application money being pending.

A major change in the format of balance sheet as per the Revised Schedule VI is the classification of all items of liabilities and assets into Current and Non-Current. The terms ‘Current’ and ‘Non-Current’ are defined by Revised Schedule VI as under:

(a) A liability is classified as Current if it satisfies any of the following criteria:

(i) it is expected to be settled in the company’s normal operating cycle;

(ii) it is held primarily for the purpose of being traded;

(iii) it is due to be settled within 12 months after the reporting date;

or

(iv) The company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

All other liabilities shall be classified as non-current.

(b) An asset shall be classified as current when it satisfies any of the following criteria:

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

(ii) It is held primarily for the purpose of being traded;

(iii) It is expected to be realised within 12 months after the reporting date;

or

(iv) It is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after reporting period date.

All other assets shall be classified as non-current.

(c) ‘Operating Cycle’ is defined by Revised Schedule VI as “An operating cycle is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents. Where the normal operating cycle cannot be identified, it is assumed to have duration of twelve months”.

(d) Thus, all companies will need to bifurcate balances in respect of all liabilities and assets into ‘current’ and ‘non-current’. The definitions contain four conditions out of which even if one is satisfied, the said liability or asset would be classified as ‘current’. If none of the conditions are satisfied the said liability or asset will be classified as ‘non-current’. The four conditions are quite subjective since they use phrases like ‘expected’, ‘held primarily’, ‘due to be settled’, etc.

(e) As per the definition, current liabilities would include items such as trade payables, employee salaries and other operating costs that are expected to be settled in the company’s normal operating cycle or due to be settled within twelve months from the reporting date. Thus, liabilities that are normally payable within the normal operating cycle of a company, are classified as current even if they are due to be settled more than twelve months after the end of the balance sheet date.

(f) Similarly, as per the definition, current assets would include assets like raw materials, stores, consumable tools, etc. which are intended for consumption or sale in the course of the company’s normal operating cycle. Such items of inventory are to be classified as current even if the same are not actually consumed or realised within twelve months after the balance sheet date. Current assets would also include inventory of finished goods since they are held primarily for the purpose of being traded. They would also include trade receivables which are expected to be realised within twelve months from the balance sheet date.

(g) A company can have multiple operating cycles in case they are manufacturing/dealing in different products. In such cases, the bifurcation into ‘current’ and ‘non-current’ can become difficult.

(h) Companies will also need to bifurcate all their borrowings into ‘current’ and ‘non-current’. It is possible that the same borrowing will be classified into two components depending on the portion repayable within/after twelve months from the balance sheet date. Other details in respect of borrowings such as whether secured (with terms of security) or unsecured, whether guaranteed or not, details of repayment of loans, details of redemption in case of debentures, etc. are also required to be disclosed.

(i) Since the format of the balance sheet mentions Deferred Tax Liability (DTL)/Deferred Tax Asset (DTA) as a non-current liability/asset, the same is to be always classified as non-current and cannot be classified as ‘current’ even if the deferred tax liability/asset would become payable or receivable within twelve months of the balance sheet date. It should be also noted that such DTL/DTA is always disclosed on a net basis as required by AS-22.

(j) For several items of liabilities/assets, the aforesaid classification exercise can become quite cumbersome and time-consuming for companies especially since the same is also required to be done for 2010-11.

In case of loans taken by a company, Revised Schedule VI requires specific disclosure of period and amount of continuing default as on the balance sheet date in repayment of loans and interest to be specified separately in each case.

Revised Schedule VI requires disclosure of loans and advances taken from related parties. ‘Related Parties’ for this purpose would mean those parties as defined by AS-18.

Revised Schedule VI requires disclosure of ‘Trade Payables’ as part of ‘other non-current liabilities’ or ‘current liabilities’. A payable can be classified as ‘trade payable’ if it is in respect of amount due on account of goods purchased or services received in the normal course of business. As per the prerevised Schedule VI, the term used was ‘Sundry Creditors’ which included amounts due in respect of goods purchased or services received as well as in respect of other contractual obligations. Since amounts due under contractual obligations can no longer be included within ‘trade payables’, items like dues payables in respect of statutory obligations like contribution to provident fund, purchase of fixed assets, contractually reimbursable expenses, interest accrued on trade payables, etc. will need to be classified as ‘others’.

Assets

As per Revised Schedule VI, the disclosure for fixed assets is to be segregated into:

(a) Tangible assets;

(b) Intangible assets;

(c) Capital work-in-progress; and

(d) Intangible assets under development

The classification of tangible assets is similar to the one under pre-revised Schedule VI, but has a separate item for ‘Office Equipment’. Besides, ‘Plant and Machinery’ is now renamed as ‘Plant and Equipment’.

Classification of intangible assets as a separate item of Fixed Assets is introduced by Revised Schedule VI. It is also required to classify ‘Computer Software’ separately within ‘Intangible Assets’.

It is also necessary to separately disclose, a reconciliation of the gross and net carrying amounts of each class of assets at the beginning and end of the reporting period showing additions, disposals, acquisitions through businesscombinations (i.e., on account of amalgamations/demergers, etc.) and other adjustments (like capitalisation of borrowing costs as per AS-16) and the related depreciation/amortisation and impairment losses/reversals.

Since Revised Schedule VI specifically requires capital advances to be included under long-term loans and advances, the same cannot be included under capital work-in-progress. The same also cannot be therefore included within current assets. There is also a specific requirement to include ‘assets given/taken on lease’, both tangible and intangible under each of the items of fixed assets.

As per Revised Schedule VI, all Investments are to be bifurcated into ‘current’ and ‘non-current’. They also further need to be classified (as in the pre-revised Schedule VI) into trade/non-trade and quoted/unquoted.

The classification of investments is to be done as under:

(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 investments (specifying nature thereof).

Revised Schedule VI also requires that under each classification, details need to be given of names of bodies corporate indicating separately whether they are:

(a) subsidiaries,

(b) associates,

(c) joint ventures, or

(d) controlled special purpose entities.

In regard to investments in the capital of partnership firms, the names of the firms (with the names of all their partners, total capital and the shares of each partner) need to be given. It is possible that the partnership firm maintains both ‘capital’ and ‘current’ accounts of its partners. In that case, the balance in ‘capital’ account will be classified as a ‘non-current’ investment in the balance sheet of the company, whereas the balance in ‘current’ account is classified as ‘current' investment.

In case the company has an investment in a ‘Limited Liability Partnership’ (LLP), the disclosure norms of ‘partnership firm’ (as discussed in para 41 above) will not apply since an LLP is considered as a ‘body corporate’.

As per Revised Schedule VI, all loans and deposits, deposits, etc. given by a company are to be classified into ‘current’ and ‘non-current’.

Revised Schedule VI requires disclosure of loans and advances given to related parties. ‘Related Parties’ for this purpose would mean those parties as defined by AS-18.

Revised Schedule VI requires disclosure of ‘Trade Receivables’ as part of ‘other non-current assets’ or ‘current assets’. A receivable shall be classified as ‘trade receivable’ if it is in respect of the amount due on account of goods sold or services rendered in the normal course of business. As per the prerevised Schedule VI, the term ‘sundry debtors’ included amounts due in respect of goods sold or services rendered or in respect of other contractual obligations as well. Since, amounts due under contractual obligations cannot be included within ‘Trade Receivables’, items like dues in respect of insurance claims, sale of fixed assets, contractually reimbursable expenses, interest accrued on trade receivables, etc. will need to be classified within ‘others’.

The pre-revised Schedule VI required separate presentation of debtors for those outstanding for a period exceeding six months (based on billing date) and ‘other debtors’. However, for the ‘current’ portion of ‘Trade Receivables’, the Revised Schedule VI requires separate disclosure of ‘Trade Receivables outstanding for a period exceeding six months from the date they became due for payment’. This requirement can result in a lot of work for companies since it would mean modifying their accounting systems to compile the amounts exceeding six months based on the due date. Giving corresponding data for 2010-11 would also result in added work for most companies.

The requirement for classifying ‘loans and advances’ and ‘trade receivables’ into secured/unsecured and good/doubtful also continues in Revised Schedule VI.

The Revised Schedule VI does not contain any specific disclosure requirement for the unamortised portion of expense items such as share issue expenses, ancillary borrowing costs and discount or premium relating to borrowings. These items were included under the head ‘Miscellaneous Expenditure’ as per the pre-revised Schedule VI. Though, Revised Schedule VI does not mention disclosure of any such item, since additional line items can be added on the face or in the notes, unamortised portion of such items can be disclosed (both ‘current’ as well as ‘non-current’ portion), under the head ‘other current/non-current assets’ depending on whether the amount will be amortised in the next 12 months or thereafter.

The term ‘cash and bank balances’ existing in the pre-revised Schedule VI is replaced under Revised Schedule VI by ‘Cash and Cash Equivalents’. These are to be classified into:

(a) Balances with banks;

(b) Cheques, drafts on hand;

(c) Cash on hand; and

(d) Others (specify nature).

For ‘Cash and Cash Equivalents’, disclosure is also separately required as per Revised Schedule VI for:

(a) Earmarked balances with banks (for example, for unpaid dividend);

(b) Balances with banks to the extent held as margin money or security against the borrowings, guarantees, other commitments;

(c) Repatriation restrictions, if any, in respect of cash and bank balances shall be separately stated;

(d) Bank deposits with more than twelve months maturity shall be disclosed separately.

Major changes in the format of Statement of Profit and Loss

Revised Schedule VI requires disclosure of ‘Revenue from Operations’ on the face of the statement of profit and loss. In the case of a company other than a finance company, such ‘Revenue from Operations’ is to be disclosed as:

(a) Sale of products

(b) Sale of services

(c) Other operating revenues

(d) Less: Excise duty

Though Revised Schedule VI specifically requires disclosure of Sale of Products on ‘gross of excise’ basis, there is no mention of whether Sales Tax/VAT and Service Tax is also to be included or not in sale of products or sale of services, respectively. Though not entirely free of doubt, the ICAI GN has stated that “Whether revenue should be presented gross or net of taxes should depend on whether the company is acting as a principal and hence responsible for paying tax on its own account or, whether it is acting as an agent i.e., simply collecting and paying tax on behalf of government authorities. In the former case, revenue should also be grossed up for the tax billed to the customer and the tax payable should be shown as an expense. However, in cases, where a company collects tax only as an intermediary, revenue should be presented net of taxes.” (Also refer BCAJ February 2012 ‘Gaps in GAAP’ for a discussion on whether taxes should be disclosed gross or net).

In addition to Revenue from Operations, Revised Schedule VI also requires disclosure of ‘Other Operating Revenue’ as well as ‘Other Income’. The term ‘Other Operating Revenue’ is not defined by Revised Schedule VI. The ICAI GN has however clarified that “this would include revenue arising from a company’s operating activities, i.e., either its principal or ancillary revenue-generating activities, but which is not revenue arising from the sale of products or rendering of services. Whether a particular income constitutes ‘other operating revenue’ or ‘other income’ is to be decided based on the facts of each case and detailed understanding of the company’s activities. The classification of income would also depend on the purpose for which the particular asset is acquired or held”.

In respect of a finance company, Revised Schedule VI requires ‘Revenue from Operations’ to include revenue from:

(a) Interest and

(b) Other financial services.

Though the term ‘finance company’ is not defined by Revised Schedule VI, the ICAI GN states that “the same should be taken to include all companies carrying on activities which are in the nature of ‘business of non-banking financial institution’ as defined in section 45I(f) of the Reserve Bank of India Act, 1935”.

In case of all companies, Revised Schedule VI requires ‘Other income’ to be disclosed on the face of the statement of profit and loss. For this purpose ‘Other Income’ is to be classified as:

(a) Interest Income (in case of a company other than a finance company);

(b) Dividend Income;

(c) Net gain/loss on sale of Investments;

(d) Other non-operating income (net of expenses directly attributable to such income).

As can be seen from the above, in the case of all company (including a finance company) Dividend income and Net gain/loss on sale on investments will be always classified as ‘Other Income’.

‘Other Income’ will also include share of profits/ losses in a partnership firm. Though there is no specific requirement mentioned for the same in the Revised Schedule VI, the ICAI GN mentions that the same should be separately disclosed. The ICAI GN also requires that in case the financial statements of the partnership firm are not drawn up to the same date as that of the company, adjustments should be made for effects of significant transactions and events that occur between the two dates and in any case, the difference between the two reporting dates should not be more than six months.

Revised Schedule VI requires the aggregate of the following expenses to be disclosed on the face of the Statement of Profit and Loss:

(a) Cost of materials consumed

(b) Purchases of stock-in-trade

(c) Changes in inventories of finished goods, work in progress and stock in trade

(d) Employee benefits expense

(e) Finance costs

(f) Depreciation and amortisation expense

(g) Other expenses.

The ICAI GN mentions that for the purpose of disclosure, ‘Cost of materials consumed’, should be based on ‘actual consumption’ rather than ‘derived consumption’. In such a case, excesses/ shortages should be separately disclosed rather than included in the amount of ‘cost of materials consumed’. This requirement was also contained in the ICAI pronouncements on the pre-revised Schedule VI.

As per Revised Schedule VI separate disclosure is also required for the following items which are classified under ‘Other Expenses’:

(a) Consumption of stores and spare parts;

(b) Power and fuel;

(c) Rent;

(d) Repairs to buildings;

(e) Repairs to machinery;

(f) Insurance;

(g) Rates and taxes, excluding taxes on income;

(h) Miscellaneous expenses.

The threshold for disclosure of ‘Miscellaneous Expenses’ is changed to those that exceed ‘1% of revenue from operations or Rs.100,000 whichever is higher’ as against the requirement of pre-revised Schedule VI of ‘1% of total revenue or Rs.5,000 whichever is higher’.

The format of Statement of Profit and Loss in Revised Schedule VI also requires specific disclosures of ‘Exceptional’, ‘Extraordinary’, items and ‘Discontinuing Operations’. These terms are defined by AS-4, AS-5 and AS-24, respectively and disclosures should be done in accordance with these definitions.

Disclosures by way of Notes

Besides the above disclosures, Revised Schedule VI also requires disclosures by way of Notes attached to the financial statements. Some of the major requirements are as under:

(a) For manufacturing companies: raw materials consumed and goods purchased under broad heads;

(b) For trading companies: purchases of goods traded under broad heads;

(c) For companies rendering services: gross income derived from services rendered under broad heads.

Revised Schedule VI does not require disclosure of quantitative details for any of the above categories of companies. The same is also clearly mentioned in para 10.7 of the ICAI GN.

The ICAI GN also mentions that ‘broad heads’ for the purpose of the disclosure in para 62 above are to be decided taking into account the concept of materiality and presentation of ‘True and Fair’ view of financial statements. The said GN also mentions that normally 10% of the total value of sales/services, purchases of trading goods and consumption of raw materials is considered as an acceptable threshold for determination of broad heads.

Revised Schedule VI requires disclosures of ‘Contingent liabilities and commitments’. For this purpose, besides others, ‘other commitments’ are also to be disclosed. Such disclosure of ‘other commitments’ was not required as per pre-revised Schedule VI.

There is no explanation of what would be covered as part of ‘other commitments’ in Revised Schedule VI. The ICAI GN has however clarified that disclosures required to be made for ‘other commitments’ should include ‘only those non-cancellable contractual commitments (cancellation of which will result in a penalty disproportionate to the benefits involved) based on the professional judgment of the management which are material and relevant in understanding the financial statements of the company and impact the decision making of the users of financial statements. Examples may include commitments in the nature of buyback arrangements, commitments to fund subsidiaries and associates, non-disposal of investments in subsidiaries and undertakings, derivative related commitments, etc.’

Most of the other disclosure requirements as per Revised Schedule VI in Notes are similar to the requirements of pre-revised Schedule VI.

Implementation of Revised Schedule VI

As can be seen from the above, disclosure requirements of Revised Schedule VI are quite different from those existing in the pre-revised Schedule VI. Many of these disclosures and concepts (like ‘current’, non-current’) are similar to terms and concepts used in IFRS. Unless, companies gear up well in time to adhere to these new requirements for 2011-12 (and corresponding figures for 2010-11), it will be difficult for them to meet the reporting deadlines of the Companies Act, 1956.

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GUIDANCE NOTE  

ON 

THE REVISED SCHEDULE VI  

TO THE COMPANIES ACT, 1956 

The Institute of Chartered Accountants of India 

(Set up by an Act of Parliament)

New Delhi © THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 

All rights reserved. No part of this publication may be reproduced, stored 

in a retrieval system, or transmitted, in any form, or by any means, 

electronic mechanical, photocopying, recording, or otherwise, without 

prior permission, in writing, from the publisher. 

Edition : December, 2011 

Committee/Department : Corporate Laws & Corporate Governance

Published by : The Publication Department on behalf of 

the Institute of Chartered Accountants of 

India, ICAI Bhawan, Post Box No. 7100, 

Indraprastha Marg, New Delhi - 110 002. 

Printed by : Sahitya Bhawan Publications, Hospital 

Road, Agra 282 003 

  December/2011/5,000 Copies Foreword 

The Ministry of Corporate Affairs of the Government of India has been taking 

many initiatives for overhauling the  Companies Act, 1956 through major 

amendments, circulars and notifications. To make Indian business and 

companies competitive and globally recognisable, a need was felt that format 

of Financial Statements of Indian corporates should be comparable with 

international format. Since most of the Indian Accounting Standards are 

being made at par with the international Accounting Standards, the changes 

to format of Financial Statements to align with the Accounting Standards will 

make Indian companies competitive on the global financial world. Taking 

cognizance of imperative situation and need, the Ministry of Corporate Affairs 

revised the existing Schedule VI to the Companies Act, 1956 and made it 

applicable to all companies for the Financial Statements to be prepared for 

the financial year commencing on or after April 1, 2011.  

The Institute through its Corporate Laws & Corporate Governance Committee 

undertook the exercise of bringing out a Guidance Note for the benefit of the 

members of the profession. This Guidance Note replaces its earlier 

publication titled ‘Statement on the Amendments to Schedule VI’ to the 

Companies Act, 1956 which was first introduced in the year 1976.  

In formalising the Guidance Note to the Revised Schedule VI to the 

Companies Act, 1956, the Study Group, the Committee and the Council had 

detailed deliberations and discussions. Lot of efforts and endeavour has 

gone in the process and I commend the Corporate Laws & Corporate 

Governance Committee in bringing out  this timely and useful publication. I 

place on record my appreciation to the entire team of Committee under the 

Chairmanship, CA. S. Santhanakrishnan.   

The Study Group under the convenorship of CA. Nilesh S. Vikamsey, ViceChairman of the Committee, with four members CA. Sandeep Gupta, CA. 

Vijay Maniar, CA. Paresh Clerk and CA. Himanshu Kishnadwala deserves 

special compliments and mention for their substantial effort and time in 

having in-depth technical study and discussion in numerous meetings to 

bring out this Guidance Note. I also express my thanks to CA. Arpit K Patel 

and CA. S. Ramachandran for their valuable inputs. 

My appreciation to the Secretariat of the Committee comprising Dr. P T 

Giridharan, Joint Director, Ms. S. Rita, CA. Sarika Singhal, CA. Sonia Taneja,   iv 

Ms. Shruti Soni and CA. Vijayanti Jain for their back-up support in bringing 

out this publication. 

I sincerely hope that this publication would be of immense help to the 

members in carrying out their professional assignment. 

New Delhi CA G. Ramaswamy 

5

th

 December, 2011 President Preface 

The corporate laws of an economy are a sine qua non for economic growth. 

In today’s global economic scenario, entrepreneurs are looking forward to 

economies that have the best, compact and easy laws and procedures that 

facilitate quick establishment of companies. The Indian Company Law, which 

had its legislative origin after independence, had gone through a number of 

amendments since 1956. The Ministry of Corporate Affairs has been taking 

timely and pro-active initiatives by making the existing law simple, compact 

with less cumbersome procedures. Apart from the large number of sections 

contained in the Act, there are a number of Schedules to the Companies Act, 

1956 which the Ministry has been re-looking at from time to time.  With its 

total makeover at this juncture, it is almost at par with the laws elsewhere in 

the globe and making the country as a platform for inviting off-shore 

investments. 

As ‘Accounting Standards’ have become mandatory and more so the road 

map towards convergence of IFRS has  been drawn up, Schedule VI to the 

Companies Act, 1956 became an important piece of document, which 

necessitated the Ministry very recently to revise in terms of contents, format 

and to align itself with that of existing Accounting Standards. 

The Revised Schedule VI to the Companies Act, 1956 became applicable to 

all companies for the preparation of Financial Statements beginning on or 

from 1.4.2011. It is a major step and members of the profession have a 

greater role and responsibility in its preparation. To facilitate the preparation 

of Financial Statements in compliance with the Revised Schedule VI, the 

ICAI has brought out this Guidance Note for the benefit of its members. 

In this connection, I take this opportunity in thanking the honourable 

President of ICAI, CA. G. Ramaswamy and the Vice President of ICAI CA. 

Jaydeep N. Shah for their moral support and encouragement in bringing out 

the publication. I place on record my appreciation to CA Nilesh S. Vikamsey, 

the Vice-Chairman of the Corporate Laws and Corporate Governance 

Committee and his team of study group comprising CA. Sandeep Gupta, CA. 

Vijay Maniar, CA. Paresh Clerk and  CA. Himanshu Kishnadwala for their 

extensive work in the preparation of this document. I also thank my 

colleagues in the Committee for having participated in the discussion and 

sharing their suggestions and comments. I also thank CA. Manoj Fadnis, 

Chairman of the Accounting Standards Board, CA. Abhijit Bandyopadhyay, vi 

Chairman and the members of the Auditing and Assurance Standards Board 

for their invaluable comments and suggestions in the process of discussion. 

The Secretariat to the Committee (comprising Dr. P.T. Giridharan, Ms. S. 

Rita, CA. Sarika Singhal, CA. Sonia Taneja, Ms. Shruti Soni and 

CA. Vijayanti Jain) also deserves appreciation for having participated and 

contributed to the technical deliberations at various study group/committee 

meetings. 

I sincerely believe that the members of the profession, industries, companies, 

Chambers of Commerce and other bodies will find the publication immensely 

useful. 

8

th

 December, 2011 CA S. Santhanakrishnan 

 Chairman 

 Corporate Laws & Corporate Governance Committee Index 

S.No. Contents Page No. 

1.  Introduction  1 

2.  Objective and Scope  1-2 

3.  Applicability  2-4 

4.  Summary of the Revised Schedule VI 5-9 

5.  Structure  of the Revised Schedule VI  9 

6.  General Instructions to Revised Schedule VI 9-14 

7.   General Instructions For Preparation of Balance 

Sheet: Notes 1 to 5 

15-20 

8.  Part I Form of Balance Sheet and Note 6 to General 

Instructions For Preparation of Balance Sheet 

20-56 

9.  Part II- Statement of Profit and Loss 56-72 

10.  Other additional information to be disclosed by way of 

Notes to Statement of Profit and Loss 

72-78 

11.  Other Disclosures 79-92 

12.  Multiple Activity Companies 93 

 Annexures  94-153 

 Annexure A -  Notification on Revised Schedule VI 94-115 

 Annexure B   Circular No 62/2011 as released by 

 Ministry of Corporate Affairs

116 

Annexure C-  Comparison   of   Old   and   Revised 

   Schedule VI 

117-150 

Annexure D -  Illustrative List of Disclosures 

required under the Companies Act, 

1956

151 

Annexure E -  List of Accounting Standards as on  

  31

st 

August, 2011 notified under the  

Companies (Accounting Standards)  

Rules, 2006 pursuant to section 211 

(3C)  

152-153 viii 1. Introduction  

1.1 Schedule VI to the Companies Act, 1956 (‘the Act’) provides the 

manner in which every company registered under the Act shall prepare its 

Balance Sheet, Statement of Profit and Loss and notes thereto. In the light of 

various economic and regulatory reforms that have taken place for 

companies over the last several years, there was a need for enhancing the 

disclosure requirements under the Old Schedule VI to the Act and 

harmonizing and synchronizing them with the notified Accounting Standards 

as applicable (‘AS’/‘Accounting Standard(s)’). Accordingly, the Ministry of 

Corporate Affairs (MCA) has issued a revised form of Schedule VI on 

February 28, 2011. The relevant notification along with the Revised Schedule 

VI to the Act is given in Annexure A (pg 94-115). As per the relevant 

notifications, the Schedule applies to all companies for the Financial 

Statements to be prepared for the financial year commencing on or after April 

1, 2011.  

1.2 The requirements of the Revised Schedule VI however, do not apply to 

companies as referred to in the proviso to Section 211 (1) and Section 211 

(2) of the Act, i.e., any insurance or banking company, or any company 

engaged in the generation or supply of electricity or to any other class of 

company for which a form of Balance Sheet and Profit and Loss account has 

been specified in or under any other Act governing such class of company.  

1.3 It may be clarified that for companies engaged in the generation and 

supply of electricity, however, neither the Electricity Act, 2003, nor the rules 

framed thereunder, prescribe any specific format for presentation of Financial 

Statements by an electricity company.  Section 616(c) of the Companies Act 

states that the Companies Act will apply to electricity companies, to the extent it 

is not contrary to the requirements of the Electricity Act.  Keeping this in view, 

Revised Schedule VI may be followed by such companies till the time any other 

format is prescribed by the relevant statute. 

2. Objective and Scope 

2.1. The objective of this Guidance Note is to provide guidance in the 

preparation and presentation of Financial Statements of companies in 

accordance with various aspects of the Revised Schedule VI. However, it 

does not provide guidance on disclosure requirements under Accounting 

Standards, other pronouncements of the Institute of Chartered Accountants 

of India (ICAI), other statutes, etc.Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

2 

2.2. In preparing this Guidance Note, reference has been made to the 

Accounting Standards notified under the Companies (Accounting Standards) 

Rules, 2006 (as amended) given in  Annexure E (pg 152-153), other 

Accounting Standards issued by the ICAI (yet to be notified under the Act) 

and various other pronouncements of the ICAI. The primary focus of the 

Guidance Note has been to lay down broad guidelines to deal with practical 

issues that may arise in the implementation of the Revised Schedule VI.  

2.3. As per the clarification issued by ICAI regarding the authority attached 

to the Documents Issued by ICAI, “‘Guidance Notes’ are primarily designed 

to provide guidance to members on matters which may arise in the course of 

their professional work and on which they may desire assistance in resolving 

issues which may pose difficulty. Guidance Notes are recommendatory in 

nature. A member should ordinarily follow recommendations in a guidance 

note relating to an auditing matter except where he is satisfied that in the 

circumstances of the case, it may not be necessary to do so. Similarly, while 

discharging his attest function, a member should examine whether the 

recommendations in a guidance note relating to an accounting matter have 

been followed or not. If the same have not been followed, the member should 

consider whether keeping in view the circumstances of the case, a disclosure 

in his report is necessary.” 

3. Applicability

3.1. As per the Government Notification no. F.No.2/6/2008-C.L-V dated 30-

3-2011, the Revised Schedule VI is applicable for the Balance Sheet and 

Profit and Loss Account to be prepared for the financial year commencing on 

or after April 1, 2011. 

3.2. Early adoption of the Revised Schedule VI is not permitted since 

Schedule VI is a statutory format. 

3.3. The Revised Schedule VI requires that except in the case of the first 

Financial Statements laid before the company after incorporation, the 

corresponding amounts for the immediately preceding period are to be 

disclosed in the Financial Statements including the Notes to Accounts. 

Accordingly, corresponding information will have to be presented starting 

from the first year of application of the Revised Schedule VI. Thus for the 

Financial Statements prepared for the year 2011-12 (1

st

 April 2011 to 31

st

March 2012), corresponding amounts need to be given for the financial year 

2010-11.  

3.4. ICAI had earlier issued the Statement on the Amendments to Schedule 

VI to the Companies Act, 1956 in March 1976 (as amended). Wherever Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

3 

guidance provided in this publication is different from the guidance in the 

aforesaid Statement, this Guidance Note will prevail.  

3.5. Applicability of the Revised Schedule VI format to interim Financial 

Statements prepared by companies in the first year of application of the 

Schedule:  

Relevant paragraphs of AS-25 Interim Financial Reporting are quoted below: 

“10.  If an enterprise prepares and presents a complete set of Financial 

Statements in its interim financial report, the form and content of those 

statements should conform to the requirements as applicable to annual 

complete set of Financial Statements. 

11. If an enterprise prepares and presents a set of condensed Financial 

Statements in its interim financial report, those condensed statements should 

include, at a minimum, each of the headings and sub-headings that were 

included in its most recent annual Financial Statements and the selected 

explanatory notes as required by this Statement. Additional line items or 

notes should be included if their omission would make the condensed interim 

Financial Statements misleading.”

3.6. Accordingly, if a company is presenting condensed interim Financial 

Statements, its format should conform  to that used in the company’s most 

recent annual Financial Statements, i.e., the Old Schedule VI. However, if it 

presents a complete set of Financial Statements, it should use the Revised 

Schedule VI, i.e., the new format applicable to annual Financial Statements. 

3.7. The format of Balance Sheet currently prescribed under Clause 41 to 

the Listing Agreement based on the Old Schedule VI is inconsistent with the 

format of Balance Sheet in the Revised Schedule VI. Till Clause 41 is 

revised, this issue to be addressed by companies as explained below : 

3.7.1. Clauses 41(I)(ea) and 41(I)(eaa) to the Listing Agreement regarding 

presentation of Balance Sheet items in half-yearly and annual audited 

results, respectively states as under: 

“(ea)  As a part of its audited or unaudited financial results for the half-year, 

the company shall also submit by way of a note, a statement of assets and 

liabilities as at the end of the half-year. 

(eaa) However, when a company opts to submit un-audited financial results 

for the last quarter of the financial year, it shall, submit a statement of assets 

and liabilities as at the end of the financial year only along with the audited 

financial results for the entire financial year, as soon as they are approved by 

the Board.” Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

4 

3.7.2. Further, Clause 41(V)(h) regarding  format of Balance Sheet items 

states as under: 

“(h) Disclosure of Balance Sheet items as per items (ea) shall be in the 

format specified in Annexure IX drawn from Schedule VI of the Companies 

Act, or its equivalent formats in other statutes, as applicable.”  

Based on the above: 

(a) For Half yearly results: Though the requirement in clause 41(V)(h) 

makes a reference to the Schedule VI for the presentation of Balance 

Sheet items, in case of half-yearly results of a company, it has 

prescribed a specific format for the purpose. Hence, till the time a new 

format is prescribed by the Securities and Exchange Board of India 

(SEBI) under Clause 41, companies will have to continue to present 

their half-yearly Balance Sheets based on the format currently 

specified by the SEBI. 

(b) For Annual audited yearly results: Clause 41(V) (h) does not refer to 

any format for the purposes of annual statement of assets and 

liabilities. Since companies have to prepare their annual Financial 

Statements in the Revised Schedule VI format, companies should use 

the same format of Revised Schedule VI for submission to stock 

exchanges as well. 

3.8. The formats of the Balance Sheet and Statement of Profit and Loss 

prescribed under the SEBI (Issue of Capital & Disclosure Requirements) 

Regulations 2009 (‘ICDR Regulations’) is inconsistent with the format of the 

Balance Sheet/ Statement of Profit and Loss in the Revised Schedule VI. 

However, the formats of Balance Sheet and Statement of Profit and Loss 

under ICDR Regulations are “illustrative  formats”. Accordingly, to make the 

data comparable and meaningful for users, companies should use the 

Revised Schedule VI format to present the restated financial information for 

inclusion in the offer document. Consequently, among other things, this will 

involve classification of assets and liabilities into current and non-current for 

earlier years presented as well.  

Attention is also invited to the General Circular no 62/2011 dated 5

th

September 2011 issued by the Ministry of Company Affairs which clarifies 

that ‘the presentation of Financial Statements for the limited purpose of 

IPO/FPO during the financial year 2011-12 may be made in the format of the 

pre-revised Schedule VI under the Companies Act, 1956. However, for 

period beyond 31

st

 March 2012, they would prepare only in the new format as 

prescribed by the present Schedule VI of the Companies Act, 1956’. [Refer 

Annexure B (pg 116) for Circular] Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

5 

4. Summary of Revised Schedule VI 

4.1. Main principles 

4.1.1. The Revised Schedule VI requires that if compliance with the 

requirements of the Act and / or the notified Accounting Standards requires a 

change in the treatment or disclosure in the Financial Statements as 

compared to that provided in the Revised Schedule VI, the requirements of 

the Act and / or the notified Accounting Standards will prevail over the 

Schedule. 

4.1.2. The Revised Schedule VI clarifies that the requirements mentioned 

therein for disclosure on the face of the Financial Statements or in the notes 

are minimum requirements. Line items, sub-line items and sub-totals can be 

presented as an addition or substitution on the face of the Financial 

Statements when such presentation is relevant for understanding of the 

company’s financial position and /or performance.

4.1.3. In the Old Schedule VI, break-up of amounts disclosed in the main 

Balance Sheet and Profit and Loss Account was given in the Schedules. 

Additional information was furnished in the Notes to Account. The Revised 

Schedule VI has eliminated the concept of ‘Schedule’ and such information is 

now to be furnished in the Notes to Accounts. 

4.1.4. The terms used in the Revised Schedule VI will carry the meaning as 

defined by the applicable Accounting Standards. For example, the terms 

such as ‘associate’, ‘related parties’,  etc. will have the same meaning as 

defined in Accounting Standards notified under Companies (Accounting 

Standards) Rules, 2006.

4.1.5. In preparing the Financial Statements including the Notes to Accounts, 

a balance will have to be maintained between providing excessive detail that 

may not assist users of Financial Statements and not providing important 

information as a result of too much aggregation.

4.1.6. All items of assets and liabilities are to be bifurcated between current 

and non-current portions and presented separately on the face of the 

Balance Sheet. Such classification was not required by the Old Schedule VI. 

4.1.7. There is an explicit requirement to use the same unit of measurement 

uniformly throughout the Financial Statements and notes thereon. Moreover, 

rounding off requirements (where opted for) have been changed to eliminate 

the option of presenting figures in terms of hundreds and thousands if 

turnover exceeds 100 crores.Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

6 

4.2. Major changes related to the Balance sheet 

4.2.1. The Revised Schedule VI prescribes only the vertical format for 

presentation of Financial Statements. Thus, a company will now not have an 

option to use horizontal format for the presentation of Financial Statements 

as prescribed in Old Schedule VI.

4.2.2. Current and non-current classification has been introduced for 

presentation of assets and liabilities in the Balance Sheet. The application of 

this classification will require assets and liabilities to be segregated into their 

current and non-current portions. For instance, current maturities of a longterm borrowing will have to be classified under the head “Other current 

liabilities.”

4.2.3. Number of shares held by each shareholder holding more than 5 

percent shares in the company now needs to be disclosed. In the absence of 

any specific indication of the date of holding, such information should be 

based on shares held as on the Balance Sheet date. 

4.2.4. Details pertaining to aggregate number and class of shares allotted for 

consideration other than cash, bonus shares and shares bought back will 

need to be disclosed only for a period of five years immediately preceding 

the Balance Sheet date including the current year.

4.2.5. Any debit balance in the Statement of Profit and Loss will be disclosed 

under the head “Reserves and surplus.” Earlier, any debit balance in Profit 

and Loss Account carried forward after deduction from uncommitted reserves 

was required to be shown as the last item on the Assets side of the Balance 

Sheet.

4.2.6. Specific disclosures are prescribed for Share Application money. The 

application money not exceeding the capital offered for issuance and to the 

extent not refundable will be shown separately on the face of the Balance 

Sheet. The amount in excess of subscription or if the requirements of 

minimum subscription are not met will be shown under “Other current 

liabilities.” 

4.2.7. 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 can no longer be included in 

the trade receivables.

4.2.8. The Old Schedule VI required separate presentation of debtors 

outstanding for a period exceeding six months based on date on which the Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

7 

bill/invoice was raised whereas, the Revised Schedule VI requires separate 

disclosure of trade receivables outstanding for a period exceeding six months 

from the date the bill/invoice is due for payment.

4.2.9. “Capital advances” are specifically required to be presented separately 

under the head “Loans & advances” rather than including elsewhere.

4.2.10. Tangible assets under lease are required to be separately specified 

under each class of asset. In the absence of any further clarification, the term 

“under lease” should be taken to mean assets given on operating lease in the 

case of lessor and assets held under finance lease in the case of lessee. 

4.2.11. In the Old Schedule VI, details of only capital commitments were 

required to be disclosed. Under the Revised Schedule VI, other commitments 

also need to be disclosed.

4.2.12. The Revised Schedule VI requires disclosure of all defaults in 

repayment of loans and interest to be specified in each case. Earlier, no such 

disclosure was required in the Financial Statements. However, disclosures 

pertaining to defaults in repayment of dues to a financial institution, bank and 

debenture holders continue to be required in the report under Companies 

(Auditor’s Report) Order, 2003 (CARO).

4.2.13. The Revised Schedule VI introduces a number of other additional 

disclosures. Some examples are:

(a) Rights, preferences and restrictions attaching to each class of shares, 

including restrictions on the distribution of dividends and the 

repayment of capital;

(b) Terms of repayment of long-term loans;  

(c) In each class of investment, details regarding names of the bodies 

corporate in whom investments have been made, indicating separately 

whether such bodies are (i) subsidiaries, (ii) associates, (iii) joint 

ventures, or (iv) controlled special purpose entities, and the nature and 

extent of the investment made in each such body corporate (showing 

separately partly-paid investments); 

(d) Aggregate provision for diminution in value of investments separately 

for current and long-term investments; 

(e) Stock-in-trade held for trading purposes, separately from other finished 

goods. Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

8 

4.3. Main changes related to Statement of Profit and Loss 

4.3.1. The name has been changed to “Statement of Profit and Loss” as 

against ‘Profit and Loss Account’ as contained in the Old Schedule VI.  

4.3.2. Unlike the Old Schedule VI, the Revised Schedule VI lays down a 

format for the presentation of Statement of Profit and Loss. This format of 

Statement of Profit and Loss does not mention any appropriation item on its 

face. Further, the Revised Schedule VI format prescribes such ‘below the 

line’ adjustments to be presented under “Reserves and Surplus” in the 

Balance Sheet. 

4.3.3. In addition to specific disclosures prescribed in the Statement of Profit 

and Loss, any item of income or expense which exceeds one percent of the 

revenue from operations or Rs. 100,000 (earlier 1 % of total revenue or Rs. 

5,000), whichever is higher, needs to be disclosed separately.

4.3.4. The Old 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 the 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 as on the Balance Sheet date. 

4.3.5. 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.

4.3.6. Net exchange gain/loss on foreign currency borrowings to the extent 

considered as an adjustment to interest cost needs to be disclosed 

separately as finance cost.

4.3.7. Break-up in terms of quantitative disclosures for significant items of 

Statement of Profit and Loss, 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 

considerations of materiality and presentation of true and fair view of the 

Financial Statements.

4.4. Disclosures no longer required 

The Revised Schedule VI has removed a number of disclosure requirements 

that were not considered relevant in the present day context. Examples 

include: Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

9 

(a) Disclosures relating to managerial  remuneration and computation of 

net profits for calculation of commission; 

(b) Information relating to licensed capacity, installed capacity and actual 

production; 

(c) Information on investments purchased and sold during the year;  

(d) Investments, sundry debtors and loans & advances pertaining to 

companies under the same management;  

(e) Maximum amounts due on account of loans and advances from 

directors or officers of the company; 

(f) Commission, brokerage and non-trade discounts 

However, there are certain disclosures such as value of imports calculated 

on CIF basis, earnings/expenditure in foreign currency, etc. that still continue 

in the Revised Schedule VI. A comparison of Old and Revised Schedule VI is 

given in Annexure C (pg 117-150). 

5. Structure of the Revised Schedule VI 

The Structure of Revised Schedule VI is as under: 

I. General Instructions 

II. Part I – Form of Balance Sheet 

III. General Instructions for Preparation of Balance Sheet 

IV. Part II – Form of Statement of Profit and Loss 

V. General Instructions for Preparation of Statement of Profit and Loss 

6. General Instructions to The Revised Schedule VI 

6.1. The General Instructions lay down the broad principles and guidelines 

for preparation and presentation of Financial Statements. 

6.2. As laid down in the Preface to the Statements of Accounting 

Standards issued by ICAI, if a particular Accounting Standard is found to be 

not in conformity with law, the provisions of the said law will prevail and the 

Financial Statements should be prepared in conformity with such law. 

Accordingly, by virtue of this principle, disclosure requirements of the Old 

Schedule VI were considered to prevail over Accounting Standards. 

However, since the Revised Schedule VI gives overriding status to the 

requirements of the Accounting Standards and other requirements of the Act, 

such principle of law overriding the Accounting Standards is inapplicable in 

the context of the Revised Schedule VI.  Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

10 

6.3. The Revised Schedule VI requires that if compliance with the 

requirements of the Act including  applicable Accounting Standards require 

any change in the treatment or disclosure including addition, amendment, 

substitution or deletion in the head/sub-head or any changes inter se, in the 

Financial Statements or statements forming part thereof, the same shall be 

made and the requirements of Revised Schedule VI shall stand modified 

accordingly.  

6.4. Implications of all instructions mentioned above can be illustrated by 

means of the following example. One of the line items to be presented on the 

face of the Balance Sheet under Current assets is “Cash and cash 

equivalents”. The break-up of these items required to be presented by the 

Revised Schedule VI comprises of items such as Balances with banks held 

as margin money or security against borrowings, guarantees, etc. and bank 

deposits with more than 12 months maturity. According to AS-3 Cash Flow 

Statements, Cash is defined to include cash on hand and demand deposits 

with banks. Cash Equivalents are defined as short term, highly liquid 

investments that are readily convertible into known amounts of cash and 

which are subject to an insignificant risk of changes in value. The Standard 

further explains that an investment normally qualifies as a cash equivalent 

only when it has a short maturity of three months or less from the date of 

acquisition. Hence, normally, deposits with original maturity of three months 

or less only should be classified as cash equivalents. Further, bank balances 

held as margin money or security  against borrowings are neither in the 

nature of demand deposits, nor readily available for use by the company, and 

accordingly, do not meet the aforesaid definition of cash equivalents. Thus, 

this is an apparent conflict between the requirements of the Revised 

Schedule VI and the Accounting Standards with respect to which items 

should form part of Cash and cash equivalents. As laid down in the General 

Instructions, Para 1 of Revised Schedule VI, requirements of the Accounting 

Standards would prevail over the Revised Schedule VI and the company 

should make necessary modifications in the Financial Statements which may 

include addition, amendment, substitution or deletion in the head/sub-head or 

any other changes inter se. Accordingly, the conflict should be resolved by 

changing the caption “Cash and cash equivalents” to “Cash and bank 

balances,” which may have two sub-headings, viz., “Cash and cash 

equivalents” and “Other bank balances.” The former should include only the 

items that constitute Cash and cash equivalents defined in accordance with 

AS 3 (and not the Revised Schedule VI), while the remaining line-items may 

be included under the latter heading. Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

11 

6.5. Para 2 of the General Instructions to the Revised Schedule VI states 

that the disclosure requirements of the Schedule are in addition to and not in 

substitution of the disclosure requirements specified in the notified 

Accounting Standards. They further clarify that the additional disclosures 

specified in the Accounting Standards shall be made in the Notes to 

Accounts or by way of an additional statement unless required to be 

disclosed on the face of the Financial Statements. All other disclosures 

required by the Act are also required to be made in the Notes to Accounts in 

addition to the requirements set out in the Revised Schedule VI. 

6.6. An example to illustrate the above  point is the specific disclosure 

required by AS-24 Discontinuing Operations on the face of the Statement of 

Profit and Loss which has not been incorporated in the Revised Schedule VI. 

The disclosure pertains to the amount of pre-tax gain or loss recognised on 

the disposal of assets or settlement of liabilities attributable to the 

discontinuing operation. Accordingly, such disclosures specifically required 

by the Accounting Standard on the face of either the Statement of Profit and 

Loss or Balance Sheet will have to be so made even if not forming part of the 

formats prescribed under the Revised Schedule VI.  

6.7. All the other disclosures required by the Accounting Standards will 

continue to be made in the Financial Statements. Further, the disclosures 

required by the Act will continue to be made in the Notes to Accounts. An 

example of this is the separate disclosure required by Section 293A of the 

Act for donations made to political parties. Such disclosures would be made 

in the Notes. An illustrative list of disclosures required under the Act is 

enclosed as Annexure D (pg 151). 

6.8. Though not specifically required by the Revised Schedule VI, 

disclosures mandated by other Acts or  legal requirements will have to be 

made in the Financial Statements. For example, The Micro, Small and 

Medium Enterprises Development (MSMED) Act, 2006 requires specified 

disclosures to be made in the annual Financial Statements of the buyer 

wherever such Financial Statements  are required to be audited under any 

law. Accordingly, such disclosures  will have to be made in the buyer 

company’s annual Financial Statements.  

6.9. The above principle would apply to disclosures required by other legal 

requirements as well such as, disclosures required under Clause 32 to the 

Listing Agreement, etc. A further extension of the above principle also means 

that specific disclosures required by various pronouncements of regulatory 

bodies such as the ICAI announcement  for disclosures on derivatives and 

unhedged foreign currency exposures, and other disclosure requirements 

prescribed by various ICAI Guidance Notes, such as Guidance Note on Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

12 

Employee Share-based Payments, etc. should continue to be made in the 

Financial Statements in addition to the disclosures specified by the Revised 

Schedule VI. 

6.10. In the Old Schedule VI, break-up of amounts disclosed on the face of 

the Balance Sheet and Profit and Loss Account was required to be given in 

the Schedules. Additional information was required to be furnished in the 

Notes to Account. The Revised Schedule VI requires all information relating 

to each item on the face of the Balance Sheet and Statement of Profit and 

Loss to be cross-referenced to the Notes to Accounts. The manner of such 

cross-referencing to various other informations contained in the Financial 

Statements has also been changed to “Note No.” as compared to “Schedule 

No.” in the Old Schedule VI. Hence, the same is suggestive of a change in 

the old format of presentation from Schedules and Notes to Accounts to the 

new format of only Notes to Accounts. The instructions state that the Notes 

to Accounts should provide where required, narrative descriptions or 

disaggregations of items recognized in those statements. Hence, 

presentation of all narrative descriptions and disaggregations should 

preferably be presented in the form of Notes to Accounts rather than in the 

form of Schedules. Such style of presentation is also in line with the manner 

of presentation of Financial Statements followed by companies internationally 

and would facilitate comparability of Financial Statements. 

6.11. Para 3 of the General Instructions of the Revised Schedule VI also 

states that the Notes to Accounts should also contain information about items 

that do not qualify for recognition in Financial Statements. These disclosures 

normally refer to items such as Contingent Liabilities and Commitments 

which do not get recognised in the Financial Statements. These have been 

dealt with later in this Guidance Note. Some of the other disclosures relating 

to items that are not recognised in the Financial Statements also emanate 

from the Accounting Standards, such as, disclosures required under  AS 9

Revenue Recognition on circumstances in which revenue recognition is to be 

postponed pending the resolution of significant uncertainties. Contingent 

Assets, however, are not to be disclosed in the Financial Statements as per 

AS 29 Provisions, Contingent Liabilities and Contingent Assets. 

6.12. The General Instructions also lay down the principle that in preparing 

Financial Statements including Notes  to Accounts, a balance shall be 

maintained between providing excessive detail that may not assist users of 

Financial Statements and not providing important information as a result of 

too much aggregation. Compliance with this requirement is a matter of 

professional judgement and may vary on a case to case basis based on facts 

and circumstances. However, it is necessary to strike a balance between Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

13 

overburdening Financial Statements with excessive detail that may not assist 

users of Financial Statements and obscuring important information as a 

result of too much aggregation. For example, a company should not obscure 

important information by including it among a large amount of insignificant 

detail or in a way that it obscures  important differences between individual 

transactions or associated risks. 

6.13. The Revised Schedule VI has specifically introduced a new 

requirement of using the same unit of measurement uniformly across the 

Financial Statements. Such requirement should be taken to imply that all 

figures disclosed in the Financial Statements including Notes to Accounts 

should be of the same denomination.  

6.14. The Revised Schedule VI has also introduced new rounding off 

requirements as compared to the Old Schedule VI. The new requirement 

does not prescribe the option to present figures in terms of hundreds and 

thousands if the turnover equals or exceeds `Rs. 100 crores. Rather, they 

allow rounding off in crores, which was earlier permitted only when the 

turnover equaled or exceeded five hundred crores rupees. Similarly, where 

turnover is below `Rs. 100 crore, the Revised Schedule VI gives an option to 

present figures in lakhs and millions as well, which did not exist earlier. 

However, it is not compulsory to apply rounding off and a company can 

continue to disclose full figures. But, if the same is applied, the rounding off 

requirement should be complied with.  

Old Schedule VI  Revised Schedule VI 

• Turnover < Rs. 100 Crores – 

Round off to the nearest 

hundreds, thousands or decimal 

thereof 

• Turnover  Rs. 100 to Rs. 500 

Crores - Round off to the nearest 

hundreds, thousands, lakhs or 

millions or decimal thereof 

• Turnover > Rs. 500 Crores - 

Round off to the nearest 

hundreds, thousands, lakhs, 

millions or crores, or decimal 

thereof. 

• Turnover < Rs. 100 Crores - Round 

off to the nearest hundreds, 

thousands,  lakhs or millions  or

decimal thereof. 

• Turnover  > Rs. 100 Crores  -

Round off to  the nearest lakhs, 

millions or crores, or decimal thereof

6.15. The instructions also clarify that the terms used in the Revised 

Schedule VI shall be as per the  applicable Accounting Standards. For 

example, the term ‘related parties’ used at several places in the Revised Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

14 

Schedule VI should be interpreted based on the definition given in  AS-18 

Related Party Disclosures. 

6.16. The Notes to the General Instructions re-clarify that the Revised 

Schedule VI sets out the minimum requirements for disclosure in the 

Financial Statements including notes. It states that line items, sub-line items 

and sub-totals shall be presented as an addition or substitution on the face of 

the Balance Sheet and Statement of Profit and Loss when such presentation 

is relevant to an understanding of the company’s financial position or 

performance or to cater to industry/sector-specific disclosure requirements, 

apart from, when required for compliance with amendments to the Act or the 

Accounting Standards. 

The application of the above requirement is a matter of professional 

judgement. The following examples illustrate this requirement. Earnings 

before Interest, Tax, Depreciation and Amortisation is often an important 

measure of financial performance of  the company relevant to the various 

users of Financial Statements and stakeholders of the company. Hence, a 

company may choose to present the same as an additional line item on the 

face of the Statement of Profit and Loss. The method of computation adopted 

by companies for presenting such measures should be followed consistently 

over the years. Further, companies should also disclose the policy followed 

in the measurement of such line items. 

6.17. Similarly, users and stakeholders often want to know the liquidity 

position of the company. To highlight the same, a company may choose to 

present additional sub-totals of Current  assets and Current liabilities on the 

face of the Balance Sheet.

6.18. One example of addition or substitution of line items, sub-line items 

and sub-totals to cater to industry-specific disclosure requirements can be 

noted from Non-Banking Financial (Non-Deposit Accepting or Holding) 

Companies Prudential Norms (Reserve Bank) Directions, 2007. The 

Directions prescribe that every non-banking finance company is required to 

separately disclose in its Balance Sheet the provisions made under the 

Directions without netting them from the income or against the value of 

assets. Though not specifically required by the Schedule, such addition or 

substitution of line items can be made in the notes forming part of the 

Financial Statements as well. Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

15 

7. General Instructions For Preparation of Balance 

Sheet : Notes 1 To 5 

7.1. Current/Non-current assets and liabilities:

The Revised Schedule VI requires all items in the Balance Sheet to be 

classified as either Current or Non-current and be reflected as such. Notes 1 

to 3 of the Revised Schedule VI define Current Asset, Operating Cycle and 

Current Liability as below:  

7.1.1. “An asset shall be classified as current when it satisfies any of the 

following criteria: 

(a) it is expected to be realized in, or is intended for sale or consumption 

in, the company’s normal operating cycle; 

(b) it is held primarily for the purpose of being traded; 

(c) it is expected to be realized within twelve months after the reporting 

date; or 

(d) it is Cash or cash equivalent unless it is restricted from being 

exchanged or used to settle a liability for at least twelve months after 

the reporting date. 

All other assets shall be classified as non-current.” 

7.1.2. “An operating cycle is the time between the acquisition of assets for 

processing and their realization in Cash or cash equivalents. Where the 

normal operating cycle cannot be identified, it is assumed to have a duration 

of twelve months.” 

7.1.3. “A liability shall be classified as  current when it satisfies any of the 

following criteria: 

(a) it is expected to be settled in the company’s normal operating cycle; 

(b) it is held primarily for the purpose of being traded; 

(c) it is due to be settled within twelve months after the reporting date; or  

(d) the company does not have an unconditional right to defer settlement 

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

of a liability that could, at the option of the counterparty, result in its 

settlement by the issue of equity instruments do not affect its 

classification. 

All other liabilities shall be classified as non-current.” Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

16 

7.1.4. The Revised Schedule VI defines “current assets” and “current 

liabilities”, with the non-current category being the residual. It is therefore 

necessary that the balance pertaining to each item of assets and liabilities 

contained in the Balance Sheet be split into its current and non-current 

portions and be classified accordingly as on the reporting date. 

7.1.5. Based on the definition, current assets include assets such as raw 

material and stores which are intended for consumption or sale in the course 

of the company’s normal operating cycle. Items of inventory which may be 

consumed or realized within the company’s normal operating cycle should be 

classified as current even if the same are not expected to be so consumed or 

realized within twelve months after the reporting date. Current assets would 

also include assets held primarily for the purpose of being traded such as 

inventory of finished goods. They would also include trade receivables which 

are expected to be realized within twelve months from the reporting date and 

Cash and cash equivalents which are not under any restriction of use. 

7.1.6. Similarly, current liabilities would include items such as trade 

payables, employee salaries and other operating costs that are expected to 

be settled in the company’s normal operating cycle or due to be settled within 

twelve months from the reporting date. It is pertinent to note that such 

operating liabilities are normally part of the working capital of the company 

used in the company’s normal operating cycle and hence, should be 

classified as current even if they are due to be settled more than twelve 

months after the end of the reporting date.  

7.1.7. Further, any liability, pertaining  to which the company does not have 

an unconditional right to defer its settlement for at least twelve months after 

the Balance Sheet/reporting date, will have to be classified as current. 

7.1.8. The application of this criterion could be critical to the Financial 

Statements of a company and requires careful evaluation of the various 

terms and conditions of a loan liability. To illustrate, let us understand how 

this requirement will apply to the following example: 

Company X has taken a five year loan. The loan contains certain debt 

covenants, e.g., filing of quarterly information, failing which the bank can 

recall the loan and demand repayment thereof. The company has not filed 

such information in the last quarter; as a result of which the bank has the 

right to recall the loan. However, based on the past experience and/or based 

on the discussions with the bank the  management believes that default is 

minor and the bank will not demand the repayment of loan. According to the 

definition of Current Liability, what is important is, whether a borrower has an 

unconditional right at the Balance Sheet date to defer the settlement Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

17 

irrespective of the nature of default and whether or not a bank can exercise 

its right to recall the loan. If the borrower does not have such right, the 

classification would be “current.” It is pertinent to note that as per the terms 

and conditions of the aforesaid loan, the loan was not repayable on demand 

from day one. The loan became repayable on demand only on default in the 

debt covenant and bank has not demanded the repayment of loan up to the 

date of approval of the accounts. In the Indian context, the criteria of a loan 

becoming repayable on demand on breach of a covenant, is generally added 

in the terms and conditions as a matter of abundant caution. Also, banks 

generally do not demand repayment of loans on such minor defaults of debt 

covenants. Therefore, in such situations, the companies generally continue 

to repay the loan as per its original terms and conditions. Hence, considering 

that the practical implications of such minor breach are negligible in the 

Indian scenario, an entity could continue to classify the loan as “non-current” 

as on the Balance Sheet date since the loan is not actually demanded by the 

bank at any time prior to the date on which the Financial Statements are 

approved. However, in case a bank has recalled the loan before the date of 

approval of the accounts on breach of a loan covenant that occurred before 

the year-end, the loan will have to be classified as current. Further, the 

above situation should not be confused with a loan which is repayable on 

demand from day one. For such loans, even if the lender does not demand 

repayment of the loan at any time, the same would have to be continued to 

be classified as ”current”. 

7.2. The term “Operating Cycle” is defined as the time between the 

acquisition of assets for processing  and their realization in Cash or cash 

equivalents. A company’s normal operating cycle may be longer than twelve 

months e.g. companies manufacturing wines, etc. However, where the 

normal operating cycle cannot be identified, it is assumed to have a duration 

of twelve months. 

7.2.1. Where a company is engaged in running multiple businesses, the 

operating cycle could be different for each line of business. Such a company 

will have to classify all the assets and liabilities of the respective businesses 

into current and non-current, depending upon the operating cycles for the 

respective businesses. 

Let us consider the following other examples: 

1. A company has excess finished goods inventory that it does not 

expect to realize within the company’s operating cycle of fifteen 

months. Since such finished goods inventory is held primarily for the 

purpose of being traded, the same should be classified as “current”. Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

18 

2. A company has sold 10,000 tonnes of steel to its customer. The sale 

contract provides for a normal credit period of three months. The 

company’s operating cycle is six months. However, the company does 

not expect to receive the payment  within twelve months from the 

reporting date. Therefore, the same should be classified as “NonCurrent” in the Balance Sheet. In case, the company expects to realize 

the amount upto 12 months from the Balance Sheet date (though 

beyond operating cycle), the same should be classified as “current”. 

7.3. For the purpose of Revised Schedule VI, a company also needs to 

classify its employee benefit obligations as current and non-current 

categories. While  AS-15 Employee  Benefits governs the measurement of 

various employee benefit obligations, their classification as current and noncurrent liabilities will be governed by  the criteria laid down in the Revised 

Schedule VI. In accordance with these criteria, a liability is classified as 

“current” if a company does not have an unconditional right as on the 

Balance Sheet date to defer its settlement for twelve months after the 

reporting date. Each company will need to apply these criteria to its specific 

facts and circumstances and decide an appropriate classification of its 

employee benefit obligations. Given below is an illustrative example on 

application of these criteria in a simple situation: 

(a) Liability toward bonus, etc., payable within one year from the Balance 

Sheet date is classified as “current”. 

(b) In case of accumulated leave outstanding as on the reporting date, the 

employees have already earned the right to avail the leave and they 

are normally entitled to avail the leave at any time during the year. To 

the extent, the employee has unconditional right to avail the leave, the 

same needs to be classified as “current” even though the same is 

measured as ‘other long-term employee benefit’ as per  AS-15. 

However, whether the right to defer the employee’s leave is available 

unconditionally with the company needs to be evaluated on a case to 

case basis – based on the terms of Employee Contract and Leave 

Policy, Employer’s right to postpone/deny the leave, restriction to avail 

leave in the next year for a maximum number of days, etc. In case of 

such complexities the amount of Non-current and Current portions of 

leave obligation should normally be determined by a qualified Actuary.  

(c) Regarding funded post-employment benefit obligations, amount due 

for payment to the fund created for this purpose within twelve months 

is treated as “current” liability. Regarding the unfunded postemployment benefit obligations, a  company will have settlement 

obligation at the Balance Sheet date or within twelve months for Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

19 

employees such as those who have already resigned or are expected 

to resign (which is factored for actuarial valuation) or are due for 

retirement within the next twelve months from the Balance Sheet date. 

Thus, the amount of obligation attributable to these employees is a 

“current” liability. The remaining amount attributable to other 

employees, who are likely to continue in the services for more than a 

year, is classified as “non-current” liability. Normally the actuary should 

determine the amount of current & non-current liability for unfunded 

post-employment benefit obligation based on the definition of Current 

and Non-current assets and liabilities in the Revised Schedule VI.

7.4. The Revised Schedule VI requires Investments to be classified as 

Current and Non-Current. However,  AS 13 ‘Accounting for Investments’

requires to classify Investments  as Current and Long-Term. As per  AS 13, 

current investment is an investment that is by its nature readily realisable and 

is intended to be held for not more than one year from the date on which 

such investment is made. A long-term investment is an investment other than 

a current investment.  

7.4.1. Accordingly, as per AS-13, the assessment of whether an Investment 

is “Long-term” has to be made with  respect to the date of Investment 

whereas, as per the Revised Schedule VI, “Non-current” Investment has to 

be determined with respect to the Balance Sheet date.  

7.4.2. Though the Revised Schedule VI clarifies that the Accounting 

Standards would prevail over itself in case of any inconsistency between the 

two, it is pertinent to note that AS-13 does not lay down presentation norms, 

though it requires disclosures to be made for Current and Long-term 

Investments. Accordingly, presentation of all investments in the Balance 

Sheet should be made based on Current/Non-current classification as 

defined in the Revised Schedule VI. The portion of long-term investment as 

per  AS 13 which is expected to be realized within twelve months from the 

Balance Sheet date needs to be shown as Current investment under the 

Revised Schedule VI. 

7.5. Settlement of a liability by issuing of equity 

7.5.1. The Revised Schedule VI clarifies that, “the terms of a liability that 

could, at the option of the counterparty, result in its settlement by the issue of 

equity instruments do not affect its classification”. A consequence of this is 

that if the conversion option in convertible debt is exercisable by the holder 

at any time, the liability cannot be classified as “current” if the maturity for 

cash settlement is greater than one year. A question therefore arises as to 

how does the aforesaid requirement affect the classification of items for say, Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

20 

a) convertible debt where the conversion option lies with the issuer, or b) 

mandatorily convertible debt instrument.

7.5.2. Based on the specific exemption granted only to those cases where 

the conversion option is with the counterparty, the same should not be 

extended to other cases where such option lies with the issuer or is a 

mandatorily convertible instrument. For all such cases, conversion of a 

liability into equity should be considered as a means of settlement of the 

liability as defined in the Framework For the Preparation and Presentation of 

Financial Statements issued by ICAI. Accordingly, the timing of such 

settlement would also decide the classification of such liability in terms of 

Current or Non-current as defined in the Revised Schedule VI.

7.6 As per the classification in the Revised Schedule VI and in line with 

the ICAI’s earlier announcement with  regard to the presentation and 

classification of net Deferred Tax asset or liability, the same should always 

be classified as “non-current”.

8. Part I: Form of Balance Sheet and Note 6 to General 

Instructions for Preparation of Balance Sheet

As per the Framework for The Preparation and Presentation of Financial 

Statements, asset, liability and equity are defined as follows: 

An asset is a resource controlled by the enterprise as a result of past events 

from which future economic benefits are expected to flow to the enterprise. 

A liability is a present obligation of the enterprise arising from past events, 

the settlement of which is expected to result in an outflow from the enterprise 

of resources embodying economic benefits. 

Equity is the residual interest in the assets of the enterprise after deducting 

all its liabilities. 

I. Equity and Liabilities 

8.1. Shareholders’ Funds 

Under this head, following line items are to be disclosed: 

¾ Share Capital;  

¾ Reserves and Surplus;  

¾ Money received against share warrants.  Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

21 

8.1.1. Share capital 

8.1.1.1. Notes to the General Instructions require a company to disclose in 

the Notes to Accounts line items/sub-line items referred to in Notes 6A to 6Q. 

Clauses (a) to (l) of Note 6 A deal with disclosures for Share Capital and 

such disclosures are required for each class of share capital (different 

classes of preference shares to be treated separately).

8.1.1.2. As per ICAI Guidance Note on Terms Used in Financial Statements, 

‘Capital’ refers “to the amount invested in an enterprise by its owners e.g. 

paid-up share capital in a corporate enterprise. It is also used to refer to the 

interest of owners in the assets of an enterprise.”  

8.1.1.3. The said Guidance Note defines  ‘Share Capital’  as the “aggregate 

amount of money paid or credited as paid on the shares and/or stocks of a 

corporate enterprise.” 

8.1.1.4. In respect of disclosure requirements for Share Capital, the Revised 

Schedule VI states that “different classes of preference share capital to be 

treated separately”. A question arises whether the preference shares should 

be presented as share capital only or does it mean that a company 

compulsorily needs to decide whether preference shares are liability or equity 

based on its economic substance using  AS 31 Financial Instruments: 

Presentation principles and present the same accordingly. The Revised 

Schedule VI deals only with presentation and disclosure requirements. 

Accounting for various items is governed by the applicable Accounting 

Standards. However, since Accounting Standards  AS 30 Financial 

Instruments : Recognition and Measurement, AS 31 and  AS 32 Financial 

Instruments: Disclosures are yet to be notified and Section 85(1) of the Act 

refers to Preference Shares as a kind of share capital, Preference Shares will 

have to be classified as Share Capital. 

8.1.1.5. Presently, in the Indian context, generally, there are two kinds of 

share capital namely - Equity and Preference. Within Equity/Preference 

Share Capital, there could be different classes of shares, say, Equity Shares 

with or without voting rights, Compulsorily Convertible Preference Shares, 

Optionally Convertible Preference Shares, etc. If the preference shares are 

to be disclosed under the head ‘Share Capital’, until the same are actually 

redeemed, they should continue to be shown under the head ‘Share Capital’. 

Preference shares of which redemption is overdue should continue to be 

disclosed under the head ‘Share Capital’.  Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

22 

8.1.1.6. Clause (a) of Note 6A - the number and amount of shares 

authorized : 

As per the Guidance Note on Terms Used in Financial Statements 

‘Authorised Share Capital’ means “the number and par value, of each class 

of shares that an enterprise may issue  in accordance with its instrument of 

incorporation. This is sometimes referred to as nominal share capital.”

8.1.1.7. Clause (b) of Note 6A - the number of shares issued, subscribed 

and fully paid, and subscribed but not fully paid :

The disclosure is for shares: 

• Issued; 

• Subscribed and fully paid; 

• Subscribed but not fully paid. 

Though the disclosure is only for the number of shares, to make the 

disclosure relevant to understanding the company’s share capital, even the 

amount for each category should be disclosed. Issued shares are those 

which are offered for subscription within the authorised limit. It is possible 

that all shares offered are not subscribed to and to the extent of 

unsubscribed portion, there will be difference between shares issued and 

subscribed. As per the Guidance Note on Terms Used in Financial 

Statements, the expression ‘Subscribed Share Capital’ is “that portion of the 

issued share capital which has actually been subscribed and allotted. This 

includes any bonus shares issued to the shareholders.” 

Though there is no requirement to disclose the amount per share called, if 

shares are not fully called, it would  be appropriate to state the amount per 

share called. As per the definition contained in the Guidance Note on Terms 

Used in Financial Statements, the expression ‘Paid-up Share Capital’ is “that 

part of the subscribed share capital for which consideration in cash or 

otherwise has been received. This includes bonus shares allotted by the 

corporate enterprise.”  As per the Old Schedule VI, debit balance on the 

allotment or call account is presented in the Balance Sheet not as an asset 

but by way of deduction from Called-up Capital. However, as required by 

Clause (k) of Note 6A of the Revised Schedule VI, calls unpaid are to be 

disclosed separately as per the Revised Schedule VI.  

However, the unpaid amount towards shares subscribed by the subscribers 

of the Memorandum of Association should be considered as 'subscribed and 

paid-up capital' in the Balance Sheet and the debts due from the subscriber  

should  be  appropriately disclosed as an asset in the balance sheet. Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

23 

8.1.1.8. Clause (c) of Note 6A – par value per share :

Par value per share is the face value of a share as indicated in the Capital 

Clause of the Memorandum of Association of a company. It is also referred 

to as ‘face value’ per share. In the case of a company having share capital, 

(unless the company is an unlimited company), the Memorandum shall also 

state the amount of share capital with which the company is registered and 

their division thereof into shares of fixed amount as required under clause (a) 

to the sub-section (4) of section 13 of the Act. In the case of a company 

limited by guarantee, Memorandum shall state that each member undertakes 

to contribute to the assets of the company in the event of winding-up while 

he is a member or within one year after he ceases to be a member, for 

payment of debts and liabilities of the company, as the case may be. There is 

no specific mention for the disclosure by companies limited by guarantee and 

having share capital, and companies limited by guarantee and not having 

share capital. Such companies need to  consider the requirement so as to 

disclose the amount each member undertakes to contribute as per their 

Memorandum of Association. 

8.1.1.9. Clause (d) of Note 6A - a reconciliation of the number of shares 

outstanding at the beginning and at the end of the reporting period : 

As per the Revised Schedule VI, opening number of shares outstanding, 

shares issued, shares bought back, other movements, etc. during the year 

and closing number of outstanding shares should be shown. Though the 

requirement is only for a reconciliation of the number of shares, as given for 

the disclosure of issued, subscribed capital, etc. [Clause (b) of Note 6A] 

above, to make the disclosure relevant for understanding the company’s 

share capital, the reconciliation is to be given even for the amount of share 

capital. Reconciliation for the comparative previous period is also to be 

given. Further, the above reconciliation should be disclosed separately for 

both Equity and Preference Shares and for each class of share capital within 

Equity and Preference Shares. 

8.1.1.10. Clause (e) of Note 6A - the rights, preferences and restrictions 

attaching to each class of shares including restrictions on the 

distribution of dividends and the repayment of capital. 

As per the Guidance Note on Terms Used in Financial Statement, the 

expression ‘Preference Share Capital’ means “that part of the share capital of 

a corporate enterprise which enjoys preferential rights in respect of payments 

of fixed dividend and repayment of capital. Preference shares may also have 

full or partial participating rights in surplus profits or surplus capital.”  The 

rights, preferences and restrictions attached to shares are based on the 

classes of shares, terms of issue, etc., whether equity or preference. In Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

24 

respect of Equity Share Capital, it may be with voting rights or with 

differential voting rights as to dividend, voting or otherwise in accordance 

with such rules and subject to such conditions as may be prescribed under 

Companies (Issue of Share Capital with Differential Voting Rights) Rules, 

2001. In respect of Preference shares, the rights include (a) as respects 

dividend, a preferential right to be paid a fixed amount or at a fixed rate and, 

(b) as respects capital, a preferential right of repayment of amount of capital 

on winding up. Further, Preference shares can be cumulative, noncumulative, redeemable, convertible, non-convertible etc. All such rights, 

preferences and restrictions attached to each class of preference shares, 

terms of redemption, etc. have to be disclosed separately. 

8.1.1.11. Clause (f) of Note 6A - shares in respect of each class in the 

company held by its holding company or its ultimate holding company 

including shares held by or by subsidiaries or associates of the holding 

company or the ultimate holding company in aggregate : 

The requirement is to disclose shares of the company held by - 

• Its holding company; 

• Its ultimate holding company; 

• Subsidiaries of its holding company; 

• Subsidiaries of its ultimate holding company; 

• Associates of its holding company; and 

• Associates of its ultimate holding company. 

Aggregation should be done for each of the above categories. 

The terms ‘subsidiary’, ‘holding company’ and ‘associate’ should be 

understood as defined under AS-21, Consolidated Financial Statements and 

AS-18, Related Party Disclosures. Based on the aforesaid definitions, for the 

purposes of the above disclosures, shares held by the entire chain of 

subsidiaries and associates starting from the holding company and ending 

right up to the ultimate holding company would have to be disclosed. Further, 

all the above disclosures need to be made separately for each class of 

shares, both within Equity and Preference Shares. 

8.1.1.12. Clause (g) of Note 6A  -  shares in the company held by each 

shareholder holding more than 5 percent shares specifying the number 

of shares held : 

In the absence of any specific indication of the date of holding, the date for 

computing such percentage should be taken as the Balance Sheet date. For Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

25 

example, if during the year, any shareholder held more than 5% Equity 

shares but does not hold as much at the Balance Sheet date, disclosure is 

not required. Though it is not specified as to whether the disclosure is 

required for each class of shares or not, companies should disclose the 

shareholding for each class of shares, both within Equity and Preference 

Shares. Accordingly, such percentage should be computed separately for 

each class of shares outstanding within Equity and Preference Shares. This 

information should also be given for the comparative previous period. 

8.1.1.13. Clause (h) of Note 6A - shares reserved for issue under 

options and contracts/commitments for the sale of shares/ 

disinvestment, including the terms and amounts : 

Shares under options generally arise under promoters or collaboration 

agreements, loan agreements or debenture deeds (including convertible 

debentures), agreement to convert preference shares into equity shares, 

ESOPs or contracts for supply of capital goods, etc. The disclosure would be 

required for the number of shares, amounts and other terms for shares so 

reserved. Such options are in respect of unissued portion of share capital.  

8.1.1.14. Clause (i) of Note 6A – For the period of five years immediately 

preceding the date as at which the  Balance Sheet is prepared : (a) 

Aggregate number and class of shares allotted as fully paid up pursuant 

to contract(s) without payment being received in cash. (b) Aggregate 

number and class of shares allotted as fully paid up by way of bonus 

shares. (c) Aggregate number and class of shares bought back.  

(a) Aggregate number and class of shares allotted as fully paid up 

pursuant to contract(s) without payment being received in cash. 

The following allotments are considered as shares allotted for payment 

being received in cash and not as without payment being received in 

cash and accordingly, the same are not to be disclosed under this 

Clause:

(i)  If the subscription amount is adjusted against a  bona fide debt 

payable in money at once by the company;  

(ii) Conversion of loan into shares in the event of default in 

repayment. 

(b) Aggregate number and class of shares allotted as fully paid up by way 

of bonus shares. 

 As per the Guidance Note on Terms Used in Financial Statements 

‘Bonus shares’ are defined as shares allotted by capitalisation of the 

reserves or surplus of a corporate enterprise. The requirement of Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

26 

disclosing the source of bonus shares is omitted in the Revised 

Schedule VI. 

(c) Aggregate number and class of shares bought back. 

 The total number of shares bought back for each class of shares 

needs to be disclosed. 

All the above details pertaining to aggregate number and class of shares 

allotted for consideration other than cash, bonus shares and shares bought 

back need to be disclosed only if such event has occurred during a period of 

five years immediately preceding the Balance Sheet date. Since disclosure is 

for the aggregate number of shares, it is not necessary to give the year-wise 

break-up of the shares allotted or bought back, but the aggregate number for 

the last five financial years needs to be disclosed. 

8.1.1.15. Clause (j) of Note 6A - Terms of any securities convertible into 

equity/preference shares issued along with the earliest date of 

conversion in descending order starting from the farthest such date: 

This disclosure would cover securities, such as Convertible Preference 

Shares, Convertible Debentures/bonds, etc. – optionally or otherwise into 

equity. 

Under this Clause, disclosure is required for any security, when it is either 

convertible into equity or preference  shares. In this case, terms of such 

securities and the earliest date of conversion are required to be disclosed. If 

there are more than one date of conversion, disclosure is to be made in the 

descending order of conversion. If the option can be exercised in different 

periods then earlier date in that period is to be considered. In case of 

compulsorily convertible securities, where conversion is done in fixed 

tranches, all the dates of conversion have to be considered. Terms of 

convertible securities are required  to be disclosed under this Clause. 

However, in case of Convertible debentures/bonds, etc., for the purpose of 

simplification, reference may also be made to the terms disclosed under the 

note on Long-term borrowings where these are required to be classified in 

the Balance Sheet, rather than disclosing the same again under this clause. 

8.1.1.16. Clause (k) of Note 6(A) - Calls unpaid (showing aggregate 

value of calls unpaid by directors and officers): 

A separate disclosure is required for the aggregate value of calls unpaid by 

directors and also officers of the  company. The Old Schedule VI required 

disclosures of calls due by directors only. The total calls unpaid should be 

disclosed. The terms ‘director’ and ‘officer’ should be interpreted based on 

the definitions in the Act. Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

27 

8.1.2. Reserves and Surplus 

Note 6(B) of the General Instructions deals with the disclosures of “Reserves 

and Surplus” in the Notes to Accounts and the classification thereof under 

the various types of reserves.  

8.1.2.1. Reserve:  

The Guidance Note on Terms Used in Financial Statements defines the term 

‘Reserve’ as “the portion of earnings, receipts or other surplus of an 

enterprise (whether capital or revenue) appropriated by the management for 

a general or a specific purpose other than a provision for depreciation or 

diminution in the value of assets or for a known liability.” ‘Reserves’ should 

be distinguished from ‘provisions’. For this purpose, reference may be made 

to the definition of the expression `provision’ in AS-29 Provisions, Contingent 

Liabilities and Contingent Assets.  

As per  AS-29,  a `provision’ is “a liability which can be measured only by 

using a substantial degree of estimation”. A ‘liability’ is “a present obligation 

of the enterprise arising from past events, the settlement of which is 

expected to result in an outflow from the enterprise of resources embodying 

economic benefits.” 'Present obligation’ – “an obligation is a present 

obligation if, based on the evidence available, its existence at the Balance 

Sheet date is considered probable, i.e., more likely than not.” 

8.1.2.2. Capital Reserves : 

It is necessary to make a distinction between capital reserves and revenue 

reserves in the accounts. A revenue reserve is a reserve which is available 

for distribution through the Statement of Profit and Loss. The term “Capital 

Reserve” has not been defined under the Revised Schedule VI.  However, as 

per the Guidance Note on Terms Used in Financial Statements, the 

expression ‘capital reserve’ is defined as “a reserve of a corporate enterprise 

which is not available for distribution as dividend”. Though the Revised 

Schedule VI does not have the requirement of “transferring capital profit on 

reissue of forfeited shares to capital  reserve”, since profit on re-issue of 

forfeited shares is basically profit of a capital nature and, hence, it should be 

credited to capital reserve. 

8.1.2.3. Capital Redemption Reserve : 

Under the Act, Capital Redemption Reserve is required to be created in the 

following two situations: 

a) Under the provisions of Section 80 of the Act, where the redemption of 

preference shares is out of profits, an amount equal to nominal value Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

28 

of shares redeemed is to be transferred to a reserve called ‘capital 

redemption reserve’. 

b) Under Section 77AA of the Act, if the buy-back of shares is out of free 

reserves, the nominal value of the shares so purchased is required to 

be transferred to capital redemption reserve from distributable profit.  

8.1.2.4. Securities Premium Reserve :

The Guidance Note of Terms Used in Financial Statements defines  ‘Share 

Premium’ as “the excess of the issue price of shares over their face value.” 

Though the terminology used in the Revised Schedule VI is ‘Securities 

Premium Reserve” the nomenclature as per the Act is “Securities Premium 

Account”. Accordingly, the terminology of the Act should be used. 

8.1.2.5. Debenture Redemption Reserve : 

According to Section 117C of the Act where a company issues debentures 

after the commencement of this Act,  it is required to create a debenture 

redemption reserve for the redemption of such debentures. The company is 

required to credit adequate amounts, from out of its profits every year to 

debenture redemption reserve, until such debentures are redeemed. 

On redemption of the debentures for which the reserve is created, the 

amounts no longer necessary to be retained in this account need to be 

transferred to the General Reserve.

8.1.2.6. Revaluation Reserve :  

As per the Guidance Note of Terms Used in Financial Statements, 

‘Revaluation reserve’ is ‘a reserve created on the revaluation of assets or net 

assets of an enterprise represented by the surplus of the estimated 

replacement cost or estimated market values over the book values thereof.’ 

Accordingly, if a company has carried out revaluation of its assets, the 

corresponding amount would be disclosed as “Revaluation Reserve” 

8.1.2.7. Share Options Outstanding Account : 

Presently, as per the Guidance Note on Accounting for Employee Sharebased Payments, Stock Options Outstanding Account is shown as a separate 

line-item. The Revised Schedule VI requires this item to be shown as a part 

of ‘Reserve and Surplus’.  

8.1.2.8. Other Reserves (specify the nature and purpose of reserve and 

the amount in respect thereof) : 

Every other reserve which is not covered in the paragraphs 8.1.2.2 to 8.1.2.7 

is to be reflected as `Other Reserves’. However, since the nature, purpose Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

29 

and the amount are to be shown, each reserve is to be shown separately. 

This would include reserves to be created under other statutes like Tonnage 

Tax Reserve to be created under the Income Tax Act, 1961. 

8.1.2.9. Surplus i.e. balance in Statement of Profit and Loss disclosing 

allocations and appropriations such as dividend, bonus shares and 

transfer to/from reserves, etc. 

Appropriations to the profit for the year (including carried forward balance) is 

to be presented under the main head ’Reserves and Surplus’. Unlike the 

current prevalent practice, under the Revised Schedule VI, the Statement of 

Profit and Loss will no longer reflect any appropriations, like dividends 

transferred to Reserves, bonus shares, etc.  

Please also refer to the discussion in Para 10.9 below. 

8.1.2.10. Additions and deductions since the last Balance Sheet to be 

shown under each of the specified heads: 

This requires the company to disclose the movement in each of the reserves 

and surplus since the last Balance Sheet.    

Please refer to Para 10.9 of this Guidance note.  

8.1.2.11 As per Revised Schedule VI, a reserve specifically represented by 

earmarked investments shall be termed as a ‘fund’ 

8.1.2.12 Debit balance in the Statement of Profit and Loss and in 

Reserves and Surplus: 

Debit balance in the Statement of Profit and Loss which would arise in case 

of accumulated losses, is to be shown as a negative figure under the head 

‘Surplus’. The aggregate amount of the balance of ‘Reserves and Surplus’, is 

to be shown after adjusting negative balance of surplus, if any. If the net 

result is negative, the negative figure is to be shown under the head 

‘Reserves and Surplus’.  

8.1.3. Money received against Share Warrants 

Generally, in case of listed companies, share warrants are issued to 

promoters and others in terms of the Guidelines for preferential issues viz., 

SEBI (Issue of Capital and Disclosure Requirements), Guidelines, 2009. AS 

20 Earning Per Share notified under the Companies (Accounting Standards) 

Rules, 2006 defines ‘share warrants’ as “financial instruments which give the 

holder the right to acquire equity shares”. Thus, effectively, share warrants 

are nothing but the amount which would ultimately form part of the 

Shareholders’ funds. Since shares are  yet to be allotted against the same, Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

30 

these are not reflected as part of Share Capital but as a separate line-item – 

‘Money received against share warrants.’  

8.2. Share Application Money pending allotment 

8.2.1. Share Application money pending allotment is to be disclosed as a 

separate line item on the face of Balance Sheet between “Shareholders’ 

Funds” and “Non-current Liabilities”. Share application money not exceeding 

the issued capital and to the extent not refundable is to be disclosed under 

this line item. If the company’s issued capital is more than the authorized capital 

and approval of increase in authorized capital is pending, the amount of share 

application money received over and above the authorized capital should be 

shown under the head “Other Current Liabilities”.  

8.2.2. Clause (g) of Notes 6G lists various circumstances and specifies the 

information to be disclosed in respect of share application money. However, 

amount shown as ‘share application  money pending allotment’ will not 

include share application money to the extent refundable. For example, the 

amount in excess of issued capital, or where minimum subscription 

requirement is not met. Such amount will have to be shown separately under 

‘Other Current Liabilities’. 

8.2.3. Various disclosure requirements pertaining to Share Application 

Money are as follows: 

• terms and conditions; 

• number of shares proposed to be issued; 

• the amount of premium, if any; 

• the period before which shares are to be allotted; 

• whether the company has sufficient authorized share capital to cover 

the share capital amount on allotment of shares out of share 

application money; 

• Interest accrued on amount due for refund; 

• The period for which the share application money has been pending 

beyond the period for allotment as mentioned in the share application 

form along with the reasons for such share application money being 

pending.   

The above disclosures should be made in respect of amounts classified 

under both Equity as well as Current Liabilities, wherever applicable. 

8.2.4. As per power given under section 92 of the Act, a company, if so 

authorized by its Articles, may accept from any member the whole or a part Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

31 

of the amount remaining unpaid on any shares held by him, although no part 

of that amount has been called up. The shareholder who has paid the money 

in advance is not a creditor for the amount so paid as advance, as the same 

cannot be demanded for repayment and the company cannot pay him back 

unless Articles so provide. The amount of calls paid in advance does not 

form part of the paid-up capital. The Department of Company Affairs has 

clarified that it is better to show “Calls in Advance” under the head “Current 

Liabilities and Provisions” (Letter No. 8/16(1)/61-PR, dated 9.5.1961). Thus, 

under the Revised Schedule VI, calls paid in advance are to be reflected 

under “Other Current Liabilities”. The amount of interest which may accrue 

on such advance should also is to be reflected as a liability. 

8.2.5. “Share application money pending allotment” is required to be shown 

as a separate line item on the face of the Balance Sheet after Shareholders’ 

Funds. However, under “Other current liabilities” there is a statement that 

Share application money not exceeding the issued capital and to the extent 

not refundable shall be shown under the head Equity. The two requirements 

appear to be conflicting. However, from the format as set out in the 

Schedule, it appears that the Regulator’s intention is to specifically highlight 

the amount of Share application money pending allotment, though they may 

be, in substance, in nature of Equity. Accordingly, the equity element should 

continue to be disclosed on the face of the Balance Sheet as a separate line 

item, rather than as a component of Shareholders’ Funds. 

8.3. Non-current liabilities

A liability shall be classified as current when it satisfies any of the 

following criteria: 

(a)  it is expected to be settled in the company’s normal operating cycle;  

(b)  it is held primarily for the purpose of being traded;  

(c)  it is due to be settled within twelve months after the reporting date; or  

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

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

that could, at the option of the counterparty, result in its settlement by the 

issue of equity instruments do not affect its classification.  

All other liabilities shall be classified as non-current. 

Based on the above definitions, on the face of the Balance Sheet, the 

following items shall be disclosed under non-current liabilities.  

• Long-term borrowings; 

• Deferred tax liabilities (Net); Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

32 

• Other Long-term liabilities; 

• Long-term provisions. 

8.3.1. Long-term borrowings:

8.3.1.1. Long-term borrowings shall be classified as: 

(a) Bonds/debentures; 

(b) Term loans;  

• from banks;  

• from other parties;  

(c) Deferred payment liabilities;  

(d) Deposits; 

(e) Loans and advances from related parties; 

(f) Long term maturities of finance lease obligations; 

(g) Other loans and advances (specify nature).  

8.3.1.2. Borrowings shall further be sub-classified as secured and 

unsecured. Nature of security shall be specified separately in each case.  

8.3.1.3. Where loans have been guaranteed by directors or others, the 

aggregate amount of such loans under each head shall be disclosed. The 

word “others” used in the phrase “directors or others” would mean any 

person or entity other than a director. Therefore, this is not restricted to mean 

only related parties. However, in the normal course, a person or entity 

guaranteeing a loan of a company will generally be associated with the 

company in some manner. 

8.3.1.4. Bonds/debentures (along with the rate of interest and particulars of 

redemption or conversion, as the case may be) shall be stated in 

descending order of maturity or conversion, starting from farthest redemption 

or conversion date, as the case may be. Where bonds/debentures are 

redeemable by installments, the date of maturity for this purpose must be 

reckoned as the date on which the first installment becomes due.  

8.3.1.5. Particulars of any redeemed bonds/ debentures which the company 

has power to reissue shall be disclosed.  

8.3.1.6. Period and amount of continuing default as on the Balance Sheet 

date in repayment of loans and interest shall be specified separately in each 

case.  Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

33 

8.3.1.7. The phrase "long-term" has not been defined. However, the 

definition of ‘non-current liability’ in the Revised Schedule VI may be used as 

long-term liability for the above disclosure. Also, the phrase "term loan" has 

not been defined in the Revised Schedule VI. Term loans normally have a 

fixed or pre-determined maturity period or a repayment schedule.  

8.3.1.8. As referred to in the 2005 edition of the ICAI Statement on 

Companies (Auditor’s Report) Order, 2003 (CARO) in the banking industry, 

for example, loans with repayment period beyond thirty six months are 

usually known as “term loans”. Cash credit, overdraft and call money 

accounts/ deposit are, therefore, not covered by the expression “terms 

loans”. Term loans are generally provided by banks and financial institutions 

for acquisition of capital assets which then become the security for the loan, 

i.e., end use of funds is normally fixed.  

8.3.1.9 Deferred payment liabilities would include any liability for which 

payment is to be made on deferred credit terms. E.g. deferred sales tax 

liability, deferred payment for acquisition of fixed assets etc. 

8.3.1.10 The current maturities of all long-term borrowings will be disclosed 

under ‘other current liabilities’ and not under long-term borrowings and shortterm borrowings. Hence, it is possible that the same bonds / debentures / 

term loans may be bifurcated under both long-term borrowings as well as 

under other current liabilities. Further, long-term borrowings are to be subclassified as secured and unsecured giving the nature of the security for the 

secured position. 

8.3.1.11  The Revised Schedule VI also stipulates that the nature of security 

shall be specified separately in each case. A blanket disclosure of different 

securities covering all loans classified under the same head such as ‘All 

Term loans from banks’ will not suffice. However, where one security is given 

for multiple loans, the same may be clubbed together for disclosure purposes 

with adequate details or cross referencing.  

8.3.1.12  The disclosure about the nature of security should also cover the 

type of asset given as security e.g.  inventories, plant and machinery, land 

and building, etc. This is because the extent to which loan is secured may 

vary with the nature of asset against which it is secured. 

8.3.1.13 When promoters, other shareholders or any third party have given 

any personal security for any borrowing, such as shares or other assets held 

by them, disclosure should be made thereof, though such security does not 

result in the classification of such borrowing as secured. Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

34 

8.3.1.14 The Revised Schedule VI requires that under the head 

“Borrowings,” period and amount of “continuing default (in case of long-term 

borrowing) and default (in case of short-term borrowing) as on the Balance 

Sheet date in repayment of loans and interest shall be specified separately in 

each case". The word “loan” has been used in a more generic sense. Hence, 

the disclosures relating to default  should be made for all items listed under 

the category of borrowings such as bonds/ debentures, deposits, deferred 

payment liabilities, finance lease obligations, etc. and not only to items 

classified as “loans” such as term loans, or loans and advances ,etc.  

8.3.1.15 Also, a company need not disclose information for defaults other 

than in respect of repayment of loan and interest, e.g., compliance with debt 

covenants. The Revised Schedule VI requires specific disclosures only for 

default in repayment of loans and interest and not for other defaults.  

8.3.1.16 Though two different terms, viz., continuing default (in case of longterm borrowing) and default (in case of short-term borrowing) have been 

used, the requirement should be taken to disclose default “as on the Balance 

Sheet date” in both the cases. Pursuant to this requirement, details of any 

default in repayment of loan and interest existing as on the Balance Sheet 

date needs to be separately disclosed. Any default that had occurred during 

the year and was subsequently made good before the end of the year does 

not need to be disclosed. 

8.3.1.17 Terms of repayment of term loans and other loans shall be 

disclosed. The term ‘other loans’  is used in general sense and should be 

interpreted to mean all categories listed under the heading ‘Long-term 

borrowings’ as per Revised Schedule VI. Disclosure of terms of repayment 

should be made preferably for each loan unless the repayment terms of 

individual loans within a category are similar, in which case, they may be 

aggregated.  

8.3.1.18 Disclosure of repayment terms should include the period of maturity 

with respect to the Balance Sheet date, number and amount of instalments 

due, the applicable rate of interest and other significant relevant terms if any. 

8.3.1.19 Deposits classified under Borrowings would include deposits 

accepted from public and inter corporate deposits which are in the nature of 

borrowings. 

8.3.1.20 Loans and advances from related parties are required to be 

disclosed. Advances under this head should include those advances which 

are in the nature of loans. Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

35 

8.4. Other Long-term liabilities  

This should be classified into: 

a) Trade payables; and 

b) Others. 

8.4.1  A payable shall be classified as 'trade payable' if it is in respect of 

amount due on account of goods purchased or services received in the 

normal course of business. As per  the Old Schedule VI, the term 'sundry 

creditors’ included amounts due in respect of goods purchased or services 

received or in respect of other contractual obligations  as well. Hence, 

amounts due under contractual obligations can no longer be included within 

Trade payables. Such items may include dues payables in respect of 

statutory obligations like contribution to provident fund, purchase of fixed 

assets, contractually reimbursable expenses, interest accrued on trade 

payables, etc. Such payables should be classified as "others" and each such 

item should be disclosed nature-wise. However, Acceptances should be 

disclosed as part of trade payables in terms of the Revised Schedule VI.  

8.4.2 The Micro, Small and Medium Enterprises Development (MSMED) Act, 

2006 however, requires specified disclosures to be made in the annual 

Financial Statements of the buyer wherever such Financial Statements are 

required to be audited under any law. Though not specifically required by the 

Revised Schedule VI, such disclosures will still be required to be made in the 

annual Financial Statements. 

8.4.3  The following disclosures are required under Sec 22 of MSMED Act 

2006 under the Chapter on Delayed Payments to Micro and Small 

Enterprises:  

(a)  the principal amount and the interest due thereon (to be shown 

separately) remaining unpaid to any supplier as at the end of 

accounting year; 

(b)  the amount of interest paid by the buyer under MSMED Act, 2006 

along with the amounts of the payment made to the supplier beyond 

the appointed day during each accounting year; 

(c)  the amount of interest due and payable for the period (where the 

principal has been paid but interest under the MSMED Act, 2006 not 

paid); 

(d)  The amount of interest accrued and remaining unpaid at the end of 

accounting year; and Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

36 

(e)  The amount of further interest due and payable even in the succeeding 

year, until such date when the interest dues as above are actually paid 

to the small enterprise, for the purpose of disallowance as a deductible 

expenditure under section 23. 

The terms ''appointed day'', ''buyer'', ''enterprise'', ''micro enterprise'', ''small 

enterprise'' and ''supplier'', shall be as defined under clauses (b), (d), (e), (h), 

(m) and (n) respectively of section 2 of the Micro, Small and Medium 

Enterprises Development Act, 2006. 

8.5. Long-Term Provisions  

8.5.1 This should be classified into provision for employee benefits and 

others specifying the nature. Provision for employee benefits should be 

bifurcated into long-term (non-current) and other current and the long-term 

portion is disclosed under this para.  All long-term provisions, other than 

those related to employee benefits should be disclosed separately based on 

their nature. Such items would include Provision for warranties etc. While 

AS-15  Employee Benefits governs the measurement of various employee 

benefit obligations, their classification as current and non-current liability will 

be governed by the criteria laid down in the Revised Schedule VI. 

Accordingly, a liability is classified as current if a company does not have an 

unconditional right as on the Balance Sheet date to defer its settlement for 

12 months after the reporting date. Each company will need to apply these 

criteria to its specific facts and  circumstances and decide an appropriate 

classification for its employee benefit obligations.  

8.6. Current Liabilities  

This should be classified on the face of the Balance Sheet as follows:  

¾ Short-term borrowings; 

¾ Trade payables; 

¾ Other current liabilities; 

¾ Short-term provisions. 

8.6.1. Short-term borrowings  

8.6.1.1.  (i) Short-term borrowings shall be classified as: 

(a) Loans repayable on demand  

¾ from banks; 

¾ from other parties.  

(b) Loans and advances from related parties;  Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

37 

(c) Deposits; 

(d) Other loans and advances (specify nature).  

(ii) Borrowings shall further be sub-classified as secured and unsecured. 

Nature of security shall be specified separately in each case.  

(iii)  Where loans have been guaranteed by directors or others, the 

aggregate amount of such loans under each head shall be disclosed.  

(iv) Period and amount of default as on the Balance Sheet date in 

repayment of loans and interest shall be specified separately in each 

case. 

8.6.1.2 Loans payable on demand should be treated as part of short-term 

borrowings. Short-term borrowings will include all loans within a period of 12 

months from the date of the loan. In the case of short-term borrowings, all 

defaults existing as at the date of the Balance Sheet should be disclosed 

(item-wise). Current maturity of long-term borrowings should not be classified 

as short-term borrowing. They have to be classified under Other current 

liabilities. Guidance on disclosure on various matters under this Para should 

also be drawn, to the extent possible, from the guidance given under Longterm borrowings. 

8.6.2.Trade payables 

Guidance on disclosure under this clause should be drawn from the guidance 

given under Other Long-term borrowings to the extent applicable. 

8.6.3.Other current liabilities 

The amounts shall be classified as: 

(a) Current maturities of long-term debt; 

(b) Current maturities of finance lease obligations; 

(c) Interest accrued but not due on borrowings; 

(d) Interest accrued and due on borrowings; 

(e) Income received in advance; 

(f) Unpaid dividends; 

(g) Application money received for allotment of securities and due for 

refund and interest accrued thereon; 

(h) Unpaid matured deposits and interest accrued thereon; 

(i) Unpaid matured debentures and interest accrued thereon;  

(j) Other payables (specify nature). Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

38 

The portion of long term debts / lease obligations, which is due for payments 

within twelve months of the reporting date is required to be classified under 

“Other current liabilities” while the balance amount should be classified under 

Long-term borrowings.  

Trade Deposits and Security Deposits which are not in the nature of 

borrowings should be classified separately under Other Non-current/Current 

liabilities. Other Payables may be in the nature of statutory dues such as 

Withholding taxes, Service Tax, VAT, Excise Duty etc.  

8.6.4.Short-term provisions 

The amounts shall be classified as:  

(a)  Provision for employee benefits;  

(b)  Others (specify nature). 

Others would include all provisions  other than provisions for employee 

benefits such as Provision for dividend, Provision for taxation, Provision for 

warranties, etc. These amounts should be disclosed separately specifying 

nature thereof. 

II. Assets  

8.7. Non-current assets 

Definition and Presentation 

An asset shall be classified as ‘current’ when it satisfies any of the following 

criteria: 

(a) it is expected to be realized in, or is intended for sale or consumption in 

the company’s normal operating cycle; 

(b) it is held primarily for the purpose of being traded; 

(c) it is expected to be realized within twelve months after the reporting 

date; or 

(d) it is Cash or cash equivalent unless it is restricted from being 

exchanged or used to settle a liability for at least twelve months after 

the reporting date. 

All other assets shall be classified as ‘non-current’. 

Based on the above definition, on the face of the Balance Sheet, the 

following items shall be disclosed under non-current assets: - 

(a) Fixed Assets Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

39 

 (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 

8.7.1 Fixed Assets  

Fixed assets are classified as: 

S. 

No. 

Particulars  Relevant Accounting Standards as 

notified under Companies 

(Accounting Standards) Rules, 2006 

1. Tangible assets AS 10, AS 6 

2. Intangible assets AS 26 

3. Capital work-in-progress AS 10 

4. Intangible assets under 

development 

AS 26 

8.7.1.1 Tangible Assets  

The company shall disclose the following in the Notes to Accounts as per 6(I) 

of Part I of the Revised Schedule VI.  

(i) Classification shall be given as: 

(a) Land; 

(b) Buildings; 

(c) Plant and Equipment; 

(d) Furniture and Fixtures; 

(e) Vehicles; 

(f) Office equipment; 

(g) Others (specify nature). 

(ii) Assets under lease shall be separately specified under each class of 

asset.  

 The term “under lease” should be taken to mean assets given on 

operating lease in the case of lessor and assets held under finance Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

40 

lease in the case of lessee. Further, leasehold improvements should 

continue to be shown as a separate asset class. 

(iii) A reconciliation of the gross and net carrying amounts of each class of 

assets at the beginning and end of the reporting period showing 

additions, disposals, acquisitions through business combinations and 

other adjustments and the related depreciation and impairment 

losses/reversals shall be disclosed separately.  

All acquisitions, whether by way of an asset acquisition or through a business 

combination are to be disclosed as part of the reconciliation in the note on 

Fixed Assets. Acquisitions through ‘Business Combinations’ need to be 

disclosed separately for each class of assets. Similarly, though not 

specifically required, it is advisable that asset disposals through demergers, 

etc. may also be disclosed separately for each class of assets. 

The term “business combination” has not been defined in the Act or the 

Accounting Standards as notified under the Companies (Accounting 

Standards) Rules, 2006. However, related concepts have been enumerated 

in AS 14  Accounting for Amalgamations and AS 10  Accounting for Fixed 

Assets. Accordingly, such terminology should be interpreted to mean an 

amalgamation or acquisition or any other mode of restructuring of a set of 

assets and/or a group of assets and liabilities constituting a business. 

Other adjustments should include items  such as capitalization of exchange 

differences where such option has been exercised by the Company as per 

AS 11  The Effects of Changes in Foreign Exchange Rates and/or 

adjustments on account of exchange fluctuations for fixed assets in case of 

non-integral operations as per AS 11 and/or borrowing costs capitalised in 

accordance with AS 16 Borrowing Costs. Such adjustments should be 

disclosed separately for each class of assets.  

Since reconciliation of gross and net  carrying amounts of fixed assets is 

required, the corresponding depreciation/amortization for each class of asset 

should be disclosed in terms of Opening Accumulated Depreciation, 

Depreciation/amortization for the year, Deductions/Other adjustments and 

Closing Accumulated Depreciation/Amortization. Similar disclosures should 

also be made for Impairment, if any, as applicable. 

(iv) Where any amounts have been written-off on a reduction of capital or 

revaluation of assets or where sums have been added on revaluation of 

assets, every Balance Sheet subsequent to date of such write-off or 

addition shall show the reduced or increased figures, as applicable. 

Disclosure by way of a note would also be required to show the amount 

of the reduction or increase, as applicable, together with the date Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

41 

thereof for the first five years subsequent to the date of such reduction 

or increase. 

The Revised Schedule VI has introduced office equipment as a separate line 

item while dropping items like, live stock, railway sidings, etc. However, if the 

said items exist, the same should  be disclosed separate asset class 

specifying nature thereof. 

The Revised Schedule does not prescribe any particular classification/ 

presentation for leasehold land.  AS 19 Leases, excludes land leases from its 

scope. The accounting treatment for leasehold land should be continued with 

as is being currently followed under the prevailing Indian generally accepted 

accounting principles and practices. Accordingly, Leasehold land should also 

continue to be presented as a separate asset class under Tangible Assets. 

Also, Freehold land should continue to be presented as a separate asset 

class. 

AS 10 Accounting for Fixed Assets also requires a company to disclose 

details such as gross book value of revalued assets, method adopted to 

compute revalued amounts, nature of indices used, year of appraisal, 

involvement of external valuer as long as the concerned assets are held by 

the enterprise. 

The Revised Schedule VI is clear that  the disclosure requirements of the 

Accounting Standards are in addition  to disclosures required under the 

Schedule. Also, in case of any conflict, the Accounting Standards will prevail 

over the Schedule. Keeping this in view, companies should make disclosures 

required by the Revised Schedule VI only for five years. However, details 

required by AS 10 will have to be given as long as the asset is held by the 

company. 

However, it may be noted that, AS 26 Intangible Assets does not permit 

revaluation of intangible assets.  

8.7.1.2 Intangible assets  

The company shall disclose the following in the Notes to Accounts as per 

6(J) of Part I of the Revised Schedule VI. 

(i) Classification shall be given as: 

 (a) Goodwill; 

 (b) Brands /trademarks; 

 (c) Computer software; 

 (d) Mastheads and publishing titles; Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

42 

 (e) Mining rights; 

 (f) Copyrights, and patents and other intellectual property rights, 

services and operating rights; 

 (g) Recipes, formulae, models, designs and prototypes; 

 (h) Licenses and franchise; 

 (i) Others (specify nature). 

(ii) A reconciliation of the gross and net carrying amounts of each class of 

assets at the beginning and end of the reporting period showing 

additions, disposals, acquisitions through business combinations and 

other adjustments and the related amortization and impairment 

losses/reversals shall be disclosed separately.  

(iii) Where sums have been written-off on a reduction of capital or 

revaluation of assets or where sums have been added on revaluation 

of assets, every Balance Sheet subsequent to date of such write-off, 

or addition shall show the reduced or increased figures as applicable 

and shall by way of a note also show the amount of the reduction or 

increase, as applicable, together with the date thereof for the first five 

years subsequent to the date of such reduction or increase. 

Classification of intangible assets (as listed above) has been introduced 

under the Revised Schedule VI, which did not exist earlier.  

The guidance given above on Tangible Assets, to the extent applicable, is 

also to be used for Intangible Assets. 

8.7.1.3 Capital work-in-progress

As per the Revised Schedule VI, capital advances should be included under 

Long-term loans and advances and hence, cannot be included under capital 

work-in-progress.  

8.7.1.4 Intangible assets under development 

Intangible assets under development should be disclosed under this head 

provided they can be recognised based on the criteria laid down in AS 26 

Intangible Assets. 

8.7.2 Non-current investments 

(i) Non-current investments shall be  classified as trade investments and 

other investments and further classified as: 

 (a)  Investment property; 

 (b)  Investments in Equity Instruments; Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

43 

 (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; 

 (h)  Other non-current investments (specify nature). 

 Under each classification, details shall be given of names of the 

bodies corporate (indicating separately whether such bodies are (i) 

subsidiaries, (ii) associates, (iii)  joint ventures, or (iv) controlled 

special purpose entities) in whom investments have been made and 

the nature and extent of the investment so made in each such body 

corporate (showing separately investments which are partly-paid). In 

regard to investments in the capital of partnership firms, the names of 

the firms (with the names of all their partners, total capital and the 

shares of each partner) shall be given. 

(ii) Investments carried at other than at cost should be separately stated 

specifying the basis for valuation thereof. 

(iii) The following shall also be disclosed: 

 (a) Aggregate amount of quoted investments and market value thereof; 

 (b) Aggregate amount of unquoted investments; 

 (c) Aggregate provision for diminution in value of investments 

If a debenture is to be redeemed partly within 12 months and balance after 

12 months, the amount to be redeemed within 12 months should be 

disclosed as current and balance should be shown as non-current. 

8.7.2.1 Trade Investment 

Note 6(K)(i) of Part I requires that non-current investments shall be classified 

as "trade investment" and "other investments". The term “trade investments” 

is defined neither in Revised Schedule VI nor in Accounting Standards.  

The term "trade investment" is,  however, normally understood as an 

investment made by a company in shares or debentures of another company, 

to promote the trade or business of the first company.  

8.7.2.2 Investment property 

As per AS 13 Accounting for Investments, an investment property is an 

investment in land or buildings that are not intended to be occupied 

substantially for use by, or in the operations of, the investing enterprise.  Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

44 

8.7.2.3 Aggregate provision for diminution in value  

As per the Revised Schedule VI, this amount should be disclosed separately 

in the notes. However, as per AS 13 all long-term (non-current) investments 

are required to be carried at cost. However, when there is a decline, other 

than temporary, in the value of a long-term investment, the carrying amount 

is reduced to recognize the decline. Accordingly, the value of each long-term 

investment should be carried at cost less provision for other than temporary 

diminution in the value thereof. It is recommended to disclose the amount of 

provision netted-off for each long-term investment.

However, the aggregate amount of provision made in respect of all noncurrent investments should also be separately disclosed to comply with the 

specific disclosure requirement in Revised Schedule VI. 

8.7.2.4 Controlled special purpose entities 

Under investments, there is also a requirement to disclose the names of 

bodies corporate, including separate disclosure of investments in “controlled 

special purpose entities” in addition to subsidiaries, etc. The expression 

“controlled special purpose entities” however, has not been defined either in 

the Act or in the Revised Schedule VI or in the Accounting Standards. 

Accordingly, no disclosures would be additionally required to be made under 

this caption. If and when such terminology is explained/ introduced in the 

applicable Accounting Standards, the disclosure requirement would become 

applicable.  

8.7.2.5 Basis of valuation 

The Revised Schedule VI requires disclosure of the “basis of valuation” of 

non-current investments which are carried at other than cost. However, what 

should be understood by such terminology has not been clarified. The term 

‘basis of valuation’ was not used in the Old Schedule VI. Hence, the same 

may be interpreted in the following ways: 

One view is that basis of valuation would mean the market value, or valuation 

by independent valuers, valuation based on the investee’s assets and 

results, or valuation based on expected cash flows from the investment, or 

management estimate, etc. Hence, for all investments carried at other than 

cost, the basis of valuation for each individual investment should be 

disclosed. 

The other view is that, disclosure for basis of valuation should be either of: 

• At cost; 

• At cost less provision for other than temporary diminution; Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

45 

• Lower of cost and fair value. 

However, making disclosures in line with the latter view would be sufficient 

compliance with the disclosure requirements. 

8.7.2.6 Quoted investments 

The term quoted investments has not been defined in the Revised Schedule 

VI. The expression “quoted investment”, as defined in the Old Schedule VI, 

means an investment as respects which there has been granted a quotation 

or permission to deal on a recognized stock exchange, and the expression 

“unquoted investment” shall be construed accordingly.  

8.7.2.7 Under each sub-classification of Investments, there is a requirement 

to disclose details of investments including names of the bodies corporate 

and the nature and extent of the investment in each such boy corporate. The 

term “nature and extent” should be interpreted to mean the number and face 

value of shares. There is also a requirement to disclose partly-paid shares. 

However, it is advisable to clearly disclose whether investments are fully paid 

or partly paid. 

8.7.2.8 Disclosure relating to partnership firms in which the company 

has invested, etc. (under Current  and Non-current Investments in the 

Balance Sheet)

A company, as a juridical person, can enter into partnership. The Revised 

Schedule VI provides for certain disclosures where the company is a partner 

in partnership firms. 

In the Balance Sheet, under the sub-heading “Current Investments” and 

“Non-current Investments”, separate disclosure is to be made of any 

investment in the capital of partnership firm by the company. In addition, in 

the Notes to Accounts separate disclosure is required with regard to the 

names of the firms, along with the names of all their partners, total capital 

and the shares of each partner. 

The disclosure in the Balance Sheet relating to the value of the investment in 

the capital of a partnership firm as the amount to be disclosed as on the date 

of the Balance Sheet can give rise to certain issues, the same are discussed 

in the following paragraphs.  

(a)  In case of a change in the constitution of the firm during the year, the 

names of the other partners should be disclosed by reference to the 

position existing as on the date of the company’s Balance Sheet.  

(b)  The total capital of the firm to be disclosed should be with reference to 

the amount of the capital on the date of the company’s Balance Sheet.  Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

46 

If it is not practicable to draw up the Financial Statements of the 

partnership upto such date and, are drawn up to different reporting 

dates, drawing analogy from AS-21 and AS-27, adjustments should be 

made for the effects of significant transactions or other events that 

occur between those dates and the date of the parent’s Financial 

Statements. In any case, the difference between reporting dates 

should not be more than six months. In such cases, the difference in 

reporting dates should be disclosed. 

 (c)  For disclosure of the share of each partner it is suggested to disclose 

share of each partner in the profits of the firm rather than the share in 

the capital since, ordinarily, the expression “share of each partner” is 

understood in this sense. Moreover,  disclosure is already required of 

the total capital of the firm as well as of the company’s share in that 

capital. The share of each partner should be disclosed as at the date 

of the company’s Balance Sheet  

(d)  The Statement of investments attached to the Balance Sheet is 

required to disclose, inter alia, the total capital of the partnership firm 

in which the company is a partner. Where such a partnership firm has 

separate accounts for partner’s capital, drawings or current, loans to or 

from partners, etc., disclosure must be made with regard to the total of 

the capital accounts alone, since this is what constitutes the capital of 

the partnership firm. Where, however, such accounts have not been 

segregated, or where the partnership deed provides that the capital of 

each partner is to be calculated by reference to the net amount at his 

credit after merging all the accounts, the disclosure relating to the 

partnership capital must be made on the basis of the total effect of 

such accounts taken together. 

Separate disclosure is required by reference to each partnership firm in 

which the company is a partner. The disclosure must be made along with the 

name of each such firm and must then indicate the total capital of each firm, 

the names of all the partners in each firm and the respective shares of each 

partner in the firm. 

8.7.2.9 A limited liability partnership is a body corporate and not a 

partnership firm as envisaged under the Partnership Act, 1932. Hence, 

disclosures pertaining to Investments in partnership firms will not include 

investments in limited liability partnerships. The investments in limited liability 

partnerships will be disclosed separately under other investments. Also, other 

disclosures prescribed for Investment in partnership firms, need not be made 

for investments in limited liability partnerships.  Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

47 

8.7.3 Long-term loans & advances  

(i) Long-term loans and advances shall be classified as: 

 (a)  Capital Advances; 

 (b)  Security Deposits; 

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

 (d)  Other loans and advances (specify nature). 

(ii) The above shall also be separately sub-classified as: 

 (a)  Secured, considered good; 

 (b) Unsecured, considered good; 

 (c)  Doubtful. 

(iii) Allowance for bad and doubtful loans and advances shall be disclosed 

under the relevant heads separately. 

(iv) Loans and advances due by directors or other officers of the company or 

any of them either severally or jointly with any other persons or amounts 

due by firms or private companies respectively in which any director is a 

partner or a director or a member should be separately stated. 

Under the Revised Schedule VI, Capital Advances are not be classified 

under Capital Work in Progress, since they are specifically to be disclosed 

under this para. 

Capital advances are advances given for procurement of fixed assets which 

are non-current assets. Typically, companies do not expect to realize them in 

cash. Rather, over the period, these get converted into fixed assets which, by 

nature, are non-current assets. Hence, capital advances should be treated as 

non-current assets irrespective of when the fixed assets are expected to be 

received and should not be classified as Short-Term/Current. 

Details of loans and advances to related parties need to be disclosed. Since 

the Revised Schedule VI states that the terms used therein should be 

interpreted based on applicable the Accounting Standards, the term “details” 

should be interpreted to understand the disclosure requirements contained in 

AS 18 Related Party Disclosure. Accordingly, making disclosures beyond the 

requirements of AS-18 would not be necessary. 

Other loans and advances should include all other items in the nature of 

advances recoverable in cash or kind such as Prepaid expenses, Advance 

tax, CENVAT credit receivable, VAT credit receivable, Service tax credit 

receivable, etc. which are not expected to be realized within the next twelve 

months or operating cycle whichever is longer, from the Balance Sheet date. Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

48 

Each item of loans and advances should be further sub-classified as a) 

Secured, considered good, b) Unsecured, considered good and c) Doubtful. 

Further, the amount of allowance for bad and doubtful loans and advances is 

required to be disclosed separately under the “relevant heads”. Therefore, 

the amount of such allowance also should be disclosed separately for each 

category of loans and advances. 

8.7.4 Other non-current assets 

Other non-current assets shall be classified as: 

(i) Long term Trade Receivables (including trade receivables on deferred 

credit terms); 

(ii) Others (specify nature)  

Long term Trade Receivables, shall be sub-classified as: 

(i)  (a)  Secured, considered good;  

 (b) Unsecured considered good;  

 (c) Doubtful 

(ii)  Allowance for bad and doubtful debts shall be disclosed under the 

relevant heads separately. 

(iii)  Debts due by directors or other officers of the company or any of them 

either severally or jointly with any other person or debts due by firms 

or private companies respectively in which any director is a partner or 

a director or a member should be separately stated.  

A receivable shall be classified as 'trade receivable' if it is in respect of the 

amount due on account of goods sold or services rendered in the normal 

course of business. Whereas as per  the Old Schedule VI, the term 'sundry 

debtors' included amounts due in respect of goods sold or services rendered 

or in respect of other contractual obligations as well. Hence, amounts due 

under contractual obligations cannot be included within Trade Receivables. 

Such items may include dues in respect of insurance claims, sale of fixed 

assets, contractually reimbursable expenses, interest accrued on trade 

receivables, etc. Such receivables should be classified as "others" and each 

such item should be disclosed nature-wise.  

Guidance in respect of above items may also be drawn from the guidance 

given in respect of Long-term loans & advances to the extent applicable. 

The Revised Schedule VI does not contain any specific disclosure 

requirement for the unamortized portion of expense items such as share Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

49 

issue expenses, ancillary borrowing costs and discount or premium relating 

to borrowings. The Old Schedule VI required these items to be included 

under the head “Miscellaneous Expenditure.”  

As per AS 16 Borrowing Costs ancillary borrowing costs and discount or 

premium relating to borrowings could be amortized over the loan period. 

Further, share issue expenses, discount on shares, ancillary costs-discountpremium on borrowing, etc., being special nature items are excluded from 

the scope of AS 26 Intangible Assets (Para 5). Keeping this in view, certain 

companies have taken a view that it is an acceptable practice to amortize 

these expenses over the period of benefit, i.e., normally 3 to 5 years. The 

Revised Schedule VI does not deal with  any accounting treatment and the 

same continues to be governed by the respective Accounting 

Standards/practices. Further, the Revised Schedule VI is clear that additional 

line items can be added on the face or in the notes. Keeping this in view, 

entity can disclose the unamortized portion of such expenses as 

“Unamortized expenses”, under the head “other current/ non-current assets”, 

depending on whether the amount will be amortized in the next 12 months or 

thereafter. 

8.8 Current assets 

As per the Revised Schedule VI, all items of assets and liabilities are to be 

bifurcated between current and non-current portions. In some cases, the items 

presented under the “non-current” head of the Balance Sheet do not have a 

corresponding “current” head especially for Assets. For example: Security 

Deposits have been shown under “Long-term loans & advances”, however, the 

same is not reflected under the “short-term loans & advances”. Since Revised 

Schedule VI permits the use of additional line items, in such cases the current 

portion should be classified under the Short-term category of the respective 

balance as a separate line item and other relevant disclosures e.g. doubtful 

amount, related provision etc. should be made.

8.8.1 Current investments 

(i) Current investments shall be classified as: 

 (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; Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

50 

 (f)  Investments in partnership firms 

 (g)  Other investments (specify nature). 

 Under each classification, details shall be given of names of the 

bodies corporate (indicating separately whether such bodies are 

(i) subsidiaries, (ii) associates, (iii)  joint ventures, or (iv) controlled 

special purpose entities) in whom investments have been made and 

the nature and extent of the investment so made in each such body 

corporate (showing separately investments which are partly-paid). In 

regard to investments in the capital of partnership firms, the names of 

the firms (with the names of all their partners, total capital and the 

shares of each partner) shall be given. 

 (ii) The following shall also be disclosed: 

 (a)  The basis of valuation of individual investments 

 (b)  Aggregate amount of quoted investments and market value  

thereof; 

 (c)  Aggregate amount of unquoted investments; 

 (d)  Aggregate provision made for diminution in value of investments. 

Guidance in respect of above items may be drawn from the guidance given in 

respect of Non-current investments to the extent applicable. 

Based on these criteria, if a debenture is to be redeemed partly within twelve 

months and balance after twelve months, the amount to be redeemed within 

twelve months should be disclosed as current and balance should be shown 

as non-current.  

Additionally, the Revised Schedule VI also require basis of valuation of 

individual investment. It is pertinent to note that there is no requirement to 

classify investments into trade & non-trade in respect of current investments. 

The aggregate provision for diminution in the value of current investments 

that needs to be separately disclosed is the amount written down based on 

the measurement principles of Current Investments as per AS-13 on a 

cumulative basis, though such write-down is not actually a ‘provision’ as per 

the Standard. 

8.8.2 Inventories 

(i) Inventories shall be classified as: 

 (a)  Raw materials;  

 (b) Work-in-progress; Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

51 

 (c) Finished goods; 

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

 (e) Stores and spares; 

 (f) Loose tools; 

 (g) Others (specify nature). 

(ii) Goods-in-transit shall be disclosed under the relevant sub-head of 

inventories. 

(iii)  Mode of valuation shall be stated. 

As per the Revised Schedule VI, goods in transit should be included under 

relevant heads with suitable disclosure. Further, mode of valuation for each 

class of inventories should be disclosed. 

The heading Finished goods should comprise of all finished goods other than 

those acquired for trading purposes. 

8.8.3 Trade Receivables (current)

(i) Aggregate amount of Trade Receivables outstanding for a period 

exceeding six months from the date they are due for payment should 

be separately stated. 

(ii)  Trade receivables shall be sub-classified as:  

 (a)  Secured, considered good; 

 (b)  Unsecured considered good; 

 (c)  Doubtful.  

(iii) Allowance for bad and doubtful  debts shall be disclosed under the 

relevant heads separately. 

(iv)  Debts due by directors or other officers of the company or any of them 

either severally or jointly with any other person or debts due by firms 

or private companies respectively in which any director is a partner or 

a director or a member should be separately stated. 

A trade receivable will be treated as current, if it is likely to be realized within 

twelve months from the date of Balance Sheet or operating cycle of the 

business. 

The Old Schedule VI required separate presentation of debtors 

(i) outstanding for a period exceeding six months (i.e., based on billing date) 

and (ii) other debtors. However, the Revised Schedule VI requires separate 

disclosure of “Trade Receivables outstanding for a period exceeding six Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

52 

months from the date they became due for payment” only for the current 

portion of trade receivables.  

Where no due date is specifically agreed upon, normal credit period allowed 

by the company should be taken into consideration for computing the due 

date which may vary depending upon the nature of goods or services sold 

and the type of customers, etc.  

All other guidance given under Long-term Trade Receivables to the extent 

applicable are applicable here also. 

8.8.4 Cash and cash equivalents

(i) Cash and cash equivalents shall be classified as: 

 (a)  Balances with banks; 

 (b)  Cheques, drafts on hand; 

 (c)  Cash on hand; 

 (d)  Others (specify nature). 

(ii) Earmarked balances with banks (for example, for unpaid dividend) 

shall be separately stated. 

(iii)  Balances with banks  to the extent held as margin money or security 

against the borrowings, guarantees, other commitments shall be 

disclosed separately. 

(iv)  Repatriation restrictions, if any, in respect of cash and bank balances 

shall be separately stated. 

(v) Bank deposits with  more than twelve months maturity shall be 

disclosed separately. 

The term "cash and bank balances" in the Old Schedule VI is replaced with 

‘Cash and cash equivalents’ in the Revised Schedule VI. 

Please also refer to the earlier discussion under the section on General 

Instructions in para 6.4 for classification of items under this head.  

“Other bank balances” would comprise of items such as balances with banks 

to the extent of held as margin money or security against borrowings etc, and 

bank deposits with more than three months maturity. Banks deposits with 

more than more than twelve months maturity will also need to be separately 

disclosed under the sub-head ‘Other bank balances’. The non-current portion 

of each of the above balances will have to be classified under the head 

“Other Non-current assets” with separate disclosure thereof. Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

53 

8.8.5 Short-term loans & Advances 

(i) Short-term loans and advances shall be classified as: 

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

 (b) Others (specify nature). 

(ii) The above shall also be sub-classified as: 

 (a) Secured, considered good; 

 (b) Unsecured, considered good; 

 (c) Doubtful. 

(iii) Allowance for bad and doubtful loans and advances shall be disclosed 

under the relevant heads separately. 

(iv)  Loans and advances due by directors or other officers of the company or 

any of them either severally or jointly with any other person or amounts 

due by firms or private companies respectively in which any director is a 

partner or a director or a member shall be separately stated. 

The guidance for disclosures under this head should be drawn from guidance 

given for items comprised within Long-term Loans and Advances. 

8.8.6 Other current assets (specify nature) 

This is an all-inclusive heading, which incorporates current assets that do not 

fit into any other asset categories e.g. unbilled Revenue, unamortised 

premium on forward contracts etc.  

In case any amount classified under this category is doubtful, it is advisable 

that such doubtful amount as well as any provision made there against 

should be separately disclosed. 

8.8.7 Contingent liabilities and commitments 

(i) Contingent liabilities shall be classified as: 

 (a) Claims against the company not acknowledged as debt; 

 (b) Guarantees; 

 (c) Other money for which the company is contingently liable 

(ii) Commitments shall be classified as: 

 (a)  Estimated amount of contracts remaining to be executed on 

capital account and not provided for;  

  (b)  Uncalled liability on shares and other investments partly paid  

  (c)  Other commitments (specify nature). Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

54 

8.8.7.1 The provisions of AS-29  Provisions, Contingent Liabilities and 

Contingent Assets, will be applied for determining contingent liabilities. 

8.8.7.2  A contingent liability in respect of guarantees arises when a 

company issues guarantees to another person on behalf of a third party e.g. 

when it undertakes to guarantee the loan given to a subsidiary or to another 

company or gives a guarantee that another company will perform its 

contractual obligations. However, where a company undertakes to perform its 

own obligations, and for this purpose issues, what is called a "guarantee", it 

does not represent a contingent liability and it is misleading to show such 

items as contingent liabilities in the Balance Sheet. For various reasons, it is 

customary for guarantees to be issued by Bankers e.g. for payment of 

insurance premia, deferred payments to foreign suppliers, letters of credit, 

etc. For this purpose, the company issues a "counter-guarantee" to its 

Bankers. Such "counter-guarantee" is not really a guarantee at all, but is an 

undertaking to perform what is in any event the obligation of the company, 

namely, to pay the insurance premia when demanded or to make deferred 

payments when due. Hence, such performance guarantees and counterguarantees should not be disclosed as contingent liabilities. 

8.8.7.3  The Revised Schedule VI also requires disclosures pertaining to 

various commitments such as Capital commitments not provided for and 

Uncalled liability on shares. It also requires disclosures pertaining to ‘Other 

commitments’, with specification of nature thereof, which was not required by 

the Old Schedule VI.  

8.8.7.4  The word ‘commitment’ has not been defined in the Revised 

Schedule VI. The Guidance Note on Terms Used in Financial Statements 

issued by ICAI defines ‘Capital Commitment’ as future liability for capital 

expenditure in respect of which contracts have been made. Hence, drawing 

inference from such definition, the term ‘commitment’ would simply imply 

future liability for contractual expenditure. Accordingly, the term ‘Other 

commitments’ would include all expenditure related contractual commitments 

apart from capital commitments such as commitments arising from long-term 

contracts for purchase of raw material, employee contracts, lease 

commitments, etc. The scope of such terminology is very wide and may 

include contractual commitments for purchase of inventory, services, 

investments, sales, employee contracts,  etc. However, to give disclosure of 

all contractual commitments would be contrary to the overarching principle 

under General Instructions that “a balance shall be maintained between 

providing excessive detail that may not assist users of Financial Statements 

and not providing important information as a result of too much aggregation.”  Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

55 

8.8.7.5 Disclosures relating to lease commitments for non-cancellable leases 

are required to be disclosed by AS-19 Leases.  

8.8.7.6 Accordingly, the disclosures required to be made for ‘other 

commitments’ should include only those non-cancellable contractual 

commitments (i.e. cancellation of which will result in a penalty 

disproportionate to the  benefits involved) based on the professional 

judgement of the management which are material and relevant in 

understanding the Financial Statements of the company and impact the 

decision making of the users of Financial Statements.  

Examples may include commitments in the nature of buy-back arrangements, 

commitments to fund subsidiaries and associates, non-disposal of 

investments in subsidiaries and undertakings, derivative related 

commitments, etc. 

8.8.7.7 The Revised Schedule VI requires disclosure of the amount of 

dividends proposed to be distributed  to equity and preference shareholders 

for the period and the related amount per share to be disclosed separately. It 

also requires separate disclosure of the arrears of fixed cumulative dividends 

on preference shares. The Old Schedule VI specifically required proposed 

dividend to be disclosed under the head “Provisions.” In the Revised 

Schedule VI, this needs to be disclosed in the notes. Hence, a question that 

arises is as to whether this means that proposed dividend is not required to 

be provided for when applying the Revised Schedule VI. AS-4 Contingencies 

and Events Occurring After the Balance Sheet date requires that dividends 

stated to be in respect of the period covered by the Financial Statements, 

which are proposed or declared by the enterprise after the Balance Sheet 

date but before approval of the Financial Statements, should be adjusted. 

Keeping this in view and the fact that the Accounting Standards override the 

Revised Schedule VI, companies will have to continue to create a provision 

for dividends in respect of the period covered by the Financial Statements 

and disclose the same as a provision in the Balance Sheet, unless AS-4 is 

revised. Hence, the disclosure to be made in the notes is over and above the 

disclosures pertaining to a) the appropriation items to be disclosed under 

Reserves and Surplus and b) Provisions in the Balance Sheet. 

8.8.7.8 The Revised Schedule VI requires that where in respect of an issue 

of securities made for a specific purpose, the whole or part of the amount 

has not been used for the specific purpose at the Balance Sheet date, there 

shall be indicated by way of note how such unutilized amounts have been 

used or invested. Such a requirement existed in the Old Schedule VI as well.  Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

56 

8.8.7.9 The Revised Schedule VI also states that if, in the opinion of the 

Board, any of the assets other than fixed assets and non-current investments 

do not have a value on realization in the ordinary course of business at least 

equal to the amount at which they are stated, the fact that the Board is of that 

opinion, shall be stated. A similar requirement existed in the Old Schedule VI 

as well. It is difficult to contemplate a situation where any asset other than 

fixed assets and non-current investments has a realizable value that is lower 

than its carrying value, and the same is not given effect to in the books of 

account, since Accounting Standards do not permit the same. AS 13

Accounting for Investments requires current investments to be valued at 

lower of cost and fair value. AS 2 Valuation of Inventories also requires 

inventories to be valued at the lower of cost and net realizable value. Further, 

Allowance for bad and doubtful debts is required to be shown as a deduction 

from both Long-term loans & advances and Other Non-current assets as well 

as Trade Receivables and Short-term loans and advances as per Schedule 

VI. Hence, a diligent application of the requirements of Accounting Standards 

and Schedule VI will normally not leave any scope for making any additional 

disclosures in this regard. 

9. Part II – Statement of Profit and Loss  

Part II deals with disclosures relating to the Statement of Profit and Loss. 

The format prescribed is the vertical form wherein disclosure for revenues 

and expenses is in various line items. Part II of the Schedule contains items I 

to XVI which lists items of Revenue, Expenses and Profit / (Loss). “General 

Instructions for Preparation of Statement of Profit and Loss” govern the other 

disclosure and presentation. 

As per the Guidance Note ‘Terms Used in Financial Statements’, the phrase 

‘Profit and Loss statement’ is defined as “the Financial Statement which 

presents the revenues and expenses of an enterprise for an accounting 

period and shows the excess of revenues over expenses (or vice versa) It is 

also known as profit and loss account.” 

As per Note 1 to “General Instructions for Preparation of Statement of Profit 

and Loss”, the provisions of this part also apply to the income and 

expenditure account referred to in section 210(2) of the Companies Act, 1956 

in the same manner as they apply to a Statement of Profit and Loss. 

The specific format laid down for presentation of various items of Income and 

Expenses in the Statement of Profit and Loss indicates that expenses should 

be aggregated based on their nature. Accordingly, functional classification of 

expenses is prohibited. Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

57 

As per the Framework For The Preparation and Presentation Of Financial 

Statements, Income and expenses are defined as follows: 

(a)   Income is increase in economic benefits during the accounting period 

in the form of inflows or enhancements of assets or decreases of 

liabilities that result in increases in equity, other than those relating to 

contributions from equity participants. 

(b)  Expenses are decreases in economic benefits during the accounting 

period in the form of outflows or depletions of assets or incurrences of 

liabilities that result in decreases in equity, other than those relating to 

distributions to equity participants. 

9.1 Revenue from operations:  

The aggregate of Revenue from operations needs to be disclosed on the 

face of the Statement of Profit and Loss as per Revised Schedule VI 

9.1.1  Note 2(A) to General Instructions for the Preparation of Statement of 

Profit and Loss require that in respect of a company other than a finance 

company, Revenue from operations is  to be separately disclosed in the 

notes, showing revenue from: 

(a) Sale of products 

(b) Sale of services 

(c) Other operating revenues 

(d) Less: Excise duty 

9.1.2 As per AS-9 “Revenue Recognition”, the above disclosure in respect of 

Excise Duty needs to be shown on the face of the Statement of Profit and 

Loss. Since Accounting Standards override Revised Schedule VI, the 

presentation in respect of excise duty will have to be made on the face of the 

Statement of Profit and Loss. In doing so, a company may choose to present 

the elements of revenue from sale of products, sale of services and other 

operating revenues also on the face of the Statement of Profit and Loss 

instead of the Notes. 

9.1.3 Indirect taxes such as Sales tax, Service tax, Purchase tax etc. are 

generally collected from the customer on behalf of the government in majority 

of the cases. However, this may not hold true in all cases and it is possible 

that a company may be acting as principal rather than as an agent in 

collecting these taxes. Whether revenue should be presented gross or net of 

taxes should depend on whether the company is acting as a principal and 

hence responsible for paying tax on its own account or, whether it is acting 

as an agent i.e. simply collecting and paying tax on behalf of government Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

58 

authorities. In the former case, revenue should also be grossed up for the tax 

billed to the customer and the tax payable should be shown as an expense. 

However, in cases, where a company collects tax only as an intermediary, 

revenue should be presented net of taxes. 

9.1.4  However, as per the Guidance Note on Value Added Tax, “Value 

Added Tax (VAT) is collected from  the customers on behalf of the VAT 

authorities and, therefore, its collection from the customers is not an 

economic benefit for the enterprise and it does not result in any increase in 

the equity of the enterprise”. Accordingly, VAT should not be recorded as 

Revenue of the enterprise. At the same time, the payment of VAT should not 

be treated as an expense in the Financial Statements of the company.  

9.1.5  Further, as per the definition of Revenue in the Guidance Note on 

Terms Used in Financial Statement, “It excludes amounts collected on behalf 

of third parties such as certain taxes”.  The Guidance Note on VAT further 

states, “Where the enterprise has not charged VAT separately but has made 

a composite charge, it should segregate the portion of sales which is 

attributable to tax and should credit the same to ‘VAT Payable Account’ at 

periodic intervals”.  

9.1.6  For non-finance companies, revenue from operations needs to be 

disclosed separately as revenue from  

(a)  sale of products,  

(b)  sale of services and  

(c)  other operating revenues. 

It is important to understand what is meant by the term “other operating 

revenues” and which items should be classified under this head vis-à-vis 

under the head “Other Income”. 

9.1.7 The term “other operating revenue” is not defined. This would include 

Revenue arising from a company’s operating activities, i.e., either its 

principal or ancillary revenue-generating activities, but which is not revenue 

arising from the sale of products or rendering of services. Whether a 

particular income constitutes “other  operating revenue” or “other income” is 

to be decided based on the facts of each case and detailed understanding of 

the company’s activities. The classification of income would also depend on 

the purpose for which the particular asset is acquired or held. For instance, a 

group engaged in manufacture and sale of industrial and consumer products 

also has one real estate arm. If the real estate arm is continuously engaged 

in leasing of real estate properties, the rent arising from leasing of real estate 

is likely to be “other operating revenue”. On the other hand, consider a 

consumer products company which owns a 10 storied building. The company Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

59 

currently does not need one floor for its own use and has given the same 

temporarily on rent. In that case, lease rent is not an “other operating 

revenue”; rather, it should be treated as “other income”.  

9.1.8 To take other examples, sale of Fixed Assets is not an operating 

activity of a company, and hence, profit on sale of fixed assets should be 

classified as other income and not other operating revenue. On the other 

hand, sale of manufacturing scrap arising from operations for a 

manufacturing company should be treated as other operating revenue since 

the same arises on account of the company’s main operating activity. 

9.1.9  Net foreign exchange gain should be classified as Other Income. This 

is because such gain or loss arises purely on account of fluctuation in 

exchange rates and not on account of sale of products or services rendered, 

unless the business of the company is to deal in foreign exchange. 

9.1.10  As per Note 2(A) to General Instructions for Preparation of 

Statement of Profit and loss, in respect of a finance company, revenue from 

operations shall include revenue from  

(a)  Interest; and 

(b)  Other financial services 

Revenue under each of the above heads is to be disclosed separately by 

way of Notes to Accounts to the extent applicable. 

9.1.11   The term finance company is not defined under the Companies Act, 

1956, or Revised Schedule VI. Hence, the same should be taken to include 

all companies carrying on activities which are in the nature of “business of 

non-banking financial institution” as defined under section 45I(f) of the 

Reserve Bank of India Act, 1935.  

The relevant extract is reproduced below: 

(a) ‘‘business of a non-banking financial institution’’ means carrying on of 

the business of a financial institution referred to in clause (c) and includes 

business of a non-banking financial company referred to in clause (f); 

(c) ‘‘financial institution’’ means any non-banking institution which carries 

on as its business or part of its business any of the following activities, 

namely:–  

(i)  the financing, whether by way of making loans or advances or 

otherwise, of any activity other than its own:  

(ii)  the acquisition of shares, stock, bonds, debentures or securities 

issued by a Government or local authority or other marketable 

securities of a like nature:  Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

60 

(iii)  letting or delivering of any goods to a hirer under a hire-purchase 

agreement as defined in clause (c) of section 2 of the Hire-Purchase 

Act, 1972:  

(iv)  the carrying on of any class of insurance business;  

(v)  managing, conducting or supervising, as foreman, agent or in any 

other capacity, of chits or kuries as defined in any law which is for the 

time being in force in any State, or any business, which is similar 

thereto;  

(vi)  collecting, for any purpose or under any scheme or arrangement by 

whatever name called, monies in lumpsum or otherwise, by way of 

subscriptions or by sale of units, or other instruments or in any other 

manner and awarding prizes or gifts, whether in cash or kind, or 

disbursing monies in any other way, to persons from whom monies are 

collected or to any other person, but does not include any institution, 

which carries on as its principal business,–  

 (a)  agricultural operations; or  

 (aa) industrial activity; or 

 (b)  the purchase or sale of any goods (other than securities) or the 

providing of any services; or  

 (c)  the purchase, construction or sale of immovable property, so 

however, that no portion of the income of the institution is 

derived from the financing of purchases, constructions or sales 

of immovable property by other persons;  

  Explanation.– For the purposes of this clause, ‘‘industrial 

activity’’ means any activity specified in sub-clauses (i) to (xviii) 

of clause (c) of section 2 of the Industrial Development Bank of 

India Act, 1964; 

(f)  ‘‘non-banking financial company’’ means–  

 (i)  a financial institution which is a company;  

 (ii)  a non-banking institution which is a company and which has as 

its principal business the receiving of deposits, under any 

scheme or arrangement or in any other manner, or lending in 

any manner;  

 (iii)  such other non-banking institution or class of such institutions, 

as the bank may, with the previous approval of the Central 

Government and by notification in the Official Gazette, specify; Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

61 

9.1.12  Accordingly, applying the aforesaid definition, the term “finance 

company” would cover all NBFCs - Asset Finance companies, Investment 

companies, Leasing and Hire Purchase companies, Loan companies, Infra 

Finance companies, Core Investment companies, Micro-finance companies, 

etc. Further, Housing Finance Companies regulated by National Housing 

Bank should also be considered as a finance company. 

9.2 Other income:  

The aggregate of ‘Other income’ is to be disclosed on face of the Statement 

of Profit and Loss. 

9.2.1 As per Note 4 to General Instructions for the preparation of Statement 

of Profit and Loss ‘Other Income shall be classified as: 

(a)  Interest Income (in case of a company other than a finance company); 

(b)  Dividend Income; 

(c)  Net gain / loss on sale of investments; 

(d)  Other non-operating income (net of expenses directly attributable to 

such income). 

9.2.2  All kinds of interest income for a company other than a finance 

company should be disclosed under this head such as interest on fixed 

deposits, interest from customers on amounts overdue, etc. 

9.2.3  Clause (a) of Note 5 (vii) requires a separate disclosure for Dividends 

from subsidiary companies. The Old Schedule VI specifically required parent 

companies to recognise dividend declared by subsidiary companies even if 

declared after the Balance Sheet date if they are related to the period 

covered by the Financial Statements. The Revised Schedule VI does not 

prescribe any such accounting requirement. Accordingly, dividend income 

from subsidiary companies should be  recognized in accordance with AS-9, 

i.e. only when they have a right to receive the same on or before the Balance 

Sheet date. Normally, the right to receive is established only when the 

dividend is approved by the shareholders at the Annual General Meeting of 

the investee company. In the first year of application of Revised Schedule VI, 

dividend income recognised in the immediately preceding year based on the 

aforesaid requirements of Old Schedule VI should not be derecognized for 

the comparatives presented.  

To recognize dividend based on the right to receive would constitute a 

change in accounting policy which should be applied prospectively. Dividend 

approved by the shareholders of the subsidiary in the current year but 

already recognised by the holding company in the previous year’s Financial Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

62 

Statements as per Old Schedule VI should not be again recognised in the 

first year of application of Revised  Schedule VI. Necessary disclosures as 

per AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in 

Accounting Policies  pertaining to change in accounting policy should be 

made in the Notes to Accounts.

9.2.4 Other income items such as interest income, dividend income and net 

gain on sale of investments should be disclosed separately for Current as 

well as Long-term Investments  as required by AS 13 “Accounting for 

Investments”. If it is a net loss the same should be classified under 

expenses.  

9.2.5 For other non-operating income, income should be disclosed under 

this head net off expenses directly attributable to such income. However, the 

expenses so netted off should be separately disclosed. 

9.3  Share of profits/losses in a Partnership firm 

9.3.1  Though, there is no specific requirement in the Revised Schedule VI to 

disclose profit or losses on investments in a partnership firm as was required 

by the Old Schedule VI, the same should be disclosed as discussed as 

under.  

9.3.2 Share of profit or loss in a partnership firm accrues the moment the 

same is computed and credited or debited to the Capital/Current/any other 

account of the company in the books  of the partnership firm. Hence, the 

same should be accordingly accounted for in the books of the company.  

9.3.3 Separate disclosure of profits or losses from partnership firms should 

be made. In a case where the company was a partner during the year but is 

not a partner at the end of the year, the disclosure should be made for the 

period during which the company was a partner. 

9.3.4   The company's share of the profits or losses of the partnership firm 

should be calculated by reference to the company's own accounting year. 

The Financial Statements of the partnership for computing the share of 

profits and losses should be drawn up to the same reporting date. If it is not 

practicable to draw up the Financial Statements of the partnership upto such 

date and, are drawn up to a different reporting date, drawing analogy from 

AS-21 and AS-27, adjustments should be made for the effects of significant 

transactions or other events that occur between that date and the date of the 

parent’s Financial Statements. In any case, the difference between reporting 

dates should not be more than six months. In such cases, the difference in 

reporting dates should be disclosed. Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

63 

9.3.5 In case the year ending of the company and of the firm fall on different 

dates, the Financial Statements of the company should also contain a note to 

indicate that the accounting period of the partnership firm in respect of which 

the profits or losses have been accounted for in the company's books. 

9.3.6 If however, a partnership firm happens to be in the nature of a Jointly 

Controlled Operation as defined in AS-27, the share of incomes, expenses, 

assets or liabilities will have to be accounted for in the Standalone Financial 

Statements as prescribed in AS-27. 

9.3.7 In case the partnership firm is a Subsidiary under AS-21, Associate 

under AS-23 or Jointly Controlled Entity/Jointly Controlled Operation under 

AS-27, in the Consolidated Financial Statements, the share of profit/loss from 

the firm should be accounted for in terms of the applicable Accounting 

Standard as stated above. 

9.3.8 The aforesaid principles should also be applied to accounting for the 

share of profits and losses in an Association of Persons (AOP). 

9.4 Share of profits/losses in  a Limited Liability Partnership 

(LLP) 

9.4.1 A Limited Liability Partnership, as per the LLP Act, is a body corporate 

and the share of profit/loss in the LLP does not accrue to the partners till the 

same is transferred to the Partners’ Capital/Current Account as per the terms 

of the LLP Agreement. Accordingly, the share of profit/loss should be 

accounted in the books of the company as and when the same is credited/ 

debited to the Partners’ Capital Account.  

9.4.2 Depending upon the terms of agreement between the Partners, the 

LLP may be a Subsidiary under AS-21, Associate under AS-23 or Jointly 

Controlled Entity under AS-27. Hence, accounting in respect of the same in 

the Consolidated Financial Statements would be governed by the applicable 

Accounting Standards.  

9.5 Expenses 

The aggregate of the following expenses are to be disclosed on the face 

of the Statement of Profit and Loss: 

¾ Cost of materials consumed 

¾ Purchases of Stock-in-Trade 

¾ Changes in inventories of finished goods, work in progress and stock 

in trade 

¾ Employee benefits expense Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

64 

¾ Finance costs 

¾ Depreciation and amortization expense 

¾ Other expenses 

9.5.1 Cost of materials consumed  

9.5.1.1 This disclosure is applicable for manufacturing companies. Materials 

consumed would consist of raw materials, packing materials (where 

classified by the company as raw materials) and other materials such as 

purchased intermediates and components which are ‘consumed’ in the 

manufacturing activities of the company. Where packing materials are not 

classified as raw materials the consumption thereof should be disclosed 

separately. However, intermediates and components which are internally 

manufactured are to be excluded from the classification: 

9.5.1.2 For purpose of classification of  inventories, internally manufactured 

components may be disclosed as below: 

i. where such components are sold without further processing they are 

to be disclosed as 'finished products'. 

ii. where such components are sold only after further processing, the 

better course is to disclose them as 'work-in-progress' but they may 

also be disclosed as 'manufactured components’ subject to further 

processing or with such other suitable description as 'semi-finished 

products' or 'intermediate products'. 

iii.  where  such components are sometimes sold without  further 

processing and sometimes after further processing it is better to 

disclose them as 'manufactured components'. 

9.5.1.3 For the purpose of interpreting the requirement to classify the raw 

materials, some guidance may be necessary with regard to the question as 

to what constitutes raw materials. According to the strict dictionary 

connotation of this term, raw materials would include only materials obtained 

in the state of nature. Such a definition would, however, be unrealistic in 

context of this requirement because it would exclude even a basic material 

such as steel. Generally speaking, the  term “raw materials” would include 

materials which physically enter into the composition of the finished product. 

Materials, such as stores, fuel, spare parts etc, which do not enter physically 

into the composition of the finished product, would therefore, be excluded 

from the purview of the term “raw materials”.  

9.5.1.4  The requirement is silent with  regard to containers and packaging 

materials. It is, therefore, open to question whether such materials constitute Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

65 

a category of “raw materials” for the purpose of the classification. The matter 

should be decided in the light of the facts and circumstances of each case, 

the nature of the containers and packaging materials, their relative value in 

comparison to the raw materials consumed, and other similar considerations. 

Where, however, packaging materials, because of their nature are included 

in raw materials it is preferable to show the description as “raw materials 

including packaging materials consumed”. 

9.5.1.5 Since in case of a company which falls under the category of 

manufacturing or manufacturing and trading company, disclosure is required 

with regard to raw materials consumed, care should be taken to ensure that 

the figures relate to actual consumption rather than “derived consumption”. 

The latter figure is ordinarily obtained by deducting the closing inventory from 

the total of the opening inventory and purchases, but this figure may not 

always represent a fair indication of actual consumption because it might 

conceal losses and wastages. On the other hand, if the figure of actual 

consumption can be compiled from issue records or other similar data, it is 

likely to be more accurate. Where this is not possible, the derived figure of 

consumption may be shown and it is left to the company, according to the 

circumstances of each case, to determine whether any footnote is required to 

indicate that the consumption disclosed is on the basis of derived figures 

rather than actual records of issue.  

9.5.1.6 Where the consumption is disclosed on the basis of actual records 

of issue, a further question arises with regard to the treatment of shortages, 

losses and wastages. In most manufacturing companies, these are 

inevitable. It is, therefore, suggested that the company should itself establish 

reasonable norms of acceptable margins. Any shortages, losses or wastages 

which are within these norms may be regarded as an ordinary incidence of 

the manufacturing process and may, therefore, be included in the figure of 

consumption. On the other hand, any shortages, losses or wastages which 

are beyond the permitted margin or when they are known to have occurred 

otherwise than in the manufacturing process, should not be included in the 

consumption figures. Whether or not such abnormal variations need to be 

separately disclosed in the accounts would depend upon the facts and 

circumstances of each case. The General Instructions for Preparation of 

Statement of Profit and Loss does not require any specific disclosures.  

9.5.1.7 In the case of industries where there are several processes, 

materials may move from process to process, so that the finished product of 

one department constitutes the raw materials of the next. Since the 

disclosure requirement provides only for disclosure of raw material under 

broad heads and goods purchased under broad heads and also having Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

66 

regard to the fact that the consumption of raw materials for production of 

such intermediates would have to be accounted as raw materials consumed, 

it follows that internal transfers from one department to another should be 

disregarded in determining the consumption figures to be disclosed. . 

9.5.2 Purchases of Stock in Trade 

Stock-in-trade refers to goods purchased normally with the intention to resell 

or trade in. In case, any semi-finished goods/materials are purchased with an 

intention of doing further processing activities on the same, the same should 

be included in ‘cost of materials consumed’ rather than under this item.  

9.5.3 Changes in inventories of finished goods, work-in-progress and 

stock-in-trade 

This requires disclosure of difference between opening and closing 

inventories of finished goods, work-in-progress and stock-in-trade. The 

difference should be disclosed separately for finished goods, work in 

progress and stock in trade. 

9.5.4 Employee benefits expense [Note 5(i)(a)] 

This requires disclosure of the following details: 

9.5.4.1 Salaries and wages 

The aggregate amounts paid/payable by the company for payment of 

salaries and wages are to be disclosed here. Expenses on account of bonus, 

leave encashment, compensation and other similar payments also need to 

be disclosed here. Where a separate fund is maintained for Gratuity payouts, 

contribution to Gratuity fund should be disclosed under the sub-head 

Contribution to provident and other funds. 

The term employee should be deemed to include directors who are either in 

whole-time or part-time employment  of the company. It will exclude those 

directors who attend only Board meetings and are not under a contract of 

service with the company. Those who act as consultants or advisers without 

involving the relationship of master and servant with the company should 

also be excluded. A distinction should be made between persons engaged 

under a contract of service and those engaged under a contract for services. 

Only the former are to be included in the computation. Whether part-time 

employees are to be included would depend on the facts and circumstances 

of each case - the basic criterion being whether they are employed under a 

contract of service or a contract for services. Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

67 

9.5.4.2  Contribution to provident and other funds 

The aggregate amounts paid/payable by a company on account of 

contributions to provident fund and other funds like Gratuity fund, 

Superannuation fund, etc. are to be disclosed here.  

Contributions for such funds for contract labour may also be separately 

disclosed here. However, penalties and other similar amounts paid to the 

statutory authorities are not strictly in the nature of ‘contribution’ and should 

not be disclosed here.  

9.5.4.3  Expense on Employee Stock Option Scheme (ESOP) and 

Employee Stock Purchase Plan (ESPP) 

The amount of expense under this head should be determined in accordance 

with the Guidance Note on Accounting for Employee Share based Payments 

and/or the SEBI (Employee Stock Option Scheme and Employee Stock 

Purchase Scheme) Guidelines, 1999, as applicable. All disclosures required 

by the aforesaid Guidance Note should be made here. 

9.5.4.4  Staff welfare expense 

The total expenditure on Staff welfare is to be disclosed herein.  

9.5.5  As per Note 3 of to the General Instructions for the Preparation of 

the Statement of Profit and Loss, disclosure of Finance costs is to be 

bifurcated under the following: 

(A)  Interest expense 

(B)  Other borrowing costs 

(C)  Applicable net gain/loss on foreign currency transactions and 

translation 

A) Interest expense 

This would cover interest paid on  borrowings from banks and others, on 

debentures, bonds or similar instruments etc. Finance charges on finance 

leases are in the nature of interest expense and hence should also be 

classified as interest expense. In the absence of any bifurcation required for 

interest paid on fixed period loans and other borrowings as required under 

the Old Schedule VI, the same need not be given. 

B)  Other borrowing costs 

Other borrowing costs would include commitment charges, loan processing 

charges, guarantee charges, loan facilitation charges, discounts/premium on 

borrowings, other ancillary costs incurred  in connection with borrowings, or 

amortization of such costs, etc. Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

68 

C)  Applicable net gain/loss on foreign currency transactions and 

translation 

As per Para 4(e) of AS-16, borrowing costs also include exchange 

differences arising from foreign currency borrowings to the extent that they 

are regarded as an adjustment to interest costs. Any such exchange 

differences would need to be disclosed under this head. 

9.5.6 Depreciation and amortization expense [Note 5(i) (b)] 

A company has to disclose depreciation provided on fixed assets and 

amortization of intangible assets under this head.  

9.5.7 Other Expenses  

All other expenses not classified under  other heads will be classified here. 

For this purpose, any item of expenditure which exceeds one percent of the 

revenue from operations or `Rs. 1,00,000, whichever is higher (as against 

the requirement of Old Schedule VI of 1 percent of total revenue or Rs. 5,000 

whichever is higher), needs to be disclosed separately. 

Further Note 5(vi) requires a separate  disclosure of each of the following 

items, which will also be classified under ‘Other expenses’  

¾ Consumption of stores and spare parts; 

¾ Power and fuel; 

¾ Rent; 

¾ Repairs to buildings; 

¾ Repairs to machinery; 

¾ Insurance; 

¾ Rates and taxes, excluding taxes on income; 

¾ Miscellaneous expenses. 

9.6 Exceptional items 

The term ‘Exceptional items’ is not defined in Revised Schedule VI. However, 

AS-5 “Net Profit or Loss for the period, Prior period items and changes in 

Accounting Policies” has a reference to such items in Paras 12, 13 and 14.  

“Para 12:  When items of income and expense within profit or loss from 

ordinary activities are of such size, nature or incidence that their disclosure is 

relevant to explain the performance of the enterprise for the period, the 

nature and amount of such items should be disclosed separately.Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

69 

Para 13: Although the items of income and expense described in paragraph 

12 are not extraordinary items, the nature and amount of such items may be 

relevant to users of Financial Statements in understanding the financial 

position and performance of an enterprise and in making projections about 

financial position and performance. Disclosure of such information is 

sometimes made in the notes to the Financial Statements. 

Para 14: Circumstances which may give  rise to the separate disclosure of 

items of income and expense in accordance with paragraph 12 include: the 

write-down of inventories to net realisable value as well as the reversal of 

such write-downs; a restructuring of the  activities of an enterprise and the 

reversal of any provisions for the costs of restructuring;” 

9 disposals of items of fixed assets; 

9 disposals of long-term investments; 

9 legislative changes having retrospective application; 

9 litigation settlements; and 

9 other reversals of provisions.

In case the company has more than one such item of income / expense of 

the above nature, the aggregate of such items should be disclosed on the 

face of the Statement of Profit and Loss. Details of the all individual items 

should be disclosed in the Notes. [Note 5 (i) (k) to the General Instructions 

for preparation of the Statement of Profit and Loss] 

9.7 Extraordinary items 

The term ‘Extraordinary items’ is  not defined in Revised Schedule VI. 

However, AS 5 “Net Profit or Loss for the period, Prior period items and 

changes in Accounting Policies” at para 4.2 defines ‘extraordinary items’ as: 

‘Extraordinary items are income or expenses that arise from events or 

transactions that are clearly distinct  from the ordinary activities of the 

enterprise and, therefore, are not expected to recur frequently or regularly. 

Further para 8 of AS-5 discusses about the disclosure of extraordinary items 

as below: 

Extraordinary items should be disclosed in the Statement of Profit and Loss 

as a part of net profit or loss for the period. The nature and the amount of 

each extraordinary item should be separately disclosed in the Statement of 

Profit and Loss in a manner that its impact on current profit or loss can be 

perceived.” 

In case the company has more than one such item of income / expense of 

the above nature, the aggregate of such items should be disclosed on the Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

70 

face of the Statement of Profit and Loss. Details of the all individual items 

should be disclosed in the Notes. [Note 5 (i) (k) to the General Instructions 

for Preparation of the Statement of Profit and Loss]. 

9.8 Tax expense:  

This is to be disclosed on the face of the Statement to Profit and Loss and 

bifurcated into:  

(1) Current tax and  

(2) Deferred tax 

9.8.1 Current tax 

9.8.1.1 The term ‘Current tax’ has been defined under AS-22 “Accounting 

for Taxes” on Income as the amount of income tax determined to be payable 

(recoverable) in respect of the taxable income (tax loss) for a period. Hence,

details of all taxes on income payable under the applicable taxation laws 

should be disclosed here.  

9.8.1.2 Presentation for Minimum Alternate Tax (MAT) credit should be 

made as prescribed by the ICAI Guidance Note on “Accounting for Credit 

Available in Respect of Minimum Alternative tax under the Income-tax Act, 

1961’. The relevant portion is as under: 

“Profit and Loss Account: 

15. According to paragraph 6 of Accounting Standards Interpretation (ASI) 6, 

‘Accounting for Taxes on Income in the context of Section 115JB of the 

Income-tax Act, 1961’, issued by the Institute of Chartered Accountants of 

India, MAT is the current tax. Accordingly, the tax expense arising on 

account of payment of MAT should be charged at the gross amount, in the 

normal way, to the profit and loss account in the year of payment of MAT. In 

the year in which the MAT credit becomes eligible to be recognised as an 

asset in accordance with the recommendations contained in this Guidance 

Note, the said asset should be created by way of a credit to the profit and 

loss account and presented as a separate line item therein.” 

The Disclosure in this regard should be made as under : 

Current tax (MAT) XX 

Less : MAT credit entitlement (XX)

Net Current tax XX 

9.8.1.3 Any interest on shortfall in payment of advance income-tax is in the 

nature of finance cost and hence should not be clubbed with the Current tax. Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

71 

The same should be classified as Interest expense under finance costs. 

However, such amount should be separately disclosed.  

9.8.1.4 Any penalties levied under Income tax laws should not be classified 

as Current tax. Penalties which are compensatory in nature should be 

treated as interest and disclosed in the manner explained above. Other tax 

penalties should be classified under Other expenses. 

9.8.1.5 Wealth tax payable by a company on assets liable for wealth tax 

should not be included within current tax since the same is not a tax on 

income. Accordingly, wealth tax should be included in Rates and taxes under 

other expenses. 

9.8.1.6 Excess/Short provision of tax relating to earlier years should be 

separately disclosed. 

9.8.2 Deferred tax 

9.8.2.1 Any charge/credit for deferred taxes needs to be disclosed 

separately on the face of the Statement of Profit and Loss. 

9.8.2.2 AS 22 “Accounting for Taxes on Income” defines ‘Deferred tax’ as 

the tax effect of timing differences. 

Timing differences are defined as “differences between taxable income and 

accounting income for a period that originate in one period and are capable 

of reversal in one or more subsequent periods.” 

9.9 Profit / (loss) for the period from Discontinuing operations 

9.9.1  The term ’Discontinuing operations’ is defined in AS 24 “Discontinuing 

operations” as a component of an enterprise:  

a. that the enterprise, pursuant to a single plan, is: 

 (i) disposing of substantially in its entirety, such as by selling the 

component in a single transaction or by demerger or spin-off of 

ownership of the component to the enterprise's shareholders; or 

 (ii) disposing of piecemeal, such as by selling off the component's 

assets and settling its liabilities individually; or 

 (iii) terminating through abandonment; and 

b. that represents a separate major line of business or geographical area 

of operations; and 

c. that can be distinguished operationally and for financial reporting 

purposes.  Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

72 

9.9.2 Profit or loss from Discontinuing Operations needs to be separately 

disclosed on the face of Statement of Profit and Loss. This disclosure is in 

line with the disclosure requirement of AS-24 Para 32(a) which requires the 

amount of pre-tax profit or loss from ordinary activities attributable to the 

discontinuing operation during the current financial reporting period, and the 

income tax expense related thereto to be disclosed on the face of the 

Statement of Profit and Loss. 

9.9.3 Further, AS-24 Para 32(b) requires the following disclosure to be made 

on the face of the Statement of Profit and Loss as well: 

“(b) the amount of the pre-tax gain or loss recognised on the disposal of 

assets or settlement of liabilities attributable to the discontinuing operation.” 

Accordingly, such disclosures for discontinuing operations should be made 

wherever applicable.  

9.10 Tax expense of discontinuing operations 

In case there are any taxes payable / tax credits available on profits / losses 

of discontinuing operations, the same  needs to be disclosed as a separate 

line item on the Statement of Profit and Loss.  

9.11 Earnings per equity share 

Computation of Basic and Diluted Earnings Per Share should be made in 

accordance with AS 20 Earnings Per Share. It is pertinent to note that the 

nominal value of equity shares should be disclosed along with the Earnings 

Per Share figures as required by AS 20. 

10 Other additional information to be disclosed by way 

of Notes to Statement of Profit and Loss 

Besides the above disclosures, Para 5 of the General instructions for 

Preparation of Statement of Profit and Loss also require disclosure on the 

following items: 

10.1 Adjustments to the carrying amount of investments [Clause 

(h) of Note 5(i)] 

In case there are any adjustments to carrying amount of investments 

pursuant to diminution in value of the investment (or reversal thereof) in 

conformity with AS 13 “Accounting for Investments”, the same should be 

disclosed here.  Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

73 

10.2  Net gain or loss on foreign currency translation (other than 

considered as finance cost) Clause (i) of Note 5(i) 

Any gains / losses on account of foreign exchange fluctuations are to be 

disclosed separately as per AS 11. Thus net exchange loss should be 

classified under Other expenses and the amount so included should be 

separately disclosed. Under this head, exchange differences to the extent 

classified as borrowing costs as per Para 4(e) of AS-16 should not be 

disclosed. Refer para 9.5.5 [Note 3(c) of Revised Schedule VI].  

10.3 Payments to the auditor [Clause (j) of Note 5(i)] 

Payments covered here should be for  payments made to the firm of 

auditor(s). Expenses incurred towards such auditor’s remuneration should be 

disclosed under each of the following sub-heads as follows: 

As : 

(a) Auditor, 

(b) For taxation matters, 

(c) For company law matters, 

(d) For management services, 

(e) For other services, 

(f) For reimbursement of expenses; 

10.4  Prior period items [Clause (l) of Note 5 (i) ] 

The term ‘Prior period Items’ is not defined in Revised Schedule VI. AS 5 

“Net Profit or Loss for the period, Prior period items and changes in 

Accounting Policies”, in para 4.3 defines ‘Prior period items’ as “Prior period 

items are income or expenses which arise in the current period as a result of 

errors or omissions in the preparation of the Financial Statements of one or 

more prior periods”. 

10.5 The Revised Schedule VI requires the following additional 

information to be given by way of notes: 

Nature of company  Disclosures required 

Manufacturing companies Raw materials under broad heads 

Goods purchased under broad heads 

Trading companies Purchases of goods traded under 

broad heads 

Companies rendering or 

supplying services 

Gross income derived from services 

rendered under broad heads Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

74 

Company that falls under 

more than one category 

It will be sufficient compliance with 

the requirements, if purchases, sales 

and consumption of raw material and 

the gross income from services 

rendered are shown under broad 

heads. 

10.6 The disclosure requirements to be made for the above in the 

Financial Statements are discussed as under: 

The disclosures required as above are  not very clear and give rise to the 

following questions: 

(a) Whether a company is required to disclose quantitative details or not? 

(b) Whether a manufacturing company will disclose purchase, sale or 

consumption of raw materials? 

(c) What is meant by “good purchased” in case of manufacturing 

companies? 

(d) While there is a requirement to disclose gross income in case of a 

service company and sales in case of a company falling under more 

than one category, there is no clear requirement to disclose sales for a 

manufacturing or a trading company. 

(e) With regard to a company falling under more than one category 

different interpretations seem possible. One interpretation is that it 

should disclose purchase, sale and consumption for raw material. The 

other interpretation is that purchase relates to traded goods, sale 

relates to all goods sold (both manufactured goods and traded goods) 

and for raw material, only consumption needs to be disclosed.  

10.7 Since the Revised Schedule VI gives a note stating that “Broad heads 

shall be decided taking into account the concept of materiality and 

presentation of true and fair view of Financial Statements”, a company may 

consider the following in deciding the disclosures required: 

(a) Apparently, there is no need to give quantitative details for any of the 

items. 

(b) Considering the ambiguity and on a conservative interpretation, a 

manufacturing company may disclose the following under broad heads: 

(i) Consumption of major items of raw materials (including other 

items classified as raw material such as intermediates/ 

components/packing material) Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

75 

(ii) Goods purchased for trading (if any) 

(iii) Though the Revised Schedule VI does not specifically require, it 

is also suggested to disclose major items of opening and closing 

stock. However, it is not mandatory. 

(iv) Considering the requirement to disclose gross income in case of 

a service company and sales in case of a company falling in 

more than one category, disclosure of sales of finished goods 

should also be made under broad heads. 

(c) The term “broad heads” may be interpreted to mean broad categories 

of raw materials, goods purchased, etc. These categories should be 

decided based on the nature of each business and other facts and 

circumstances. Normally, 10 percent  of total value of sales/services, 

purchases of trading goods and consumption of raw material is 

considered as an acceptable threshold for determination of broad 

heads. Any other threshold can also be considered taking into account 

the concept of materiality and presentation of true and fair view of 

Financial Statements.  

(d) Similar principle may be followed to decide disclosure requirement in 

other cases. 

10.8 Based on the above perspectives, given below is a suggested format 

for making this disclosure:

10.8.1 Manufacturing company 

(Amount in `) 

Particulars  Consumption 

Raw materials 

Raw material A XX 

(YY) 

Raw material B XX 

(YY) 

Others XX 

(YY) 

Total XX 

(YY) 

Particulars  Purchases 

Goods purchased Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

76 

Traded item A XX 

(YY) 

Traded item B XX 

(YY) 

Others XX 

(YY) 

Total XX 

(YY) 

Particulars  Sales 

values 

Closing 

Inventory 

Opening 

Inventory 

Manufactured goods        

Finished goods A XX 

(YY) 

XX XX

Finished goods B XX 

(YY) 

XX XX 

Others XX 

(YY) 

XX XX 

Total XX 

(YY)

XX  XX 

Traded goods     

Traded goods A XX 

(YY) 

XX  XX 

Traded goods B XX 

(YY) 

XX XX 

Others XX 

(YY) 

XX XX 

Total XX 

(YY) 

XX  XX 

Particulars  WIP 

Work in Progress    

Goods A WIP XX 

(YY) 

Goods B WIP XX Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

77 

(YY) 

Others XX 

(YY) 

Total XX 

(YY)

10.8.2 Trading company 

Particulars  Purchase  Sales 

Traded goods     

Traded goods A XX 

(YY) 

XX 

(YY) 

Traded goods B XX 

(YY) 

XX 

(YY) 

Others XX 

(YY) 

XX 

(YY) 

Total XX 

(YY)

XX 

(YY)

10.8.3 Service Company 

Particulars  Amount 

Services rendered   

Service A XX 

(YY) 

Service B XX 

(YY) 

Others XX 

(YY) 

Total XX 

(YY)

Note : Figures in brackets represent previous year figures. 

A company falling under more than one category will make the above 

disclosures, to the extent relevant. Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

78 

10.9  The aggregate, if material, of any amounts set aside or 

proposed to be set aside, to reserve [Clause (a) of Note 5(iv)] 

10.9.1   Disclosure is required for amounts  set aside or proposed to be set 

aside to reserves out of the profits for the period. The said transfers can be 

in terms of the applicable statute under which the Financial Statements are 

prepared i.e., the Companies Act, 1956 or any other applicable statute e.g. 

Income Tax Act, 1961, or RBI Act, 1932, etc. Further, profits may also be 

appropriated to free reserves as deemed appropriate by the management. 

10.9.2   The transfer to reserves as above should, however, not include 

provisions made to meet any specific liability, contingency or commitment 

known to exist at the date as on which the Balance Sheet is made up. 

10.10  The aggregate, if material, of any amounts withdrawn from 

such reserves [Clause (b) of Note 5 (iv):  

In case the company has made any withdrawals from any reserves created in 

terms of Clause (a) of Note 5(iv) above, the same is to be disclosed 

separately. 

It may be noted that such setting aside as well as withdrawal from reserves is 

to be disclosed under applicable Line item of Reserves and Surplus, and not 

under the Statement of Profit and Loss since the same is an appropriation of 

profits and not a charge against revenue. 

10.11  The aggregate, if material, of the amounts set aside to 

provisions made for meeting specific liabilities, contingencies or 

commitments and amounts withdrawn from such provisions, as 

no longer required [Clause (a) of Note 5(v) and Clause (b) of Note 

5(v)] 

The amounts in respect of the items under this requirement should be separately 

disclosed as a charge to the Statement of Profit and Loss. Provisions no longer 

required should be credited to the Statement of Profit and Loss.  

10.12 Clause (b) of Note 5(vii) requires disclosure for ‘Provisions 

for losses of subsidiary companies’. 

However, as per AS-13, a provision in respect of losses made by subsidiary 

companies is made only when the same results in an other than temporary 

diminution in the value of investments in the subsidiary. Accordingly, the 

aforesaid disclosure should be made separately only where such a provision 

has been made in respect of the investment in such loss-making subsidiary. Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

79 

11 Other Disclosures 

The Statement of Profit and Loss shall also contain by way of a note the 

following information, namely:- 

(a) Value of imports calculated on C.I.F basis by the company during the 

financial year in respect of – 

 I. Raw materials; 

 II. Components and spare parts; 

 III. Capital goods; 

(b) Expenditure in foreign currency during the financial year on account of 

royalty, know-how, professional and consultation fees, interest, and 

other matters; 

(c) Total value if all imported raw materials, spare parts and components 

consumed during the financial year and the total value of all 

indigenous raw materials, spare parts and components similarly 

consumed and the percentage of each to the total consumption; 

(d) The amount remitted during the year in foreign currencies on account 

of dividends with a specific mention of the total number of non-resident 

shareholders, the total number of shares held by them on which the 

dividends were due and the year to which the dividends related; 

(e) Earnings in foreign exchange classified under the following heads, 

namely:- 

¾ Export of goods calculated on F.O.B. basis; 

¾ Royalty, know-how, professional and consultation fees; 

¾ Interest and dividend; 

¾ Other income, indicating the nature thereof 

11.1 Value of imports calculated on C.I.F. basis by the company during 

the financial year [Clause (a) of Note 5(viii)] 

The above disclosure is to be given in respect of – 

 Raw materials;  

 Components and spare parts; 

 Capital goods. 

11.1.1  One of the requirements of disclosure as a note to the Statement of 

Profit and Loss is the value of imports of raw materials calculated on C.I.F. Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

80 

basis. The manner in which the term “raw materials” should be interpreted for 

this purpose, is as discussed in para 9.5.1.3 of this Guidance Note. 

11.1.2 Disclosure is also required to be made as to the value of imports of 

components and spare parts and capital goods respectively. The term 

“components” may be interpreted in the same manner as the term 

“intermediates or components” in connection with the requirement, discussed 

earlier in para 9.5.1.2 of this Guidance Note, to disclose the consumption of 

purchased components or intermediates. The term “spare parts” would 

ordinarily relate to spare parts for plant and machinery and other capital 

equipment. The total value of imports of components and spare parts may be 

disclosed in the aggregate. It may be appropriate to sub-classify the value of 

imports between components and spare parts respectively since the nature 

of these two items is not entirely similar. Such separate classification 

however, is not a mandatory requirement of the Revised Schedule VI. 

However, wherever the records for raw materials and components are 

maintained together, the information required under this clause pertaining to 

components can be presented collectively with raw materials. 

11.1.3  As regards “capital goods”, disclosure would be involved in respect of 

imported plant and machinery, furniture and fixtures, transport equipment, 

intangible assets and other types of  expenditure which is treated as capital 

expenditure in the books of account.  It is undoubtedly anomalous to disclose 

the value of imports of capital goods by way of a note on the Statement of 

Profit and Loss, since by the very definition, capital assets do not form part of 

the Statement of Profit and Loss. However, since this is the specific 

requirement of the Revised Schedule VI, it would have to be complied as 

such. Since this disclosure is required for the Statement of Profit and Loss, it 

would not be advisable to disclose the imports of capital goods by way of a 

note on Fixed Assets- Tangible Assets or Capital work-in-progress, even 

though it would be more appropriate to do so. 

11.1.4  It is significant that this requirement covers only imported spare parts. It 

apparently does not apply to goods imported for sale, imported stores, etc. 

However, the practice followed by most companies is that imported stores are 

being clubbed with imported spare parts for the purposes of this disclosure. This 

is probably due to the practical difficulty involved in separating stores from spare 

parts. Hence, where it is not possible to segregate the two owing to practical 

difficulties, the total value of imports of stores and spare parts may be shown 

against a caption which clearly indicates that the value shown relates to both the 

stores as well as the spare parts. 

11.1.5  The disclosure in respect of imports of the foregoing items is to be 

made on accrual basis. This is because disclosure is required in respect of Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

81 

the value of imports “during the financial year”. Consequently, if the particular 

item has been imported during the accounting year, it should be disclosed as 

such, even though the payment is not made in that year. 

11.1.6  It is also to be noted that the disclosure under this requirement relates 

to the imports as such. It is not linked with the consumption of the material or 

utilization of capital goods.  

11.1.7   While a subsequent requirement relates to expenditure in foreign 

currency for designated items, the requirement presently under discussion is 

not linked with any particular expenditure in foreign currency or local 

currency. Consequently, the value of imports of raw materials, components 

and spare parts and capital goods is to be disclosed irrespective of whether 

or not such imports have resulted in an expenditure in foreign currency. It is 

possible that imports may have been arranged on Rupee payment terms 

without involving any foreign currency expenditure but even so, the value of 

the imports would have to be suitably disclosed. 

11.1.8  Disclosure should be made in Indian currency. Where the imports 

involve foreign currency expenditure, the amount be disclosed would be the 

corresponding Rupee value of the imports as translated in the books of 

account on normal principles relating to the translation of foreign currencies.  

11.1.9 The value of the imports is to be calculated on C.I.F. basis – that is 

inclusive of cost, insurance and freight. It is possible that the imported 

materials may have been shipped by an Indian carrier and the insurance may 

have been arranged with an Indian insurer, so that, really, there is no 

element of import of services with regard to the insurance and freight. Even 

so, the Revised Schedule VI requires the value of the imports to be disclosed 

on a C.I.F. basis, and while this may be anomalous in the types of situations 

indicated above, the requirement should ordinarily be complied with. If for 

any reason, there is some practical difficulty in disclosing the value of the 

imports on C.I.F. basis, a footnote should be appended to the statement 

indicating the precise method by which the value of imports has been arrived 

at. For example, it may be stated that, because of practical difficulties in 

disclosing the value of imports on C.I.F. basis, such disclosure has been 

made on F.O.B. basis. Without attempting to particularize the various 

circumstances under which it may be difficult to disclose the value of imports 

on a C.I.F. basis, one example may be cited. A company may have standing 

arrangements with a shipping line or with an insurer so that all imports are 

covered through such a standing arrangement, In that case, it may be 

difficult to allocate the insurance or freight to each specific shipment. 

Similarly, if a company is a self insurer, or if it owns its own fleet of ships, 

disclosure of the value of imports  cannot be made on  a C.I.F. basis. In Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

82 

situations of this kind the matter should be covered by a suitable explanatory 

note but otherwise, wherever possible, the value of imports should be 

disclosed on a C.I.F. basis. It may be noted that the requirement to disclose 

the value on a C.I.F. basis relates to the method of computation of the value, 

rather than the terms of the import contract. It is not to be implied that this 

method of valuation is restricted to a case where the import contract is itself 

on a C.I.F. basis. 

11.1.10 Disclosure is required with regard to the value of imports “by the 

company”. This implies that only direct imports by the company are involved 

in the disclosure. If the company purchases imported materials in the open 

market, no disclosure would be necessary under this requirement. Similarly, 

if the company canalized its imports  through another agency such as the 

State Trading Corporation, no disclosure would be required, since it is the 

latter agency which is the importing entity. On the other hand, if a company 

purchases import entitlements and thereafter imports materials on the basis 

of those entitlements, the value of such imports would need to be disclosed, 

since they are the imports of the company, irrespective of the manner in 

which the company procured the import entitlements. Within this rather broad 

statement of the case, it is apprehended that practical difficulties may arise in 

determining whether or not a particular import has been made “by the 

company”. 

11.1.11 For the purpose of this requirement, only direct imports are to be 

taken into consideration. Imported materials purchased locally, and imports 

canalized through other sources, need not be disclosed. While this distinction 

may be clear in the large majority of cases, problems may arise in individual 

cases. In particular, in the case of indirect imports, care should be taken to 

determine whether the source from which the imports have been obtained 

represent an agency or an independent principal. If a company has 

appointed a person or a company as its agent for the purpose of securing the 

import of raw materials, etc., the imports through such agent must be 

regarded as the company’s imports, and the value of such imports should be 

disclosed pursuant to the requirement under this Note. On the other hand, if 

another person or company has already imported the materials and the 

company in question merely purchases such imported materials, on a 

principal to principal basis, (except in cases where importing the materials is 

done under specific requisition resulting in substance agent-principal 

relationship) the value of such imports should be ignored by the latter 

company, and included by the former. 

11.1.12  The value of imports should also include goods which are in transit 

on the Balance Sheet date, provided significant risks and rewards of Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

83 

ownership in those goods have already passed to the purchasing company. 

For the purpose of determining whether or not the property has passed, 

reference may be made to the terms of the import contract, and recognized 

legal principles, relating to this matter. Conversely, goods-in-transit at the 

beginning of the year should be excluded on a similar basis so that they do 

not form part of the value of the current year’s imports or succeeding year’s 

for the purpose of the same disclosure relating to the value of imports. 

11.1.13  Since the requirement is to disclose the value of imports during the 

accounting year, it may be necessary to determine when the significant risks 

and rewards of ownership to the goods has passed from the overseas 

exporter to the Indian importer in accordance with the well recognized legal 

principles relating to this matter, irrespective of the fact whether or not the 

goods have been physically received.  

11.1.14 A particular problem may, however, arise in the case of import of 

capital goods where delivery is to be made in installments through part 

shipments from time to time. The contract may provide for the total value of 

the entire shipment and it may, therefore, be difficult to determine the 

separate value of the part shipments received during the accounting year. 

Since the disclosure which is required  is in respect of imports during the 

accounting year, it may be necessary to estimate, on a reasonable basis, the 

separate value of part shipments. If such estimates are reasonable, no 

objection needs be taken thereto. 

11.1.15 It follows from this that, in appropriate cases, the disclosure would 

include the value of goods in transit at the end of the year if the significant 

risks and rewards of ownership in such goods has already passed to the 

Indian importer. Conversely, it may be necessary to exclude the value of the 

opening inventory in transit if the title to such inventory had already passed 

to the Indian importer prior to the end of the previous year.  

11.1.16 For the purpose of working out the C.I.F. value of imports, it may be 

necessary to make approximations in suitable cases. For example, a 

company may be actually importing  materials on the basis of F.O.B. 

contracts so that the values directly available from its records would be those 

relating to F.O.B. terms. In such cases, a standard formula may be applied in 

order to convert the F.O.B. values  to C.I.F. For example, the company’s 

accountant may calculate that a loading of, say, eleven per cent on the 

F.O.B. values is ordinarily adequate and correct in order to convert the 

F.O.B. values to C.I.F.  If such approximations are reasonable, no objection 

should ordinarily be taken thereto. Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

84 

11.2  Expenditure in foreign currency during the financial year [Clause 

(b) of Note 5(viii)] 

The above is to be disclosed for expenditure incurred on account of royalty, 

know-how, professional and consultation fees, interest and other matters; 

11.2.1 In addition to the requirement discussed earlier relating to the 

disclosure of the value imported materials, and the disclosure relating to the 

consumption of imported materials as compared to indigenous materials, 

there is also a further requirement to disclose expenditure in foreign currency 

on account of royalty, know-how, professional consultation fees, interest, and 

other matters. 

11.2.2  In this particular case, the disclosure is to be made with regard to the 

expenditure in foreign currency. Consequently, if no foreign currency 

expenditure is involved, no disclosure would be required, even though the 

specific services covered by this requirement have been imported free of 

cost or against Rupee payment or against any other method of payment or 

adjustment not involving the expenditure of foreign currency. Although the 

disclosure is required to be made with regard to items involving expenditure 

in foreign currency, the amount to be disclosed would be the Indian Rupee 

amount.  It should be noted that every company is required to follow accrual 

system of accounting and the requirement refers to ‘expenditure’, the 

disclosure should be on the basis of the expenditure incurred and recorded in 

the books of account and not on the  basis of remittance. The appropriate 

Rupee figure can be obtained by converting the foreign exchange figure 

through the application of a rate of exchange which is suitable for that 

purpose, having regard to normal principles of foreign currency 

translation/conversion in accounts. If so desired, the foreign currency figure 

may also be given as additional information but this cannot be regarded as 

mandatory. 

11.2.3  While the requirement relating to the disclosure of imports clearly 

specifies the different heads under which the disclosure is to be made, and 

while the requirement relating to foreign exchange earnings also similarly 

indicates the specific heads under which  the disclosure is to be classified, 

there is no such requirement with regard to the disclosure of expenditure in 

foreign currency. It is true that the specific items in respect of which such 

disclosure is to be made have been indicated, but this does not by itself 

imply that the disclosure is to be classified with reference to those items. At 

the same time, since such classification should not be difficult, it is advisable 

to classify the foreign currency expenditure between royalty, know-how, 

professional consultation fess, interest and other matters. In other words, the 

classification as between these items  is certainly desirable but is probably Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

85 

not mandatory, having regard to the precise terms of the Revised Schedule 

VI. It may also be noted that under old Schedule VI, for the same 

requirement, the practice has been to classify between different heads and 

disclose. 

11.2.4  The various items specified above do not call for any particular 

comments since they are expressed through well understood terms. The 

residual item relating to “other matters” appears to be sufficiently exhaustive 

so as to cover any items for which foreign currency expenditure is involved.  It 

is necessary to point out that disclosure is required with regard to “other 

matters” rather than with regard to  “other similar matters”. Consequently, it 

would not be reasonable to infer that disclosure is limited to items of a nature 

similar to royalty, know-how, professional consultation fees and interest. At 

the same time, however, it would be unreasonable to suggest that disclosure 

should be made once again with regard to the expenditure involved in foreign 

currency for an item whose import value has already been disclosed in 

response to the earlier requirement.  Ordinarily, the requirement presently 

under discussion relates to expenditure on intangible items rather than on the 

import of tangible goods. However, if any foreign currency expenditure on the 

import of tangible goods has not been disclosed pursuant to the earlier 

requirements, it would need to be  disclosed under this requirement. For 

example, foreign currency expenditure on the import of stores may not have 

been disclosed on the basis that the earlier requirement necessitates 

disclosure only with regard to the value of imports of “components and spare 

parts”. In that case, the foreign currency expenditure involved in the import of 

stores would need to be disclosed under the requirement presently under 

discussion since this requirement covers “expenditure in foreign currency” on 

account of royalty, know-how, professional consultation fees, interest and 

other matters. Disclosure would also be involved under this requirement of 

any foreign currency expenditure in the payment of taxes in an overseas 

country on income earned in that country in a case where the payment of such 

taxes involves actual remittance from India. Where, however, the payment of 

taxes in the overseas country is made through deduction at source rather than 

by actual remittance from India, the method of disclosure has been suggested 

in a subsequent paragraph of this Note dealing with foreign exchange 

earnings where it has been recommended that foreign exchange earnings 

received subject to deduction of tax at source should be disclosed both gross 

and net. 

11.2.5  The disclosure of expenditure in foreign currency is to be made on 

accrual basis since all the items in the Statement of Profit and Loss are 

stated on an accrual basis. Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

86 

11.2.6  A further question which needs to be resolved is whether the 

disclosure is to be made of the gross  amount of the expenditure, or of the 

net amount after tax deduction at source, in a case where such deduction is 

involved. So far as the company in concerned the gross expenditure is the 

amount of expenditure incurred in foreign currency even though a part of it 

may have been paid in Rupees to the Government to meet the statutory 

obligation of deducting tax at source. Deduction of tax at source by itself is 

not the finality of the matter and is merely a preliminary stage towards 

settlement of tax liability of the non-resident. Ultimately, on assessment of 

the non-resident, the full amount of tax deducted at source may have to be 

refunded. In view of this, the preferable course seems to be to disclose the 

gross expenditure that has been incurred by the company. 

11.2.7  Disclosure is to be limited only to those cases where the company 

itself incurs a foreign currency expenditure. Where an expenditure involves 

foreign currency but the original payment by the company itself is in Rupees, 

no disclosure is necessary. For instance, if a company has borrowed a loan 

from a Government agency and incurs expenditure in payment of interest on 

that loan, the company may be aware that the interest paid by it to the 

Government agency in Rupees will ultimately be remitted by the Government 

agency to a foreign lender. However, since the company itself does not incur 

any foreign currency expenditure, no disclosure is required in its accounts. 

11.3  Total value of all imported raw materials, spare parts and 

components consumed during the financial year and the total value of 

all indigenous raw materials, spare parts and components similarly 

consumed and the percentage of each to the total consumption; 

[Clause (c) of Note 5(viii)] 

11.3.1 Apart from the disclosure relating to the C.I.F. value of imports, 

separate disclosure is also required with reference to the value of imported 

raw materials, spare parts and components consumed during the accounting 

year. There is no guidance, for the purpose of this requirement, as to the 

manner in which the imported materials are to be evaluated i.e., C.I.F. basis 

or F.O.B. basis or any other basis. Even though the value of materials 

imported by the company itself is required to be stated on a C.I.F. basis, it 

does not follow that this basis is necessarily appropriate to the disclosure of 

the value of imported materials consumed. In the latter case, it would be 

more appropriate to make the disclosure  on the basis of the actual cost to 

the company of the imported materials which have been consumed, since it 

is this cost which enters into the company’s accounts. Consequently, the 

value of imported materials consumed should include not only their cost but 

also incidental expenses directly related to the purchase of such materials. Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

87 

There is another reason for this suggestion and that is based on the fact that 

the value imported materials consumed is required to be compared with the 

value of indigenous materials consumed. Moreover, in the company’s 

accounts, the total figure shown for consumption of materials (inclusive of 

indigenous and imported materials) would ordinarily be based on the value 

inclusive of the cost of such materials and various incidental charges. 

Therefore, in order to facilitate correlation with the total amount shown for 

consumption of materials in the Statement of Profit and Loss account as well 

as in order to facilitate comparison between the value of indigenous 

consumption and imported consumption, it is desirable that the value of 

imported materials consumed should be stated on a similar and consistent 

basis by including the cost of such materials and various incidental charges. 

11.3.2  On the face of it, it would appear that this requirement duplicates the 

earlier requirement relating to the disclosure of the value of imports of raw 

materials, components and spare parts. However, there is a difference. The 

earlier requirement relates to the disclosure of the value of imports  per se

irrespective of whether or not the materials imported have been consumed in 

the company’s operations. The latter requirement, on the other hand relates 

only to the value of the imported materials consumed in the company’s 

operation. 

11.3.3  As in the case of earlier requirement, it is not relevant to consider 

whether or not the imported materials which have been consumed have 

necessitated an expenditure in foreign currency. Even if no foreign currency 

expenditure is involved, the value of consumption of imported materials is 

still required to be disclosed. 

11.3.4  The disclosure is to be made in Indian currency by applying normal 

methods for the translation of foreign currencies where the original 

expenditure was incurred in a foreign currency.  

11.3.5  A question may arise whether to include the consumption of locally 

purchased materials of foreign origin. Apart from the difficulties of 

ascertaining which locally purchased materials are of imported origin, it is 

logical to interpret this requirement as requiring disclosure only of materials 

imported directly or indirectly by the  company. This would include materials 

imported directly by the  company as well as indirect imports made to be 

company’s knowledge or at its request through canalizing agents such as the 

State Trading Corporation. 

11.3.6  It is not entirely clear whether the requirement herein implies that the 

value of imported raw materials, spare parts and components should be 

separately disclosed for each of these three items, or whether a composite Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

88 

disclosure for all the three items taken together is sufficient. The latter part of 

this clause states that “the percentage of each to the total consumption” is 

also to be disclosed. This may be taken to imply that the consumption is to 

be shown separately for raw materials, spare parts and components 

respectively. However, wherever the records for raw materials and 

components are maintained together, the information required under this 

clause can be presented collectively. 

11.3.7  While raw materials are undoubtedly consumed in the course of 

operations, this term is hardly appropriate to spare parts and components. 

Spare parts may be utilized for repairs and maintenance or for other similar 

purposes, and components may be assembled into the finished product. In 

either case, the spare parts and components can hardly be said to have been 

“consumed”. However, without going into the semantics relating to the word 

“consumed”, the intention appears to be reasonably clear and disclosure 

may, therefore, be made on the basis of indicating the value of imported 

spare parts and components utilized in the company’s operations.  

11.3.8  In addition to disclosing the value of imported raw materials spare 

parts and components consumed during the accounting year, disclosure is 

also required with regard to the value of indigenous raw materials, spare 

parts and components similarly consumed during that year. In both cases, 

the value of the consumption should be determined on the same identical 

basis, so that like is compared with like. Thereafter, it is also required that 

the relative percentages of consumption value in respect of imported items 

and indigenous items should be stated as a percentage of total consumption 

for each of the categories of raw materials, spare parts and components 

respectively.  

11.3.9  Care should be taken to ensure that the total consumption agrees with 

the figures in the Statement of Profit and Loss. In the case of consumption of 

raw materials, the separate figures for such consumption is generally 

disclosed in one figure in the Statement of Profit and Loss, in which case, the 

total consumption classified as  between imported and indigenous should 

agree with this figure. Sometimes,  however, the total consumption of raw 

materials is not shown as one figure in the Statement of Profit and Loss. 

Instead, a note is given indicating the consumption of raw materials shown 

under more than one head of account. In that case, care should be taken to 

ensure that the total figure for consumption of raw materials analysed as 

between imported and indigenous agrees with the total consumption shown 

in the Statement of Profit and Loss inclusive of the figure of consumption 

charged to other heads of account. Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

89 

11.3.10 The term “spare parts” for the purpose of the foregoing requirements 

would refer to spares for plant and machinery and other items of a similar 

nature or intended for a similar purpose. This term would not ordinarily 

include stores. The term “stores” refers to materials and supplies which 

assist the manufacturing process but which do not directly enter into the 

furnished product. It is a term of wider import than “spare parts” and 

ordinarily, the term “stores” would include “spare parts”. Since the present 

requirement is limited to spare parts, it would appear to be unnecessary to 

disclose the separate figures relating to the consumption of stores – imported 

and indigenous. It is somewhat curious  that disclosure should be required 

with regard to spare parts and not with regard to stores, but this is 

nevertheless, the logical interpretation of the words used in the relevant 

clause. Where the segregation between stores and spare parts is not 

possible owing to practical difficulties, the value of consumption of imported 

and indigenous stores and spare parts may be shown against a caption 

which clearly indicates that the value shown relates to both stores and spare 

parts. 

11.3.11 As regards spare parts, the substantive requirement of Revised 

Schedule VI (Other expenses para 9.5.7) requires a composite figure to be 

disclosed in respect of consumption of stores and spare parts, whereas the 

analysis here is required  only in respect of consumption of spare parts. 

Consequently, the total figure analysed for consumption of spare parts may 

not agree directly with the figure disclosed in the Statement of Profit and 

Loss for consumption of stores and spare parts, unless in the Statement of 

Profit and Loss, these two figures are separately itemized. In any case, 

however, a reconciliation statement should be kept on the company’s 

working paper files to indicate that the figures have been agreed. 

11.3.12 As regards components, the clause does not indicate clearly 

whether the classification of imported and indigenous components is to be 

restricted to purchased components, or whether it would also include 

components manufactured internally. Normally, imported components would 

in any case be restricted to those which are purchased, with the possible 

exception of a rare case in which components are fabricated outside India by 

a branch or department of the same company and are then shipped to India 

for incorporation into the finished product. Ignoring such an exception, it 

would appear that if imported components are to be restricted to those which 

are purchased, indigenous components would also have to be similarly 

restricted, otherwise the comparison would be vitiated. Consequently, it is 

suggested that this requirement may be interpreted in a manner whereby the 

classification of components between imported and indigenous would be Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

90 

limited to purchased components, ignoring any components which are 

manufactured internally. 

11.3.13 Under some systems accounting, the consumption is originally 

charged in the accounts on the basis of standard or pre-determined rates. 

Periodically, an adjustment is made in the total consumption account in order 

to accord with the actual rates at which relevant materials may have been 

purchased. A problem may arise with reference to the classification of the 

total net debit or credit for such price adjustment as between imported and 

indigenous consumption. The most obvious method of solving this difficulty – 

which should be acceptable in most cases – is to allot the total debit or credit 

adjustment between imported and indigenous consumption, in the same ratio 

as the figure for imported and indigenous consumption prior to such debit or 

credit adjustment. A similar procedure may also be followed in the case of 

any other special debit or credit adjustments which are entered in the 

consumption accounts to reflect adjustments to the total consumption figure. 

On a slightly different context, a similar problem arises where the same item 

is partly purchased locally and partly imported and stocks are not physically 

kept separately. In such cases, it appears to be permissible to assume that 

consumption is on a pro-rata basis, e.g., in the ratio of opening stock plus 

purchase. 

11.4  Total amount remitted during the year in foreign currencies on 

account of dividends with a specific mention of the total number of nonresident shareholders, the total number of shares held by them on 

which the dividends were due and the year to which the dividends 

related [Clause (d) of Note 5(viii)]; 

11.4.1  The requirement is to the disclosure with regard to the amount 

remitted to non-resident shareholders on account of dividends. This 

disclosure is to be made with reference to the amount remitted during the 

accounting year in foreign currencies. Consequently, if the dividend has been 

paid to a non-resident shareholder in Indian Rupees, disclosure would not 

appear to be necessary. Also, if a non-resident shareholder has indicated 

that all dividends payable to him are to be deposited in a Rupee account with 

his bankers in India, and if such deposit is actually made on the basis of the 

necessary sanctions from the Reserve Bank of India, no disclosure would be 

required because such a deposit does not constitute any payment in foreign 

currency. It is possible that the non-resident shareholder may ultimately 

arrange for foreign currency remittances out of his Rupee bank account but 

this would be no concern of the company which pays the dividends into his 

Rupee bank account. However, by way  of additional information, deposits Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

91 

regarding such dividends paid in the bank account may be given, indicating 

the fact. 

11.4.2  As in the case of other disclosure relating to imports, exports, foreign 

exchange expenditure and earnings, etc. the amount to be disclosed in 

respect of foreign currency dividends is to be stated in Indian Rupees. If so 

desired, additional information may be furnished with regard to the foreign 

currency equivalent to the dividend, which has been remitted, but the basic 

requirement is to disclose the rupee amount. Disclosure of the foreign 

currency equivalent is not mandatory. 

11.4.3  Since disclosure is required with regard to the “amount remitted 

during the year”, it would appear that the information is to be furnished in the 

year of actual payment of dividend rather than in the year in which the 

dividend is proposed or declared. In other words, the disclosure should be 

made on a cash basis, contrary to the fact that the other disclosures are to 

be made on accrual basis. 

11.4.4  In addition to the disclosure relating to the amount of dividends 

remitted in foreign currency, further disclosure is also required with regard to 

the number of non-resident shareholders to whom the dividends were 

remitted, the number of shares held  by them, and the year to which the 

dividends relate. These requirements should not be difficult to comply with 

and no particular problem in likely to be encountered. 

11.4.5  A question may arise as to whether or not any information is to be 

furnished with regard to the number of non-resident shareholders and the 

number of shares held by them, in particular year in which no dividend has 

been remitted to the non-resident shareholders. The answer is in negative, 

since, as already indicated earlier, the information relating to the number of 

non-resident shareholders and the number of shares held by them is 

intended to be linked to the basic information relating to the dividends 

remitted to non-resident shareholders. 

11.5 Earnings in Foreign exchange [Clause (e) of Note 5 (viii)] 

11.5.1  Foreign exchange earnings have to be classified under the following 

heads:- 

(i) export of goods calculated on F.O.B. basis; 

(ii) royalty, know-how, professional and consultation fees; 

(iii) interest and dividends; and 

(iv) other income (indicating the nature thereof). Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

92 

11.5.2 In this case also, as in the case of disclosure relating to foreign 

currency expenditure, the question arises as to whether foreign currency 

earnings have to be disclosed on a cash basis or on an accrual basis. The 

considerations relating to this aspect of the matter are similar to those 

discussed earlier in connection with the requirement relating to the disclosure 

of foreign currency expenditure. Since the Statement of Profit and Loss is 

prepared on an accrual basis, it may be suggested that foreign currency 

earnings should also be disclosed on a similar basis.  

11.5.3  Since, foreign exchange earnings are to be disclosed on an accrual 

basis, the subsequent receipt of foreign exchange in a later year should be 

ignored, as otherwise the same earnings would be disclosed twice.  

11.5.4  A further question which arises is whether the foreign exchange 

earnings should be disclosed gross of tax or whether they should be 

disclosed net of any tax deducted at source in the overseas country in which 

earnings have arisen. One way of looking at the matter is that the actual 

amount of earnings is the amount received after deduction of overseas tax at 

source, where such deduction is involved. On the other hand, the tax which 

is deducted at source in the overseas  country is available by way of credit 

against the tax payable in that country. But for this credit, actual or 

constructive remittance may be involved from India to the overseas country 

for the purpose of meeting the tax liability in that country. It is, therefore, 

suggested that the more appropriate basis of disclosure would be gross of 

tax with a mention of the net of tax earnings and tax deducted at source. A 

further advantage of this method of disclosure is that the amount which is so 

disclosed would agree with the financial accounts, since, in the books of 

accounts kept in India, the gross amount of the foreign exchange earnings 

would be credited to revenue, while the tax deducted at source would be 

debited to an appropriate account relating to payment of taxes. 

11.5.5  While the requirement relating to the disclosure of imports requires 

the “value of imports” to be disclosed, the disclosure of exports requires the 

“earnings from export of goods” to be disclosed. It would probably have been 

more consistent if the relevant clause had required the value of exports to be 

disclosed, rather than the earnings. 

11.5.6  Considerations that apply in determining whether a purchase is an 

import by the company will also apply in determining whether sales is an 

export by the company. Any sales made direct by the company through an 

agent to any overseas buyer is an export by the company. However, goods 

sold to any canalizing agent like the State Trading Corporation for export is 

not the company’s export. Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

93 

12 Multiple Activity Companies 

Where a company has multiple activities e.g. both manufacturing and trading 

i.e. it falls under more than one category, it should comply with the various 

disclosure requirements relating to each of its classified activities. For 

instance, in respect of its manufacturing activities, such a company should 

comply with the requirements relating to a manufacturing company, whereas 

in respect of its trading or service  activities, it should comply with the 

requirements relating to those categories of companies. However, in case of 

complexities in segregating the required information it would be sufficient 

compliance if the information is disclosed with respect to main activities with 

a suitable disclosure explaining the reasons therefor. Guidance Note on the Revised Schedule VI to the Companies Act, 1956  

94 

Annexure A 

Notification on Revised Schedule VI 

"NOTIFICATION NO. S.O. 447(E), DATED 28-2-2011 [AS AMENDED BY 

NOTIFICATION NO. F.NO. 2/6/2008-CL-V, DATED 30-3-2011] 

Whereas the Central Government in consultation with the National Advisory 

Committee on Accounting Standards framed the Companies (Accounting 

Standards), Rules, 2006 vide G.S.R. No. 739(E) dated the 7th December, 

2006 and was subsequently amended vide notification numbering (i) G.S.R. 

212(E), dated the 27

th

 March, 2008 (ii) G.S.R. 225(E), dated the 31st March, 

2009, in exercise of the powers conferred by clause (a) of sub-section (1) of 

section 642, read with sub-section (1) of section 210A and sub-section (3C) 

of section 211 of the Companies Act, 1956 (1 of 1956); 

Now, therefore, in exercise of the powers conferred by sub-section (1) of 

section  641 of the Companies Act, 1956 (1 of 1956), the Central 

Government hereby replaces the existing Schedule VI to the said Act by the 

following Schedule VI, namely:- 

"SCHEDULE VI" (See section 211)" 

The New Schedule VI will come into effect for all accounts prepared for 

accounting year commencing on or after 01.04.2011 as per the following 

notification.  

NOTIFICATION [F. NO. 2/6/2008-C.L-V], DATED 30-3-2011. 

In exercise of the powers conferred by clause (a) of sub-section (1) of 

section 642 read with sub section(1) of section 210A and sub-section (3C) of 

section 211 of the Companies Act,1956, (1 of 1956), the Central Government 

hereby makes the following amendment to paragraph 2 of the notification 

No.447(E) dated the 28

th

 February, 2011:-  

"The notification shall come 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". Guidance Note on the Revised Schedule VI to the Companies Act, 1956   

95 

SCHEDULE VI 

(See section 211)

GENERAL INSTURCTIONS FOR PREPARATION OF BALANCE SHEET AND 

STATEMENT OF PROFIT AND LOSS OF A COMPANY IN ADDITION TO THE 

NOTES INCORPORATED ABOVE THE HEADING OF BALANCE SHEET 

UNDER 

GENERAL INSTRUCTIONS

1. Where compliance with the requirements of the Act including Accounting 

Standards as applicable to the companies require any change in 

treatment or disclosure including addition, amendment, substitution or 

deletion in the head/sub-head or any changes inter se, in the Financial 

Statements or statements forming part thereof, the same shall be made 

and the requirements of the Schedule VI shall stand modified