Why new format for balance sheet and profit and loss account for companies

The major reason for the application of revised schedule VI is to make the Indian companies competitive and recognizable globally. To make the format of the financial statements of the Indian company comparable with international formats. As most of the Indian frameworks are being made at par with the international frameworks, the changes in the financial statements format will make Indian companies competitive in the global financial world. It is a major step towards International Financial Reporting Framework (IFRS).  Taking cognizance of the need the Ministry of Corporate Affairs revised the existing Schedule VI of the Companies Act 1956.     Why new format for balance sheet and profit and loss account for companies

This article is basically on why new format for balance sheet and profit and loss account for companies

Various new disclosures have been added and few existing requirements have been removed.

Major changes-

1)      Revenue from operation shall include other income from the operations. Other income from

sources other than operation shall be now shown as Other Income on the face of the Statement of profit & Loss.

2)      The main disclosure requirements of Accounting standard – 24 on “Discontinuing Operations” is now required to be given on the face of the statement of profit & Loss.

3)      Interest Income from banks or any other investment and interest expenses now need to be disclosed separately. Earlier the requirement of discloser of interest expenses on fixed loans only.

4)      The Amount of excise duty paid shall be disclosed in the notes instead on the face of Statement of profit & loss.

5)      The new format of Statement of profit & Loss does not talk about appropriation items. i.e dividend and general reserve appropriation out of statement of profit & Loss . Guidelines given for disclosing reserve & surplus in liability side of balance sheet require disclosure of appropriation item under head “Reserve & Surplus” only.

Why should investors take note of revision :

We believe that revised format of Schedule VI will facilitate better discloser and analysis of the Financial Statements by disclosing-

  • Full details of convertible instruments.
  • Bifurcation of sundry creditors into creditors for operating activities (generally suppliers) and others (creditors for any other transaction). (will assist in accurately forecasting of payable days/operating cash flows).
  • Current maturity of long-term debt (debt repayable within one year) will be disclosed separately        under Other current liabilities.
  • Detailed bifurcation of addition and disposal to fixed assets (amalgamation/other adjustments) will be disclosed separately.
  • Debtors exceeding six months post due date of payment.

Major Disclosers omitted under Revised Schedule VI:

 1)      Separation of investment income from trade investment and other income

2)      Details of opening and closing stock of goods. Only change in the stock is mentioned.

3)      Disclosure of TDS in respect of Interest income and investment income.

4)      Director remuneration disclosure under section 198.

5)      Details of arrear depreciation.


Impact of Revision in Schedule VI:

1)      The revised schedule VI has eliminated the concept of schedules, the required information is now provided in notes to accounts.

2)      The compliance requirements of Acts and Accounting Standards will prevail over Schedule VI.

3)      The revised schedule VI intends to familiarize the companies and stakeholders with Ind-AS and IFRS, with using concepts such as Current/Non-Current Assets and Liabilities etc.

The revised schedule throws up numerous questions, the answers to which may not be straight-forward and would need additional guidance from the Ministry of Corporate Affairs (MCA) or the Institute of Chartered Accountants of India (ICAI).

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