issues on rs vi 8 aug 2012

7/31/2019 Issues on RS VI 8 Aug 2012

1/80

08-08-2012

CNK 1

HIMANSHU KISHNADWALA

8 AUGUST 2012


2/80

08-08-2012

CNK 2

1. Format / disclosures Revised Schedule VI

2. Disclosures as per notified Accounting Standards

(i.e. Companies AS Rules, 2006)

3. Disclosures as per Companies Act, 1956

Buyback of shares (as per sec 77)4. Disclosures as per other Statutes

E.g. MSME Act, RBI notifications for NBFCs

5. Disclosures as per ICAI pronouncements

ICAI announcement for derivatives6. Disclosures as per Clause 32 of listing agreement

Loans/advances to subsidiaries, etc.

CNK 2


3/80

08-08-2012

CNK 3

For FY commencing on or after 1st April 2011

First year of applicability FY 2011-12

Cannot be applied earlier on voluntary basis

Corresponding figures for 2010-11 mandatory

Applicable to ALL companies (except those engagedin banking, insurance)

CNK 3


4/80

08-08-2012

CNK 4

Concept of schedules eliminated

All information to be given in notes to accounts.

Extensive cross-referencing required

Terms used to carry meaning as defined by the

notified Accounting Standards. If conflict between requirements of the Act and / orAS, requirements of the Act and / or AS will prevailover RS VI.

Only vertical format to be followed Format follows permanency in presentation of

assets / liabilities

CNK 4


5/80

08-08-2012

CNK 5

PL now to be called Statement of Profit and Loss

Formats given for both BS and Stt of PL

Option of giving functional classification of expenses in PL

not available

No Appropriation account in Stt of PL All appropriations to be disclosed in Reserves & Surplus

Surplus in Statement of PL

Debit balance of Profit/Loss to be deducted from

Reserves and Surplus Final figure of Reserves & Surplus can even be negative

CNK 5


6/80

08-08-2012

CNK 6

Disclosure of additional line items in BS / PL?

Instructions to RS VI mentions that the

requirements mentioned therein are minimum

requirements. Hence additional line items can be

included say, for EBDITA, Net Working Capital, Industry Specific Disclosures?

Industry specific disclosures for NBFCs, also

required to be given as required by the respective

statutes.

CNK 6


7/80

08-08-2012

CNK 7

Managerial remuneration and computation thereof;

Details of Licensed capacity, Installed capacity

Quantitative information about actual production,

purchases, sales, consumption, etc.;

Investments purchased/sold during the year; Investments, sundry debtors and loans/advances

pertaining to companies under the same

management;

Maximum amounts due on account of loans andadvances from directors or officers of the company;

Information under Part IV of Schedule VI

CNK 7


8/80

08-08-2012

CNK 8

only if opted for

Same unit of measurement in entire Financial Stts

Existing Schedule VI Revised Schedule VI

Turnover < Rs 100 Crores R/off

to the nearest hundreds, thousands

or decimal thereof. Turnover Rs 100 to Rs 500 Crores

R/off to the nearest hundreds,

thousands, lakhs or millions or

decimal thereof.

Turnover > Rs 500 Crores R/off to

the nearest hundreds, thousands,lakhs millions or crores or decimal

thereof.

Turnover < Rs 100 Crores R/off to

the nearest hundreds, thousands,

lakhs or millions or decimal thereof.Turnover > Rs 100 Crores R/off to

the nearest lakhs, millions or crores, or

decimal thereof.

CNK 8


9/80

08-08-2012

CNK 9

CNK 9

Section 115JB requires PL account to be preparedunder part II of pre-revised Schedule VI for MAT

purposes

ICAI GN on 44AB suggests to use format

prescribed under governing law For a company having year end other than

Financial Year, which format to be followed for FS?


10/80

08-08-2012

CNK 10

CNK 10


11/80

08-08-2012

CNK 11

Shareholders

Funds

Non Current

Liabilities

Current

Liabilities

Share Capital Long term

borrowings

Short term

borrowings

Reserves and surplus Deferred taxliabilities

Trade Payables

Money received

against share

warrants

Other Long term

liabilities

Other current

liabilities

Long-term

provisions

Short term

provisions

CNK 11


12/80

08-08-2012

CNK 12

A liability is classified as Current if it satisfies any

of the following criteria:a) it is expected to be settled in the companys

normal operating cycle;

b) it is held primarily for the purpose ofbeing traded;

c) it is due to be settled within 12 months after the

reporting date; or

d) the company does not have an unconditional

right to defer settlement of the liability forat least

12 months after the reporting date.

CNK 12


13/80

08-08-2012

CNK 13

An asset is 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 companys normal

operating cycle;

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

(c) It is expected to be realized within 12 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 12 months after reporting period date.

CNK 13


14/80

08-08-2012

CNK 14

An Operating Cycle (OC)

is the time between theacquisition of assets forprocessing and theirrealization in cash or

cash equivalents.

If an OC cannot be identified, it is assumed to have a

duration of 12 months

If a company is engaged in multiple businesses, the OC

can be different for each line of business

CNK 14


15/80

08-08-2012

CNK 15

Different OC for different customers based on different

credit terms? say., PSU and non PSU customers

Can OC differ from year to year?

Whether lead time for procuring raw material should

be included in OC?

Is credit period allowed by supplier reduced in

determination of OC? To determine OC to consider:

o Normal business behaviour

o Industry practice

o Liquidity position ??

CNK15


16/80

08-08-2012

CNK 16

Industry specific OC:

Manufacturing Companies: To determine business-wise Real Estate Companies: Can be determined project-wise

Finance Companies: Difficult to determine to beassumed at 12 months

Service companies: To determine business-wise

Relevance of OC for classification of: Trade receivables / payables OC relevant Supplier/Customer advances OC relevant

Borrowings OC relevant Loans 12 months period Other assets / liabilities 12 months period

CNK 16


17/80

08-08-2012

CNK 17

Manufacturing Companies OC considered as 12

months Bajaj Electricals Ltd,

Grasim Industries Ltd

Hindustan Unilever Ltd,

Excel Industries Ltd Ultratech Cement Ltd

Finance Company OC considered as 12 months

M & M Financial Services Ltd

Multi activity company OC different for specificproject / contract / product line / service

Larsen & Toubro Ltd

CNK 17


18/80

08-08-2012

CNK 18

Real Estate Industry: Disclosures regarding OC

Oberoi Realty Limited

The Companys normal operating cycle in respect of

operations relating to under construction real estate

projects may vary from project to project depending upon

the size of the project, type of development, project

complexities and related approvals. Operating Cycle for

all completed projects and hospitality business is

based on 12 months period. Assets & Liabilities have

been classified into Current and Non Current based on

Operating Cycle of respective businesses.

CNK 18

08 08 2012


19/80

08-08-2012

CNK 19

Real Estate Industry: Disclosures regarding OC

Mahindra Lifespace Developers Limited

..

Based on the nature of activity carried out by the

company and the period between the procurement andrealisation in cash and cash equivalents, the Company

has ascertained its operating cycle as 5 years for the

purpose of Current Non Current classification of

assets & liabilities.

CNK 19

08 08 2012


20/80

08-08-2012

CNK 20

Determining Whether Current or Non-Current?

For Assets: To considerexpectation of receiptFor Liabilities: To considerobligation to pay

Whether accounting policy for classification of items

into Current / Non Current is to be disclosed?

Neither the RS VI nor the GN on RS VI requires suchdisclosure

However, disclosure preferable in case of OC > 12 months

In other cases, though not required, maybe given as it lends

higher transparency to the FS

Classification may have impact on CARO reporting

Whether funds raised on short term basis are used for long

term purposes?CNK 20

08 08 2012


21/80

08-08-2012

CNK 21

Whether Current or Non-Current?

Payables or Operating liabilities within operating

cycle, but not paid within 12 months.

Technical / minor breach on some covenants of

Term Loans; Slow-moving Raw Materials

Provision for employee benefits like Gratuity and

Leave encashment

Stock of Finished Goods unsold for 15 months

CNK 21

08-08-2012


22/80

08-08-2012

CNK 22

Whether Current or Non-Current

Loan given to Subsidiary (repayable on demand)

Loan from Holding company (repayable on demand)

Deposits :

Electricity/ Lease deposits

Others

Advance tax (net of provisions)

Provision for tax (net of advance tax)

Audit Fees payable?

CNK 22

08-08-2012


23/80

08 08 2012

CNK 23

Share Capital

Shares in the company held by each shareholderholding more than 5% shares specifying the number

of shares held.

Whether names to be disclosed based on legal

ownership or beneficial ownership? Section 187C of the Companies Act, 1956.

Name of depository to be given?? (Refer Tata Motors Ltd)

Disclosure for each class of shares as at BS date

Comparative information necessary even if in 2011-12,the amounts are below 5 %

Additional disclosures in line with Ind-AS 1 / IAS 1.

CNK 23

08-08-2012


24/80

08 08 2012

CNK 24

Presentation of Preference Share Capital for a

company who has adopted AS 30 Whether to bepresented as Share Capital or Liability? RS VI deals only with presentation and disclosure

Accounting is governed by applicable AS.

If a company early adopts AS 30/31/32 it has to decideclassification between the liability/equity of preference

shares based on principles of AS 31.

ICAI GN mentions that only Accounting Standards notified

by Companies (Accounting Standards) Rules, 2006 are tobe followed, reclassification of Preference shares not

possible under RS VI.

CNK 24

08-08-2012


25/80

CNK 25

To be disclosed as a separate line-item on the face of

Balance Sheet between Shareholders Funds andNon-current Liabilities.

Share application money not exceeding the issued

capital and to the extent not refundable is to

shown under this line item.

Share application money to the extent Refundable

shall be shown under Other current liabilities.

Inadequacy of Authorised Capital?

Transfer to IEPF after 7 years from the date amount

becomes due for payment?

CNK 25

08-08-2012


26/80

CNK 26

Disclosure requirements:

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 tocover the share capital amount on allotment

Interest accrued on amount due for refund Period for which share application money is pending beyond the

period for allotment as mentioned in the share application formalong with the reasons thereof for such share application moneybeing pending is to be disclosed.

Above disclosures to be made for amounts classified underboth Shareholders funds or Current Liabilities

CNK 26

08-08-2012


27/80

CNK 27

Disclosure requirements:

Nature of Security to be specified in each case (overalldisclosure not allowed)

Bonds & Debentures (along with rate of interest and

particulars redemption or conversion, as the case may be)

shall be stated in descending order of maturity orconversion date, as the case may be.

Particulars of any redeemable bonds/debentures which

the company has the power to reissue shall be disclosed.

Terms of Repayment of term loans and other loans Period and amount of continuing default as on BS date in

repayment of loans and interest, shall be specified

separately in each case.CNK 27

08-08-2012


28/80

CNK 28

How to disclose details of borrowings:

No Standard format prescribed.

Whether to give name / amount of borrowing /

installments due, etc. for each bank or institution?

Disclosure of Continuing Default

Disclosure in RS VI vs. reporting in CARO

CNK 28

08-08-2012


29/80

CNK 29

Illustrative disclosures by companies:

Grasim Industries Ltd

Rupee term loan secured by exclusive charge on certain

specific FA of the Co located at.. Quarterly ballooning

repaymentfrom October 20XX, over xx years.

Foreign Currency Loans secured by first pari-passu

charge on fixed assets, both present & future of the Co

located at . Repayable after 5 years, bulletrepaymentin March, 20XX.

CNK 29

08-08-2012


30/80

CNK 30

Illustrative disclosures by companies: Reliance Industries Ltd

Maturity Profile and Rate of Interest of Bonds

Maturity Profile of Unsecured Term Loans:

Rate of

InterestMaturity Profile

2015-16 2016-17 2018-19 2026-27 2027-28 2046-47 2096-97

2.86% 1,011 - - - - - -

6.21% - 254 - - - - -

6.34% - - 193 - - - -

Maturity ProfileParticulars 1-2 yrs 2-3 yrs 3-4 yrs Beyond 4 yrs

Term Loans from

Banks

12,920 3,418 5,926 15,005

CNK 30

08-08-2012


31/80

CNK 31

Illustrative disclosures by companies: Prism Cement Ltd

Secured Term Loan from Banks and Others

Security Amount as

at

31.03.2012

Repayment Terms

Secured by charge on movable and immovableproperties of the Cement division, both present and

future, subject to prior charges on specific assets in

favour of Cement Division's bankers towards

Working Capital facilities

500 Quarterly in equalinstallments payable over a

period of 4 years.

Secured by first charge on vehicles of HRJ Division

together with all accessories and addition to or inthe vehicles, whether present or future

3.50 EMI over a period of 5

years.

CNK 31

08-08-2012


32/80

CNK 32

Illustrative disclosures by companies: Ramco Industries

Term Loan from Banks (Secured) Repayment Schedulegiven separately in the NTA along with other disclosures

Same not cross referenced

Rate ofInterest

Outstandingas on

31.03.2012

Repayment Schedule

2013-14 2014-15 2015-16 2016-

17

13.25% 164.2 131.20 33 - -

12.25% 5000 2500 2500 - -

CNK 32

08-08-2012


33/80

CNK 33

Illustrative disclosures by companies: Petronet LNG

Secured by first ranking mortgage and first charge on pari passu basison all movable and immovable properties, both present & future

including Current Assets except on trade receivables on which second

charge is created on pari passu basis.Loan From ROI (as on

31.03.2012)

No of

Installments

Year of

Maturity

Amount

Outstandingas on

31.03.2012

Amount

Outstandingas on

31.03.2011

Indian Banks 11% 20 2017 55,712 117,500

IFC

(Washington)

11.37% 17 2022 23,000 23,000

Total XXXXX XXXXX

Less: Shown in Current Maturities of Long term Debt (XXXX) (XXXX)

Balance shown as above XXXX XXXX

CNK 33

08-08-2012


34/80

CNK 34

Illustrative disclosures by companies: UltraTech Cement Ltd

Term Loans from Banks in Foreign Currency Secured by way of firstcharge, having pari passu rights, on the Companys movable and immovable

assets (save and except stocks and book debts), both present and future ,

situated at certain locations, in favour of Cos lenders/trustees.

CNK 34

Particulars Repayment

Schedule

As at March

31,2012

As at March

31,2011

Hongkong & Shanghai Banking

Corporation Ltd, Singapore

(Japanese Yen 208.80 Crores)

In 3 equal annual

installments beginning

September 2012

93.82 93.82

DBS Bank Ltd, Singapore

(Japanese Yen 184.80 Crores)

January 2014 98.40 98.40

Less: Current Portion of Foreign

Currency Loans shown under

Other Current Liabilities

(XXX) (XXX)

Total XXX XXX

08-08-2012


35/80

CNK 35

Disclosure for Defaults

CNK 35

Under RS VI Under CARO Continuing Default for LT

Borrowings

Default for ST Borrowings

Defaults in repayment of any

dues

Applies to all items ofborrowings like bonds /

debentures, deferred

payment liabilities, finance

lease obligations, etc.

Applies only to dues offinancial institutions, banks

and debentures

No disclosure if default made

good on BS date

Reporting even if default

made good on BS date

08-08-2012


36/80

CNK 36

Trade Payable: A payable is classified as trade payable if it

is in respect of amount due on account ofgoods purchasedor services received in the normal course of business.

Under earlier Sch VI, Sundry Creditors (for goods, services,

etc.) included above amounts plus amounts due on account

of contractual obligations. Under RS VI, amounts due under contractual obligations

cannot be included within trade payables e.g.

Contribution to PF, accrued interest, payables for fixed

asset purchases, etc. Such amounts are to be disclosed under Other current

liabilities with a suitable description.

CNK 36

08-08-2012


37/80

CNK 37

CNK 37

08-08-2012


38/80

CNK 38

Fixed Assets

Fixed Assets: Tangible

(a) Land

(b) Buildings

(c) Plant and Equipment

(d) Furniture and Fixtures

(e) Vehicles

(f) Office Equipment

(g) Others (Specify nature)Assets under lease to be separately specified under

each class of asset.CNK 38

08-08-2012


39/80

CNK 39

Fixed Assets: Intangible

(a) Goodwill

(b) Brands/trademarks

(c) Computer software

(d) Mastheads and publishing titles

(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)

CNK 39

08-08-2012


40/80

CNK 40

Capital Work in Progress

Capital advances not to be included

Capital Advances should be included under Long

Term Loans & Advances

Intangible Assets under Development

This is a new head under Revised Schedule VI

CNK 40

08-08-2012


41/80

CNK 41

Other disclosures regarding Tangible and

Intangible Assets are: A Reconciliation of the gross and net carrying

amounts of each class of assets at the beginningand end of the reporting period showing:

Additions Disposals

Acquisitions through business combinations

other adjustments and

the related depreciation and impairment losses /reversals to be disclosed separately.

CNK 41

08-08-2012


42/80

CNK 42

Fixed Assets

Particulars Opening Additions Disposals Through

BusinessCombinations

Other

Adjustments

***

Gross

Opening

Depreciation

On Business

Combinations

For

the

year

Total Closing Closing (LY)

*** to include capitalisation of exchange differences (as per AS 11),

borrowing costs for each class of assets

CNK 42

08-08-2012


43/80

CNK 43

RS VI requires foll. disclosure of Related Parties (RP):

Long Term / Short Term borrowings from RP Long Term / Short Term Loans and Advances to RP

RS VI requirement is to also give details thereof

AS 18 requires detailed disclosures of RP and transactions

GN on RS VI states details of RP should be as per AS 18

Illustrative disclosures:

Tata Motors Ltd: details of RP given below respective line item

Sundaram Fasteners Ltd: cross reference given to AS 18 disclosures

L & T Ltd: broad details given and cross referencing also done

Cross referencing to disclosures under Clause 32 done in many cases

CNK 43

08-08-2012


44/80

CNK 44

Non Current Investments shall be classified as

trade Investment or Other Investments. The term trade investments is defined neither in

Revised Schedule VI nor Accounting Standards.

The term trade investment is normallyunderstood as an investment made by a company

in shares or debentures of another company, to

promote the trade or business of the first company.

Whether investment in subsidiary is to be classified astrade investment or other investment ?

CNK 44

08-08-2012


45/80

CNK 45

Following Companies have classified Investment in

Subsidiaries as Trade Investments : TATA Steel

TATA Power

UltraTech Cement Ltd

Following Companies have NOT classified Investment in

Subsidiaries as Trade Investments :

Asian Paints

JSW Steel

Reliance Industries Ltd

Infosys

CNK 45

08-08-2012


46/80

CNK 46

As per Revised Schedule VI:

Current investments to be classified if expected to berealised within 12 months of BS date

As per AS 13

Investment that by its nature is readily realisable and

intended to be held for not more than 1 year from the

date of investment.

Investment made in December 2011 and expected to be

realised in February 2013 (i.e. after 14 months) whether

current or non-current as on 31st March 2012?

Since RS VI deals with only presentation, investment will bepresented as current, with additional disclosure that the

same is Long Term as per AS 13.CNK 46

08-08-2012


47/80

CNK 47

Disclosure in Tata Power Ltd

Reconciliation for Disclosure as per AS 13Long Term Investments

Non-current Investments xxx

Current portion of Long Term Investments xxx

(included in current investments)

Current Investments

Other current Investments xxx

CNK 47

08-08-2012


48/80

CNK 48

Investment in preference shares, convertible into

equity shares within 1 year from the BS date, whetherto be classified as Current or Non Current asset?

An investment expected to be realized within 12months from the reporting date is classified as

Current Asset. Such realization should be in the form cash or cash

equivalents rather than through conversion of oneasset into another non current asset.

Above investment is to be classified as Non CurrentAsset since on conversion it is not cash or cashequivalent.

CNK 48

08-08-2012


49/80

CNK 49

Whether classification of Investments in FS has any tax

implications?Disclosure in Directors Report by Tata Invt Corpn Ltd

The directors confirm that all the investments classified as non-

current investments / trade investments as per the revised

Schedule VI of the Companies Act, 1956 have been made withthe intent to hold for long term appreciation, to enhance the

income from dividends and are not held for trade.

Investments in the category of Current Investments intended to

be held for less than one year, which for accounting and otherpurposes are so classified at the time of making the investment,

are indicated separately in the Balance Sheet.CNK 49

08-08-2012


50/80

CNK 50

To be classified as both Current and Non Currento Capital account balance: Non currento Current account balance: Current

If the FS of the partnership firm not made up to

same date:o Gap cannot exceed 6 months

o To consider un-audited amounts till BS date;

o The above facts need to be specifically disclosed

CNK 50

08-08-2012


51/80

CNK 51

Names of the firms (with the names of all their partners,

total capital and shares of each partner) Additional disclosures in Notes for:

Change in constitution of Firm.

If firms accounts are not made up to the same date as

the date of the companys Balance Sheet Specific disclosure required regarding:

Share of partners in profits of the firm;

The total capital of the partnership firm in which the

company is a partner;

Separate disclosure is required by reference to each

partnership firm in which the company is a partner.

CNK 51

08-08-2012


52/80

CNK 52

LLP is a Body Corporate and not a partnership

firm as envisaged under the Partnership Act, 1932. Hence disclosures pertaining to Investments in

Partnership firms, not required for Investment in LLP.

Share of Profit/loss in LLP: Does not automatically accrue to the partners (like a

firm)

LLP can carry forward profits (without transfer to

partners) No entry can be passed in books of company till profits

are transferred to the partners of the LLP

CNK 52

08-08-2012


53/80

CNK 53

Trade Receivable: A receivable is classified as trade

receivable if it is in respect of amount due on account ofgoodssold or services rendered in the normal course of business.

To be classified as Current and Non Current.

Aggregate amount of Trade Receivables outstanding for a

period exceeding 6 months from the date they are due for

payment (and not billing date) should be separately stated. To also classify the above as Secured, Unsecured,

good/doubtful of recovery.

Provision for bad and doubtful debts required to be divided into

Current / Non Current.

Is recovery towards OPE to be included as TradeReceivables?

CNK 53

08-08-2012


54/80

CNK 54

CCE as per RS VI includes:

Balances with Banks held as margin money or security against borrowings,

guarantees, etc. and

Bank deposits with more than 12 months maturity

As per AS-3

Cash is defined to include cash on hand and demand deposits with

banks.

Cash equivalents are defined as short term, highly liquid

investments (i.e. less than 3 months maturity) that are readily

convertible into known amounts of cash and which are subject to aninsignificant risk of changes in value.

CNK 54

08-08-2012


55/80

CNK 55

Apparent Conflict between the requirements of the RevisedSchedule VI and the Accounting Standards.

The conflict should be resolved by changing the caption Cashand Cash equivalents to Cash and bank balances, whichmay have two sub-headings, viz.

Cash and cash equivalents and Other bank balances.

The former should include only the items that constitute CCE asper AS 3 (and not RS VI),

The remaining line-items may be included under the latterheading.

As per FAQs to RS VI, Fixed Deposits with more than 12months are to be classified as Non Current Assets.

CNK 55

08-08-2012


56/80

CNK 56

Impact of RS VI on presentation of cash flow statement.

Items appearing in the Cash Flow Statement should bealigned with the nomenclature of the items used in BS.

E.g. a company cannot present trade receivables in the BS

and show movement in Sundry Debtors in Cash Flow

Statement.

However it is not mandatory for a company to present

inflow / outflow from current and non-current components

of various line items separately.

E.g. for borrowings it can be overall

CNK 56

08-08-2012


57/80

CNK 57

Under RS VI, there is no line item like Miscellaneous

Expenditure RS VI also does not contain any specific disclosure

requirement for the unamortized portion of expense

items.

Since AS 26 does not apply to share issue expensesand incidental costs of borrowings, how can the

unamortized portion of the above be disclosed?

These need to be classified as other current / non-

current assets, depending on whether the amountwill be amortized in the next 12 months or thereafter.

CNK 57

08-08-2012


58/80

CNK 58

RS VI requires separate disclosure of amount of dividends

proposed for the period (in Notes) Existing Schedule VI specifically required proposed

dividend to be disclosed under the head Provisions.

As per AS-4, 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.

Since AS 4 will override, RS VI, treatment as under:

Provision to be made in FS for proposed dividend Separate disclosure of the same in Notes

CNK 58

08-08-2012


59/80

CNK 59

CNK 59

08-08-2012


60/80

CNK 60

CNK 60

08-08-2012


61/80

CNK 61

A Company other than a finance company shall

disclose separately in the notes revenue from: Sale of Products

Sale of services

Other operating revenues

Less: Excise duty

CNK 61

08-08-2012


62/80

CNK 62

Whether Revenue should be Gross or Net?

As perGN on terms used in FS, Sales Turnover is definedas: aggregate amount for which sales are effected or

services rendered by an enterprise

Guide to Company Audit mentions Total turnover is the

aggregate amount for which sales are effected, giving the

amount of sales in respect of each class of goods dealt with

by the company and indicating quantities separately

Statement of CARO and Part II of existing Schedule VI

defines turnover as aggregate amount for which sales are

effected by the company. Sales effected would include saleof goods as well as services rendered by the company.

CNK 62

08-08-2012


63/80

CNK 63


As per GN on Tax Audit, turnover maybe interpreted to

mean the aggregate amount for which sales are effected

or services rendered by an enterprise

Para 10 of AS 9 requires disclosure of Gross Turnover

with separate deduction for Excise Duty.

GN on VAT states VAT is collected from customers on

behalf of VAT authorities and should not be recorded asrevenue of the enterprise

CNK 63

08-08-2012


64/80

CNK 64


Service Tax

For Service Tax, sec 83 of the Finance Act, 1994, provides

that the provisions of certain sections (like sec 9C, 12A,

etc.) of the Central Excise Act, 1944 shall apply, so far as

may be, in relation to service tax as they may apply to aduty of excise.

Section 12 A of the Central Excise Act, 1944, which

provides that the amount of excise duty shall form part of

the price of the goods sold. On a similar analogy, servicetax would form part of the price of the services provided.

CNK 64

08-08-2012


65/80

CNK 65

CNK 65


Excise Duty

Since format of RS VI clearly mentions Excise Duty as a

deduction from Sales, the same would be necessary.

Service Tax / VAT

As per GN On RS VI Such taxes are generally collected from the customer on

behalf of government. Depending on whether company is

acting as agent or principal, such taxes should be included

in Sales (i.e. Gross or excluded (i.e. Net).

Statement of Profit and Loss

08-08-2012


66/80

CNK 66

The term Other Operating Revenue is not defined

by RS VI. It would include Revenue arising from a companys

operating activities, i.e., either its principal or ancillaryrevenue-generating activities, but which is not

revenue arising from the sale of products or renderingof services.

Whether a particular income constitutes otheroperating revenue or other income is to be decidedbased on the facts of each case and detailedunderstanding of the companys activities.

CNK 66

08-08-2012


67/80

CNK 67

CNK 67

A Finance company shall include revenue from

a) Interest andb) Other Financial services

The term finance company is not defined under the

Companies Act, 1956, or Revised Schedule VI. Hence, thesame should be taken to include all companies carrying on

activities which are in the nature of business of non-banking

financial institution as defined undersection 45(1) (f) of the

Reserve Bank of India Act, 1935.

Revenue from Operations in case offinance company

08-08-2012


68/80

CNK 68

CNK 68

Other Income

Other Income shall be classified as:

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

b) Dividend Income;

c) Net gain / loss on sale of investments;

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

Since (b) and (c) are always considered Other Income,

finance companies can have negligible Revenue from

Operations

This can have implications in taxation and also affect

valuation.

08-08-2012


69/80

CNK 69

Whether the following is Other Operating Revenue

or Other Income? A Company engaged in manufacture and sale of

industrial and consumer products also has one realestate arm.

A consumer products company owns a 10 storied

building. The company currently does not need onefloor for its own use and has given the same temporarilyon rent.

Sale of Fixed Assets

Sale of Scrap Interest from customers on delayed payments Foreign Exchange Gains

CNK 69

08-08-2012


70/80

CNK 70

Following treated as Other Operating Revenue:

Sale of Carbon credits Dividend from Joint Venture/Subsidiary

Since division operates part of its business through

Subsidiaries /JVs, dividend income is taken as Operating

Income Prism Cements Ltd Insurance Claims and Indirect taxes claimed received

Kansai Nerolac Paints Ltd

CNK 70

08-08-2012


71/80

CNK 71

Tata Investments Corporation Ltd has

classified the following as Revenue fromOperations:

Income from Investments

Dividend

Interest on Investments

Fees from Shares lent

Interest on Deposits and Advances

CNK 71

08-08-2012


72/80

CNK 72

RS VI requires separate disclosure for dividends from

Subsidiary Companies. Old schedule VI specifically required parentcompanies to recognise dividend declared bysubsidiary companies even if declared after the BSdate if they are related to the same period covered by

financial statements. RS VI does not prescribe any such

accounting/disclosure requirement. Thus Dividend will now be recognised as per AS 9 i.e.

only when they have a right to receive the same on orbefore the balance sheet date.

CNK 72

08-08-2012


73/80

CNK 73

Actual Consumption vs. Derived Consumption

In case of a manufacturing or manufacturing and tradingcompany care should be taken to ensure that raw materialconsumed should relate to actual consumption rather thanderived consumption.

Disclosure by Mahindra & Mahindra Ltd:The consumption in value has been ascertained on thebasis of opening stock plus purchases less closing stock andincludes adjustment for excesses and shortages asascertained on physical count and write-off of obsolete andunserviceable raw materials and components.

CNK 73

08-08-2012


74/80

CNK 74

Other Commitments

Additional requirement in RS VI Scope of terminology very wide

AS per GN, it would include all expenditure related to

contractual commitments apart from capital commitments

such as commitments arising from long term contracts for

purchase of RM, employee contracts, lease commitments,sales, investments, etc.

Disclosure in L & T Ltd:Other commitments related to sales / procurements made in normal

course of business are not disclosed to avoid excessive details

CNK 74

08-08-2012


75/80

CNK 75

Illustrative disclosure of Other Commitments

Under lease obligations Under derivative contracts

Going concern support to group company

PE arrangement between Holding co, subsidiary, associate

Buy back arrangements

Commitment to fund research projects, etc.

CNK 75

08-08-2012


76/80

CNK 76

As per AS 21, CFS are presented, to the extent possible, inthe same format as that adopted by the parent for itsseparate financial statements.

Thus disclosures of RS VI will be applicable to CFS

Bifurcation between current / non current

Trade receivables over 6 months from due date of

payment, etc. Disclosure of Minority Interest

Separate line item on the face of the BS afterShareholders Funds.

Mahindra Lifespace developers Ltd Minority Interestclassified as Non Current Liabilities.

CNK 76

08-08-2012


77/80

CNK 77

Information pertaining to Subsidiaries required forpreparation of CFS: Break up of assets / liabilities in current and non current (to

also cover related parties); Security details, Terms of repayment of Long term Borrowings; Trade Receivables - ageing analysis from the due date of

payment;

Break up of cash and cash equivalents any restriction / pledgeof fixed deposits, Tenure of deposits;

Details of Capital Advances, etc.; Details of any Other Commitments having financial obligations; Details of expenditure in excess of 1% of revenue from

operation; etc.

CNK 77

08-08-2012


78/80

CNK 78

Balance Sheet

Statement of Profit and Loss

Cash Flow Statement

Company Background (preferable)

Significant Accounting Policies

Notes pertaining to items appearing in the BS, PL Other disclosures required as per RS VI

Disclosures required as per notified AS

Disclosures required under other statutes, ICAI, etc.

Note that RS VI applied from 2011-12 and that previous yearfigures are regrouped / reclassified as per requirements ofRS VI.

CNK 78

08-08-2012


79/80

CNK 79

Additional procedures for verification/documentation

Audit Documentation (SA 230)o Documents to be taken and arranged in the Audit file as per

classification of items given in RS VI.

Representation to be taken from Management (SA 580)

o Representation Letter to be taken from the management will

undergo a change this year since the company will be preparing its

FS in the format of RS VI for the first time, hence the classification

of items into Current and Non Current by management.

CNK 79

08-08-2012


80/80

CNK 80

CNK 80