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CA. Mahendra Mehta CA Mahendra Mehta 1. These are personal views of the author and shall neither be considered as professional advise nor be constructed.

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Presentation on theme: "CA. Mahendra Mehta CA Mahendra Mehta 1. These are personal views of the author and shall neither be considered as professional advise nor be constructed."— Presentation transcript:

1 CA. Mahendra Mehta CA Mahendra Mehta 1

2 These are personal views of the author and shall neither be considered as professional advise nor be constructed to be the views of ICAI, any of its Region / Branch / Study Circle. CA Mahendra Mehta 2

3 Perfection does not come from belief or faith. Perfection comes through selfless work. CA Mahendra Mehta 3

4  Globally corporate Balance Sheets are classified balance sheets. Assets and Liabilities are presented based on current and non current classification. Where as In India Balance Sheets till date were unstructured.  India Moved from controlled economy to a growing economy and to make Indian companies competitive and globally recognisable and to harmonizing and synchronizing Schedule VI with the notified Accounting Standards.  Earlier Schedule VI did not provide any format for presentation of Statement of Profit & Loss leading to development of variety of dissimilar presentation. CA Mahendra Mehta 4

5  All assets and liabilities are classified into current and non-current categories which are at par with the requirements of Ind AS 1.  The alternative and rarely used horizontal form of Balance Sheet is deleted.  “Schedules” are now replaced by “Notes To Accounts”.  Disclosure of shareholder holding more than 5% shares specifying the number of share held. CA Mahendra Mehta 5

6  Debit balance of Profit & Loss Account is to be presented in the Reserves & Surplus within bracket as a negative figure.  Standardization of Statement of Profit & Loss.  Separate Presentation of performance of Discontinuing Operations. CA Mahendra Mehta 6

7  Relief from disclosing 5 years old details pertaining to aggregate number and class of shares allotted for consideration other than cash, bonus shares and shares bought back.  Special reserve for repayment of capital and loans.  Disclosure of debts regarding trade receivables from same management is omitted.  Heading “Miscellaneous Expenditure (to the extent not written off or adjusted)” CA Mahendra Mehta 7

8  Item-wise quantitative details of purchases, opening and closing stock of goods traded.  Status of completion of work in progress.  Brokerage & Commission on sales.  Payment to directors and detailed calculations under section 198 as also computation of profit u/s 349 with details of calculation of commission by percentage of profits.  Special disclosures of information regarding licensed capacity, installed capacity and actual production for each class of goods.  Item-wise quantitative details of raw material consumed.  Item-wise quantitative details or value of opening and closing stock of goods purchased for manufacturing. CA Mahendra Mehta 8

9  Disclosures as per notified Accounting Standards.  Disclosures under Companies Act, 1956  Disclosures under statutes MSMED Act, 2006.  Disclosures as per others ICAI pronouncements.  In case of Listed Companies, disclosure under clause 32 of the Listing Agreement. CA Mahendra Mehta 9

10  Presentation of figures: Where Turnover:  < ` 100 crores = Figures to be in nearest hundreds, thousands, lakhs or millions or decimals thereof.  > ` 100 crores = Figures to be in nearest lakhs or millions or crore or decimals thereof.  Once a unit of measurement is used, it should be used uniformly in the Financial Statements.  Any item under which income or expenses exceed 1% of revenue from operations or ` 1,00,000 whichever is higher, shall be shown separately and distinct item against an appropriate account head in Profit & Loss statement. CA Mahendra Mehta 10

11 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period I. EQUITY AND LIABILITIES (1) Shareholders’ Funds (a) Share capital (b) Reserves and surplus (c) Money received against share warrants New Line Item (2) Share Application Money pending allotment New Line Item (3) Non-current Liabilities (a) Long-term borrowings (b) Deferred tax liabilities (Net) (c) Other Long term liabilities (d) Long-term provisions (4) Current Liabilities (a) Short-term borrowings (b) Trade payables (c) Other current liabilities (d) Short-term provisions TOTAL CA Mahendra Mehta 11

12 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period II. ASSETS (1) Non-current Assets (a) Fixed assets (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 (2) Current Assets (a) Current investments (b) Inventories (c) Trade receivables (d) Cash and cash equivalents (e) Short-term loans and advances (f) Other current assets TOTAL CA Mahendra Mehta 12

13 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period Authorized Issued Subscribed & Fully paid up Subscribed & not Fully paid up Par value per share Calls Unpaid  By Directors  By Officers  By Others Forfeited Shares(amount originally paid-up) The rights, preferences & restrictions attaching to each class of shares including restrictions on the distribution of dividends & the repayment of capital. CA Mahendra Mehta 13 Line Items for Share capital

14 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period 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. Shares in the company held by each shareholder holding more than 5% shares specifying the number of shares held Shares reserved for issue under options and contracts/commitment for the sale of shares/disinvestment, including the terms & amounts For the periods of 5 years immediately preceding the date as at which the Balance Sheet is Prepared - Aggregate number & class of shares allotted as fully paid up pursuant to contract(s) without payment being received in cash. - Aggregate number & class of shares allotted as fully paid up by way of bonus shares CA Mahendra Mehta 14 Line Items for Share capital

15 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period 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. a reconciliation of the number of shares outstanding at the beginning and at the end of the reporting period. CA Mahendra Mehta 15 Line Items for Share capital

16 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period Capital Reserves Capital Redemption Reserves Securities Premium Reserves Debenture Redemption Reserves Revaluation Reserves Share Option Outstanding Account Other Reserves(Net of debit balance of Profit & Loss Account) Surplus Total CA Mahendra Mehta 16

17  Share application money not exceeding the issued capital and to the extent not refundable is to be disclosed under this line item.  However, the following should be shown under the head “Other Current Liabilities:  The amount of share application money received over and above the authorised capital,  The amount of excess of subscription or  If the requirement of minimum subscription are not met,”. CA Mahendra Mehta 17

18 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 12 months after the reporting date; or d) The company does not have an unconditional right to defer settlement of the liability for at least 12 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 CA Mahendra Mehta 18

19  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 12 months.  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 business into current and non current, depending upon the operating cycle for the respective business. 19CA Mahendra Mehta 19

20 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period Bonds/Debentures Term loans i. From Banks ii.From other parties Deferred payment liabilities Deposits Loans and advances from related parties Long-term maturities of finance lease obligations Other loans and advances(specify nature) Borrowings shall further be sub-classified as secured & unsecured. Nature of security shall be specified separately in each case. Where loans have been guaranteed by directors or others, the aggregate amount of such loans under each head shall be disclosed CA Mahendra Mehta 20

21 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period Trade payables – A payable shall be classified as a trade payable if it is in respect of the amount due on account of goods purchased or services rendered in the normal course of business. Others Example: long term operating lease, retention money from contractor’s bill, etc. CA Mahendra Mehta 21

22 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period Loans repayable on demand I.From Bank II.From Others Loans and advances on related parties Deposits Other loans and advances(Specify nature)  Borrowings shall further be sub-classified as secured & unsecured. Nature of security shall be specified separately in each case.  Where loans have been guaranteed by directors or others, the aggregate amount of such loans under each head shall be disclosed CA Mahendra Mehta 22

23 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period Current maturities of long-term debt Current maturities of finance lease obligations Interest accrued but not due on borrowings Interest accrued and due on borrowings Income received in advance Unpaid dividend Application money received for allotment of securities and due refund interest accrued thereon Unpaid matured deposits and interest accrued thereon Unpaid matured debentures and interest accrued thereon Other payables(Specify nature) CA Mahendra Mehta 23

24 An asset shall be classified as current when it satisfies any of the following criteria: (a) It is expected to be realised 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 realised 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 the reporting date All other assets shall be classified as non-current CA Mahendra Mehta 24

25 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period Land Buildings Plant and Equipment Furniture and Fixtures Vehicles Office equipment Others(specify nature)  The revised Schedule VI requires that leasehold assets shall be separately presented.  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, acquisition, through business combinations and other adjustments and the related depreciation and impairment losses/reversals shall be disclosed. CA Mahendra Mehta 25

26 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period Goodwill Computer Software Brands/Trademarks Mastheads and Publishing titles Mining rights Copyrights and patents and other intellectual property rights, services and operating rights Recipes, formulae, models, designs, and prototypes Licenses and franchise Others(specify nature) CA Mahendra Mehta 26

27 ParticularsRequirement Construction stage is normally decomposed into the following three stages:  Preliminary stage  Pre-acquisition stage  Acquisition or Construction stage The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if: a)It is probable that future economics benefits associated with the item will flow to the entity; and b)The cost of the item can be measured reliably. Following are the type of the cost that cab be capitalized: a)Costs of options to purchase the asset. b)Incremental direct costs with independent third parties c)Directly related employees benefit costs. d)Depreciation and incremental costs of directly related equipment. e)Cost of inventories consumed. f)Property taxes. g)Cost of site preparation and development. CA Mahendra Mehta 27

28 An internally generated intangible assets has to undergo through two important phases – Research and Development Phases. Research PhasesDevelopment Phases An intangible asset is not recognized out of activities carried out in the research phase. This is because an entity cannot demonstrate probable flow of economic benefits arising out of the intangible asset which is just in the research phase. Conditions for recognition of development phase activities as intangible asset- a)Technical feasibility b)Intention c)Ability d)Probable future economics benefits e)Resources availability f)Reliable measurement of cost CA Mahendra Mehta 28

29 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period Investment property Investments in Equity Instruments Investments in preference shares Investments in Government or trust securities Investments in debentures or bonds Investments in Mutual Funds Investments in partnership firms Other non-current investments(Specify nature)  Disclose market value of quoted investments.  Aggregate provisions made for diminution in value of investments. CA Mahendra Mehta 29

30 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period Capital Advances Security Deposits; Loans and advances to related parties(giving details thereof) Other loans and advances(Specify nature) It will further classified as:  Secured, considered good  Unsecured, considered good  Doubtful  Provision for doubtful debts due from directors  Amount due from partnership firms and private companies in which one of the directors are partners or directors CA Mahendra Mehta 30

31 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period Investments in Equity Instruments Investments in preference shares Investments in Government or trust securities Investments in debentures or bonds Investments in Mutual Funds Investments in partnership firms Other non-current investments(Specify nature)  As per AS 13 current investments are measured at lower of the cost or fair value.  Disclose market value of quoted investments.  Aggregate provisions made for diminution in value of investments. CA Mahendra Mehta 31

32 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period Raw materials Work-in-progress; Finished goods Stock-in-trade(in respect of goods acquired for trading) Stores and spares Loose tools Others(specify nature);  Goods-in-transit shall be disclosed under the relevant sub-head of inventories  Mode of valuation shall be stated CA Mahendra Mehta 32

33 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period Due for a period of six months from the due date of payment Allowance for doubtful debts Debts due  By directors  By other officers of the company  By any of them either severally  By jointly with any other person  By firms  By private companies respectively in which any director is a partner or director or member. It will further classified as:  Secured, considered good  Unsecured, considered good  Doubtful CA Mahendra Mehta 33

34 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period Balance with Banks  Unpaid Dividend  Margin Money  Bank deposits Cheques, Drafts on hand Cash-on -Hand Others(Specify) Other examples :  Preference shares having remaining maturity of 3 months and insignificant risks.  Investment in T-Bills and bonds issued by central and state Government, etc. and which are having remaining maturity 3 months or less as on the reporting date.  Money market funds permitting withdrawal by cheque.  Cheque from customers awaiting deposits CA Mahendra Mehta 34

35 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period Loans and advances to related parties(giving details thereof) Others(specify nature) It will further classified as:  Secured, considered good  Unsecured, considered good  Doubtful  Provision for doubtful debts due from directors  Amount due from partnership firms and private companies in which one of the directors are partners or directors CA Mahendra Mehta 35

36 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period Revenue from Operations Other Income Total Revenue ( I + II) Expenses Cost of Materials Consumed Purchases of Stock in Trade Changes in inventories of finished goods Work in progress and stock in trade Employee Benefit expense Finance Costs Depreciation and amortization expense Other expenses Profit Before Exceptional and extraordinary items and tax Exceptional Items CA Mahendra Mehta 36

37 Particulars Note No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period Profit Before extraordinary items and tax Extraordinary Items Profit Before Tax Tax Expense Current Tax Deferred Tax Profit (loss) for the period from continuing operations Profit (loss) from discontinuing operations Tax expense of discontinuing operations Profit(loss) from discontinuing operations (after tax) Profit (loss) for the period Earnings per equity share Basic Diluted CA Mahendra Mehta 37

38 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period (i)Revenue from operations in respect of non- finance company (a) Sale of Products (b) Sale of Services (c) Other Operating Revenues Less: Excise Duties (ii)Revenue from operations in respect to Finance company: (a) Interest (b) Other Financial Services CA Mahendra Mehta 38

39 ParticularsNote No. Figures as at the end of the current reporting period Figures as at the end of the previous reporting period a) Interest Income (other than a finance company) b) i) Dividend from Subsidiary companies ii) Dividend c) Net Gain/Loss on sale of investments. d) Other non-operating income (net of expense directly attributable to such income) e) Adjustment to the carrying value of investment (Write-back) f) Net gain/loss on foreign currency translation and transaction(other than considered as finance cost) CA Mahendra Mehta 39

40 The Revised Schedule VI does not require separate presentation of prior period items on the face of the Statement of Profit or Loss. It requires separate disclosures under Clause 5(i)(l) of part II of the Revised Schedule VI. However, Paragraph 15 of AS 5 Net profit or Loss for the period, Prior Period Items and Changes in Accounting policies requires: “ The nature and amount of prior period items should be separately disclosed in the Statement of Profit and loss in a manner that their impact on the current profit or loss can be perceived” The words “in the Statement of profit and loss” would mean on the face of the profit and loss. The best approach to explain the impact would be to add a separate line item before “V. Profit Before Exceptional and Extraordinary Item” on the face of the Statement of Profit or Loss CA Mahendra Mechta 40cc

41  Exceptional items – Material items which derive from events or transactions that fall within the ordinary activities of the reporting entity and which individually or if of a similar type, in aggregate, need to be disclosed by virtue of their size or incidence if the financial statements are to give a true and fair view.  Extraordinary items – Material items possessing a high degree of abnormality which arise from events or transaction that fall outside the ordinary activities of the reporting entity and which are not expected to recur. CA Mahendra Mechta 41

42  “Schedules” are now replaced by “Notes to Accounts”.  Notes to accounts shall  contain supplementary information  mark cross reference and  maintain balance between providing relevant information and information overload.  Notes to accounts shall contain information in addition to that presented in the Financial Statements and shall provide where required: a) narrative descriptions or disaggregation of items recognised in those statement and b) Information about items that do not qualify for recognition in those statements. CA Mahendra Mehta 42

43 Notes to accounts shall disclose details of: 1. Significant accounting policies 2. Share Capital 3. Reserves and Surplus 4. Long term borrowings 5. Other Long term liabilities 6. Long term provisions 7. Short-term borrowings 8. Other current liabilities 9. Short-term provisions 10. Tangible assets 11. Intangible assets 12. Non-current investments CA Mahendra Mehta 43

44 13. Other long term loans and advances 14. Other non-current assets 15. Current investments 16. Inventories 17. Trade receivables 18. Cash and cash equivalents 19. Short-term loans and advances 20. Other current assets 21. Contingent liabilities and commitments 22. Revenue from operations 23. Other Income 24. Cost of materials consumed 25. Purchase of traded goods CA Mahendra Mehta 44

45 26. Changes in inventories of finished goods, work-in-progress and stock-in-trade 27. Employee benefits expense 28. Finance cost 29. Other expenses 30. Exceptional items, if any 31. Extraordinary items, if any 32. Additional information to the financial statements. CA Mahendra Mehta 45

46 Particulars Months Holding period Raw Materials 5 months Holding period of finished products 4.5 months Production cycle 0.5 months Collection period of trade receivables 3 months Payment period of trade payables 3 months Gross Operating Cycle13 Months Operating cycle means gross operating cycle. Payment period for trade payable is not deducted. 46CA Mahendra Mechta 46

47 Raw material inventories Holding period Average inventory holding WeightWeighted average raw material holding period RM 1530015.92%0.80 RM 2320010.61%0.32 RM 321005.31%0.11 RM 4180042.44%0.42 RM 5148525.73%0.26 18851.90 47CA Mahendra Mechta 47

48 Production cycle Average production time Average Work-in- Progress WeightWeighted average production cycle Pro 10.550031.25%0.16 Pro 20.7540025.00%0.19 Pro 30.2570043.75%0.11 16000.45 48CA Mahendra Mechta 48

49 Finished Goods Related Work-in- Progress Average holding period Average inventory WeightWeighted average finished goods holding period FG 1P 15100031.25%1.56 FG 2P 24120037.50%1.50 FG 3P 33100031.25%0.94 3200100%4.00 49CA Mahendra Mechta 49

50 Trade Receivables Collection Period Average receivables WeightWeighted average collection period Wholesalers having net worth > Rs.10000 TR13110035.48%1.06 Wholesalers having net worth < Rs.10000 TR24200064.52%2.58 31003.65 50CA Mahendra Mechta 50

51 SummaryMonths Weighted average raw material holding period1.90 Weighted average production cycle0.45 Weighted average finished goods holding period4.00 Weighted average collection period3.65 Operating cycle10 51 Any specific inventory purchased for a special purpose, a special production lot or a special sale contract are not taken into account as that will distort the normal operating cycle of an enterprise. CA Mahendra Mechta 51

52 CA Mahendra Mehta 52 Knowledge can only be got in one way, the way of experience; there is no other way to know.

53 Thank you These are personal views of the author and shall neither be considered as professional advise nor be constructed to be the views of ICAI, any of its Region / Branch / Study Circle. CA Mahendra Mehta 53


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