Part I, Schedule VI to the Companies Act, 1956, prescribes the form of balance sheet and the requirements relating thereto. It should be noted that in addition to the requirements of the body of the Form which sets out instructions relating to each item of the balance sheet, the requirements in the Notes at the end of the Form and the requirements of the Act, wherever applicable, should be complied with. The information required to be given under any of the items or sub-items in the balance sheet should be furnished in a separate Schedule or Schedules to be annexed to and to form part of the balance sheet, if such information cannot be conveniently included in the balance sheet itself. This procedure is recommended when the items to be dealt with are numerous [Note (a)].
The general practice is to state the figures rounded off correct to a rupee. Note (b) provides that Paise can also be given in addition to rupees, if so desired. Note (n) requires that comparative figures should be given. The comparative figures should relate to the corresponding period–the previous year, half year or quarter as the case may be. The comparative figures must be complied on the same basis as the figures of the current year, on the principle that only like can be compared with like. Wherever the comparative figures are recast or re-grouped to make them comparable it is recommended that a note should be put under the balance sheet to that effect.
(1) Share Capital
The Share Capital should be classified into :
- Authorised Capital.
- Issued Capital.
- Subscribed Capital.
Under “Authorised Capital”, the various classes of shares should be distinguished and the particulars of the numbers of shares and the face value of shares for each class should be stated. The particulars of the different classes of preference shares should also be given. The Particulars of any option on unissued share capital have to be specified. Under “Subscribed Capital”, the following particulars should be given.
- The various classes of shares should be distinguished and particulars of the different classes of preference shares should be stated.
- Number of shares.
- Face value of shares.
- Amount called up.
Note (c) requires that in the balance sheets of subsidiary companies the number of shares held the holding company as well as the ultimate holding company and its subsidiaries must be separately stated. However, the auditor is not required to certify the correctness of such shareholdings as certified the management. The number of shares allotted as fully paid up pursuant to a contract without payments being received in cash should be shown separately. Even in respect of such shares a separate mention must be made of the shares which are allotted as fully paid up way of bonus shares. In case of bonus shares, the source from which such shares are issued, e.g., capitalisation of profits or reserves or from Share Premium Account, should be specified. The unpaid calls should be deducted from the Subscribed Capital and should be anlaysed as under:
- Due directors.
- Due others.
The amount originally paid up on the forfeited shares should be added to the Subscribed Capital. Any capital profit on reissue of forfeited shares should be transferred to a Capital Reserve. Under the item “Share Capital”, it is necessary to disclose :
- In respect of Redeemable Preference shares, the terms of redemption or conversion together with the earliest date of redemption or conversion, and
- the particulars of any option on unissued share capital.
It should be noted that Share Premium Account should not be shown under “Share Capital”, as it is required to be shown under “Reserves and Surplus”.
(2) Reserves and Surplus
This item should be classified as under :
1. Capital Reserves.
2. Capital Redemption Reserve.
3. Share Premium Account.
4. Other Reserves specifying the nature and amount of each Reserve.
6. Proposed additions to Reserves.
7. Sinking Funds.
Under each of the above specific heads, the balance as per last balance sheet, additions thereto and deductions therefrom should be stated. The word “fund” in relation to any “Reserve” should be used only where such Reserve is specifically represented earmarked investments. In respect of the Share Premium Account, details of its utilisation in the manner provided in section 78 should be given in the year of utilisation [Note (cc)]. In respect of other reserves, the nature and the amount of each reserve should be specified. Any debit balance in the Profit and Loss Account should be shown as a deduction from the uncommitted reserves, if any [Note (h)]. The expression “Uncommitted reserves’, would not include reserves set apart for a specific purpose
such as reserve for doubtful debts, investment, fluctuation reserve, etc.
Under “Surplus”, the balance in the Profit and Loss Account after providing for proposed allocations, namely, Dividend, Bonus or allocations to Reserves should be shown. While classifying the items between Reserves and Provisions regard must be had to the definitions of these items given in Part III, Schedule VI, and accordingly any provision in excess of the amount reasonably necessary should be classified as a reserve.
(3) Secured Loans
This item should be classified as follows :
2. Loans and Advances from Banks.
3. Loans and Advances from subsidiaries.
4. Other Loans and Advances.
The nature of the security should be specified in each case. The interest accrued and due on “Secured Loans” should be included under the appropriate sub-heads under the head “Secured Loans”, but the interest accrued but not due on secured loans is required to be shown under “Current Liabilities”. The loans from directors and manager should be shown separately. Where loans have been guaranteed managers and/or directors, a mention thereof should be made and the aggregate amount of such loans under each head should be shown separately. In respect of debentures, the terms of redemption or conversion and the earlier date of redemption or conversion should be stated. The particulars of any redeemed debentures which the company has power to re-issue should be given [Note (j)]. In case where any of the company’s debentures are held a nominee or a trustee for the company, the nominal amount of the debentures and the amount at which they are stated in the books of the company should be stated [Note (k)]. This information may be given under the head “Investments”.
(4) Unsecured Loans
This item should be classified as follows :
1. Fixed Deposits.
2. Loans and Advances from subsidiaries.
3. Short Term Loans and Advances :
- From Banks.
- From Others.
4. Other Loans and Advances :
- From Banks.
- From Others.
Loans from directors and managers should be shown separately. In respect of item Nos. 2, 3 and 4, where loans have been guaranteed managers and/or directors, a mention thereof should be made and the aggregate amount of such loans under each head should also be disclosed. The Short Term Loans will include those which are due for not more than one year as at the date of the Balance Sheet [Note (d)]. The interest accrued and due on unsecured loans should be shown under the appropriate sub-heads but the interest accrued but not due must be shown under “Current Liabilities”.
(5) Current Liabilities and Provisions
Current Liabilities and Provisions are required to be grouped separately as under :
(A) CURRENT LIABILITIES
2. Sundry Creditors.
- Total outstanding dues of small scale industrial undertaking(s); and
- Total outstanding dues of creditors other than small scale industrial undertaking(s).
3. Subsidiary Companies.
4. Advance payments and unexpired discounts for the portion for which value has still to be given, e.g., in the case of the following classes of companies :
Newspaper, Fire Insurance, Theatres, Clubs, Banking, Steamship Companies, etc.
5. Investor Education and Protection Fund shall be credited the following amounts namely:
- Unpaid dividend;
- Unpaid application money received the companies for allotment of securities and due for refund;
- Unpaid Matured Deposits;
- Unpaid Matured Debentures;
- Interest accrued on 1 to 4 above.
6. Other Liabilities.
7. Interest accrued but not due on loans.
8. Provision for Taxation.
9. Proposed Dividends.
8.38 Auditing and Assurance
10. For Contingencies.
11. For Provident Fund Scheme.
12. For Insurance, pension and similar staff benefit schemes.
13. Other provisions.
The items should be classified as “Provision” of “Liabilities” having regard to the definitions of these terms in Part III, Schedule VI. According to Note (p), current accounts with directors and manager, whether they are in credit or debit, should be shown separately. It should be noted that interest accrued but not due on loans, whether secured or unsecured, is required to be shown under “Current Liabilities”. The provision for taxation if in excess of the amount, which in the opinion of the directors, is reasonably necessary for the purpose, should be classified as a “Reserve”. The name(s) of the small scale industrial undertaking(s) to whom the company owe any sum together with interest outstanding for more than 30 days, are to be disclosed.
(6) Contingent Liabilities
Under the head “Contingent Liabilities”, the items should be classified as under :
1. Claims against the company not acknowledged as debts.
2. The uncalled liability on shares partly paid.
3. Arrears of fixed cumulative dividends.
4. Estimated amount of contracts remaining to be executed on capital account and not provided for.
5. Other money for which the company is contingently liable.
In respect of arrears of fixed cumulative dividends, the following details should be given :
- the period for which the dividends are in arrears showing separately such arrears on each class of shares;
- the amount should be stated before deduction of income-tax, but in the case of tax-free dividends the amount should be shown free of income-tax and the fact that it is so shown should be stated.
Under sub-head 5, the amount of guarantees given the company on behalf of directors or other officers of the company should be stated and where practicable, the general nature and the amount of each such contingent liability, if material, should be specified. Examples of other contingent liabilities are:
- Liability on Bills of Exchange discounted but not maturing on the balance sheet date.
- Liability in respect of suits pending in the Court.
- Dispute in regard to bonus, etc.
- Matters referred to arbitration.
(7) Fixed Assets
The fixed assets should be classified as far as possible as under:
- Railway sidings.
- Plant and Machinery.
- Furniture and Fittings.
- Development of Property.
- Patents, trade-marks and designs.
The items of fixed assets not enumerated above should be shown separately as far as possible. Under each head, the original cost, additions thereto and deductions therefrom during the year, should be shown. The total amount of depreciation written off or provided upto the end of the year should be stated. The amount of depreciation written off or provided should be allocated under the different asset heads and should be deducted in arriving at the value of fixed assets. According to clause 7 of Part III, where in the opinion of the directors, the amount of depreciation written off or retained is in excess of the amount reasonably necessary, the excess should be treated as a ‘Reserve’ and not as a ‘Provision’. In respect of depreciation written off before the commencement of the Act, such bifurcation is not necessary.
In case of any fixed asset which has been acquired from a country outside India, the original cost is required to be changed in consequence of a change in the rate of exchange, if there has been increase or reduction in the liability as expressed in Indian currency, for making payment towards the whole or part of the cost of the asset or, for repayment of the whole or a part of monies borrowed the company in foreign currency. The details of such adjustment are given in the instructions. In case where the original cost cannot be ascertained without unreasonable expense or delay, the valuation shown the books should be given. Such valuation should be the net amount at which an asset stood in the company’s books at the commencement of the Act, after deduction of the amounts previously provided or written off for depreciation or diminution in value. When any such asset is sold, the amount of sale-proceeds should be shown as deduction. In case, where sums have been written off on a reduction of capital or a revaluation of assets, every balance sheet, (after the first balance sheet) subsequent to the reduction or revaluation, should show the reduced figures, with the date of reduction, in place of the original cost. Every balance sheet for five years subsequent to the date of reduction must also show the amount of the reduction made. Similarly, where the value of assets is written up, every balance sheet subsequent to such writing up must show the increased figures and the date of the increase in place of the original cost. Every balance sheet for the five years subsequent to the date of writing up must also show the amount of increase made.
This item should be classified as under :
1. Investments in Government or Trust securities.
2. Investment in shares, debentures or bonds.
3. Immovable properties.
4. Investments in the capital of partnership firms.
5. Balance of unutilised monies raised issue.
Under item (2) above, investments in shares, debentures or bonds of subsidiary companies should be separately stated. In respect of all investments in shares, there should be shown separately, shares, fully paid up and partly paid up and the different classes of shares should be distinguished. The nature of investments should be disclosed and where the investments are earmarked, the fund which such investments represent should be stated. In each case, the mode of valuation, e.g., cost or market value should be stated. The aggregate amount of a company’s quoted investments together with the market value thereof and the aggregate amount of a company’s unquoted investments should be shown separately. The interest accrued on investments should be shown under the heading “current assets” and not under this head. Section 372(10) provides that every investing company shall annex to each balance sheet prepared it a statement showing the bodies corporate (indicating separately the bodies corporate in the same group) in the shares of which investments have been made it (including all investments, whether existing or not, made subsequent to the date as at which the previous balance sheet was made out) and the nature and extent of the investments so made in each body corporate. However, in case of an investment company, it is sufficient if the statement shows only the investments existing as on the date of the balance sheet.
It may be noted that Note (I) makes a provision for disclosure similar to the one required under section 372(10) but the said section does not apply to certain companies. However, Note (I) does not contain similar exceptions. Hence, it appears that Note (I) will apply to all companies except those mentioned in the Note (I) itself. Note (I) requires that a statement of investments (whether shown under “investments” or under “current assets” as stock-in-trade) separately classifying trade investments and other investments should be annexed to the balance-sheet. A “trade investment” means an investment a company in the shares or debentures of another company, not being its subsidiary, for the purpose of promoting the trade or business of the first company. The said statement should show the names of the bodies corporate, indicating separately the names of the bodies corporate under the same management in whose shares or debentures, investments have been made. The nature and extent of the investments so made in each body corporate should be given. Such statement should include all investments whether existing or not, made subsequent to the date as at which the previous balance sheet was made out. In case of an investment company, that is to say, a company whose principal business is the acquisition of shares, stock, debentures or other securities, it will be sufficient if the statement shows only the investments existing on the date as at which the balance sheet has been made out. In regard to the investments in the capital of partnership firms, the names of firms, with the names of all their partners, total capital and shares of each partner should be given in the statement annexed to the balance sheet.
Where the company’s debentures are held a nominee or trustee for the company, the nominal amount of the debentures and the amount at which they are stated in the books of the company shall be stated. This disclosure will enable a shareholder to ascertain how much profit the company will make if the debentures purchased the company were to be cancelled. All UN-utilised monies out of the issue must be separately disclosed in the Balance Sheet of the Company indicating the form in which such unutilised funds have been invested.
(9) Current Assets, Loans and Advances
The items under this head are required to be classified into (A) Current Assets; and (B) Loans and Advances.
CURRENT ASSETS :
(1) Interest accrued on Investments.
(2) Stores and spare parts.
(3) Loose Tools.
(6) Sundry debtors :
(a) debts outstanding for a period exceeding six months.
Less : Provision.
(7A) Cash balance on hand.
(7B) Bank balances—
- with Scheduled Banks.
- with others.
All unutilised monies out of the issue must be separately disclosed in the Balance Sheet of the company indicating the form in which such unutilized funds have been invested. In regard to interest accrued on investments, it should be noted that dividends declared the subsidiary companies after the date of the balance sheet should not be included unless they are in respect of period which closed on or before the date of the balance sheet. The current accounts with directors and manager, whether they are in credit or debit should be shown separately. If, in the opinion of the Board, any of the current assets, loans and advances have not a value on realisation 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 should be stated. For compliance with this requirement, it will be necessary for the auditor to ascertain the opinion of the Board. In respect of stores and spare parts, stock-in-trade and works-in-progress, the mode of valuation should be stated. In regard to loose tools, the mode of valuation is not required to be shown as usually they are re-valued every year. As regards stock-in-trade, the amount in respect of raw materials should be stated separately where practicable.
Note (g) requires that any reference to benefits expected from contracts to the extent that they are not executed should not be made in the balance sheet but should be made in the Board’s report. The amounts to be shown under sundry debtors, according to Note (o), should include the amounts due in respect of goods sold or services rendered or in respect of other contractual obligations but shall not include the amounts which are in the nature of loans or advances. The provision in respect of bad and doubtful debts should be shown way of deduction. Such provision should not exceed the amount of debts stated to be considered doubtful or bad and any surplus of such provision, if already created, should be shown under “Reserves and Surplus” on the liabilities side under a separate sub-head “Reserve for Doubtful or Bad Debts”. The sundry debtors should be classified as under :
- according to age;
- according to security and realisability;
- showing separately, debts due persons connected with the management and others.
According to age, sundry debtors should be classified into :
- debts outstanding for a period exceeding six months;
- other debts.
According to security and realisability, sundry debtors should be classified as under:—
- debts considered good and in respect of which the company is fully secured;
- debts considered good for which the company holds no security other than the debtor’s personal security; and
- debts considered doubtful or bad.
The debts due from persons connected with the management and others should be classified as under :
- debts due directors or other officers of the company or any of them either severally or jointly with any other person;
- debts due firms in which any director is a partner;
- debts due private companies in which any director is a director or a member;
- debts due from other companies under the same management [names of the companies should also be disclosed – vide section 370(IB].
By way of a note the maximum amount due directors or other officers of the company at any time during the year should be stated. The cash balance on hand and the bank balances should be shown separately. In respect of bank balances, balances with Schedule Banks and those with others are required to be shown separately. There should be separately shown balances lying with bankers on current accounts, call accounts and deposit accounts. In respect of balances with other than Scheduled Banks, the balances lying with each such banker on different accounts and the maximum amount outstanding at any time during the year from each such banker should be disclosed. The nature of interest of a director and his relative in each of the bankers (other than Scheduled Banks) should be stated. (B) LOANS AND ADVANCES :
(8) (a) Advances and Loans to subsidiaries.
(b) Advances and loans to partnership firms in which a company or any of its subsidiaries is a partner.
(9) Bills of Exchange.
(10) Advances recoverable in cash or in kind or for value to be received e.g., Rates, Taxes, Insurance, etc.
(11) Balances with Customs, Port Trust etc. (Where payable on demand). The provisions in regard to disclosure of information in respect of “sundry debtors” also apply to “loans and advances” and in addition Note (i) requires disclosure of information as follows:—
- amounts due from other companies under the same management with the names of the companies – vide section 370(IB); and
- the maximum amount due from every one of these at any time during the year.
(10) Miscellaneous Expenditure
The miscellaneous expenditure to the extent not written off or adjusted should be classified as follows :
(1) Preliminary expenses.
(2) Expenses including commission or brokerage on underwriting or subscription of shares or debentures.
(3) Discount allowed on the issue of shares or debentures.
(4) Interest paid out of capital during construction (also stating the rate of interest).
(5) Development expenditure not adjusted.
(6) Other items (specifying nature).
Profit and Loss Account
The debit balance of profit and loss account carried forward after deduction of the uncommitted reserves, if any, should be shown separately under the item “Profit and Loss Account”.