Frequently Asked Questions on Schedule VI 1 CA. (Dr.) G.S. Grewal

Frequently Asked Questions

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Frequently Asked Questions on

Schedule VI

CA. (Dr.) G.S. Grewal


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Shareholders’ Funds

Q. How is Share Capital shown under Schedule VI?

A. Share Capital is shown as a single amount against Share Capital on the face of the Balance Sheet.

The details are given with respect to each class of shares in the Notes to Accounts on Share Capital classifying them into:

‘Shares Subscribed and Fully Paid up’, and ‘Shares Subscribed but not Fully paid up’



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Q. How is the requirement to show ‘Nominal Value’ and ‘Called up Amount’ of the share fulfilled?

A. It is shown as follows:

Authorised Capital:

1,00,000 Equity Shares of 10 each₹Issued Capital:

90,000 Equity Shares of 10 each₹Subscribed Capital:

Subscribed But Not Fully Paid up

80,000 Equity Shares of 10 each; 7 Called ₹ ₹ upCA. (Dr.) G.S. Grewal


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Q. When are the shares classified as ‘Subscribed and Fully Paid Up?

A. Shares are classified as ‘Subscribed and Fully Paid Up’ when the entire nominal i.e., face

value of the share is called up and is also received by the company.



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Q. When are shares classified as ‘Subscribed But Not Fully Paid Up?

A. Shares are classified as ‘Subscribed But Not Fully Paid Up’ under two situations:

a) when the company has called up the entire nominal or face value of the share but has

not received it. The shares on which the amount is not received are classified as ‘Subscribed But Not Fully Paid Up’; and

b) when the company has not called the entire nominal or face value of the share.



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Q. How is Calls – in – arrears shown in the Balance Sheet?

A. It is shown in the Notes to Accounts as deduction from the amount under ‘Shares Subscribed But Not

Fully Paid Up’ as follows:

Notes to Accounts: Share Capital

Authorised Capital:

Issued Capital:

Subscribed Capital:

Subscribed But Not Fully Paid up:

5,000 Equity Shares of 10 each 50,000₹Less: Calls – in – arrears 10,000 40,000



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Q. A company has called 8 against its nominal ₹or face value of the share. The company received the called up amount. How will it be classified?

R. It will be classified as ‘Subscribed But Not Fully Paid up’ because the accounts are maintained for the company. From the company’s point of view, shares are not fully paid up.



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Q. Can a company has capital under ‘Subscribed and Fully Paid Up’ and also ‘Subscribed But Not Fully Paid Up’?

R. Yes, It is possible under following situations:

(i) when a company has issued only one class of shares and has called the entire nominal or face value but some of the shareholders have not paid the amount. Shares on which amount is not received are classified as ‘Subscribed But Not Fully Paid up’



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(ii) When a company has two or more classes of shares, one class of shares may be fully paid up and thus, will be classified as ‘Subscribed and Fully Paid’

while

Another may not be fully called up or where called up may not fully paid up. In both the

cases it be classified as ‘Subscribed But Not Fully Paid’.


Frequently Asked QuestionsShareholders’ FundsQ. A company issued 50,000 Equity Shares of 10 each and called up ₹

10 per share. It did not receive final call of 2 on 2,500 shares. ₹ ₹How will you show it in the Balance Sheet?

R. It will be shownas follows:

Notes to Accounts: Share Capital

Authorised Capital;

Issued Capital

Subscribed Capital

Subscribed and Fully Paid up47,500 Equity Shares of 10 each 4,75,000₹

Subscribed But Not Fully Paid up2,500 Equity Shares of 10 each; 10 Called 25,000₹ ₹ Less: Calls–in–arrears (2,500 5,000 20,000

4,95,000 10CA. (Dr.) G.S. Grewal


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Shareholders’ Funds – Reserves and Surplus

Q. Can a Company have reserves other than those specified in Schedule VI?

R. Yes, a company can have reserves other than those specified in Schedule VI. Schedule VI of the Companies Act is made flexible by including an entry Any Other Reserves (to specify the nature and purpose of each reserve).

Examples: Investment Fluctuation Reserve, Workmen Compensation Reserve, Tax

Reserve, Subsidy Reserve, etc.


Frequently Asked QuestionsShareholders’ Funds – Reserves and Surplus

Q. Is there a difference between Statement of Profit and Loss and Balance in Statement of Profit and Loss?

A. Yes.

Statement of Profit and Loss is a statement from which profit earned or loss incurred

during the year is known.

Balance in Statement of Profit and Loss is a reserve representing balance in the reserve. It includes opening Balance and current year’s profit or loss.

12CA. (Dr.) G.S. Grewal


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Q. What is the journal entry when amount is appropriated from Balance in Statement of Profit and Loss (say) towards DRR?

A. Journal Entry passed is:

Balance in Statement of Profit & Loss A/c …Dr.

To DRR

(Being the amount transferred to DRR)



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Q. What entry is passed when Preliminary Expenses are written off?

R. It may be written off

(i) from Securities Premium Reserve; or

(ii) from Statement of Profit and Loss.

When it is written off from Securities Premium Reserve the journal entry is:

Securities Premium Reserve A/c …Dr.

To Preliminary Expenses A/c

(Being the amount of Preliminary Expenses written off from Securities Premium Reserve)CA. (Dr.) G.S. Grewal


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When it is written off from Statement of Profit and Loss, the journal entry is:

Statement of Profit and Loss …Dr.

To Preliminary Expenses A/c

(Being the Preliminary Expenses Account

closed by transfer to Statement of

Profit and Loss)



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Shareholders’ Funds – Reserves and SurplusQ. What entry is passed when Discount on Issue

of Shares, Discount on Issue of Debentures is written off?

R. They may be written off


(ii) from Statement of Profit and Loss.

If it is written off from Securities Premium Reserve the journal entry passed is:

Securities Premium Reserve A/c …Dr.

To Discount on Issue of Shares A/c

or Loss on Issue of Debentures A/c

(Being the amount of Preliminary Expenses written off)CA. (Dr.) G.S. Grewal


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If it is written off from Statement of Profit and Loss, it is to be written off in more than one accounting period.

Let us take an example of Loss on Issue of Debentures of (say) 1,00,000 to be written off in 10 ₹years. Thus, the first entry will be:

Loss on Issue of Debentures A/c …Dr. 1,00,000

To …. % Debentures A/c 1,00,000

(Being the Loss on Issue of Debentures)



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Shareholders’ Funds – Reserves and SurplusSecond entry will be to write off 1/10th of Loss on Issue of Debentures to Statement of Profit and Loss. The journal entry will be:

Statement of Profit and Loss … Dr. 10,000

To Loss on Issue of Debentures A/c 10,000

(Being 1/10th of Loss on Issue of

Debentures written off)

Balance 90,000 will be shown in the Balance Sheet. ₹ Next year when again a portion is written off:

Statement of Profit and Loss … Dr. 10,000

To Loss on Issue of Debentures A/c 10,000

(Being 1/10th of Loss on Issue of

Debentures written off)

Balance 80,000 will be shown in the Balance Sheet.₹


Frequently Asked QuestionsShareholders’ Funds – Share Warrants

Q. What are ‘Share Warrants’?

A. The term ‘Share Warrants’ is defined in Companies (Accounting Standards) Rules, 2006 as follows:

“Share Warrants are financial instruments which gives the holder the right to acquire equity shares”.



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Shareholders’ Funds – Share Warrants

Q. Why is ‘Money Received against Share Warrants’ classified as ‘Shareholders’ Funds’?

A. Share Warrants effectively represent the amount which would ultimately become part of equity share capital when converted into equity shares. Till the time they are converted into shares these are not shown as share capital but as a separate line item i.e., ‘Amount received against Share Warrants’.



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Share Application Money Pending Allotment

Q. What amount is shown against ‘Share Application Money Pending Allotment’?

A. Out of the total Share Application Money received only that much amount is shown against ‘Share Application Money Pending Allotment’ against which shares will be allotted by the company.

Money received by the company as share Application Money against which shares will not be allotted i.e., amount will be refunded is shown as Other Current Liability.



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Q. Share Application Money Pending Allotment is neither been grouped as Shareholders’ Funds nor as Non - current Liability. What is the nature of this line item?

A. In essence, Share Application Money Pending Allotment is in the nature of Equity because the amount shown against it is the amount which will definitely be converted into Share Capital. It is shown to highlight it on the face of Balance Sheet.



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Q. Why should the amount of ‘Share Application Money Pending Allotment’ included in Shareholders’ Funds and Capital Employed for accounting ratios when Liabilities Approach is followed?

A. It is the amount received by a company against which the company will definitely allot shares. It is shown as a separate line item because the date of Balance Sheet has fallen in between the date when amount was received and the date when shares are allotted.

Therefore, it is included in Shareholders’ Funds and Capital Employed.



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Debentures Issued as Collateral Security

Q. How are Debentures Issued as Collateral Security shown in the Balance Sheet, if

entry is not passed?

A. It is shown in the Notes to Accounts for Loan secured by the debentures by way of a note as follows:


Long – term Borrowings Term Loan from State Bank of India (The above loan is collaterally secured by issue of 12,000, 15% Debentures of ₹ 100 each)

₹ 10,00,000


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Debentures Issued as Collateral Security

Q. How are Debentures Issued as Collateral Security shown in the Balance Sheet, if

entry is passed?

A. It is shown in the Notes to Accounts for Loan secured by the debentures as follows:


Particulars ₹ ₹

Long – term Borrowings Term Loan from State Bank of IndiaDebentures 15,000, 15% Debentures of ₹ 100 eachLess: Debenture Suspense

15,00,00015,00,000

10,00,000

010,00,000


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Long – term BorrowingsQ. On what basis borrowings are classified

as Long – term Borrowings?

A. Borrowings which are payable after 12 months of the date of Balance Sheet or after the period of Operating Cycle are classified as Long – term Borrowings.



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Long – term BorrowingsQ. Is part of Long – term Borrowings due for

payment within 12 months or the period of Operating Cycle shown as Short – term

Borrowings under Current Liability?

A. Long – term Borrowings which becomes due for payment within 12 months of the date of Balance Sheet or within the period of Operating Cycle are shown as Current Liability.

The amount is not shown as Short – term Borrowings but under Other Current Liabilities as ‘Current Maturities of Long – term Debts’.



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Long – term BorrowingsQ. What does Trade Investments mean?

A. Trade Investment is not defined in the Act or Accounting Standards or New Schedule VI.

It can be understood as investment made by a company in shares or debentures of another company, to promote its trade or business.


Frequently Asked QuestionsDeferred Tax Liabilities (Net)Q. Why is Deferred Tax Liabilities (Net) included in Shareholders’ Funds and Capital Employed for accounting ratios?

A. It is only a book entry and it comes into existence by reducing the profit or increasing the loss.

In effect, it leads to decreased profit or increased loss carried to the Balance Sheet. As a result

Shareholders' Funds and also Capital Employed gets affected.

It therefore, is included in Shareholders' Funds and Capital Employed when Liabilities Approach is followed.


Frequently Asked QuestionsDeferred Tax Assets (Net)Q. Why is Deferred Tax Assets (Net) deducted from Shareholders’ Funds and Capital Employed for accounting ratios?

A. Following the same analogy as in the case of Deferred Tax Liabilities (Net), in leads to increased profit carried forward or decreased loss carried forward. As a result Shareholders' Funds and also Capital Employed gets affected.

It therefore, is deducted from Shareholders' Funds and also Capital Employed when Liabilities Approach is followed. It is not considered when Assets Approach is followed.



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Fictitious AssetsQ. What types of Fictitious Assets can exist

under the new Schedule VI?

A. Fictitious Assets that exists under the new Schedule VI are:

a) Share Issue Expenses;

b) Discount on Issue of Shares;

c) Premium Payable on Redemption of Shares;

d) Discount on Issue of Debentures;

e) Premium Payable on Redemption of Debentures;

or

Loss on Issue of DebenturesCA. (Dr.) G.S. Grewal


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Fictitious AssetsQ. Is the accounting treatment of all

fictitious assets same?

A. No, the accounting is different for fictitious assets relating to shares and those relating to debentures.



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Fictitious AssetsQ. What is the accounting treatment of

fictitious assets related to shares?

A. Fictitious assets relating to shares i.e., Share Issue expenses, Discount on Issue of shares and Premium Payable on Redemption of

Shares can be written off either


(ii) from the Statement of Profit and Loss in 3 to 5 years.



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Fictitious AssetsQ. What is the accounting treatment of

fictitious assets related to debentures?

A. Fictitious assets relating to debentures can be written off either


(ii) from the Statement of Profit and Loss during the life of the debentures.



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Fictitious AssetsQ. A company has a balance in Securities

Premium Reserve but is not adequate to write off fictitious assets completely.

Can fictitious assets be written off partly from Securities Premium Reserve (say up to the balance) and balance from Statement of Profit and Loss?

A. Yes, it can be so written off.



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Fictitious AssetsQ. Is the amount of fictitious assets not yet written

off required to be shown as Non – current Assets and Current Assets? If yes, how is it shown?

A. Fictitious assets not yet written off i.e., Unamortised Fictitious Assets are shown in part as Non – current Asset and in part as Current Asset.

The amount that will be written off after 12 months of the date of Balance Sheet or after the period of

Operating Cycle is shown as Non– current Asset.

The amount that will be written off within 12 months of the date of Balance Sheet is shown under Other Current Asset.


Frequently Asked QuestionsCurrent Assets Q. What are Current Assets?

A. Current assets are those assets which fulfil 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; or

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

c) it is expected to be realised within 12 months after the reporting date; or

d) it is cash and cash equivalents unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.


Frequently Asked QuestionsCurrent LiabilitiesQ. What are Current Liabilities?

A. Current liabilities are those liabilities which fulfils any of the following criteria:

a) it is expected to be settled in company's normal operating cycle; or

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

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.38CA. (Dr.) G.S. Grewal

Frequently Asked QuestionsClassification of Items in Schedule VI


Particulars Main Head Sub Head

Debit Balance of Statement of Profit and Loss

Shareholders’ Funds Reserves and Surplus

Interest Accrued and Due on Debentures

Current Liabilities Other Current Liabilities

Interest Accrued But Not Due on Debentures


Computer Software under Development

Non – current Assets Fixed Assets – Intangible Assets Under Development

Capital Advances Non – current Assets Long – term Loans and Advances




Premium Payable on Redemption of Debentures

Non – current Liabilities

Other Long – term Liabilities

Premium Payable on Redemption of Pref. Shares in 10 Months


Tax Reserve Shareholders’ Funds Reserves and Surplus

Mining Rights Non – current Assets Fixed Assets – Intangible Assets

En-cashable Employees Earned Leave Payable on Retirement

Non – current Liabilities

Long – term Provisions




Loose Tools Current Assets Inventories

Vehicles Non - current Assets Fixed Assets - Tangible

Calls in Advance Current Liabilities Other Current Liabilities

Interest on Calls – in – Advance


Stores and Spares Current Assets Inventories

Subsidy Reserve Shareholders’ Funds Reserves and Surplus

Computer Software Non – current Assets Fixed Assets – Intangible

Proposed Dividend Current Liabilities Short – term Provisions

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Frequently Asked Questions on Schedule VI 1 CA. (Dr.) G.S. Grewal