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By-Sushmita Sonwani

MBA (HR & IR)


 Companies Act 2013 regarding preparation
of Financial statements, will cover
 Books of accounts
 Depreciation
 Financial statements
 Consolidated Financial Statements
 Directors Report
Companies act 1956 Companies act 2013

““Financial Year” means, in “Financial Year” means in relation


relation to any body corporate, the to any company or body corporate,
period in respect of which any means the period ending 31st day
profit and loss account of the body of the March every year, and where
corporate laid before it in annual it has been incorporated on or
general meeting is made up, after the 1st day of January of a
whether that period is a year or year, the period ending on 31st
not: day of march of the following year,
in respect where of financial
statement of the company or body
corporate is made up.
 In relation to company, includes:
 a) Balance Sheet at the end of financial year.
 b) statement of Profit & Loss for the financial
year
 c) Cash Flow statement (not mandatory for small
companies, OPCs & Dormant companies) for the
financial year.
 d) Statement of Changes in equity, if applicable
 e)Explanatory statement Note annexed to &
forming part of Financial statements.
CHANGES-
 The Companies Act, 2013 provides that books of
accounts may be kept in electronic form also.
 Every Company shall now be required to prepare
and keep financial statements, other relevant
books, minutes and registers at its registered
office.
 The term Balance Sheet, Profit & Loss Account,
has been define collectively as Financial
Statement under the Act, cash flow statement
and statement showing change in equity (if
applicable) of the company also forms part of the
same.
 The FS shall give a true and fair view and comply
with the AS & shall be in the form as provided in
Schedule III.

 The FS shall be laid in the AGM within six months


form the end of the financial year.
 The holding company shall in addition, prepare a
Consolidated Financial Statement of the
Company along with its all subsidiaries,
associates & joint ventures and lay before the
AGM.
 A:- Following AS are applicable to all
companies, without exception:
 AS-1 Disclosure of Accounting Policies
 AS-2 Valuation of Inventory
 AS-4 Contingencies and Events occurring
after Balance sheet date
 AS-5 Net Profit or Loss for the period. Prior
period items and changes in Accounting
policies
 AS-6 Depreciation Accounting
 AS-7 Construction Contracts
 AS-9 Revenue Recognition
 AS-10 Accounting for Fixed Assets
 AS-11 The effects of changes in Foreign
exchange Rates
 As-12 Accounting for Government grants
 AS-13 Accounting for Investments
 AS-14 Accounting for Amalgamations
 As-16 Borrowing costs
 AS-18 Related Party Transactions
 As-22 Accounting for taxes on Income
 As-24 Discontinuing operations
 As-26 Intangible Assets
 B:- At present, following AS are applicable to
companies only if, the preparation of
consolidated FS/Interim FS are either mandatory
or these companies voluntary chooses to do so.
However, till the time IND AS are notified,
companies required to prepare consolidated FS
would have to follow;
 AS- 21ConsolidatedFinancial Statements
 As-23 Accounting for investments in Associates
 AS-27 Financial Reporting of Interest in Joint
Ventures
 AS-25 Interim Financial Reporting
Consolidated Financial Statement
(CFS)

Neither the Companies Act, 1956 nor AS 21


requires the Companies to prepare
Consolidated Accounts. At present, Clause 32
of the Listing Agreement mandates listed
Companies to publish its Consolidated
Accounts which is neither required to be laid
before the AGM nor to be filed with ROC.
 Under the Companies Act, 2013 where a
company has one or more subsidiaries, it shall,
in addition to financial statements, prepare
consolidated financial statement of the company
and laid before the annual general meeting of
the company.
 All subsidiaries, associates and joint ventures
will be covered under CFS.
 Company shall prepared the Consolidated
Financial Statements according to Schedule III of
the Companies Act, 2013 which is in line with
revised schedule VI.
 All Companies including unlisted and private
companies, with subsidiaries will need to prepare
CFS.
General Instructions for preparation of
CFS

 Where a company is required to prepare CFS,


the company will mutatis mutandis follow the
requirements of this Schedule.
 Profit or Loss attributable to ‘minority
interest’ and to owners of the parent in the
statement of profit and loss shall be
presented as allocation for the period.
 A company will disclose the list of
subsidiaries or associates or joint ventures,
which have not been consolidated along with
the reasons for non consolidation.
Small Company :
• Small Company is not defined under the
Companies act, 1956.
• As per section 2(85) of the Companies Act,
2013, small company means a company,
other than a public company-
i. Paid up share capital does not exceed
Rs.50 lakh or such higher amount as may
be prescribed which shall not be more
than Rs. 5 crore or
ii. Turn over as per its last statement of
profit and loss does not exceed Rs. 2
crore or such higher amount as may be
prescribed which shall not be more than
Small Company (Contd..)

This clause shall not apply to –


a. A holding company or subsidiary company
b. A company registered under section 8
(formation for charitable objects)
c. A company or body corporate governed by
any special Act.
 Following standards are not applicable to
SMCs in its entirety:
 AS-3 Cash Flow
 AS-17 Segment Reporting
 SMC as per Accounting Standard Rules 2006
are the companies:
 a. Whose equity or debt securities are not
listed on any stock exchange or are not in
process of listing.
 b. which is not a bank, financial institution or
an insurance company.
 c. Whose turnover excluding other income
does not exceed Rs.50 Crore in immidiately
preceding previous year.
 d. which does not have borrowings including
public deposits in excess of Rs.10 Crore
 e. which is not a holding or subsidiary of a
company which is not SMC
 D. Following Standards are applicable to
SMCs with certain exemptions

Accounting Standard Exemption paragraphs


AS-15 Employee Para 11 t0 16
Benefits Para 46 and 130
Para 50 to 116
Para 117 to 123
Para 129 to 131
AS-19 Leases Para 22©, (e) and (f)
Para 25(a),(b) and (e)
Para 37(a) and (f)
Para 46(b) and (d)
AS -20 Earnings per Disclosure of Diluted
share earning
 D. Following Standards are applicable to
SMCs with certain exemptions
Accounting Standard Exemption paragraphs
AS-28 Impairment of Certain provisions
Asset relating to
measurement of
`Value in Use’ and
para121(g)
AS-29 Provisions, Para 66and 67
Contingent Liabilities
and Contingent Assets
 Though MCA has issued 35 Ind AS in
February 2011 yet they are not notified.
 Upon its’ Notification, companies would be
required to follow Ind AS issued by MCA.
Companies Act, 1956 Companies Act, 2013
As per Section 350 of the Act Section 123(2) provides that the
the amount of depreciation to depreciation shall be
be deducted in pursuance of calculated as per the
clause (k) of sub-section (4) of provisions of schedule II.
section 349 shall be the amount Schedule II introduced:
of depreciation on assets as
• Depreciation to be based on
shown by the books of the
useful life & residual value
company at the end of the
financial year expiring at the • Useful lives of various
commencement of this Act or tangible assets prescribed
immediately thereafter and at • Residual Value not more
the end of each subsequent than 5% of the original cost
financial year at the rate of the asset
specified in Schedule XIV: • From the date Schedule II
becomes effective carrying
amount of the asset shall be
depreciated over the
remaining useful life of the
asset
SCHEDULE II (See section 123)
USEFUL LIVES TO COMPUTE
DEPRECIATION
 PART ‘A’
1. Depreciation is the systematic allocation of the
depreciable amount of an asset over its useful
life. The depreciable amount of an asset is the
cost of an asset or other amount substituted for
cost, less its residual value. “The useful life of an
asset” is the period over which an asset is
expected to be available for use by an entity, or
the number of production or similar units
expected to be obtained from the asset by the
entity.
USEFUL LIVES TO COMPUTE DEPRECIATION
(Contd.)

2. For the purpose of this Schedule, the term


depreciation includes amortisation.
3. Without prejudice to foregoing provisions of
paragraph 1,—
(i) In case of such class of companies, as may be
prescribed and whose financial statements comply
with the accounting standards prescribed for such
class of companies under section 133 the useful life
of an asset shall not normally be different from the
useful life and the residual value shall not be
different from that as indicated in Part C, provided
that if such a company uses a useful life or residual
value which is different from the useful life or
residual value indicated therein, it shall “disclose the
justification” for the same.
USEFUL LIVES TO COMPUTE DEPRECIATION (Contd.)

(ii) In respect of other companies the useful life


of an asset shall not be longer than the
useful life and the residual value shall not be
higher than that prescribed in Part C.

(iii) For intangible assets, the provisions of the


Accounting Standards mentioned under sub-
para (i) or (ii), as applicable, shall apply.
USEFUL LIVES TO COMPUTE DEPRECIATION
(Contd.)

 PART ‘B’
4. The useful life or residual value of any
specific asset, as notified for accounting
purposes by a Regulatory Authority
constituted under an Act of Parliament or by
the Central Government shall be applied in
calculating the depreciation to be provided
for such asset irrespective of the
requirements of this Schedule.
Part 'C'

Depreciation (Contd.)
• Componentization of assets mandated
Separate capitalization and depreciation of a
part of an asset if its cost is significant to the
total cost of the asset and its estimated life is
different from the remaining asset
• Accounting for replacement costs.
• Significant increase in rate of depreciation of
commonly used assets as compared to
Schedule XIV rates under the 1956 Act
Nature of asset - The Companies
illustrative Act, 2013 The
%
Deem Compani Increas
Useful change
ed es Act, e
Life
rate 1956
General Plant and
Machinery other than
continuous process plant 15 6.33% 4.75% 1.58% 33.33%
11.88 124.91
Continuous process plant 8 % 5.28% 6.60% %
General furniture and
fittings 10 9.50% 6.33% 3.17% 50.08%
19.00 300.00
Office equipment 5 % 4.75% 14.25% %
31.67
Desktops, laptops,
• Depreciable etc.
amount to be3 determined
% after
16.21% 15.46%expected
reducing 95.35%
Electrical
residualInstallations
value and 100.00
Equipment 10 9.50% 4.75% 4.75% %
• Residual value generally not more than 5% of the original cost of
the asset
Depreciation :
Depreciation on tangible fixed assets based on
estimated useful life
From a Rates regime to Useful Lives
Useful life of an asset is the period over
which the asset is expected to be
available for use by the entity or the
number of production or similar units
expected to be obtained from the asset
Notes —
1. "Factory buildings" does not include offices, godowns, staff
quarters.
2. Where, during any financial year, any addition has been
made to any asset, or where any asset has been sold,
discarded, demolished or destroyed, the depreciation on
such assets shall be calculated on a pro rata basis from the
date of such addition or, as the case may be, up to the
date on which such asset has been sold, discarded,
demolished or destroyed.
3. The following information shall also be disclosed in the
accounts, namely:—
(i) depreciation methods used; and
(ii) the useful lives of the assets for computing
depreciation, if they are different from the life specified in
the Schedule.
4. Useful life specified in Part C of the Schedule is for whole
of the asset. Where cost of a part of the asset is significant
to total cost of the asset and useful life of that part is
different from the useful life of the remaining asset, useful
Notes (contd.)—
5. Depreciable amount is the cost of an asset, or
other amount substituted for cost, less its residual
value. Ordinarily, the residual value of an asset is
often insignificant but it should generally be not
more than 5% of the original cost of the asset.
6. The useful lives of assets working on shift basis
have been specified in the Schedule based on their
single shift working. Except for assets in respect of
which no extra shift depreciation is permitted
(indicated by NESD in Part C above), if an asset is
used for any time during the year for double shift,
the depreciation will increase by 50% for that
period and in case of the triple shift the
depreciation shall be calculated on the basis of
100% for that period.
Notes (contd.) —
7. From the date this Schedule comes into
effect, the carrying amount of the asset as on
that date—
(a) shall be depreciated over the remaining
useful life of the asset as per this Schedule;
(b) after retaining the residual value, shall be
recognised in the opening balance of
retained earnings where the remaining useful
life of an asset is nil.
8. ‘‘Continuous process plant’’ means a plant
which is required and designed to operate for
twenty-four hours a day.
 CA 1956 had Schedule XIV wherein SLM Rates
and WDV rates were prescribed for different class
of assets and companies had an option to
provide depreciation and any of these rates.
 Now CA 2013 has provided that depreciation has
to be provided as per Schedule II of the Act
wherein useful life of different class of assets
have been provided and depreciation has to be
provided accordingly till 95% of the value of asset
is written of.
 Does this mean that depreciation has to be
written off according to SLM only or still the
companies have option to provide depreciation
based upon other methods ?
THANK YOU

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