Amendments in Indian Companies Act for the preparation of Financial Statements for the year ending 31st March 2022

The Ministry of Corporate Affairs of India has amended Schedule III of the Companies Act 2013 which is effective from 1st April 2021. It prescribes additional disclosures to be made in the financial statements. Following is the gist of the amendments:-

I) Amendments related to Balance Sheet items

1) Promoters shareholding:- The company shall disclose the shareholding of promoters for each class of shares at the end of the year in the prescribed format.

2) Statement of changes in equity:- Following additional disclosures are required with regard to equity share capital:-

a) Changes in equity share capital due to prior period errors.

b) Restated balance at the beginning of the current reporting.

3) Discrepancy in the utilization of borrowings:- The company shall disclose the utilization of funds borrowed from banks and Financial Institutions in case such funds have not been used for the specific purpose for which these were borrowed.

4) Current maturities of long-term borrowings:- These shall be disclosed under “Short term borrowings” separately. Hence it will form part of debt for the calculation of debt-equity ratio.

5) Borrowing procured on the basis of security of current assets:- In such case the company shall disclose:-

i) Whether quarterly statements of current assets filed with banks of financial statements are in agreement with books of accounts.

ii) If not, summary of reconciliation and reasons of material discrepancies to be disclosed.

6) Utilization of borrowed funds and share premium:

I) Where the company has advanced borrowed funds or share premium or any other funds to intermediate entities which have further invested or provided guarantee to other entities it shall disclose:-

a) Details of funds invested along with that of each intermediary.

b) Details of funds for the advance by such intermediaries or guarantees provided to Ultimate Beneficiaries with their complete details.

c) Declaration that provisions of FEMA and Companies Act have been complied and there is no violation of Prevention of Money-Laundering Act.

II) Where company has received funds from any entity which have been advanced or guarantee has been provided to other entities it shall disclose:-

a) Details of such funds and the funding party.

b) Details of the funds invested with Ultimate Beneficiaries

c) Details of guarantee provided to Ultimate Beneficiaries.

d) Declaration that provisions of FEMA and Companies Act have been complied and there is no violation of Prevention of Money-Laundering Act.

7) Lease liabilities:- Long term maturities and current maturities of lease obligations are to be classified under non-current and current financial liabilities respectively.

8) Trade payables:- In addition to the segregation of trade payables into dues of MSME and other than MSME additional disclosures as prescribed has to be made which discloses the outstanding period wise and also classifies if the outstanding relates to any disputed dues.

9) Trade Receivables:- Similarly in the case of Trade Receivables period wise outstanding classified into undisputed and disputed receivables have to be disclosed as per prescribed format.

10) Other financial assets: As per the amendment this head shall include:-

a) Security deposits

b) Bank deposits with more than 12 months maturity

c) Others (to be specified)

11) Fair value of investment property:- Companies now have to disclose as to whether the fair value of investment properties is based on the valuation by a registered valuer as defined in the rules.

12) Loans and advances: Disclosure shall be made where loan or advances in the nature of loans are granted to promoters, directors, KMPs and the related parties that are (a) repayable on demand (b) Without specifying any terms or period of repayment.

13) Details of Benami property held: Where any proceeding has been initiated against the company for holding any Benami property under the relevant act the company shall disclose all details of such property as prescribed.

14) Relationship with struck off companies:- Whether company has any transaction with companies struck off under the Companies Act it shall disclose the details of such transactions.

15) Revaluation of property plant and equipment an intangible assets:- In addition to the existing requirement of reconciliation of gross and net carrying amount of each class of assets it has also to disclose the amount of change due to revaluation (in case of more than 10%) and whether the revaluation was carried out by a registered valuer.

16) Capital Work in progress and intangible assets under development:- Details of intangible assets under development showing year wise progress and projects temporarily suspended has to be given. Also a separate disclosure has to be made of intangible assets under development whose completion is overdue or has overrun its cost as compared to original plan.

17) Title deeds of immovable property not held in the name of the company:- The company has to provide the details of all immovable property whose title deeds are not held in the name of the company.

II) Amendments related to statement of profit and loss items:

18) Undisclosed income:- The company shall disclose details of any transaction not recorded in books of accounts and has been surrendered as income during the year in the income tax assessment. It shall also state whether previously unrecorded income has now been properly recorded in accounts during the year.

19) Details of cryptocurrency: The company has to disclose details of cryptocurrency in which it has dealt during the year and held on the reporting date.

20) Grants for donations received:- Section 8 companies are required to disclose in the Schedule of Revenue from operations for grants or donations received.

21) Corporate Social Responsibility: Company covered under CSR provisions shall disclose all details about amount required to be spent, amount incurred, shortfall, previous years shortfall and its reason, nature of CSR activities, related party transaction in connection with CSR expenditure.

III) Amendments related to other items:

22) Disclosure of ratios:- Following ratios are to be disclosed:-

a) Current ratio

b) Debt equity ratio

c) Debt service coverage ratio

d) Return on equity ratio e) Inventory turnover ratio

f) Trade receivables turnover ratio

g) Trade payables turnover ratio

h) Net capital turnover ratio

i) Net profit ratio

j) Return on capital employed

k) Return on investment Also explanation has to be provided for any variance in the ratio by more than 25% as compared to previous year.

23) Registration of charges:- Details of registration or satisfaction of charges pending beyond the statutory period along with reasons for delay has to be disclosed.

24) Wilful defaulters:- in the case of a company declared as a wilful defaulter by any bank or other lender details of such declaration is to be given.

25) Compliance with the number of layers of Companies:- Where the company has not complied with the number of layers as prescribed under the Act the name and CIN of companies beyond the specified layers, extent of holding in such downstream companies has to be disclosed.

26) Compliance with the approved schemes of Arrangements:- In the case of a company where Scheme of Arrangements has been approved it shall disclose that effect of such scheme have been accounted for in the books of accounts.

27) Rounding off:- Figures in the financial statements are required to be rounded off based upon the total income of the company.

Compiled by Sandeep Bhatnagar


Associate – KCC Group


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