FORM OF BALANCE SHEET
As per the revised Schedule, the balance sheet can be prepared only in vertical form. Horizontal (or T-form) of balance sheet has been done away with. There are however significant broad-level changes in the new vertical form as compared with the present vertical form. The present vertical form purports to show the aggregate of 'sources of funds' as well as 'application of funds'.
However, the way the total sources of funds and applications thereof are determined under the existing Schedule VI raises a number of conceptual issues. For example, the current liabilities and provisions (without making the distinction of current/non-current) are deducted from the aggregate of current assets and loans and advances. Similarly, the net debit balance of profit and loss account is not adjusted against reserves.
The new vertical form is conceptually more sound since it shows total assets as well as total equity and liabilities.
Total equity or shareholders' funds is correctly disclosed after deduction of net debit balance of profit and loss account. Liabilities are divided into current and non-current. Similarly, the assets side depicts current assets and non-current assets with no separate broad heading of 'miscellaneous expenditure' (or 'debit balance of the profit and loss account').
The above raises the question of disclosure of 'miscellaneous expenditure to the extent not written off or adjusted'. Obviously if an item under this head is an intangible asset it would be so classified. Other items e.g. discount allowed on issue of debentures or debenture issue expenses would need to be reclassified.
- Current / Non-current Distinction
- A significant change is the requirement to classify all assets and liabilities into current and non-current categories. What constitutes a current asset or a current liability is explicitly defined (the definitions are essentially the same as in international standards and had to be given in the Schedule since they are not presently contained in any notified Indian Standard).
- Broad Headings of Balance Sheet
- The broad headings under which balance sheet is divided are 'equity and liabilities' and 'assets'.
- Equity and Liabilities
- Shareholders' funds (with further sub-classification on the face)
- Share application money pending allotment
- Non-current liabilities (with further sub-classification on the face)
- Current liabilities (with further sub-classification on the face)
- Assets
- Non-current assets (with further sub-classification on the face)
- Current assets (with further sub-classification on the face)
Equity and liabilities are divided as follows:
Assets are divided as follows:
