MCA (Ministry of Company Affairs) issued the amendments in Companies Act, 2013 rules under Schedule III, with effect from April 1, 2021. These guidelines were put in place to improve the company’s transparency by increasing the amount of information disclosed in the financial statements and notes to accounts.
The Companies Act of 2013, Schedule III, provides a framework for preparing financial statements such as the company’s Balance Sheet and Statement of Profit and Loss. As a result, the changes mentioned are important since they will have a direct impact on how you present your company’s financial statements.
What Are The Amendments In Companies Act You Should Be Aware Of?
The following are the amendments in companies act, 2013:
1. Previously, businesses used to round off figures in financial statements based on “turnover”; however, with the latest amendment, rounding off would be based on your company’s “total profits.”
2. Additional disclosures are required in the notes to the balance sheet, as listed below:
- The promoters’ shareholding, and any changes, must be disclosed in the note on share capital.
- Suppose your business has taken out a loan from a bank (while providing its current assets as collateral). The company needs to report if the books of accounts tally with the quarterly or monthly returns filed with the respective banker. A separate reconciliation statement must be made if there is a difference.
- Furthermore, if funds borrowed from banks and other financial institutions are not used for the purpose for which they were borrowed, the reasons must be reported at the balance sheet date.
- If the property, plant, and equipment have been revalued, the company must report if the valuation was performed by a certified valuer.
- If your business has given loans to its promoters, directors, KMPs (Key Managerial Persons), or related parties, you must disclose this information. Details of the loans issued to promoters should also be listed as a percentage of the company’s total outstanding loans.
- According to the law, a business must report how the borrowed funds were used.
- The premium on shares must be disclosed. If there is a difference of more than 25% from the previous financial year, the details of the adjustment must be reported.
3. According to the amendments in companies act rules, you must keep an expiration schedule for the following things in your financial statements:
|Trade receivables||Trade payables|
|Capital-work-in progress||Intangible assets under development|
4. The re-classification of certain things in the financial statements is stated in the amendment laws, namely:
- Current maturities of long-term borrowings must be reported separately under the heading “Short Term Borrowings.” It was previously disclosed under the heading “Other Current Liabilities.”
- Previously, security deposits were listed under ‘Long term loans and advances’ w.e.f 1st April 2021, they shall be re-classified as ‘Other Non- Current Assets.
5. Furthermore, the rules state that you need to reveal the following ratios:
|Current Ratio||Debt-Equity Ratio|
|Debt Service Coverage Ratio||Return on Equity Ratio|
|Trade payables turnover ratio||Trade Receivables turnover ratio|
|Inventory turnover ratio||Net capital turnover ratio|
|Net profit ratio||Return on Capital employed|
|Return on investment|
6. The following are some additional disclosures that must be included in the financial statements:
- Your company must provide these details on all immovable property;
Where your company does not hold the title deed and Where immovable property is jointly held with other parties
- In addition, details about the company’s share of such jointly owned property must be disclosed.
The only exception to the rule is if your company is the lessee and the lease agreements have been properly conducted in your favour.
- If the Benami Transactions (Prohibition) Act, 1988, proceedings have been launched or are pending against your business for owning any Benami property, relevant disclosures must be made.
- If a business has been declared a deliberate defaulter by a bank, financial institution, or another lender, the details must be disclosed.
- If your company has had some dealings with another company whose name has been crossed off, disclosures have to be made accordingly.
- Information and reasons must be reported if the company has not registered any charges with the Registrar of Companies and the delay has exceeded the statutory period.
- If your company has obtained funds from any individuals or organisations (including foreign entities) to invest, provide a guarantee or protection to third parties, or to lend to another entity, the company must report such details.
- If a scheme of arrangement has been approved, certain information mustbe disclosed, such as:
- – The effect of such an agreement on your company’s books of accounts.
- – If any deviation from accounting principles occurs when putting the scheme into effect, the reasons for the deviation must be explained.
Why Choose Us?
The amendments in Companies Act, 2013 was primarily intended to promote the transparency of the company’s financial statements. This will assist the persons reading these statements and help them better understand the company’s performance. It will apply to all companies beginning April 1, 2021.
We help your business navigate with ease through our suite of services which include: