Revised schedule vi

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

05 November 2012 Whether, Interest paid on Delayed Payment of VAT should be shown under rates & Taxes or can be shown with Interest Expense under finance cost.

murtuza munim

murtuza munim (Expert)
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06 November 2012 Hi,
The interest paid on delayed payment of VAT should be shown under Miscellaneouse expenses as per the revised sch VI.

The reason being that the finance cost has three bifurcations and the interest on VAT would not fit under any of the same, also interest on VAT does not fit into the definiton of Rates and Taxes too.

The details of finance cost as per the exposure draft by the ICAI on the revised sch VI is reproduced below;

"9.6.5 As per Note 3 of to the General Instructions to the Statement of Profit and Loss, disclosure of Finance costs is to be bifurcated under the following:
(A) Interest expense
(B) Other borrowing costs
(C) Applicable net gain/loss on foreign currency transactions and translation

A) Interest expense
This would cover interest paid on borrowings from banks and others, on debentures, bonds or similar instruments etc. Finance charges on finance Guidance Note to the Revised Schedule VI to the Companies Act, 1956 leases are in the nature of interest expense and hence should also be classified as interest expense. In the absence of any bifurcation required for interest paid on fixed period loans and other borrowings as required under the old Schedule VI, the same need not be given.
B) Other Borrowing costs Other Borrowing costs would include commitment charges, loan processing charges, guarantee charges, loan facilitation charges, discounts/premium on borrowings, other ancillary costs incurred in connection with borrowings, or amortization of such costs, etc.
C) Applicable net gain/loss on foreign currency transactions and translation
As per Para 4(e) of AS-16, borrowing costs also include exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Any such exchange differences would need to be disclosed under this head.

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Querist : Anonymous

Querist : Anonymous (Querist)

06 November 2012 Thanks Mr Murtuza, but why Interest paid on Inccome tax is shown alnong with interest expenses.

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murtuza munim

murtuza munim (Expert)
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08 November 2012 Hi,

Agree with you on the classification of the disclosure of Interest paid on Income tax under Interest expenses. This is disclosed as such , since it is specifically stated, the relevant para of the guidance note for the criteria's as to when should the penalties/interest be shown under Interest and when to be shown under Other Misc expenses is reproduced below

9.9.1.4 Any interest on shortfall in payment of advance income-tax is in the nature of finance cost and hence should not be clubbed with the Current Tax. The same should be classified as Interest Expense under Finance Costs.
However, such amount should be separately disclosed.

9.9.1.5 Any penalties levied under Income Tax laws should not be classified as Current Tax. Penalties which are ompensatory in nature should be treated as interest and disclosed in the manner explained above. Other tax penalties should be classified under Other Expenses.

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