Nikita Khandelwal
(Student)
(86 Points)
Replied 02 January 2009
dear frnd
schedules are only pre defined formats and thus we follow it.
the item u mentioned abouve can b treared in both the ways bt if law is saying something then we hav to follow it
Varun Malhotra
(Chartered Accountant)
(207 Points)
Replied 20 January 2009
Schedule VI lacks in respect of proper classification of current and non current assets.
Loans given to employees are classified under loans and advances; no bifurcation is made as to current or non current. This would make sense if loans given are of long term nature. But if loans are given for short term e.g. for 1 year then as per Schedule VI it has to be classified under loans and advances, it can not be classified under Current Assets, whereas nature of loan is very much current. If you will refer to the presentation requirements as per USGAAP and IFRS each and every asset and liability is required to be classified as current or non-current on the face of balance sheet itself depending upon the time the item will take to convert into cash. (Current assets are cash and other assets expected to be converted into cash, sold, or consumed either in one year or in the operating cycle, whichever is longer).
In similar way cash and bank balances includes margin money, cash collateral and some deposits which are restricted in the nature. These deposits can not be treated as current because these can not be converted in to cash immediately. But Schedule VI does not provide for bifurcation of these assets. This vitiates the purpose of financial statement analysis because when we are calculating current ratios these restricted assets are included in the current assets which actually can not be converted in to cash. This inflates the current ratio.
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