Schedule VI Balance Sheet - Meaning, Format, Components & Importance

Prior to the introduction of Schedule III, companies in India used to prepare their financial statements as per Schedule VI of the Companies Act, 1956. Schedule VI prescribed a uniform pattern for presentation of financial position of a company. It held vital information such as the company’s assets, liabilities and shareholders’ funds. The Revised Schedule VI further introduced a more structured and uniform manner of presenting the financial information and disclosures. But Schedule VI is not applicable anymore for the present company’s financials. It has been replaced by Schedule III of the Companies Act, 2013 w.e.f. 1st April, 2014.

The main difference between Schedule VI and Schedule III is that they were prescribed under two different Companies Act. Schedule VI was applicable under Companies Act, 1956 and Schedule III is applicable under Companies Act, 2013. Prior to 1 April 2014, companies prepared and presented their financial statements in compliance with the Revised Schedule VI. Today, companies are subject to the applicable requirements of Schedule III.

Though Schedule VI is no longer used for preparation of current financial statements, it is still relevant for students and accounting professionals who are interested in interpreting the older financial statements, accounting history and evolution of corporate financial reporting in India.

Related Read: How Advanced Accounting Courses Help You Master Financial Statements

Schedule VI was the part of the Companies Act, 1956 which prescribed the form and content of the balance sheet and profit and loss account of a company. It provided a uniform method for reporting critical financial information.

The Revised Schedule VI was introduced with a view to improving the presentation and disclosure in the financial statements. It required a vertical format for the balance sheet and required companies to show comparative figures for the current and prior reporting periods.

• Shareholders’ Equity and Liabilities
• Assets

Schedule VI contributed to bring uniformity in the financial statements of the companies prepared under the Companies Act, 1956.

1. Consolidated Financial Statements: It provided companies with a way to present their balance sheets and financial information in a standardized manner.
2. Greater Financial Disclosure: The requirements also permitted companies to reveal detailed information on their capital, borrowings, assets, liabilities and other financial items.
3. Simpler to compare: The prescribed format and the comparative figures helped users in comparing the financial position of a company for different reporting periods.
4. More transparency: Schedule VI prescribing disclosures helped stakeholders to understand the financial position of the company better.
5. Financial analysis support: The information can be used by investors, lenders, auditors, management and other stakeholders to assess the financial position of the company and make informed decisions.

The Revised Schedule VI prescribed the following broad structure for the balance sheet:

The required format included figures for the current and prior reporting periods, and supporting information was to be provided in the notes to the financial statements.

1. Equity Shareholders Funds: 

The shareholder’s funds were the funds contributed by the shareholders and the reserves accumulated by the company.

Normally they contained:
• Share Capital
• Surplus and Reserves
• Share Warrant Money Received

These amounts were part of shareholders’ funds, if shareholders contributed ₹50 lakh as share capital and the company had ₹10 lakh in reserves.

2. Application Money Pending Allotment: 

This was money received from applicants for shares where the shares had not yet been allotted.

3. Liabilities (long term): 

They were the company’s long-term obligations.

Included sample:
• Loans for the long term
• Deferred tax liability
• Other long-term liabilities
• Provisions, long term

A bank loan that will be repaid over five years would normally be considered a long-term debt.

4. Liabilities (Current): 

Current liabilities are the debts which are to be paid off in the relevant short-term period.

Examples included:
• Debt due within one year
• Accounts payable
• Other current liabilities
• Short term provisions

Normally, a supplier would report an amount payable for goods purchased on credit as a trade payable.

Assets are the resources owned by the company that are expected to generate future economic benefits. Under Revised Schedule VI format, assets were broadly classified into non-current assets and current assets.

1. Fixed Assets:
Non-current assets are the long-term assets that the company uses or holds.

They consisted of:
• Property, plant and equipment
• Non-physical assets
• Capital Works in Progress
• Development costs of intangible assets
• Investments (non-current)
• Deferred tax asset
• Long-term loans and advances
• Other non-current assets

For example, machinery purchased for use in a manufacturing business would be classified as a tangible fixed asset.

2. Available assets:
Current assets were assets expected to be realized, sold or consumed within the relevant operating cycle or short-term period.

These were:
• Current Investments
• Inventories
• Trade receivables
• Cash and cash equivalents
• Loans and advances (short term)
• Other assets, current

Example: A company’s inventory would consist of goods held for sale.

Revised Schedule VI prescribed various disclosure requirements for improving the quality of financial reporting. Companies had to provide information through the balance sheet and notes thereto.

Some important areas were:

• Share capital information
• Reserves and surplus
• Borrowed words
• Long-term assets
• Investments.
• Trade receivables
• Inventories
• Cash and bank balances;

The Revised Schedule VI also required the figures for the immediately preceding reporting period to be shown correspondingly, except in certain circumstances, such as in the case of the first financial statements after incorporation.

The most important point to remember is that Schedule VI and Schedule III relate to different company law frameworks and periods.

The Institute of Chartered Accountants of India (ICAI) had clearly stated that companies would have to comply with Schedule III of the Companies Act, 2013, with effect from 1 April 2014, with the result that the Revised Schedule VI would be applicable only to financial statements relating to the preceding period.

No not for the current company financial statements under the Companies Act, 2013. Schedule III superseded Schedule VI w.e.f. 1 April 2014. Hence, companies under the Companies Act, 2013 preparing financial statements are required to follow the applicable requirements of Schedule III and the relevant accounting framework.

Nevertheless, a knowledge of Schedule VI would still be useful to accounting students, professionals, researchers and anyone analysing financial statements drawn up under the Companies Act, 1956.

The Schedule VI Balance Sheet was an important format for the presentation of the financial position of the companies under Companies Act, 1956. It standardized the presentation of shareholders’ funds, liabilities, assets and other financial information, and improved the comparability and transparency of corporate financial statements. Schedule VI has been replaced by Schedule III of the Companies Act, 2013. But the concepts are still useful to understand historical financial statements and the evolution of corporate financial reporting in India.

Question 1: What is meant by the Schedule VI Balance Sheet?

Answer: Schedule VI Balance Sheet shall mean a financial statement prepared in accordance with the format prescribed under the companies act, 1956. It gave information on shareholders’ funds, liabilities, assets and other financial items.

Question 2: Is Schedule VI relevant for companies today?

Answer: No. Schedule VI of the Companies Act, 1956 was substituted by Schedule III of the Companies Act, 2013 for financial statements w.e.f. 1 April 2014.

Question 3: What were the main features of a Schedule VI Balance Sheet?

Answer: Main components were shareholders’ funds, share application money pending allotment, non-current liabilities, current liabilities, non-current assets and current assets.

Question 4: What is the difference between Schedule VI and Schedule III?

Answer: Schedule III is prescribed under the Companies Act, 2013 and Schedule VI is prescribed under the Companies Act, 1956. Revised Schedule VI was replaced by Schedule III for current company financial reporting from 1 April 2014.

Question 5: What is the importance of Schedule VI to accounting students?

Answer: The Schedule VI helps the accounting students to learn the historical format of corporate financial statements and the evolution of the balance sheet presentation in India. It may also be useful in analysing or studying past financial statements.

Question 6: What is the substitute for Schedule VI of the Companies Act, 1956?

Answer: Revised Schedule VI was replaced by Schedule III, effective from 1 April 2014, for company financial statements under the Companies Act, 2013.