On 11 October 2018, the Ministry of Corporate Affairs (MCA) issued a notification amending Schedule III of the Companies Act, 2013, significantly impacting the way financial statements are presented by companies in India. The amendments are applicable to financial statements prepared for FY 2018–19 onwards. These changes affect Division I (companies following Accounting Standards), Division II (companies following Indian Accounting Standards – Ind AS), and introduced Division III (for NBFCs preparing Ind AS financials).
The key intent of these amendments is to bring consistency, enhance transparency, and align disclosures with modern accounting practices. For companies under Division I, major changes include renaming “Fixed Assets” as Property, Plant & Equipment (PPE) in line with the revised AS-10, and presenting “Securities Premium” without the suffix “Reserve.” For Division II companies, similar changes were made regarding Securities Premium. Additionally, new requirements were introduced:
- Trade Payables must be classified on the face of the balance sheet into dues to MSMEs and others.
- Extensive disclosures on MSME dues in notes, covering unpaid amounts, interest liability, and continuing obligations.
- Notes on Other Equity now require descriptions of the purpose of each reserve created.
- Trade Receivables and Loans must be reclassified as “considered good – secured/unsecured,” “which have significant increase in credit risk,” and “credit impaired,” replacing the older “doubtful” category.
Together, these changes aim to improve financial statement comparability across companies, align reporting with global practices, and address earlier ambiguities.
Background
The MCA, through its notification dated 11 October 2018, amended Schedule III of the Companies Act, 2013, which prescribes the format of financial statements. These amendments apply to financial statements prepared in accordance with Schedule III after the said date, i.e., effective from FY 2018–19 onwards.
The amendments impacted:
- Division I – Companies preparing financial statements as per Accounting Standards (AS).
- Division II – Companies preparing financial statements as per Ind AS.
- Division III – Newly introduced for NBFCs preparing financials under Ind AS.
This alert summarises only the changes in Division I and Division II, excluding Division III which applies to NBFCs.
Impact on Companies
The notification made important changes that companies must immediately incorporate into their financial reporting practices.
- Division I (AS-based reporting): Companies preparing financial statements under AS must align with the updated nomenclature and presentation requirements.
- Division II (Ind AS-based reporting): Companies following Ind AS must incorporate similar adjustments, particularly in equity presentation and disclosure requirements.
- Division III (NBFCs under Ind AS): A separate format has been provided for NBFCs, though this analysis does not cover those provisions.
Summary of changes made
A) Division I Financial Statements
- Change of nomenclature – ‘Fixed Assets’ to ‘Property, Plant & Equipment’
- The revision reflects changes made to AS-10 (Accounting for Fixed Assets), which was renamed as “Property, Plant & Equipment” effective 30 March 2016.
- Consequently, the financial statements must now adopt this updated terminology.
- Securities Premium
- The word “Reserve” has been omitted from “Securities Premium Reserve.”
- Under the Reserves & Surplus schedule, it must now be presented simply as “Securities Premium.”
B) Division II Financial Statements
- Securities Premium
- Similar to Division I, the word “Reserve” has been removed.
- In the Other Equity schedule under the Statement of Changes in Equity, the item must now be presented as “Securities Premium.”
- Disclosure of Trade Payables
- Trade payables must now be split into:
- Total outstanding dues of micro enterprises and small enterprises (MSMEs).
- Total outstanding dues of creditors other than MSMEs.
- This classification must be disclosed on the face of the balance sheet, for both current and non-current trade payables.
- Trade payables must now be split into:
- Disclosure on details/breakup of MSME dues (Notes to Accounts)
Companies must disclose the following details in relation to MSME dues:- Principal and interest due and remaining unpaid at year-end.
- Interest paid during the year as per the MSMED Act, 2006, along with payments made beyond the appointed day.
- Interest due and payable for delayed payments, excluding statutory interest under MSMED Act.
- Interest accrued and remaining unpaid at year-end.
- Further interest remaining payable in subsequent years, until settlement.
These disclosures were already part of IGAAP financial statements, but the MCA explicitly amended Schedule III to ensure clarity and avoid ambiguity.
- Notes on Reserves & Surplus – Other Equity
- Companies must now provide a description of the purpose of each reserve created within Other Equity.
- This ensures transparency about why reserves exist and their intended use.
- Classification of Trade Receivables and Loans
- Sub-classifications of both non-current and current trade receivables and loans receivable must now follow:
- Considered good – Secured
- Considered good – Unsecured
- Which have significant increase in credit risk
- Credit impaired
- The earlier “doubtful” category has been eliminated and replaced with “significant increase in credit risk” and “credit impaired,” aligning with Ind AS terminology.
- Sub-classifications of both non-current and current trade receivables and loans receivable must now follow:
M2K Remarks
The amendments to Schedule III are aimed at harmonising financial disclosures between AS and Ind AS-based companies, while also ensuring alignment with modern accounting frameworks. By renaming items like “Fixed Assets” to “Property, Plant & Equipment” and removing “Reserve” from Securities Premium, the changes improve consistency with revised standards.
The enhanced classification and disclosure requirements for trade payables, MSME dues, and receivables ensure greater transparency and make financial statements more informative for stakeholders. Particularly, the emphasis on MSME-related disclosures aligns with the government’s policy focus on supporting small enterprises and ensuring timely payments.
At the same time, these amendments increase compliance requirements for corporates, requiring stronger accounting systems and careful attention to detail. Overall, the changes represent a significant step in refining India’s corporate financial reporting and improving comparability across diverse companies.
