In the notes, reserves and surplus are required to be classified as follows :
- Capital reserves
- Capital redemption reserve
- Securities premium reserve
- Debenture redemption reserve
- Revaluation reserve
- Share options outstanding account
- Other reserves (specifying the nature and purpose of each reserve and the amount in respect thereof). For example, Foreign Currency Translation Reserve arising on translation of financial statements of a non-integral foreign operation.
- Surplus i.e. balance in statement of profit and loss, disclosing allocations and appropriations such as dividend, bonus shares and transfer to/ from reserves, etc.
The existing Schedule VI requires that in case there is debit balance in the profit and loss account, uncommitted reserves should first be deducted therefrom. The remaining balance, if any, after such deduction is required to be disclosed on the assets side of the balance sheet (or under application of funds in the vertical form of balance sheet).
In the revised Schedule, it is explicitly provided that debit balance of profit and loss shall be shown as a negative figure under the head 'surplus' under 'shareholders' funds'. Similarly, the balance of 'reserves and surplus', after adjusting negative balance of surplus, if any, shall be shown under the head 'reserves and surplus' even if the resulting figure is in the negative.
It may be noted that the above would also impact the balance of reserves and surplus to be considered for compliance with various provisions of law. For example, an issue would arise whether the balance of 'share options outstanding account' should be considered as part of the free reserves for computation of limits under Section 372A of the Act or for computation of reserves to determine the applicability of Companies (Auditor's Report) Order, 2003 ('CARO').
