Profit and loss account - Information required to be disclosed in accordance with Part II - Companies Law - Letter : No. 28/1/71-CL-V,

Circular Letter : No. 28/1/71-CL-V, dated 13-10-1976. Subject:- Profit and loss account - Information required to be disclosed in accordance with Part II Information in terms of para 3(ii) - According to Note 2 given under para 3 of Part II of Schedule VI and for the purposes of para 3(ii)(a), (b) and (d), the items for which the company is holding separate industrial licence, shall be treated as separate class of goods, while in case of trading companies the imported items are required to be classified in accordance with the classification adopted by the Chief Controller of Imports and Exports in granting the import licences. It may, therefore, be assumed on the same analogy that in case of manufacturing companies the turnover is to be similarly classified by reference to each class of goods for which the company holds an industrial licence. Similarly, in case of trading companies, the turnover should be classified in accordance with the classification adopted by the Chief Controller of Imports and Exports. There may, however, be cases where the company may not be holding any industrial licence or the goods cannot be classified according to the classification adopted by the Chief Controller of Imports and Exports, in such cases the classification adopted by the rules framed under the Monopolies and Restrictive Trade Practices Act may be adopted. If this is also not practicable or feasible, then the goods may be grouped under suitable broad headings. As regards the quantitative analysis, the same should be given according to the classification as pointed out above and not in general manner. Information in terms of clause (f) of sub-para (x) of para 3 - It is not possible to apportion the expenditure incurred in respect of certain employees, if the amenities provided are shared by other employees who get less than Rs. 3,000 per month. For example, the subsidy provided for a canteen, fair price shops, or educational institutions, which are used by all the employees of an organisation cannot be precisely apportioned and the amount attributable to employees drawing Rs. 3,000 or above worked out. Hence, expenditure to be disclosed here will relate only to the other expenditure by way of remuneration and perquisites, whether or not taxable in the hands of the employees concerned. Information in terms of clause (i) of sub-para (x) of para 3 - In terms of proviso to clause (i), any item of expenditure which exceeds one per cent of the total revenue of Rs. 5,000, whichever is higher, has to be shown as a separate and distinct item against an appropriate account head in the profit and loss account. For this purpose, total revenue means all items on the credit side of the profit and loss account excluding closing stock and the loss, if any, for the period. Information in terms of new para 4D - Value of imports calculated on c.i.f. basis - Clause (a) - All the imports made by the company, irrespective of whether these imports are made directly or through any other agency, should be disclosed in the profit and loss account. In case, however, certain goods have been purchased by a company from an independent entity who had made the imports on its own and not on behalf of the company concerned, need not be included in the total imports of the company. The value of the goods imported is required to be disclosed on c.i.f. basis. There may be cases where the goods may be imported on the basis of f.o.b. contract so that the values directly available from its record would be those relating to f.o.b. terms. In such cases, it should not be unduly difficult to apply a standard formula in order to convert f.o.b. values to c.i.f. values of imports. It may, however, be necessary to make approximations in suitable cases and if such approximations or reasonable, no objection may ordinarily be taken. All goods including those in transit should be included in case the title to the goods has passed on the company within the accounting year. Expenditure in foreign currency - Clause (b) - All the items involving expenditure in foreign currency should be disclosed separately. in other words, the foreign currency expenditure should be classified between royalty, know-how, professional consultation fees, interest and other matters and as such should be disclosed under each of such items and not to be clubbed together under any one item. It is only that part of the expenditure which is to be paid in foreign currency that has to be declared. However, a footnote should be given to this effect so that it may be clearly indicated as to whether the expenditure on royalty, etc., in foreign currency has been disclosed on the basis of the gross amount or on the basis of the net amount after deduction of tax at source, or any other such charge. The expenditure may be shown either on cash basis, or accrual basis, provided that the basis actually adopted is disclosed by way of footnote in the profit and loss account and the basis so stated is consistently followed by the company. The item other matters appears to be exhaustive so as to cover all types of items involving foreign currency expenditure. At the same time it is viewed that the disclosure relates to the expenditure on intangible items rather than on import of tangible goods, that is to say, the disclosure should not be made once again with regard to the expenditure involved in foreign currency for items whose import value has already been discussed in compliance of the requirements of other paras. Value of imported raw materials, spare parts, etc. - Clause (c) - The disclosure is only in respect of goods directly imported by the company and through channelised agencies. It may be mentioned in this connection that while the other requirement of para 4D, as already discussed in clause (a) above, applies only to the case of imports made by the company directly or through any other agency, the requirements to disclose the value of imported materials consumed applies to all such materials, whether they were imported directly or through any other agency or whether they were acquired through local sources, the main idea being to determine the percentage of the imported raw materials, spare parts and components consumed during the financial year in relation to the total consumption. Earnings in foreign exchange - Clause (e) - The amount to be disclosed in respect of the earnings of foreign exchange and classified in terms of the aforesaid clause (e) of para 4D should be disclosed either on accrual basis or cash basis, provided the basis adopted is stated and the basis so stated is consistently followed by the company. As regards the earnings in respect of the goods to be exported to countries with which payment arrangements are in force and settlements are effected in Indian rupees, although according to the strict interpretation of clause (e), it may not be necessary to include them, this may, however, be desirable so that full particulars of the total foreign exchange earned by a company may be available. It will, therefore, be desirable in such cases to indicate the correct position of this category of earning by way of a footnote.