3.3       Query

Interpretation of some provisions of Schedule VI

to the Companies Act, 1956—2

Schedule VI relating to form of Balance Sheet enjoins under Item 14(4) on the liability side that a footnote to the Balance sheet may be added to show separately “the estimated amount of contract remaining to be executed on capital accounts and not provided for”. In my view this clause only relates to unexecuted portion of continuing contracts in respect of various capital projects which a company may have undertaken but not provided for in the accounts since the job has not been completed. It is, however, interpreted by some that value of all orders on various capital items including furniture, etc., placed by the company during a particular year but supplies thereof not executed during a particular year, will have to be included against the above item. This interpretation, however, does not appear to be correct for the reason that it cannot be taken as a definite liability till such time supplies are effected/or in the course of being effected from the other end. It is surely not the intention of the Indian Companies Act to call for particulars to be furnished in respect of items which are dependent on certain contingencies. The case is however different in respect of any contract which has commenced, e.g., any building work etc., but not finally executed. The value thereof for the unexecuted portion in such cases may be indicated in the Balance Sheet as a footnote in the same way as it was previously required where the value of unexecuted portion of the Works-in-progress Account was depicted in the Profit and Loss Account itself before the latest amendment came into force.

                                                             Opinion                                                October 31, 1961

As regards the requirement of Item 14(4) of Part I of Schedule VI requiring disclosure of the “estimated amount of contracts remaining to be executed on capital account and not provided for,’ the view of the Committee is as follows:

This is intended to require disclosure of a Company’s commitments, that is to say, contracts for purchase of goods or services which have been entered into by a Company for capital expenditure after deducting therefrom any portion of the contracts which have been executed. In so far as such contracts have been executed, i.e., goods delivered or service performed the liability therefor should be provided in the books of the Company. The governing consideration should be whether the company has entered into a “contract”, e.g., by placing a firm order for the purchase of capital goods. If such a “contract” exists, then the extent to which it has not been paid or provided for in the accounts (owing to non-execution or non-delivery) should be disclosed under this item. The reference by the querist to deliveries effected and to “unexecuted portion of continuing contracts” is irrelevant. The expression “on capital account” would include all items of capital expenditure including furniture, fixture, motor-cars, etc.

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