1.37   Query

Disclosure of loans and interest thereon.

1.A financial institution, registered under the Companies Act, 1956, is engaged in giving loans for housing purposes to housing boards, development authorities, cooperative societies, etc., spread throughout the country on the conditions as approved by the Government of India. These loans are to be repaid by the borrowing agencies on quarterly basis and the interest is charged on the loans outstanding quarter-wise. In addition, there is a rebate if any agency is making payment of all its loans which are due in that quarter before the end of the quarter failing which these loans carry penal interest and loss of rebate. It is seen from the past experience that at every year end there is some principal and interest which is overdue but is not paid by the borrowing agencies.

2. In addition to the above housing loans, the corporation is also granting loans to its staff members and other bodies which are interest bearing. In some of the cases, these loans and interest thereon are overdue at the year end. It may be noted that such loans are not the main objective of the corporation as compared to the housing loans.

3.In the accounts of the corporation, all above loans, along with interest accrued, whether due or not due, are at present shown under “Loans & Advances”. It may be mentioned that the interest income on all above loans is charged to the profit and loss account on accrual basis.

4.Keeping in view the above facts, generally accepted accounting principals and Schedule VI to the Companies Act, the querist has sought the opinion of the Expert Advisory Committee on the following issues:

(a) Whether the above loans or any one or some of these may be shown under “Loans & Advances” or under “Sundry Debtors”.

(b) Whether the position as stated in para (a) above will change if the main objective of the corporation is considered.

(c) Whether the position as stated in para (a) above will change if any overdue loans are considered for showing under “Sundry Debtors”.

(d) Whether the interest accrued and due or interest accrued but not due on the above loans or both of these can be shown under “Loans and Advances” or under “Sundry Debtors.”

                                                                                   Opinion                                  July 10, 1990

1. The Committee notes that Note (o) to Schedule VI to the Companies Act, 1956, prescribes that, “The amounts to be shown under Sundry Debtors shall include the amount due in respect of goods sold or services rendered or in respect of other contractual obligations but shall not include the amounts which are in the nature of loans and advances.”

2.The Committee is of the view that loans granted by the corporation during the course of its business, as well as those granted to employees are in the nature of ‘loans and advances’ and not in the nature of the ‘sundry debtors’, in view of the meaning understood in commercial parlance.

3.On the basis of the above, the opinion of the Expert Advisory Committee on the issues raised in para 4 of the query is as follow:

(a) Loans specified in the query should be shown under the head “Loans and Advances” as per Part I of Schedule VI to the Companies Act, 1956.

(b) Since the instruction contained in Note (o) to the Schedule VI (reproduced in para 1 above) applies to all companies irrespective of their nature, in present case, the main objective of the corporation is not relevant.

(c) Overdue loans should also be shown also be shown under the head “Loans and Advances”, as per Part I of the Schedule VI to the Companies Act, 1956.

(d) Interest accrued on loans should also be shown under the head “Loans and Advances” as per Part I of Schedule VI of the Companies Act, 1956.

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