Overview of Year

End Compliances
under Companies
Act,2013

INDEX
1) Financial Statements
2) Deprecation
3) Dividend
4) Audit & Auditors Report
5) Related Party Transactions
6) Loans & Investments
7) Acceptance of Deposits
8) Corporate Social Responsibility

Financial Statements

FINANCIAL STATEMENTS
The term Financial Statements has been defined in the
Companies Act 2013 u/s 2(40) to include the following
Balance Sheet at the end of financial year
Statement of Profit & Loss for the financial year
Cash Flow statement (not mandatory for small companies,
OPCs
& Dormant companies) for the financial year
Statement of Changes in equity, if applicable
Explanatory statement Note annexed to & forming part of
Financial statements.

FINANCIAL STATEMENTS
Impact: Cash Flow Statement which was not mandatory for SMC
is now mandatory for all Companies except Small Companies,
One Person Company and Dormant Companies.

SMC as per Companies (Accounting Standards) Rules, 2006:

Turnover not exceeding Rs. 50 Cr. or Borrowings not exceeding
Rs. 10 Cr. / Not Listed / Holding or Subsidiary of
company.
Small Company as per Companies Act, 2013:
A company other than public company with paid up capital
less than Rs. 50 lakhs or Turnover less than Rs. 2 Cr.

CONSOLIDATED FINANCIAL
STATEMENTS.
As per section 129(3) of the Companies Act, 2013 ,
the preparation of Consolidated Financial Statements
is made mandatory for all the companies who have
one or more subsidiaries
From the purpose of consolidation, definition of
subsidiary company includes a joint venture and
associate. Hence all the companies would require to
prepare CFS if they have an associate or joint venture
as per AS-23 and AS-27 respectively.

CONSOLIDATED FINANCIAL
STATEMENTS.
Exemptions from consolidation are given for FY 201415 by amendment in Rule 6 of The Companies
(Accounts) Rules,2014
(Notification dated January 16, 2015) :
1) In case of Company having only foreign Subsidiaries
2) In case of Companies which have only one or more

associate companies or joint ventures

CONSOLIDATED FINANCIAL
STATEMENTS.
Pursuant to first proviso to section 129(3) read with rule
5 of Companies (Accounts) Rules, 2014, a statement
containingsalient
features
of
FS
of
subsidiaries/associate companies/Joint venture in form
AOC-1 should be attached along with the FS.
It is further clarified by general circular no 39/2014 ,
that Schedule III to the Act read with AS-21,23 & 27, in
CFS, only the company would need to give all
disclosures relevant for CFS only & does not envisage
that a company while preparing its CFS merely repeats
the disclosures made by it under stand-alone accounts
being consolidated.

CONSOLIDATION AT INTERMEDIATE
LEVEL
A Ltd. Holding
Company

B
Ltd.
F
Ltd.

C
Ltd.

D INC USA
G INC USA

The requirement of preparing CFS at the intermediate holding company

level arises from notification dated 14th October,2014 which provides
that if the immediate parent of wholly owned subsidiary is incorporated
outside India, CFS is not required
A Ltd. to prepare CFS inclusive of B Ltd. ,C Ltd. and D Ltd.
B Ltd. to prepare CFS inclusive of B Ltd. and F Ltd.
D INC not required to prepare CFS being foreign subsidiary

Depreciation

OVERVIEW OF THE PROVISION

1. Structure of Schedule II of the Companies Act, 2013
2. Significant changes, other than rates, as compared to
Schedule XIV of the Companies Act, 1956
3. Comparison of rates / useful lives between Schedule XIV of
Companies Act, 2013 and Schedule II of Companies Act, 2013
4. Working of depreciation rate through excel
5. Transitional provisions where useful life as per Schedule II is
over

OVERVIEW OF THE PROVISION

6.Transitional provisions where useful life as per Schedule II is
not yet over
7.Information required for calculation of depreciation as per
Schedule II
8.Disclosure where useful life or residual value is different
from useful life specified in Schedule II
9.Other aspects Effect on deferred tax, impact on MAT and
effect of Schedule II on depreciation will be change in
method or change in estimates

STRUCTURE OF SCHEDULE II OF THE

COMPANIES ACT, 2013

Part A

- Definition of depreciation and it also includes amortization.

- Useful life of an assets shall not ordinarily be different from
the useful life specified and residual value shall not be more
than 5% of original cost
- If different from above than disclose the difference and
provide justification supported by technical evidence
- For intangible assets, provisions of AS will apply
Except in case of intangible assets (Toll Roads) created under
BOT, BOOT amortization method is prescribed

STRUCTURE OF SCHEDULE II OF THE

COMPANIES ACT, 2013
Part B
Regulatory Authority constituted under an Act of Parliament
or Central Government notifies useful life or residual value
for accounting purpose, then such provision shall be applied.

STRUCTURE OF SCHEDULE II OF THE

COMPANIES ACT, 2013

Part C
a.Useful life of various assets

b.Useful life of industry specific special plant and machinery

c. Notes
1.Factory building does not include offices, godowns and
staff quarters
2.Pro-rata basis depreciation should be calculated for
additions / deletions of assets
3.Information to be disclosed depreciation method and
useful life of assets if it is different from life specified

STRUCTURE OF SCHEDULE II OF THE

COMPANIES ACT, 2013
4.Useful life specified for the whole assets and where cost of
a part of assets is significant to total cost of assets and
useful life of that part is different from useful life of
remaining assets, then useful life of that part shall be
determined separately. This requirement is voluntary
for the financial year 2014 15 and mandatory from
F.Y. 2015 16 onwards.
5.Useful life of assets working on shift basis has been
specified based on single shift except for assets in respect
of which no extra shift depreciation is permitted indicated
by NESD. If an asset is used for any time for double
shift, the deprecation will increase by 50% for that
period and in case of triple shift depreciation shall
be calculated on the basis of 100% for that period.

STRUCTURE OF SCHEDULE II OF THE

COMPANIES ACT, 2013
6.From the date this Schedule comes into effect, the carrying
amount of the assets as on that date
Shall be depreciated over the remaining useful life of
the assets as per this schedule
After retaining the residual value, may be recognized
in the opening balance of retained earnings
where remaining useful life of an asset is nil.
7.Continuous process plant means a plant which is required
and designed to operate for twenty-four hours a day.

STRUCTURE OF SCHEDULE II OF THE

COMPANIES ACT, 2013
Effective date of Schedule II as per notification dated
March 27, 2014 is April 01, 2014
Further notifications on March 31, 2014 and August
29, 2014 for changes
If companys accounting year starts from January 01,
2014 then Schedule II will be effective for such
company from January 01, 2015

SIGNIFICANT CHANGES, OTHER THAN

RATES, AS COMPARED TO SCHEDULE
XIV OF THE COMPANIES ACT, 1956
Sr.

No.
1

As per Companies Act, 1956

As per Companies Act, 2013

Rates specified considered

as
minimum
rates.
Depreciation
cannot
be
provided less than rates
specified.
No reference of residual
value in the Schedule. 5%
of residual value as per the
Section 205 of the Act for
dividend payment.

Option
is
available.
Depreciation can be provided
for longer than useful life
specified in the Schedule II.
Reference of residual value
in the Schedule.
Residual
value can be considered up
to 5%. Option is available if
company wants to consider
more than 5% of residual
value.

SIGNIFICANT CHANGES, OTHER THAN

RATES, AS COMPARED TO SCHEDULE
XIV OF THE COMPANIES ACT, 1956
Sr.

No.
3

As per Companies Act, 1956

Disclosure of rates
lives of assets if
different from the
rates
specified
Schedule

or useful
they are
principal
in
the

No reference of depreciation
on component of assets. AS
10, Accounting for fixed
assets covers this aspect.

Rates for double and triple

As per Companies Act, 2013

Disclosure of useful life,

provide
justification
supported
by
technical
evidence if it is different
from the useful life specified
in the Schedule.

Reference
is
given
for
depreciation on component
of assets. Optional for the
current F.Y. 2014 15 and
mandatory from F.Y. 2015
16 onwards.
Useful life as per single shift

SIGNIFICANT CHANGES, OTHER THAN

RATES, AS COMPARED TO SCHEDULE
XIV OF THE COMPANIES ACT, 1956
Sr.

No.
6

As per Companies Act, 1956

As per Companies Act, 2013

Extra
depreciation
for
double shift and triple shift
in the proportion of number
of days bears to total
number of normal working
days.
If factory works on seasonal
basis then actual days
worked
or
180
days,
whichever is greater
In other case, number of
days
on
which factory
worked
or
240
days,
whichever is greater.

For any time for double shift,

the deprecation will increase
by 50% for that period and in
case
of
triple
shift
depreciation
shall
be
calculated on the basis of
100% for that period.

SIGNIFICANT CHANGES, OTHER THAN

RATES, AS COMPARED TO SCHEDULE
XIV OF THE COMPANIES ACT, 1956
Sr.
No.
8

As per Companies Act, 1956

As per Companies Act, 2013

For plant and machinery general

rates and industry specific rates
given.
There
was
no
specification of rates of different
plant and machinery used in
different industries.

Different useful lives for general

plant and machinery as well as
industry specific assets.
For
industry specific assets, plant and
machinery wise rates are given
rather
than
general
rate.
Moreover
certain
industries
added such as
-

Telecommunications

Electricity
generation,
transmission and distribution

Medical
operations

Pharmaceuticals
chemicals

Civil construction

and

surgical
and

SIGNIFICANT CHANGES, OTHER THAN

RATES, AS COMPARED TO SCHEDULE
XIV OF THE COMPANIES ACT, 1956
Sr.
No.
10

As per Companies Act, 1956

As per Companies Act, 2013

Assets considered as part of Separate head is prescribed

Plant and Machinery
for all such assets
- Office & Lab equipment
- Motor Vehicles
- Computer
and
data
processing units
- Electrical installations &
equipment
- Hydraulic
works
and
Pipelines
- Aircrafts and helicopters
- Ropeway structures

 COMPARISON OF RATES / USEFUL LIVES BETWEEN SCHEDULE X

IV OF COMPANIES ACT, 2013 AND SCHEDULE II OF COMPANIE
S ACT, 2013
Working of depreciation rate
Depreciation as per WDV method
Depreciation as per SLM method
Transitional provisions where useful life as per Schedule II is
over
Depreciation as per WDV method
Depreciation as per SLM method
Transitional provisions where useful life as per Schedule II is
not yet over
Depreciation as per WDV method
Depreciation as per SLM method

INFORMATION REQUIRED FOR

CALCULATION OF THE DEPRECIATION
AS Purch
PER SCHEDULE
II
Resid
Estimate
Accumul
Peri

ual Estima d Life as

Remainin
ated
ase
od
WDV Value
per
Descr
ted
g Life of
Depreci
S
date /
for
Co
as on
(5% Useful Managem
iption
Assets as
ation
up
r
date
whic
of
st
01.04.
ent
of
Life as
per
to
N
on
h
Review
Asset
per
Managem
Rs. 31.03.2 2014 purch
o
which
asse
ase
s
Sched
ent
Rs.
(If
014
put to
t
cost) ule II different
review
use
used
Rs.
Rs.
than 8)
7
11 (8 or 9
1
2
3
4
5
6 (4-5)
8
9
10
10)

DISCLOSURE WHERE USEFUL LIFE OR

RESIDUAL VALUE IS DIFFERENT FROM
USEFUL LIFE SPECIFIED IN SCHEDULE
II

Depreciation on tangible assets is provided on the straight-line

method over the useful lives of assets estimated by the
Management. Depreciation for assets purchased / sold during a
period is proportionately charged. Intangible assets are
amortized over their respective individual estimated useful lives
on a straight-line basis, commencing from the date the asset is
available to the Company for its use. The Management
Assets
life infixed
years
estimates
the useful lives Useful
for the other
assets as follows:
Buildings
22 25
Plant and Machinery
5
Office Equipment
5
Furniture and
5
Fixtures
Vehicles
5

DISCLOSURE WHERE USEFUL LIFE OR

RESIDUAL VALUE IS DIFFERENT FROM
USEFUL LIFE SPECIFIED IN SCHEDULE
II
For these classes of assets, based on internal assessment and
independent technical evaluation carried out by external
valuers, the management believes that the useful lives as
given above best represent the period over which management
expects to use these assets. Hence the useful lives for these
assets are different from the useful lives as prescribed under
Part C of Schedule II of the Companies Act 2013.

Source: Infosys Quarterly Audited Accounts

OTHER ASPECTS
Effect on deferred tax as well as on MAT
Particulars

Rs.

As on
As on
31.03.2014 01.04.2014
2,00,00,000 2,00,00,000
3,00,00,000 2,80,00,000
1,00,00,000 80,00,000
30,00,000
24,00,000

WDV as per Income Tax

WDV as per Accounts
Timing difference
Deferred tax liability
assuming tax rate is 30%
Due to revised useful life as per Schedule II, additional
depreciation of
Rs. 20,00,000/- to be provided on transitional provisions.

OTHER ASPECTS
a.If effect of transitional provisions through retained earnings
Rs.
Particulars
Dr.
Cr.
Retained Earnings (B/s
14,00,000

item)
Deferred Tax Liability (B/s 6,00,000

item)
Assets A/c (B/s item)

20,00,000

No impact on MAT

OTHER ASPECTS
If effect of transitional provisions through profit and loss statement
Particulars

Depreciation (P&L item)

Assets A/c (B/s item)

Deferred Tax Liability (B/s

item)
Deferred Tax Adjustment (P&L
item)

Dr.

Cr.

20,00,000

6,00,000

20,00,000

6,00,000

IMPACT ON MAT

OTHER ASPECTS
Effect of Schedule II on depreciation will be change in
method or change in estimates?
As per AS 6
The useful lives of major depreciable assets or classes of
depreciable assets may be reviewed periodically. Where there
is a revision of the estimated useful life of an asset, the
unamortized depreciable amount should be charged over the
revised remaining useful life.

OTHER ASPECTS
As per AS 5
The nature and amount of a change in an accounting estimate
which has a material effect in the current period, or which is
expected to have a material effect in subsequent periods,
should be disclosed. If it is impracticable to quantify the
amount, this fact should be disclosed.

OTHER ASPECTS
During the quarter ended June 30, 2014, based on internal and
external technical evaluation, management reassessed the
remaining useful life of assets, primarily consisting of buildings
and computers with effect from April 01, 2014. Accordingly, the
useful life of certain assets required a change from the
previous estimates. If the Company had continued with the
previously assessed useful lives, charge for depreciation for the
quarter ended June 30, 2014 would have been higher by Rs.
127 crore for the assets held as at April 01, 2014.

Dividend

DIVIDEND
As per Section 123, dividend can be declared or paid
from Free Reserves only.
Free reserves excludes

Unrealized
Gains, Notional
Gains &
Revaluation of
Assets

Fair Value
Movements

DIVIDEND
Interim Dividend -In case, as per financials of last
quarter company is having loss then, Interim dividend
shall not be higher than average dividend declared by
the company during last three financial years.
Declaration & payment of Dividend:
In case of failure to comply with the provisions of
acceptance
/repayment of public deposits prior to
the commencement of the Act , company cannot
declare dividend on the Equity Shares.
Before declaring dividend company may transfer such
percentage of its profit for the financial year as it may
consider appropriate to reserves.

DIVIDEND - IN CASE OF INADEQUACY

/ABSENCE OF PROFITS:
Company to comply Companies (Declaration & payment of
Dividend) Rules, 2014.As per sub rule (3)
The rate of dividend declared shall not exceed the average of
the rates at which dividend was declared by it in the three
years immediately preceding that year. However, this
condition shall not apply to a company, which has not
declared any dividend in each of the three preceding financial
year.

The total amount to be drawn from such accumulated profits

shall
not exceed one-tenth of the paid-up share capital and free
reserves
as appearing in the latest audited financial statements.

DIVIDEND - IN CASE OF INADEQUACY

/ABSENCE OF PROFITS:
Before any dividend in respect of equity shares is declared,
the amount so drawn shall first be utilized to set off the loss
incurred in the financial year in which dividend is declared.
After withdrawal, balance of reserves shall not fall below 15%
of paid up share capital.
Unless c/f losses and depreciation not provided for are not set
off, dividend can not to be declared.

Audit and Auditors

Report

APPOINTMENT
First Auditor- to be appointed by BOD within 30 days
from Incorporation who shall hold office till conclusion
of first AGM if BOD fails to appoint the auditors,
appointment to be made in EGM within next 90 days.
Appointment / Re-appointment- For five years periodRatification at every AGM.
If there is no ratification at AGM, BOD to appoint
another firm as auditor.

APPOINTMENT
Auditor to give written consent and also to give
certificate that appointment will be in compliance
with conditions prescribed in Rule 4 and satisfies
criteria provided in section 141.
Company to inform Auditor and ROC about
appointment within 15 days of the date of the
meeting.
If at AGM auditors are not appointed/reappointed,
existing auditors will continue.

APPOINTMENT OF AUDITORS OF GOVT.

COMPANY
First Auditor- to be appointed by C&AG within 60 days
from date of registration of the company.
If this is not done, BOD to appoint auditors within next
30 days. In case BOD fails to appoint Auditors within
next 30 days, the appointment will be made within 60
days at extraordinary general meeting.
Subsequent appointment of auditors to be made by
C&AG within 180 days from the end of financial year.
Auditor to hold office till conclusion of AGM.

CASUAL VACANCY
Casual vacancy arising in the office of auditor to be filled by
BOD within 30 days.
Casual vacancy as a result of resignation of auditor to be
filled by appointment at general meeting within 3 months
from the date of recommendation by BOD.
In case of Government company, C&AG to appoint auditor
within 30 days. In case this is not done BOD to fill the
vacancy within next 30 days.

ROTATION
Every Listed company and specified companies to appoint/reappoint
An individual as auditors for not more than one term of five
consecutive years

An audit firm as auditors for not more than two terms of five
consecutive years.
Specified Companies as per Rule 3 are
Unlisted public Company Paid up share capital of Rs. 10 Cr or
more

Private Company- Paid up share capital of Rs. 20 Cr or more

Other than above- Public borrowing from Banks/FIs/Deposits of

Rs. 50 Cr or more.
The members of the company may resolve for rotation of auditing
partner and his team at such interval as they may resolve.

ROTATION
Retrospective application of provision
Three years time given to companies
Firm with common partner or under same network not
eligible.
In case of joint auditors, rotation to be arranged in a
manner that all the joint auditors do not complete their
term in same year.
A partner of a firm which carried out the audit of the
company, retires from the firm and joins other firm, the
other firm not eligible to be appointed for a term of five
years.

REMOVAL/RESIGNATION
Removal of auditor before expiry of the term can be made
by passing special resolution and after obtaining prior
approval of Central Government.
Removal of auditor at the time of expiry of the term can be
made by giving a special notice. Auditor given right to
make representation.
In case of resignation by auditor, to file a statement in form
ADT-3 to ROC within 30 days.
In case of Government company also to file form to C&AG.
Auditor to show reasons and other facts as may be
relevant.

ISSUES
1)

Whether appointment of auditor has to be made for 5 years?

2)

If appointment is not ratified by shareholders what will be the

position?

3)

If audit firm is dissolved or reconstituted , newly reconstituted firm

can be eligible for appointment?

4)

How to interpret the term partner in-charge of audit firm and also
certifies financial statement of the company in case of retirement
and rotation?

5)

Whether reconstitution of firm on account of retirement or

admission of partner would result in to casual vacancy?

ELIGIBILITY AND QUALIFICATION

A person- firm-LLP are eligible for appointment as auditor.
Firm /LLP should have majority of partner as practicing CAs
in India.
In case of firm and LLP the partners who are CAs authorized
to act and sign on behalf of the firm/LLP.
Ceiling on number of audit to 20 companies (No distinction
between private and public company).

DISQUALIFICATION
Body corporate other than LLP
Officer or employee of the company
Partner or employee of the officer or employee of the
company
Person or relative or partner
Holding security or interest in company / subsidiary /
holding /associates/subsidiary of holding of the face value
more than Rs. 1 Lakh(Limit for only relative)
Indebted to the company and other companies as above for
an amount of more than Rs. 5 lakh.
Provided guarantee or security in connection with
indebtedness of the third party to the company or other
companies as above in excess of Rs. 1 lakh.

DISQUALIFICATION

Person or firm having direct or indirect business relationship

with
the
company/
subsidiary/holding/
subsidiary
of
holding/associate as prescribed.

A person whose relative is director or employee of company as

KMP.
A person in whole time employment elsewhere.
A person convicted by court of offence involving fraud and
period of ten years has not elapsed from the date of conviction.
A person or subsidiary or associate company is engaged in
prohibited services to the company/subsidiary/holding.

DISQUALIFICATION
Business Relationship- To be construed any
transaction entered into for a commercial purpose
except

Commercial transactions which are in nature of

professional services permitted to be rendered by
an auditor or audit firm
Commercial transactions which are in the ordinary
course of business of the company at arms length
price-like sale of products or services to auditor as
customer in ordinary course of business by companies
engaged in telecommunication/ airlines/hospital/hotel
etc.

ISSUES
1) LLP specific exemption
2) Holding of security
debenture/ bond/FD?

what

it

will

include?

Whether

3) Whether disqualification attracted if securities are held by

partner other than audit partner?
4) Disqualification due to holding appointment of more than
20 companies. No relaxation so far.
5) Whether no. of audit to be considered per partner or with
reference to audit partner?
6) Business Relationship ordinary course of business at
arms length price issue of interpretation.

RESTRICTION ON NON-AUDIT
SERVICES
Accounting and book keeping services;
Internal audit;
Actuarial services;
Investment advisory services;
Investment banking services;
Rendering of outsourced financial services;
Management services and
Any other kind of services as may be prescribed

POWERS AND DUTIES

Inquiry of certain matters u/s 143(1) - same as
u/s 227(1A) of 1956 Act.
Contents of the report u/s 143(3) more or less
the same - the changes are
Information to be sought and obtained. If
information is not provided, to report about details
thereof and effect on FS.
Observation or comments on financial transactions or
matters which have adverse effect on functioning of
the company.
Any qualification, reservation or adverse remark
relating to maintenance of accounts and other
matters connected therewith.
Commenting on adequacy of internal financial
control system and operating effectiveness of
such controls- made effective from FY2015-16.

REPORTING
In terms of section 143(3)(j) read with Rule 11 of Companies
(Audit and Auditors) Rules, 2014, the report to include
views and comments on following matters:
Whether disclosure of impact if any, of pending litigations
on financial position is made in FS.
Whether provision is made for material foreseeable losses,
if any on long term contracts including derivative contracts.
Whether there has been any delay in transferring amounts
to Investors Education and Protection Fund.
The auditor to state the reason for qualification or adverse
remark in his report.

REPORTING ON FRAUD.
As per section 143(12) of the Companies Act, 2013 covers
the person for reporting on fraud:
If an auditor of the company,
in the course of performance of his duties as auditor,
has reason to believe that
an offence involving fraud is being or has been committed against the
company
by officers or employees of the company
Report to Central Government within such time as may be
prescribed.
Reporting is required only in case of Fraud by officers & employees
and not by Third Parties such as Vendors & Customers.

REPORTING ON FRAUD.
Auditors Responsibility For consideration of Fraud in Audit of
Financial Statements-Auditor has to comply with SAs and hence
can apply the concept of Materiality.

Sufficient reason to believe then report to the Audit Committee and

the Board. As per Companies (Amendment) Bill , 2014 introduced &
approved by Lok Sabha (which is pending for approval by
Rajya Sabha & President) , If the amount is above the specified
threshold, then report to Audit Committee/ Board

In case where amount exceeds specified amount reporting to be

made to the Central Government.
New Format of Audit Report

Related Party Transactions

RELATED PARTY TRANSACTION

Applicable provisions:
Section 188 of CA, 2013
Clause 49 of listing agreement
AS-18 - Related Party disclosures
SA 550 - Related Party
Section 40(A) (2) of the Income tax Act and
Domestic Transfer Pricing.
Section: 294/297/314 of 1956 Act combined in
Section 188.

RELATED PARTY TRANSACTIONS

Related Party is defined in Sec 2(76) includes:
Director
his relative
Firm in which director / relative is a partner
Private
company
in
which
director/relative
is
a
member/director
Public company in which director shareholding is more than
2%
Body corporate whose Board/MD is accustomed to act in
accordance with instruction of a director
KMP
his relative
KMP of holding company
Holding Company
Subsidiary Company
Fellow Subsidiary
Associate Company

RELATED PARTY TRANSACTIONS

Relative is defined in sec 2(77) includes his:
HUF
Spouse
Parents
Children
Siblings
Spouses of children.
Under clause 49 related party is defined as related party under AS
includes
Joint Venture
Enterprise with common KMP
KMP and their relative with significant control or influence over
enterprise
Enterprise having control or being controlled over reporting enterprise.

RELATED PARTY TRANSACTION U/S

SEC 188:
Related Party Transactions
a. Sale/ purchase/ supply of goods and material or appointment
of agent for the same.
b. Selling /disposing or buying property of any kind.
c. Leasing of property of any kind
d. Availing or rendering services or appointment of the agent
for the same
e. Appointment of related party to any office or place of profit
in the company, its subsidiary or associate company
f.

Underwriting of subscription of any securities.

RELATED PARTY TRANSACTION U/S

SEC 188:
In case of transactions above specified limit special resolution
is required:
a. Lower of 10% of turnover or Rs. 100 Cr.
b. Lower of 10% of net worth or Rs. 100 Cr.
c. Lower of 10% of net worth or 10% of turnover or Rs. 100 Cr..
d. Lower of 10% of turnover or Rs. 50 Cr.
e. Monthly remuneration exceeding Rs. 2.5 lakh.
f. Remuneration exceeding 1 % of net worth
Turnover / Net worth as per latest audited Balance Sheet.
Value of transactions during the year individually or taken
together.

MATERIAL RELATED PARTY

TRANSACTIONS - CLAUSE 49 :

Transactions with one related party

Which either singly or in aggregate during the financial year

Exceeds 10% of consolidated annual turnover of the company
as per latest audited financial statement.

Compliances required: Companies Act,2013

If transaction is in ordinary course of business at Arms Length
Price - no compliance required.
In other cases prior approval of BOD required
In case of transactions above specified limits special resolution
is required.

RELATED PARTY TRANSACTIONS

Compliances Required-Under clause 49:
Company to formulate policy for all related party transactions,
Approval of audit committee (prior) for all related party Transactions
For material Related Party Transactions approval of board and special
resolution required.
Related party not entitled to vote.
Relaxation

In case of related party transactions with a wholly owned subsidiary,

MCA has clarified that special resolution passed by holding company
would suffice.

SEBI has also given relaxation--- Approval of audit committee

/shareholders not required for transactions between a holding company
and wholly owned subsidiary whose accounts are consolidated.

SA 550- Related Parties

SA deals with the auditors responsibilities regarding related
party relationships and transactions when performing an
audit of FS.
The SA requires the auditor to gain understanding of
entitys RPT, identification and assessment of risk of
material misstatement associated with RPT and making an
assertion that RPTs were conducted on terms equivalent to
those prevailing in an ALT.

ISSUES:
1) Whether the term property includes Machinery, Vehicles,
Equipment, etc.?
2) Whether advance paid for purchase of land from related party
will be covered u/s 188?
3) Whether remuneration payable to MD/WTD/KMP will be
considered as related party transactions?

Loans & Investments

LOANS TO DIRECTORS / ANY OTHER

PERSON IN WHOM DIRECTOR IS
INTERESTED (SECTION 185).
Section 185, imposes a total prohibition on companies
providing loans, guarantee or security to the director
or any other person in whom the director is
interested.
For this provision there exists no difference for public
& private company. i.e. exemption for private
company is taken away.

LOANS TO DIRECTORS / ANY OTHER

PERSON IN WHOM DIRECTOR IS
INTERESTED (SECTION 185).

Certain Exemptions are provided for:

Under section 185
Certain categories of loans to a managing/ whole time director,
Companies which provide loans/ give guarantees or securities in
the ordinary course of its business , and in such cases interest
is charged at a rate not lower than Bank Rate
Under sub rule 10 of Companies (Meetings of Board) Rules, 2014
Loans, guarantees given or security provided by holding
company to its wholly owned subsidiary,
Guarantees given or security provided in respect of loan made
by any bank or financial institution to its wholly owned
subsidiary,
Exemptions only if loans made under these rules have to be
utilized by subsidiary company for its principal business
activities.

ISSUES:
1) Whether a manufacturing company which has surplus funds
gives a loan to director interested party can claim that it is
not covered by section 185?
2) Section 185 starts with the wordings Save as otherwise
provided in this Act., whether it can be interpreted that
by these words, loans / guarantee/security given in
pursuance of section 186 would be saved from operations of
section 185 of the Act?

LOANS AND INVESTMENT BY

COMPANY
As per provisions of section 186:
Investment permissible up to two layers of investment
companies
Other provisions similar to section 372A of 1956 Act.
Limit of loan/investments/guarantee/security - up to 60%
of paid up capital and free reserves or 100% of reserves
whichever is more, approval by BOD. Any excess
thereof require approval of shareholders by special
resolution.

LOANS AND INVESTMENT BY

COMPANY
Disclosure in Financial Statements about full particulars of
loan given, investment made or guarantee given or security
provided and the purpose for which the utilization is to be
made by the recipient.
Permission of FI required if any term loan is subsisting and
amount of loan / investment/ guarantee is in excess of the
specified limit and there is default in repayment of loan
installments/payment of interest.
Rate of interest not lower than the prevailing yield on
Government Securities.
Register to be maintained.

EXCEPTIONS
Loan by Banking/Insurance/Housing Finance companies.
Investment by Investment Company.
Loan by NBFC.
Shares allotted as right shares.
Loan by company in business of financing or of providing
infrastructure facility.
Severe penalty for non-compliance.

ISSUES:
1) What are companies engaged in business of financing
companies?
2) The company engaged in business of providing
infrastructure facility whether fall in exemption?

Acceptance of deposits

SECTION 73
Summary of provisions:

Company can accept deposits from members only after complying

provision of section 73(2).
Compliance required:

Issuances and filing of circular

Depositing 15% amount in scheduled bank as deposit repayment

reserve account.

Providing insurance

Co. not in default of repayment of deposit / interest

Providing security (if any) for repayment of deposit or interest

thereof including creation of charge on assets/property of the
company.

DEPOSITS
Notification dated 24-06-2014 : A private company with
50 or less member given exemption provided each
company cannot accept deposits
exceeding 25% of
aggregate of paid up capital & free reserve or 100% of
paid up capital - whichever is higher
Deposits outstanding as on 01.04.2014 to be repaid on
the due date or by 31.03.2015 whichever is earlyCompany to file form DPT1
Section 73 not applicable to NBFC

ACCEPTANCE OF DEPOSITS BY
ELIGIBLE COMPANY:
Public company with net worth Rs. 100 Cr. or
turnover of Rs. 500 Cr.
Each company to pass special resolution of the
same with ROC.
The company to obtain rating from recognized
credit rating agency.
In case of secured deposit to create charge on
assets within 30 days of acceptance of deposits.

DEPOSIT INCLUDE :
Any non-interest bearing amount received or held in Trust
Any amount received as advance for supply of goods or
provision of services and which is not appropriated within
a period of 365 days from the date of receipt.
Advance received in connection with consideration for
sale of property,if not adjusted against property in
accordance with terms of agreement or arrangement
Application money received towards subscription to any
securities including share application money against
which allotment not made within 60 days and refund not
given within 15 days from completion of 60 days.

ISSUES:
1) Whether resolutions u/s 73(1) to be passed every year
or only once before starting acceptance of deposits?
2) Form DPT 4
Time when to be filed?
Whether only in respect of deposits outstanding as on
01.04.2014 or also in respect of deposit maturing after
01.04.2014 and repaid on due date?
3) Section 73(3) provides for repayment only. Does this
mean that company cant renew the deposits? Rules
3(1), 3(4), 3(5), 3(6). refer to both terms accept and
renew.

ISSUES:
3) Maintenance deposit from members of scheme
whether exempts deposit?
4) Advances received from buyers in case of real
estate developer co. whether deposit?
5) Any solution to provision of Section 74 in
respect of repayment of deposits outstanding
on 01.04.2014 by 31.03.2015?

Corporate Social
Responsibility

CORPORATE SOCIAL
RESPONSIBILITY..

As per Section 135 of CA,2013 ,

Company having

Net
Net Profit
Turnover
worth of
of 5 Cr or
of INR
INR 500
more
1000 Cr
Cr or
or more
Is
required to comply with the provisions of CSR
more

CORPORATE SOCIAL
RESPONSIBILITY..
A company is required to comply with this provision
based on the
threshold limits in the audited financials commencing
from 1st April, 2014.

A CSR Committee consisting of three (3) or more

directors, out of which at least one (1) director should
be an independent director is required to be
constituted in the ensuing Board Meeting.

REQUIREMENTS:
Spend at least 2% of average net profits (before tax)
preceding 3 years- computed in accordance with sec
198.
In case of failure to spend, board to give reasons for
non-compliance.
Preference to be given to local areas and areas around
where it operates.
Broad areas to be as per Schedule VII.
Only activities within India can be considered.

CLARIFICATIONS:
Onetime events will not qualify as CSR expenditure.
Expenses mandated under any other law will not qualify as CSR expenditure.
Employee cost for hours spent on CSR will be considered as CSR expenditure.
Expense incurred by foreign holding company on CSR activities in India can be
considered as CSR expenditure subject to routing through Indian company.
In states where trusts are not required to be registered, registration under
Income Tax Act will suffice.
Contribution to Corpus of a Trust / Society / Section 8 companies considered as
CSR expenditure.

ISSUES:
1) Whether CSR Expenditure is a charge against Profit or
Appropriation?
2) CSR Expenditure if not spent during the year whether
provision is required or not?
3) Whether Auditor will be required to qualify report in
such situation?
4) Whether expenses on CSR expenditure for an eligible
project u/s 35 can be claimed as deduction or treated
as donation to charitable institution u/s 80G?

Thank You