Schedule III of Companies Act 2013: Bank Deposits Disclosure Explained
When I first reviewed a client’s financial statements, I noticed they had bank deposits with a maturity of more than 12 months. That immediately raised a critical disclosure question:
Should these deposits be classified as current assets or non-current assets under Schedule III of the Companies Act 2013?
This is not just an academic dilemma. The way you disclose these deposits directly impacts how stakeholders read your balance sheet. Let’s break it down, step by step, using ICAI guidance, Accounting Standards (AS-3), and practical examples.
Understanding Schedule III of the Companies Act 2013
Schedule III of the Companies Act 2013 prescribes the format of financial statements for companies in India.
As per Schedule III, “Cash and Cash Equivalents” includes bank deposits with a maturity of more than twelve months.
But here’s the problem:
According to AS-3 Cash Flow Statements, cash equivalents are supposed to be:
- Short-term investments (≤ 3 months from acquisition)
- Highly liquid, easily convertible to known amounts of cash
- Carrying an insignificant risk of changes in value
Clearly, a 12-month fixed deposit doesn’t fit this definition. This creates a conflict between Schedule III disclosure requirements and Accounting Standards.
ICAI Guidance on Conflict Resolution
The ICAI Guidance Note on Schedule III (para 6.4) addresses this conflict.
It states that in case of a mismatch, Accounting Standards override Schedule III.
So, how do we fix this?
By renaming the balance sheet note from “Cash and Cash Equivalents” to “Cash and Bank Balances”, and then splitting it into two clear sub-heads:
- Cash and Cash Equivalents (as per AS-3 definition): Includes only deposits with maturity ≤ 3 months
- Other Bank Balances: Includes deposits > 3 months but ≤ 12 months
And what about deposits with maturity above 12 months? These should be shown separately under “Other Non-Current Assets” with a clear disclosure note.
Example of Disclosure Under Schedule III of the Companies Act 2013
Imagine a company has the following deposits:
- ₹5,00,000 FD (2 months maturity)
- ₹10,00,000 FD (9 months maturity)
- ₹20,00,000 FD (15 months maturity)
Here’s how you classify them:
- Cash and Cash Equivalents → ₹5,00,000
- Other Bank Balances → ₹10,00,000
- Other Non-Current Assets → ₹20,00,000
This bifurcation ensures that your disclosure is both ICAI-compliant and aligned with Schedule III.
Important Action Points for Practitioners
Here’s how I personally approach this while preparing or auditing financials under Schedule III of the Companies Act 2013:
- Rename the note from “Cash and Cash Equivalents” → “Cash and Bank Balances.”
- Within it, bifurcate:
Cash and Cash Equivalents (≤ 3 months)
Other Bank Balances (> 3 months to ≤ 12 months)
- Move deposits above 12 months’ maturity to Other Non-Current Assets with specific disclosure.
- Always cross-check with ICAI auditing standards to avoid misclassification.
Why This Matters?
- For Auditors: Proper classification avoids qualification of reports.
- For CFOs & Finance Teams: Transparency builds stakeholder trust.
- For Regulators & SEBI: Accurate reporting ensures compliance with both the Companies Act and Accounting Standards.
In my experience, companies that follow this bifurcation not only comply with Schedule III of the Companies Act 2013 but also present a much clearer picture to investors.
Recently Asked Questions
Are bank deposits above 12 months' maturity current or non-current?
Does Schedule III override AS-3?
How should deposits between 3 and 12 months be classified?
Conclusion
Schedule III of the Companies Act 2013 provides the framework, but it is the ICAI standards and AS-3 definitions that clarify classification.
By presenting Cash and Bank Balances in three parts: Cash Equivalents, Other Bank Balances, and Other Non-Current Assets, you achieve compliance, accuracy, and transparency.
In financial reporting, small classification errors can mislead stakeholders. But with the right disclosure, you not only meet compliance requirements: you build trust.
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