Q & A :CARO
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P.D.RUNGTA
Jan 3, 2013, 9:30:47 PM1/3/13
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Q & A :CARO
Hi,
Someone may please reply to the following query(s):
ABC Private Limited had:
- paid up capital Rs.1 Lac and
- Reserves and Surplus (negative balance) Rs.2 Crores as on 31.03.12.
- turnover Rs.1.95 Crores.
- no secured loans from banks or any parties.
Query
Whether CARO shall apply to the said company?
Ans : .......................
Thanks.
On Behalf Of DK
REPLY:1
Dear DK,
Please go thru, the provisions of Clause 2(iv) of the Companies (Auditor's Report) Order, 2003 issued by the erstwhile Department of Company Affairs, in exercise of its power conferred by Section 227 (4A) of the Companies Act, 1956, this order applies to every company except:-
(iv) a private limited company with a paid-up capital and reserves nor more than rupees fifty lakhs and which does not have loan outstanding exceeding rupees twenty five lakhs from any bank or financial institution and does not have a turn over exceeding rupees five crores at any point of time during the financial year.
Since the ABC Private Limited (it is assumed that it is not a subsidiary of any public company) satisfies all the above conditions, "CARO-2003" is not applicable. However, if ABC Private Limited is a subsidiary of any public company, the "CARO-2003" will be applicable since as per the definitions stated in Section 3(iv) of the Companies Act, 1956, "public company" means which is a not a private company and is a private company which is a subsidiary of a company which is not a private company.
Wit warm regards,
CS. K. Krishnamoorthy
Please go thru, the provisions of Clause 2(iv) of the Companies (Auditor's Report) Order, 2003 issued by the erstwhile Department of Company Affairs, in exercise of its power conferred by Section 227 (4A) of the Companies Act, 1956, this order applies to every company except:-
(iv) a private limited company with a paid-up capital and reserves nor more than rupees fifty lakhs and which does not have loan outstanding exceeding rupees twenty five lakhs from any bank or financial institution and does not have a turn over exceeding rupees five crores at any point of time during the financial year.
Since the ABC Private Limited (it is assumed that it is not a subsidiary of any public company) satisfies all the above conditions, "CARO-2003" is not applicable. However, if ABC Private Limited is a subsidiary of any public company, the "CARO-2003" will be applicable since as per the definitions stated in Section 3(iv) of the Companies Act, 1956, "public company" means which is a not a private company and is a private company which is a subsidiary of a company which is not a private company.
Wit warm regards,
CS. K. Krishnamoorthy
REPLY:2
No CARO is not applicable.
--
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*CS KANIKA PHOPHALIA*
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REPLY:3
NO
--
Regards !
Syed Wasi Haider Rizvi
Chartered Accountant
9634082400, 9528834199
REPLY:4
Dear Sir
Following is the requirement for CARO -2003 :-
*Companies not Covered by the Order*
10. Paragraph 2 of the Order provides that it shall not apply to:
(i) a banking company as defined in clause (c) of section 5 of the Banking
Regulation Act, 1949 (10 of 1949);
(ii) an insurance company as defined in clause (21) of section 2 of the
Companies Act, 1956 (1 of 1956);
(iii) a company licensed to operate under section 25 of the Companies Act,
1956 (1 of 1956);
and
(iv) a private limited company with a paid-up capital and reserves not more
than rupees fifty lakh and which does not have outstanding loan exceeding
rupees twenty five lakhs from any bank or financial institution and does
not have a turnover exceeding rupees five crores at any point of time
during the financial year.
17. Sub-section (32) of section 2 of the Act defines the term “paid-up
capital” as capital credited as paid-up. The Guidance Note on Terms Used in
Financial Statements, issued by the Institute of Chartered Accountants of
India, defines the term “paid-up share capital” as, “that part of the
subscribed share capital for which consideration in cash or otherwise has
been received. This includes bonus shares allotted by the corporate
enterprise”. Paid-up share capital would include both equity share capital
as well as the preference share capital. While calculating the paid-up
capital, amount of calls unpaid should be deducted from and the amount
originally paid-up on forfeited shares should be added to the figure of
paid-up capital. Share application money received should not be considered
as part of the paid-up capital.
18. The Guidance Note on Terms Used in Financial Statements defines the
term “reserve” as, “The portion of earnings, receipts or other surplus of
an enterprise (whether capital or revenue) appropriated by management for a
general or specific purpose other than provision for depreciation or
diminution in the value of assets or for a known liability. The reserves
are primarily of two types: capital reserves and revenue reserves”. Clause
7(1)(b) of Part III of Schedule VI to the Act also defines the term
“reserve” by way of a negative explanation. According to the said
definition, the expression “reserve” does not include any amount written
off by way of providing for depreciation, renewals or diminution in the
value of assets or retained by way of providing for any known liability.
Thus, a reserve has to be clearly distinguished from a provision.
19. As mentioned in the preceding paragraph, reserves are primarily of two
types–capital reserves and revenue reserves. According to the Guidance Note
on Terms Used in Financial Statements, the term “capital reserve” means “a
reserve of a corporate enterprise which is not
available for distribution as dividend”. The said Guidance Note defines the
term “revenue reserve” as “any reserve other than capital reserve”. For
determining the applicability of the Order to a private limited company,
both capital as well as revenue reserves should be taken into consideration
while computing the limit of rupees fifty lakhs prescribed for paid-up
capital and reserves. Revaluation reserve, if any, should also be taken
into consideration while determining the figure of reserves for the limited
purpose of determining the applicability of the Order. The credit balance
in the profit and loss account should also be considered as a part of
reserve since the balance in the profit and loss account is available for
general purposes like declaration of dividend. The debit balance of the
profit and loss account, if any, should be reduced from the figure of
revenue reserves only. Therefore, if the company does not have revenue
reserves, debit balance of profit and loss account cannot be reduced from
the figures of paid-up capital, capital reserves and revaluation reserves.
For example, if the company has Rs. 40 lakhs of paid up share capital, Rs.
5 lakhs as Revaluation Reserve, Rs. 6 lakhs in Capital Reserve and Rs. 6
lakhs as debit balance in the Profit and Loss Account, the amount of Rs. 6
lakhs standing to the debit of Proft and Loss Account cannot be deducted
from the figures of Rs. 11 lakhs, being the total of the Revaluation
Reserve and the Capital Reserve. However, miscellaneous expenditure to the
extent not written off should not be deducted from the figure of reserves
for the purpose of computing the above limit.
So whatever be the case CARO -2003 will be applicable for your case as your
Reserve and Surplus is exceeding balance.While further breakup of Reserve
and Surplus A/C will help you to clear all your understanding.
Thanking you.
Sumit Agarwal
Following is the requirement for CARO -2003 :-
*Companies not Covered by the Order*
10. Paragraph 2 of the Order provides that it shall not apply to:
(i) a banking company as defined in clause (c) of section 5 of the Banking
Regulation Act, 1949 (10 of 1949);
(ii) an insurance company as defined in clause (21) of section 2 of the
Companies Act, 1956 (1 of 1956);
(iii) a company licensed to operate under section 25 of the Companies Act,
1956 (1 of 1956);
and
(iv) a private limited company with a paid-up capital and reserves not more
than rupees fifty lakh and which does not have outstanding loan exceeding
rupees twenty five lakhs from any bank or financial institution and does
not have a turnover exceeding rupees five crores at any point of time
during the financial year.
17. Sub-section (32) of section 2 of the Act defines the term “paid-up
capital” as capital credited as paid-up. The Guidance Note on Terms Used in
Financial Statements, issued by the Institute of Chartered Accountants of
India, defines the term “paid-up share capital” as, “that part of the
subscribed share capital for which consideration in cash or otherwise has
been received. This includes bonus shares allotted by the corporate
enterprise”. Paid-up share capital would include both equity share capital
as well as the preference share capital. While calculating the paid-up
capital, amount of calls unpaid should be deducted from and the amount
originally paid-up on forfeited shares should be added to the figure of
paid-up capital. Share application money received should not be considered
as part of the paid-up capital.
18. The Guidance Note on Terms Used in Financial Statements defines the
term “reserve” as, “The portion of earnings, receipts or other surplus of
an enterprise (whether capital or revenue) appropriated by management for a
general or specific purpose other than provision for depreciation or
diminution in the value of assets or for a known liability. The reserves
are primarily of two types: capital reserves and revenue reserves”. Clause
7(1)(b) of Part III of Schedule VI to the Act also defines the term
“reserve” by way of a negative explanation. According to the said
definition, the expression “reserve” does not include any amount written
off by way of providing for depreciation, renewals or diminution in the
value of assets or retained by way of providing for any known liability.
Thus, a reserve has to be clearly distinguished from a provision.
19. As mentioned in the preceding paragraph, reserves are primarily of two
types–capital reserves and revenue reserves. According to the Guidance Note
on Terms Used in Financial Statements, the term “capital reserve” means “a
reserve of a corporate enterprise which is not
available for distribution as dividend”. The said Guidance Note defines the
term “revenue reserve” as “any reserve other than capital reserve”. For
determining the applicability of the Order to a private limited company,
both capital as well as revenue reserves should be taken into consideration
while computing the limit of rupees fifty lakhs prescribed for paid-up
capital and reserves. Revaluation reserve, if any, should also be taken
into consideration while determining the figure of reserves for the limited
purpose of determining the applicability of the Order. The credit balance
in the profit and loss account should also be considered as a part of
reserve since the balance in the profit and loss account is available for
general purposes like declaration of dividend. The debit balance of the
profit and loss account, if any, should be reduced from the figure of
revenue reserves only. Therefore, if the company does not have revenue
reserves, debit balance of profit and loss account cannot be reduced from
the figures of paid-up capital, capital reserves and revaluation reserves.
For example, if the company has Rs. 40 lakhs of paid up share capital, Rs.
5 lakhs as Revaluation Reserve, Rs. 6 lakhs in Capital Reserve and Rs. 6
lakhs as debit balance in the Profit and Loss Account, the amount of Rs. 6
lakhs standing to the debit of Proft and Loss Account cannot be deducted
from the figures of Rs. 11 lakhs, being the total of the Revaluation
Reserve and the Capital Reserve. However, miscellaneous expenditure to the
extent not written off should not be deducted from the figure of reserves
for the purpose of computing the above limit.
So whatever be the case CARO -2003 will be applicable for your case as your
Reserve and Surplus is exceeding balance.While further breakup of Reserve
and Surplus A/C will help you to clear all your understanding.
Thanking you.
Sumit Agarwal
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