In recent times, many highly leveraged companies in Indian corporate sector followed the route of disposal of their non-core assets to reduce the debt burden. ‘Non-core assets’ means the assets not used in core business operations. The purpose of this paper is to develop a conceptual framework about the non-core assets, its relevance and fill the gap in disclosure requirement in companies’ financial statements in this regard. Existing disclosure requirements limit the information availability regarding the holding of non-core assets on the face of the balance sheet statement as well as in notes to accounts. The paper using the existing literature, in addition to information available in Revised Schedule VI to the Companies Act 1956 and Indian Accounting Standards 1, 6 and 10, finds that disposal of non-core assets during the turbulent times are one of the common practices. However, there are lacunas in the disclosure requirements regarding the noncore assets in company’s financial statements. The findings of the present study may attract the attention of various users of financial statements and may form the base for revising the disclosure norms in this regard to bring greater transparency. The study is a pioneering attempt to examine the possibility of showing each class of fixed tangible asset under the heads ‘core assets’ and ‘non-core assets’ to facilitate better decision making and compliance with the conventional wisdom of transparency, corporate governance and full disclosure.

Slow economic growth because of contraction in new investments by the private sector and the financial crisis in the Euro zone combined with drop in exports and weak rupee has resulted in a sharp decline in foreign direct investment flows in India. Its appeal as an investment destination has been adversely affected by the failure of government to take appropriate steps and policy paralysis along with the uncertainty in the global environment (Rangarajan, 2012). Due to the sharp rise in interest rates and higher borrowing costs, the investment growth rate declined to 5.8% in 2013 against the double digit figures of the previous years. The financial savings rate also registered a decline on account of decline in private savings due to inflationary pressure.

In this backdrop, many of the Indian stalwart companies are witnessing financial turmoil. The root cause in most of the cases was use of high financial leverage and the cash crunches. Primarily due to tax advantages, issuing debt is preferred to raising equity. Further, incorporating debt into the capital structure provides benefits, including access to attractively priced capital, a reduction in cost of capital and an efficient leverage of the balance sheet. For instance, Bharati Airtel acquired huge debt burden to fund its giant buyouts overseas1 (The Economic Times, 2012). Studies show that firms with high levels of debt earned low returns during the financial crisis (Meier et al., 2013). It is advisable to use debt financing when rate of return ‘r’ is higher than cost of capital ‘k’ (Brealey and Myers, 2008), as increased use of financial leverage concentrates the company’s business risk on its shareholders (Brigham and Ehrhardt, 2012). For example, Kingfisher Airlines’ inability to service its debt led to its closure (Saha, 2013). It had an estimated debt burden of more than 7,000 cr in 2011 (Kingfisher Airlines Limited Annual Report 2010-11). To avoid the crisis, many companies attempt to keep its debt burden to sustainable ranges as was practiced by highly leveraged firm DLF and Parsvnath Developers Ltd. in 2012 (The Economic Times, 2012; DLF Building India Annual report 2011-12; and Parsvnath Developers Ltd. Annual Report, 2011-12).

Accounting Research and Audit Practices, Non-Core Assets, Disclosure, Data and Methodology, Analysis, Means, End, Debt Crisis, Discussion, Requirements.