Company Accounts

Company Accounts

Introduction to Company Accounts

Features of a company

1. Artificial Person 2. Incorporated Association 3. Separate Legal Entity

4. Perpetual Existence 5. Common Seal 6. Limited Liability

7. Distinction between Ownership and Management 8. Periodic Audit 9.

Not a Citizen 10. Transferability of shares 11. Maintenance of Books

Types of Companies

Statutory Company- All those company which operates under the special act passed by the state Legislature or parliament are called statutory company.

Government Company- A Govt. Co. is that co. in which Central Govt. or State Govt.\ Govts. or partly by Central Govt. and partly by State Govt.\ Govts. hold at least 51% shares. Subsidiary of a Govt. Co. is also called a Govt. Co.

Foreign Company- A foreign Co. is that co. which is incorporated outside India.

Holding Company and Subsidiary- If any co. holds 51% or more shares of a company the former is called holding co. and later is called subsidiary co.

Public Company-Features

1. A public co. means a company which is not a private co.

2. It must have a minimum paid-up capital of Rs. 500000.

Private Company- Features

1. A private co. means a company which has a minimum paid-capital of Rs. 100000.

2. Non-transferability of shares.

3. Number of members (share holders) is limited to 50.

4. It cannot invite public to subscribe its shares.

5. It cannot accept any deposit from persons other than its members, directors and relatives.

Financial Statements of a Company Includes

1. A profit & Loss A\C 2. A Balance Sheet

But now-a-days Cash Flow Statement is also published by the co.

ISSUE OF SHARES

Shares- The capital of the company is divided into units of equal denominations. Each of the units carries a

fixed amount. These units are known as shares.

Types of shares- 1) Equity Share 2) Preference Share

Share Capital

Authorised Share Capital- This is also known as Registered Capital or Nominal Share Capital. This is the

maximum number of capital which a company can issue.

Issued Share Capital-It is the nominal value of that part of the Authorized Capital which has been offered to the public for subscription.

Subscribed Share Capital- It is the part of nominal value of issued capital that has been subscribed (applied for) by the public and allotted to the director to the company.

i) Over Subscription- It is the situation when number of the application is more than the number of the shares

offered by the company.

ii)- Under Subscription- It is the situation when number of the shares is less than number of shares company

offered by the company.

Called-up Capital- it is the part of the subscribed capital which the company has called upon its share holders to pay.

Paid-up Capital- It is the part of called-up capital which the shareholders have actually paid.

Reserve Capital- is the part of uncalled capital which shall not be called up for payment except during its

liquidation.

Calls-in-arrear: Amount not paid on allotment and call on time is called calls-in-arrear. Interest on calls-in

advance is chargeable is @ 5% p.a. (as per Table A).

Calls-in –advance: Amount paid on allotment and call before time is called, calls-in-arrear. Company pays

interest @6% p.a. on calls-in-advance (as per Table A).

Conditions of issue of shares at discount as per section 79 of Companies Act, 1956:

1. Such an issue is being made at least after one year from the date of commencement of business.

2. The company must have resolved at its general meeting and the Central Government must have sanctioned

such an issue.

3. The rate of discount should be resolved as above but should not exceed 10 %. However in some special

cases discount at higher rate may be offered.

4. The issue at discount must be made within two months from the date of sanctioned or within such date as

may be approved by the Central Government.

5. Only such type of shares may be issued at discount which has already been issued.

Utilsation of Securities Premium as per sec. 78

1. For issuing fully paid bonus shares.

2. For writing off following

i) Share issue expenses or commission paid on issue of shares.

ii) Discount on issue of shares or Debentures.

iii) Preliminary expenses.

3. For providing premium on redemption of preference shares or debentures.

Minimum Application as per sec. 79

Forfeiture of Shares

In case of non-payment of allotment money or any of the call money, company after serving a notice may

forfeit the shares. Notice is served giving at least 14 days time.

Re-issue of Forfeited Shares

Shares may be re-issued at or at premium or at discount.

Maximum amount of discount on re-issue

1. Where shares were originally issued at par or at premium

Maximum Discount= Amount Forfeited

2. Where shares were issued at discount

Maximum Discount= Amount Forfeited+ Amount of Original Discount

Prospectus- Prospectus is a document issued before the issue of shares to invite the public for subscription of shares.

Pro-rata Allotment of Shares- in case of over subscription of shares, company issues shares to the public in proportion of shares applied by them. This is called pro-rata allotment.

Journal Entries

For receipt of application money Bank A\C Dr. To Share Application A\C For refund of excess application money Share Application A\C Dr. To Bank A\C For adjustment of excess application money with allotment money Share Application A\C Dr. To Share Allotment A\C For allotment money due Share Allotment A\C Dr. To Share Capital A\C For allotment money received Bank A\C Dr. Calls-in- arrear A\C (if any) Dr. To Share Allotment A\C For call money due Share Call A\C Dr. To Share Capital A\C

For application money transfer share capital account Share Application A\C Dr. To Share Capital A\C For call money received Bank A\C Dr. To share Call A\C (if any) To Calls-in-advance A\C For forfeiture of Shares Share Capital A\C Dr. Securities Premium A\C (if due) Dr. To Share Forfeited A\C To Calls-in-arrear A\C To Discount on Shares (if any) For re-issue of shares Bank A\C Dr. Discount on shares A\C Dr. (Original amount of discount) Share Forfeited A\C (loss on re-issue) Dr. To Share Capital A\C

Issue of Debentures

Debentures- It is a tool used by a company for a long term borrowing. It is actually a certificate for a fixed

deposit. It is an acknowledgement of a debt of a uniform rate.

Types of Debentures

1. Mortgage Debenture- It is issued mortgaging some assets. These debentures have charge on assets.

2. Naked Debentures- These debentures have no charge on assets.

3. Redeemable Debentures- These debentures are repayable within specified time. Debentures are issued for a maximum period of 20 years.

4. Irredeemable Debenture- There is no specified time for redemption of debentures. These are repayable

only at the time of liquidation of company. In India irredeemable debentures are not issued.

5. Unregistered or Bearer Debentures- These debentures are transferable on mere delivery. It bears no name or address of the holder.

6. Registered Debentures- The name and address of the holder are inserted in the register of the company. So transfer of these debentures requires inclusion of the new holder’s details in the register of the company removing the details of the existing holder’s details.

7. First Debentures- These debentures are considered first for repayment.

8. Second Debentures- After repayment of the first debentures, these debentures are repaid.

9. Convertible Debentures- The whole or part of the debentures are converted into equity shares after a

stipulated time.

10. Non-convertible Debentures- These debentures have no right to be converted into the shares.

Journal Entries

1. For issue of debentures at par and repayable also at par Bank A\C Dr. To Debentures A\C 2. For issue of debentures at par but repayable at premium Bank A\C Dr. Loss on Debentures A\C (amount of premium) Dr. To Debentures A\C To Premium on Redemption of Debentures A\C 4. For Issue of Debentures at premium and repayable also at premium Bank A\C Dr. Loss on Debentures A\C Dr. (Amount of premium payable on redemption) To Debentures A\C To Securities Premium A\C (Amount of premium received) To Premium on Redemption of Debentures

3. For issue of Debentures at premium but repayable at par Bank A\C Dr. To Debentures A\C To Securities Premium A\C 5. For Issue of Debentures at discount but redeemable at par Bank A\C Dr. Discount on Debentures A\C Dr. To Debentures A\C 6. For issue of Debentures at discount but redeemable at premium Bank A\C Dr. Loss on Debentures A\C Dr. (Amount of discount+ Amount of premium) To Debentures A\C To Premium on Redemption of Debentures A\C

Redemption Of Preference Shares

It means paying back the amount of preference shares to the holders of such shares on a specified date or

after the expiry of certain period of time.

Important Points

1. A company in India cannot issue irredeemable preference shares.2. Preference Shares are issued for a

maximum period of 20 years.

2. A share cannot be redeemed unless it is fully paid.

3.The redemption may be out of any or both i) profit of the company available for dividend* ii) proceeds of

fresh issue of shares**.

4. Where shares are redeemed out of profit an equal amount must be transferred to Capital Redemption

Reserve.

5. Capital Redemption Reserve can be utilized only for issuing fully paid bonus shares.

*Following profits are available for declaration of dividend:

Profit & Loss A\c, General Reserve, Reserve Fund, Dividend Equalization Reserve, Workmen’s compensation

fund etc.

Following should not be used while creating CRR:

Securities Premium( but it can be utilized for providing premium on redemption of shares, Capital Reserve,

Forfeited Shares A\C, Pre-incorporation Profit and any specific reserve like Investment Allowance Reserve’

Development Rebate Reserve.

** The ‘term’ proceeds should not include any securities premium but if there is any discount on issue, the net

Proceeds (after deduction of discount) should be considered.

Proceeds of debentures should not be considered for fresh issue.

Journal Entries

1. Amount payable on redemption Redeemable Preference Shares Capital A\C Dr. Premium on Redemption of Pref. Shares A\C Dr. To Preference Shares Holders A\C 2. For providing premium on redemption Securities Prm.\ Profit & Loss A\C \ Other Reserves A\C Dr. To Prm on Redemption Pref. Shares A\C

3. For payment of redemption money Pref. Shares Holders A\C Dr. To Bank A\C 4. For creation of CRR P\L A\C Or, General Reserves A\C Dr. Other Free Reserves A\C Dr. To CRR A\C

Balance Sheet of… (As per schedule 6)

As on ………….

LIABILITIES	RS.	ASSETS	RS.
SHARE CAPITAL		FIXED ASSETS:-
Authorized share capital		Goodwill
Issued share capital		Patent, Trade mark etc.
Subscribed share capital		Land
Paid-up share capital		Building
( Excluding Calls-in-arrear)		Leasehold
Reserves and surplus		Plant and machinery
Capital reserve		Furniture and fittings
Capital redemption reserve		INVESTMENT
Other reserves		CURRENT ASSETS LOAN AND
Securities Premium		ADVANCES
Profit & Loss Account		1.CURRENT ASSETS
Sinking fund		a)Int. accrued on investment
SECURED LOAN		b)Loose tools
Debentures		c)Stock in trade
Loan and advance from bank		d)Work in progress
UNSECURED LOAN		e)Sundry debtors
Fixed Deposits		f)Cash in hands
Short term loan and advances		g)Cash at bank
Other loan and advances		LOANS AND ADVANCES
CURREN LIABILITIES AND		Bills Receivables
PROVISIONS:		Prepaid Expenses
CURREN LIABILITIES		Loan Given
Acceptance		MISCELLANEOUS
Sundry creditors		EXPENDITURE
Unclaimed dividends		a)Discount on Shares
Interest accrued on loan		Debentures
PROVISIONS		b)Preliminary Expenses
Provision for taxation		PROFIT AND LOSS
Proposed dividend		ACCOUNT (Debit Bal.)
Provident fund
Other provisions
	XXX		XXX