8.

COMPANY ACCOUNTS

1. COMPANY:-means “An incorporated association” under the company Act 1956.

2. CHARACTERISTICS:- of Company
(i) Incorporated association
(ii) Artificial person
(iii) Separate legal entity Company Law bond;
(iv) Common seal

3. TYPES OF COMPANY:-
 Public Co.
 Private Co.
 Statutory Co.
 Holding Co.
 Subsidiary Co.
 Foreign Co.
 Listed Co.

4. MEMORANDUM OF ASSOCIATION:- The main document of any company

which consists the information
Like (i) Name of company
(ii) Place of business of Co.
(iii) Nature of business
(iv) The Maximum Capital File Roc.

5. SHARE:- A small unit of Fixed amount of Share Capital.

6. TYPES OF SHARE CAPITAL

1. Authorised (Maximum Cup. Nominal Cap.):-It refers to the amount, stated in
MOA.
2. Issued Capital:- A portion of authorized capital which are issued for
(i) Cast &
(ii) Consideration other than cash
3. Subscribed (Public Purchase) CAP:- A portion of issued capital which is
subscribed i.e.: Applied & allotted.
MIN SUBSCRIPTION:- 90% OF ISSUED CAPITAL
 Minimum subscription „Must be achieved within 42 days from the date
of closure of issue.
 If Minimum subscription not achieved during the specified date. The
application money will be refunded within. Next 8 days otherwise
interest @ 15% p.a. will be payable along with application Money.

4. CALLED UP Capital:- the portion of issued capital which has been called-up.
5. Paid-up Capital:- Portion of Called up Capital received by the Company
within specified date.

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 Note:- In share capital A/c, the called up Capital transferred Not the paid-up
Capital.
6. RESERVE CAPITAL:-Portion of uncalled capital which will not be called-up
except in the event of Liquidation.
7. Calls in Arrear:- Portion of Called up Capital, which has not been received by
Company.
Intion Calls In Arrear:-As per table A
Rate = 5% p.a.
Period of Intt: From last date of payment, till the actual date of
payment.
Note:- The Company may waives Intion Calls-In one.]
8. Calls-In Advance:- Portion of subscribed Capital which has not been called-
up but received.
 No dividend is paid on calls-In advance.
 Interest is Paid
 Rate as per Table A: 6% p.a.
 Period: From the date receipt of advance till the date of adjustment to
relevant call.
Condition:- Mandatory to pay; Company Int. on Cells In advance.
9. Underwriting Commission:-
On shares:- 5%. I.P
On Debentures:- 2.5% I.P.
10. BROKERAGE COMMISSION:-
PRIVATE PLACEMNT :- 0-5%
PUBLIC :- 1-5%
Note:- As per SEBI, Brokerage commission will be paid only on public
placement.

TYPES OF SHARES

Equity shares Equity shares

TYPES OF PREFERENCE SHARES

CUMULATIVE:- It carries the right to a Fixed amount of dividend, even in case of

loss/Insufficient profit.
 Dividend on these shares accumulates unless. It is paid in full.
 Arrears of dividend is shown in the balance sheet as a contingent liability.

Non-Cumulative:- It carries the right to a Fixed amount of dividend only in case of profits.

Redeemable preference shares:- These shares are repaid after the Fixed period
 Max period of Redemption; Max 20 years from the date of issue.

Non-redeemable:- The shares, which are not repaid.

 Now, Company is not authorized to issue this shares.

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Convertible preference shares:- It carries the right to get them converted into equity shares.

Non-Convertible:- It does not carry such right.

Participating Preference shares:- It carries the right to participate in surplus profit if any
after payment of dividend to equity shareholder at a specified rate.

Non-participating:- It does not carry the above mentioned right.

COMPANY

Some other kinds of shares:-

1. Right shares:-These are offered to existing shareholder unusually at discounted
price.
2. Sweat equity shares:-There are issued to shareholder in lieu of dividend.
 These are issued without any consideration.
3. Bonus share:- These are issued to shareholder in lieu of dividend.
 These are issued without any consideration

ISSUE OF SHARES

1. Shares may be issued for cash or consideration other than cash.

2. Shares issued for Cash:-
 In this case, the amount may be demanded from shareholder (Applicants) in
full or in Installment.
 Minimum application money.
As per company Act :- 5% of Face value of share.
As per SEBI :- 25% of Issue price.
 If issue price, is called-up in instalment.
 Called-up value of shares are transferred to share capital a/c.
 Dividend is paid as a % of paid-up value of shares.
 When shares are issued at par:- The called-up amount of Face value will be
transferred to sh. Cap.
 When shares are issued at discount:- The called-up amount of face value will
be transferred to shares capital the short amount will be debited to discount
a/c.

Max discount:- 10% of face value of shares.

 When shares are issued at premium:- The called up amount of Face value will
be transferred to share capital. The Excess amount will be transferred to security
premium a/c max premium: UNLIMITED.

 Use of Securities Premium Amount:-

It may be used for only following four purpose
(i) To issue of Bonus share
(ii) To write off preliminary expenses.
(iii) To write off discount/commission on issue of share or debentures.

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 (iv) To pay premium on Redemption.

Forfeiture & Reissued of shares

Forfeiture means “taking away, the shares for Non-payment of allotment/calls

money.
In this case shares forfeited are cancelled.
Following accounting entries are passed.
Share Capital a/c – Cr (By called- up value)
Share premium a/c – Dr. (If premium not received)

To calls in arrear/allotment/call (By amount (not received)

To Forfeiture a/c (By amount received except premium)
To discount on issue of shares (discount will be cancelled)

Forfeited shares account shown as an addition to the total paid-up capital until the
forfeited shares are reissued.
Forfeited amount will not be transferred to capital Reserve until the concerned shares
are reissued.

Re-issue of shares forfeited

A forfeited shares can be issued at para/at discount/at premium.

Minimum Reissue price:- “The loss/discount on reissue cannot exceed the amount
forfeited.
1. When shares issued at par/premium
Min. Reissue price face value of (-) Amount called-up cap forfeited.
2. When shares issued at discount
Min Reissue price = issue price of – amt forfeited called-up cap.

Calculation of profit on Reissue

 Profit will be calculated on forfeited shares only when they are reissued.
 Profit on Reissue = Amount forfeited on reissued shares (-) loss on reissue
regarding those shares.
Ex:- Share forfeited = 1000, Amount forfeited = 6000 called-up value = Rs. 9
per share.
Loss on Reissued = Face value of called – Reissue price up capital
9 - 8 = 1
Total loss - 1000 ×1 = 1000
 Profit on Reissue = 6000 – 1000 = 5000 (will be transferred to capital Reserve).

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 Important Note

 On forfeiture share cap. Will be debited = share forfeited × called up value.

 Amount to be forfeited = Share forfeited × (amount received per share – Security
premium per share)
 Amount to be shown in share forfeiture a/c =
For share yet not reissued × Amount forfeited per share.
 Profit on Re-issue = Forfeited amount on Reissued share (-) loss on reissues.

REDEMPTION OF PREFERENCE SHARE

Redemption:- Means, repayment of amount.

Maximum period of redemption:- 20 years from the date of issue of share.
The date of issue of share.
Only fully paid up preference shares can be redeemed.

Preference shares are pre-fixed with %. It means “Fixed Rate of Dividend” which the
preference shareholders are entitled to.

SOURCE OF REDEMPTIO OF FACE

Value of Preference Share

1. Out of divisible profit PIL, 2. Out of proceed of fresh issue

Gen Res, Dividend alisation of shares
fund, workman pensation “NOT DEBENTURE”
fund
Proceeds Means:-
Fov. Issue price Proceed means
Sh. issued at par 10 10 10
Sh. issued at discount 10 9 9
Sh. issued at premium 10 12 10

Premium can’t be used to redeem face value of pref. share.

Calculation of Minimum No. of shares to be issued for

Redemption = Face Value + premium to be redeemed (-) company fund that can be used.

Creation of capital Redemption Reserve (C.R.R) = value of pref. share to be (-) proceed of
fresh issue of shares.

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 DEBENTURE

 A debenture is a Bond issued by Company under its seal acknowledging its debt and
containing provision regards payment of interest/Repayment of principal.
 Debenture is a form of public borrowing.
 Debenture holders are treated as creditors of company.
 Issue procedures of debentures are same as in case of shares.
 However loss on Redemption is recorded at the time of issue.
 Loss on Redemption = Amount of premium paid on Redemption (irrespective of fact
that Debenture were issued at par/discount/premium)
 Loss on Redemption will be charged to Revenue over the Tenure period of debenture
(Matching Concept).
 Discount on issue is charged to Revenue over the Tenure (Period) of debenture
(Matching Concept)
 Debenture can’t be forfeited for Non payment.
 Debenture can be issued as an collateral security (Additional Security)
Entry:- Debenture Suspense debited and % Debenture Credited.
 Debenture is prefixed with % :- It shows the rate of interest, on debenture .

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