10. company accounts 1100.. ccoommppaannyy …
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ACCOUNTS
10. Company Accounts
CA SANKET SHAH
1100.. CCOOMMPPAANNYY AACCCCOOUUNNTTSS
UUNNIITT 11 :: IINNTTRROODDUUCCTTIIOONN TTOO CCOOMMPPAANNYY AACCCCOOUUNNTTSS
CCOONNCCEEPPTT 11 :: MMEEAANNIINNGG OOFF CCOOMMPPAANNYY
In law 'company' is termed as company which is formed and incorporated under the Companies Act,
2013 or an existing company formed and registered under any of the previous company laws.
As per this definition of law, there must be group of persons who agree to form a company under the
law and once so formed, it becomes a separate legal entity having perpetual succession with a distinct
name of its own and a common seal.
Its existence is not affected by the change of members.
It is an organisation consisting of individuals, called shareholders by virtue of holding the shares of a
company, who are authorised by law to elect a board of directors.
CONCEPT 2 : SALIENT FEATURES OF A COMPANY (TQ. Q.1)
Sr. no. Features Explanation
1) Incorporated
Association Incorporation of company under the Companies Act is must. Without such
registration, no company can come into existence.
Being created by law, it is regarded as an artificial legal person.
2) Separate Legal
Entity A company has a separate legal entity and is not affected by changes in its
membership.
A company can contract, sue & be sued in its incorporated name & capacity.
3) Perpetual
Existence Company continues to be in existence despite the death, insolvency or change
of members.
4) Common Seal Company is not a natural person, therefore, it cannot sign the documents in
the manner as a natural person would do.
In order to enable the company to sign its documents, it is provided with a
legal tool called 'Common Seal'.
5) Limited
Liability The liability of every shareholder of a co. is limited to the amount he has
agreed on the shares allotted to him. No further liability if such shares are
fully paid-up.
6) Distinction
between
Ownership &
Management
As the number of shareholders is very large, it becomes difficult for them to
carry on the operational management of the company on a day-to-day basis.
This gives rise to the need of separation of the management and ownership.
7) Not a citizen Company has a legal existence but does not enjoy the citizenship rights and
duties as are enjoyed by the natural citizens.
8) Transferability
of Shares The capital is contributed by the shareholders through the subscription of
shares.
Such shares are transferable by its members except in case of a private
limited company.
9) Maintenance
of Books A limited company is required by law to keep a prescribed set of A/c books
and any failure in this regard attracts penalties.
10) Periodic Audit A company is to get its accounts periodically audited through the chartered
Accountants appointed for the purpose by the shareholders on the
recommendation of board of directors.
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11) Right of
Access to
Information
The right of the shareholders of a company to inspect its books of Accounts.
The shareholders have a right to seek information from the directors by
participating in the meetings of the company and through the periodic
reports.
CCOONNCCEEPPTT 33 :: TTYYPPEESS OOFF CCOOMMPPAANNIIEESS
Sr. no. Features Explanation
1) Government
Company Any company in which not less than 51% of paid-up share capital is held by :
[a] the Central Government, or
[b] by any State Government or Governments, or
[c] partly by the Central Government and partly by one or more State
Governments, and
[d] includes a company which is a subsidiary company.
2) Foreign
Company
[TQ. 2(i)]
Any company or body corporate incorporated outside India which :
[a] has a place of business in India; &
[b] conducts any business activity in India in any other manner.
3) Private
Company A company having a minimum paid-up share capital of 1 lakh rupees or such
higher paid-up share capital as may be prescribed, and which by its articles :
[a] restricts the right to transfer its shares;
[b] limits the number of its members to 200 (except in case of One Person
Company)
4) Public
Company A company which :
[a] is not a private company;
[b] has a minimum paid-up share capital of five lakh rupees or such higher
paid-up capital, as maybe prescribed.
5) One Person
Company A company which has only one person as a member;
6) Small
Company [TQ. 2(ii)]
A company, other than a public company :
[a] paid-up share capital of which does not exceed 50 lakhs (such higher
amount as prescribed not more than 5 crores); or
[b] turnover of which as per its last profit and loss A/c does not exceed 2crore
(such higher amount as prescribed not more than 20 crores)
7) Listed
Company A company having its securities listed on any recognised stock exchange.
The company, whose shares are not listed on any recognised stock exchange,
is called "Unlisted Company". In case of private companies, shares are not
listed in any stock exchange.
8) Unlimited Co. A company not having any limit on the liability of its members.
9) Co. Limited
By Shares A company having the liability of its members limited by the memorandum to
the amount, if any, unpaid on the shares respectively held by them.
10) Company
Limited By
Guarantee [TQ. 2(iii)]
Members may respectively undertake to contribute to the assets of the
company in the event of its being wound up.
11) Subsidiary
Company A company in which the holding company :
[a] controls the composition of the Board of Directors; or
[b] exercises or controls more than one-half of the total share capital either at
its own or together with one or more of its subsidiary companies :
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CONCEPT 4 : MAINTENANCE OF BOOK OF ACCOUNTS
Every company shall prepare and keep at its registered office books of A/c and
other relevant books and papers and
financial statement for every financial year
which give a true and fair view of the state of the affairs of the company, including that of its branch
office or offices. (Provided further that the company may keep such books in electronic mode).
CCOONNCCEEPPTT 55 :: PPRREEPPAARRAATTIIOONN OOFF FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS
The financial statements comply with the notified Accounting Standards and in the form Schedule III.
The Board of Directors of the company shall lay financial statements at every AGM of a company.
Financial Statements as per Section 2(40) of the Companies Act, 2013, inter-alia include :
[a] a balance sheet as at the end of the financial year;
[b] a profit and loss A/c
[c] cash flow statement for the financial year;
[d] a statement of changes in equity (SOCE), if applicable; and
[e] any explanatory note
Provisions Applicable
[1] Specific Act is Applicable For instance any
[a] insurance company
[b] banking company or
[c] any company engaged in generation or supply of electricity or
[d] any other class of company for which a Form of balance sheet or Profit and loss A/c has been
prescribed under the Act governing such class of company
[2] In case of all other companies
In the form of Schedule
Balance Sheet Schedule III Part I
Profit & Loss Statement Schedule III Part II
PART I - Form of BALANCE SHEET
Name of the Company.........................
Balance Sheet as at...........................
Sr. no. Particulars Notes
No.
Figures as at end
of the current
reporting period
Figures as at end
of the previous
reporting period
EQUITY AND LIABILITIES
1
a
b
c
Shareholders' funds
Share capital
Reserves and Surplus
Money received against share warrants
2 Share application money pending allotment
3
a
b
c
d
Non-current liabilities
Long-term borrowings
Deferred tax liabilities (Net)
Other long term liabilities
Long-term provisions
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4
a
b
c
d
Current Liabilities
Short-term borrowings
Trade Payables
Other current liabilities
Short-term provisions
Total Rs
ASSETS
1
a
b
c
d
e
Non-current assets
Fixed assets
i Tangible assets
ii Intangible assets
iii Capital Work-in-progress
iv Intangible assets under development
Non-current investments
Deferred tax assets (Net)
Long-tems loans and advances
Other non-current assets
2
a
b
c
d
e
f
Current assets
Current investments
Inventories
Trade receivables
Cash and cash equivalents
Short-term loans and advances
Other current assets
Total Rs
PART II - Form of PROFIT & LOSS
Sr.
No.
Particulars Notes
No.
Figures for the
current
reporting
period
Figures for the
previous
reporting
period
I Revenue from operations xxx xxx
II Other income xxx xxx
III Total Revenue (I + II) xxx xxx
IV Expenses: xxx xxx
Cost of materials consumed xxx xxx
Purchases of Stock-in-Trade xxx xxx
Changes in inventories of finished goods
work-in-progress and Stock-in-Trade
Employee benefits expense
Finance costs
Depreciation and amortization expense
Other expenses
Total expenses xxx
V Profit before exceptional & extraordinary items & tax xxx xxx
VI Exceptional items xxx xxx
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VII Profit before extraordinary items and tax (V-VI) xxx xxx
VIII Extraordinary Items xxx xxx
IX Profit before tax (VII- VIII) xxx xxx
X Tax expense:
(1) Current tax xxx xxx
(2) Deferred tax xxx xxx xxx xxx
XI Profit (Loss) for the period from continuing
operations
xxx xxx
XII Profit/(Loss) from discontinuing operations xxx xxx
XIII Tax expense of discontinuing operations xxx xxx
XIV Profit/(Loss) from Discontinuing operations (after
tax) (XII-XIII)
xxx xxx
XV Profit (Loss) for the period (XI + XIV) xxx xxx
XVI Earnings per equity share:
(1) Basic xxx xxx
(2) Diluted xxx xxx
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UUNNIITT 22 :: IISSSSUUEE,, FFOORRFFEEIITTUURREE AANNDD RREEIISSSSUUEE OOFF SSHHAARREESS
CCOONNCCEEPPTT 11 :: SSHHAARREE CCAAPPIITTAALL
Total capital of the company is divided into a number of small indivisible units of a fixed amount and
each such unit is called a share. The fixed value of a share, printed on the share certificate, is called
nominal/par/face value of a share.
However, a company can issue shares at a price different from the face value of a share.
The total capital of the company is divided into shares, the capital of the company is called 'Share
Capital'.
Sr. no. Type of Capital Explanation
[1] Authorised
Share Capital
or Nominal
Capital
This is mentioned in 'Capital Clause' of the MOA' registered with the ROC.
A company cannot issue shares beyond 'Authorised Capital'.
It is shown in the balance sheet at face value.
[2] Issued Share
Capital A portion of the share capital is issued by the company.
Issued capital means and includes the nominal value of shares issued by the
company for :
[a] Cash, and
[b] Consideration other than cash to:
[i] Promoters of a company; and
[ii] Others.
It is also shown in the balance sheet at nominal value.
[3] Unissued Share
Capital
The remaining portion of the authorised capital which is not issued either in
cash or consideration maybe termed as 'Un-issued Capital'.
It is not shown in the balance sheet.
[4] Subscribed
Share Capital It is that part capital, applied by the public and allotted by the company.
[5] Called-up
Share Capital
The portion of the issue price of shares which a company has demanded or
called from shareholders.
[6] Uncalled
Capital
Balance Capital which the company has decided to demand in future.
[7] Paid-up Capital Portion of called up capital which is paid by the shareholders.
[8] Unpaid Share
Capital Portion of called up capital which is not paid by the shareholders.
It is also known 'Calls in Arrears'
In balance sheet, called-up and paid-up capital are shown together.
[9] Reserve Share
Capital Portion of the uncalled capital which a company has decided to call only in
case of liquidation of the company is called Reserve Capital.
Reserve Capital is different from Capital reserve.
Capital reserves are part of 'Reserves and Surplus' and refer to those reserves
which are not available for declaration of dividend.
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CCOONNCCEEPPTT 22 :: SSOOUURRCCEESS OOFF CCOOMMPPAANNYY FFIINNAANNCCEE
CCOONNCCEEPPTT 33 :: PPRREEFFEERREENNCCEE SSHHAARREESS
Meaning :
According to section 43 of the Companies Act, 2013 persons holding preference shares, called
preference shareholders, are assured of a preferential dividend at a fixed rate during the life of the
company.
Characteristics :
[1] Preferential right over other shareholders to be paid first in case of winding up of the company.
[2] Thus, they enjoy preferential rights in the matter of :
[a] Payment of dividend, and
[b] Repayment of capital
[3] Generally do not get voting rights.
[4] Dividend is generally cumulative in nature and need not be paid every year in case of deficiency of
profits.
[5] The Companies Act, 2013 prohibits the issue of any preference share which is irredeemable.
[6] Preference shares are cumulative and non-participating unless expressly stated otherwise
Sr. no. Type of Capital Explanation
[1] (a) Cumulative
Preference
Shares
Dividend is payable even out of future profit if current year's insufficient.
Arrears of dividend are then shown in b/s as a contingent liability.
In India, a preference share is considered cumulative unless otherwise
stated.
In case, the dividend remains in arrears for a period of more than two years,
holders of such shares will be entitled to take part and vote in general
meeting of the shareholders.
(b) Non-cumulative Holder of such a share is not entitled to arrears of dividend in future.
Equity Share Capital Preference Share Capital
Debentures
[c] Owner of Company [d] Dividend if Profit
[a] If Unpaid, they become owners [b] Preference Dividend if Profit
[a] Creditors of Co. [b] Interest if Profit/Loss
Less Risky. Moderate Risky.
Fixed Dividend Surplus Profit
Permanence
Convertibility
Cumulative
Non-cumulative
Participating
Non-Participating
Redeemable
Irredeemable
Convertible Non-Convertible
Types of Preference Shares
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[2] (a) Participating
Preference
Shares
Right to participate in the surplus profits, if any, after the equity
shareholders have been paid dividend at a stipulated rate.
Similarly, in the event of winding up of the company, this type of share
carries right to receive a pre-determined proportion of surplus as well once
the equity shareholders have been paid off.
(b) Non-
participating A share on which only a fixed rate of dividend is paid every year, without
any accompanying additional rights in profits and in the surplus on
winding-up.
[3] (a) Redeemable
Preference
Shares
These shares are issued on the condition that the company will repay after
the fixed period or even earlier at company's discretion. (Section 55)
(b) Non-redeemable The preference shares, which do not carry with them the arrangement
regarding redemption.
No company limited by shares shall issue preference shares redeemable
after the expiry of 20 years from the date of issue. (Exception is
Infrastructure Projects)
[4] (a) Convertible
Preference
Shares
The right to the holder to get them converted into equity shares at their
option according to the terms and conditions of their issue.
(b) Non-convertible No right to get his holding converted into equity share
CCOONNCCEEPPTT 44 :: EEQQUUIITTYY SSHHAARREE CCAAPPIITTAALL
Meaning :
Equity shares are those shares, which are not preference shares.
It means that they do not enjoy any preferential rights in the matter of payment of dividend or
repayment of capital.
Characteristics :
[1] Varying rate of dividend
[2] Rate of dividend depends upon dividend policy & availability of profits
[3] These shares carry voting rights.
[4] Companies Act, 2013 permits issue of equity share capital with differential rights as to dividend,
voting or otherwise in accordance with prescribed rules.
[5] The shares can be issued by a company either
[a] For cash or
[b] For consideration other than cash.
IISSSSUUEE OOFF SSHHAARREESS FFOORR CCAASSHH [TQ. 2(ii)]
To issue shares, private companies depend upon 'Private Placement' of shares. Public companies issue a
'Prospectus' and invite general public to subscribe for shares.
On the basis of prospectus, applications are deposited in a scheduled bank along with the amount
payable at the time of application, in cash.
First installment paid along with application is called 'Application Money'.
Application money must be at least 5% of the nominal value of shares.
A company cannot proceed to allot shares unless minimum subscription is received by the company.
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MMIINNIIMMUUMM SSUUBBSSCCRRIIPPTTIIOONN
The amount of minimum subscription to be disclosed in prospectus by the Board of Directors taking
into A/c the following:
[a] Preliminary expenses of the company,
[b] Commission payable on issue of shares,
[c] Cost of fixed assets purchased or to be purchased,
[d] Working capital requirements of the company, and
[e] Any other expenditure for the day to day operation of the business.
As per SEBI, a company must receive a minimum of 90% subscription against the entire issue before
making any allotment of shares or debentures to the public.
If the Company does not receive the minimum subscription of 90% the entire subscription shall be
refunded to the applicants within 15 days after the date of closure of issue in case of non-
underwritten issue and 7 days after the date of closure of issue in case of underwritten issue.
However, as per SEBI Regulations, the minimum application moneys to be paid by an applicant along
with the application money shall not be less than 25% of the issue price.
The issue price of shares is received by the company in installments and these are known as under :
Instalment Money
FirstInstallment Application Money
Second Installment Allotment Money
Third Installment First Call Money
Fourth Installment Second Call Money and so on.
Last Installment Final Call Money
FFAACCEE VVAALLUUEE ((RRss..1100)) ((IISSSSUUEE))
[1] Application money received & due = Rs3
Sr.no. Particulars Dr Cr
a) Bank A/c Dr. 3
To E. S. Application A/c 3
b) E. S. Application A/c Dr. 3
To E. S. Cap A/c 3
Balance Sheet (Extract)
E.S. Capital 3 Bank 3
[2] Allotment Money due & received = Rs.3
Sr.No. Particulars Dr Cr
a) Allotment money due
E. S. Allotment A/c Dr. 3
To E. S. Cap A/c 3
b) Allotment money received
Bank A/c Dr. 3
To E. S. Allotment A/c 3
Application Rs3 2nd Call Rs2 Allotment Rs3 1st Call Rs2
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Balance Sheet (Extract)
E.S. Capital (3+3) 6 Bank (3+3) 6
Total 6 Total 6
[3] First call Received
Sr.no. Particulars Dr Cr
a) First call money due
E. S. First Call A/c Dr. 2
To E. S. Cap A/c 2
b) First call money received
Bank A/c Dr. 2
To E. S. First Call A/c 2
Balance Sheet (Extract)
E.S. capital (6+2) 8 Bank (6+2) 8
[4] Second Call Received
Sr. no. Particulars Dr Cr
a) Second call money due
E. S. Second Call A/c Dr. 2
To E. S. Cap A/c 2
b) Second call money received
Bank A/c Dr. 2
To E. S. Second Call A/c 2
Balance Sheet (Extract)
E.S. capital (8+2) 10 Bank (8+2) 10
Important Points :
[1] Application, Allotment, First call & Second call are temporary accounts. (Showing Debit Balance)
[2] Equity Share Capital always shows credit balance
[3] If amount is received then Bank A/c is debited. Call in arrears is debited if amount is not received.
[4] Calls in Arrears shows Debit Balance but deducted from EquityShare Capital.
[5] Sometimes separate Application and Allotment A/cs are not prepared and entries relating to
application and allotment monies are passed through a combined Application and Allotment A/c.
CCOONNCCEEPPTT 55 :: SSUUBBSSCCRRIIPPTTIIOONN OOFF SSHHAARREESS
Full Subscription
If minimum subscription received, then only share are alloted
Under Subscription
Over Subscription
No. of shares issued =
No. of shares Subscribed
No. of shares issued >
No. of shares Subscribed
No. of shares issued <
No. of shares Subscribed
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Over Subscription :- If investor has confidence in the company.
☺ Example 1 : No. Of shares issued = 1,00,000 shares. Rs10 FV. & Rs14 – issue price i.e. Rs.4 – premium.
Application Allotment Call Total
2 1 7 10
4 4
2 5 7 14
Applications received = Rs.3,55,000shares.
[1] 5,000 Shares : Allotment Full
[2] 30,000 Shares : Allotment 15,000
[3] 3,20,000Shares : 80,000 Allotment
Lot 1 : Received 5,000 shares * Rs2 = Rs.10,000
Lot 2 : Received 30,000 shares * Rs.2 = Rs.60,000
Excess 30,000
Lot 3 : Received 3,20,000shares * Rs.2 = Rs.6,40,000
Option 1 : Refund Option 2 : Pro-rata
6 shares applied 5 shares allotted
Excess : 1 shares allotted received
Refund
Adjust it in Allotment
Due : 5,000 * 2 = 10,000 Excess = 0
Due = 15,000 * 2 = 30,000 Excess 30,000
Allotment money due
15,000 share * Rs5 = Rs75,000
Refund
‘0’
Adjust 30,000
Balance due & received
45,000
Due 80,000 * 2 = Rs1,60,000 Excess 4,80,000
Allotment money due 80,000 * Rs5 = Rs4,00,000
Adjust = Rs4,00,000
Refund
Rs80,000
Oversubscribed Money
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SSUUMMMMAARRYY
Journal Entries
Sr.no. Particulars Dr Cr
1) Bank A/c Dr 7,10,000
To Equity Share Application A/c (3,55,000*2) 7,10,000
2) Equity Share Application A/c Dr 7,10,000
To Equity Share Capital A/c (1,00,000*2) 2,00,000
To Equity Share Allotment A/c 4,30,000
To Bank A/c 80,000
3) E.S. Allotment A/c (1,00,000*5) Dr 5,00,000
To Equity Share Capital A/c (1,00,000*1) 1,00,000
To Securities Premium A/c (1,00,000*4) 4,00,000
4) Bank A/c (5,000 share * Rs.5 + 45,000) Dr 70,000
To Equity Share Allotment A/c 70,000
5) E.S. First Call A/c (1,00,000 * 7) Dr 7,00,000
To Equity Share Capital A/c 7,00,000
6) Bank A/c Dr 7,00,000
To Equity Share First Call A/c 7,00,000
☺ Example 2 : B Ltd. Issued 80,000 e.g. share of Rs.10 each.
Application Allotment First Call Second Call Total
3 4 2 1 10
Sr. No. Application Received Shares Allotted
1] 20,000 Shares 20,000 Shares
2] 80,000 Shares 60,000 Shares
3] 20,000 Shares 0 Shares
Total 1,20,000Shares 80,000 Shares
Lot 1 : 20,000 * 3 = 60,000
Lot 1 : No excess money
Lot 2 : Excess money
Lot 3 : Excess money
Adjusted in allotment
After adjusting in
allotment, still excess
Refund
Due 60,000 Excess ‘0’
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Lot 2 : 80,000 * 3 = 2,40,000
Lot 3 : 10 + 3 = 20,000 * 3 = 60,000, Due = 0, Refund = 60,000
Journal Entries
Sr.no. Particulars Dr Cr
1) Bank A/c (1,20,000*3) Dr 3,60,000
To Equity Share Application A/c 3,60,000
2) Equity Share Application A/c Dr 3,60,000
To Equity Share Capital A/c (80,000*3) 2,40,000
To Equity Share Allotment A/c (Adjustment) 60,000
To Bank A/c (20,000*3) 60,000
3) E.S. Allotment A/c (80,000*4) Dr 3,20,000
To Equity Share Capital A/c 3,20,000
4) Bank A/c (20,000 share * Rs.4 + 1,80,000) Dr 2,60,000
To Equity Share Allotment A/c 2,60,000
5) E.S. First Call A/c (80,000 * 2) Dr 1,60,000
To Equity Share Capital A/c 1,60,000
6) Bank A/c Dr 1,60,000
To Equity Share First Call A/c 1,60,000
7) E.S. Second Call A/c (80,000 * 1) Dr 80,000
To Equity Share Capital A/c 80,000
8) Bank A/c Dr 80,000
To Equity Share Second Call A/c 80,000
CCOONNCCEEPPTT 66 :: SSHHAARREESS IISSSSUUEEDD AATT DDIISSCCOOUUNNTT [TQ. 3]
If issue is at an amount less than the nominal or par value of shares.
The excess of the nominal value over the issue price represents discount on the issue of shares.
☺ For example, when nominal value is `100 &is issued at Rs.98, means issued at a discount of 2%.
According to Section 53, a Company cannot issue shares at a discount except in the case of issue of
sweat equity shares (issued to employees and directors).
Thus any issue of shares at discount shall be void.
CCOONNCCEEPPTT 77 :: SSHHAARREESS IISSSSUUEEDD AATT PPRREEMMIIUUMM
When a company issues its securities at a price more than the face value, it is said to be an issue at a
premium.
Premium is the excess of issue price over face value of the security.
Financially strong, and well-managed companies issue their shares at a premium.
Due = 60,000 * 3 = 1,80,000 Excess = 60,000
Allotment due = 60,000*4 = 2,40,000
Adjust 60,000 Balance = 1,80,000
Refund ‘0’
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Where a share of the nominal value of Rs.100 is issued at Rs.105, means issued at a premium of 5%.
It is issued to save Authorised Share Capital.
Issued when shareholders are not equally important
Balance Sheet (Extract) [Without Premium]
E.S. Capital 30 Bank 30
Total 30 Total 30
Balance Sheet (Extract) [With Premium]
E.S. Capital 10
(+) Securities Premium 20 Bank 30
Total 30 Total 30
OOPPTTIIOONN 11 ::
Conclusion : Control is with outsiders (60%)
OOPPTTIIOONN 22 ::
Conclusion : Control is with promoter.
Accounting Treatment of Securities Premium : [TQ. 1(i)]
Premium is credited to separate account.
It isnot a part of Share Capital.
It is in the nature of Capital Receipt. (Liability side) & shown under the head” Reserves & Surplus ”
Utilisation (Giving Dr.) to Security Premium A/c :
Sr.no. Particulars Dr Cr
a) To issue Bonus Shares
Security Premium A/c Dr
To E.S. Capital
2 Promotors : Rs.400
2 Outsiders : Rs.600
Rs.20 each
Rs.20 each
20 shares = 40%
30 shares = 60%
2 Promoters Balance 2 Outsiders
Rs.400 Rs.600 not issued
Rs.20 each Rs.60 each (Rs.20 : FV) (Rs.40 : SP)
20 shares
20 shares
10 shares
50 Shares
50 Shares
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b) To write off Preliminary Expense or Registration Expenses
Security Premium A/c Dr
To Preliminary Expenses A/c
c) To write off expenses of commission paid, discount allowedrelated to shares /debentures
Security Premium A/c Dr
To Discount/ Underwriter commission/ Related Exp./ Preliminary Exp. A/c
d) To provide Premium on redemption of redeemable preference shares / Debentures
Eg. : Suppose, company wants to redeem Rs.100 pref. share capital @ 10% premium
10% extra means loss & if balance is available in securities premium then utilise it
i) Preference Share Capital (Liability) Dr 100
Premium on Redemption (Loss) Dr 10
To Bank A/c 110
ii) Security Premium A/c Dr 10
To Premium on Redemption A/c 10
e) For Buy Back purpose
Eg. Company Share Capital : Rs.100 & Company wants buyback @ 20% Premium (same logic of
point d)
E.S. Capital (FV – Cancel) Dr 100
Securities Premium Dr 20
To Bank 120
Securities Premium Entry is always due entry
CCOONNCCEEPPTT 88 :: CCAALLLLSS IINN –– AARRRREEAARRSS AANNDD CCAALLLLSS IINN AADDVVAANNCCEE [TQ. 2(i)]
At the time of application
At the time of Allotment
1) Bank Dr. To E.S. Application A/c
2) E.S. Application Dr. To E.S. Capital A/c
To Securities Premium (Due)
1) E.S. Allotment A/c Dr. To E.S. Capital A/c
To securities premium (Due) 2) Bank A/c Dr.
To E.S. Allotment A/c (Received)
Premium is collected
Page 138
ACCOUNTS
10. Company Accounts
CA SANKET SHAH
CCAALLLLSS--IINN--AARRRREEAARRSS
Shareholders fail to pay the amount due on allotment or calls.
The total unpaid amount on one or more instalments is known as Calls-in-Arrears or Unpaid Calls.
It is shown by way of deduction from 'called-up capital' to arrive at paid-up value of the share capital.
For recording 'Calls-in-Arrears', the following journal entry is recorded :
Calls-in-Arrears A/c Dr. [Amount of Unpaid Calls]
To Share Allotment A/c
To Share Calls A/c
According to Table F interest at the rate of 10% per annum is to be charged on unpaid calls.
The journal entries for calls-in-arrears are as follows :
Sr. No. Particulars Dr Cr
1) For interest receivable on calls-in-arrears
Shareholders' A/c Dr.
To Interest on calls-in-arrears A/c
2) For receipt of interest
Bank A/c Dr.
To Shareholders' A/c
CCAALLLLSS--IINN--AADDVVAANNCCEE
Some shareholders may sometimes pay a part, or whole, of the amount not yet called up, such amount
is known as Calls-in-advance.
According to Table F, interest at a rate not exceeding 12 % p.a. is to be paid on such advance call
money.
This amount is credited in Calls-in-Advance A/c.
The following entry is recorded:
Sr. no. Particulars Dr Cr
1) Bank A/c Dr.
To Call-in-Advance A/c
When calls become actually due, calls-in-advance A/c is adjusted at the time of the call.
2) Calls-in-Advance A/c Dr. [Call amount due]
To Particular Call A/c
Interest on Calls-in-Advance
3) a) Interest Due
Interest on Calls-in-Advance A/c Dr. [Amount of interest due for payment]
To Shareholder's A/c
b) Payment of Interest
Shareholder's A/c Dr. [Amount of interest paid]
To Bank A/c (Interest paid on calls-in-advance)
CCAALLLL IINN AARRRREEAARRSS
Arrears
Advance
Interest Income
Interest Expense
10%
12%
From respective call upto amt received
From amt received upto respective call
Page 139
ACCOUNTS
10. Company Accounts
CA SANKET SHAH
CCOONNCCEEPPTT 99 :: FFOORRFFEEIITTUURREE OOFF SSHHAARREESS
'Forfeit' means taking away of property on breach of a condition.
Failure to pay call money results in forfeiture of shares.
Forfeiture is the action taken by a company to cancel the shares.
When shares are forfeited, the title is extinguished but the amount paid to date is not refunded to him.
The shareholder then has no further claim on the company.
Company first requests shareholder to pay due amount & if shareholder does not pay due amount then
his shares will be forfeited by company.
Share forfeited shows Credit Balance & shows amount already received.
Accounting Entries :
[a] Amount called-up (i.e., amount credited to capital) in respect of forfeited shares.
[b] Amount already received in respect of those shares.
[c] Amount due but has not been received in respect of those shares.
[1] FORFEITURE OF SHARES WHICH WERE ISSUED AT PAR
Share Capital A/c will be debited with the called-up value of shares forfeited.
Allotment or Calls A/c will be credited with the amount due but not paid by the shareholder(s).
Forfeited Shares A/c will be credited with the amount already received in respect of those shares.
☺ Example :
Amount received. Shares forfeited
3 3 2 2
Step 1 : Try to Prepare Balance Sheet before forfeiture
Option 1 : Open Calls in Arrears a/c
Balance Sheet (Extract)
E.S. Capital 10 Bank 6
(-) CIA (4)
Total 6 Total 6
Option 2 : Don’t open Calls in Arrears a/c
Balance Sheet (Extract)
E.S. Capital 10 Bank 6
(-) 1st call (2)
(-) 2nd call (2)
Total 6 Total 6
Cancel Reissue
Shares forfeited a/c --- Dr.
To Capital Reserve
Action of company with forfeited Shares
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ACCOUNTS
10. Company Accounts
CA SANKET SHAH
Summary
Step 2 : Pass entry of for forfeiture
Sr.No. Particulars Dr Cr
a) Option 1 : Open Calls in Arrears a/c
E.S. Capital a/c Dr. 10
To Calls in Arrears A/c 4
To Shares Forfeited A/c 6
(Amount collected /received)
(Open Shares Forfeited A/c)
b) Option 2 : Don’t open Calls in Arrears A/c
E.S. Capital a/c Dr. 10
To First Call A/c 2
To Second Call A/c 2
To Shares Forfeited A/c 6
(Open Shares Forfeited A/c)
Step 3 :
Balance Sheet (Extract)
Shares Forfeited 6 Bank 6
Total 6 Total 6
Conclusion :Shares forfeited shows Credit Balance.
[2] FORFEITURE OF SHARES WHICH WERE ISSUED AT A PREMIUM
Share Capital A/c will be debited with the called-up value of shares forfeited.
If the premium on such shares has not been paid by the shareholder, the Securities Premium A/c will
be debited to cancel it (if it was credited earlier).
If the premium has already received by the company, it cannot be cancelled even if the shares are
forfeited in the future.
Sr. No. Particulars
i) If premium not received
Share capital A/c Dr. [Called-up value]
Securities Premium A/c Dr. [Amount of Security premium not received]
To Share Allotment A/c [If amount due, but not paid]
To Share First Call A/c [If amount due, but not paid]
To Share Final Call A/c [If amount due, but not paid]
To Forfeited Shares A/c [Amount received on forfeited shares]
ii) If premium received
Share capital A/c Dr. [Called-up value]
To Share Allotment A/c [If amount due, but not paid]
Amount received Amount not received
E.S. application, allotment, 1st call, 2nd call CIA opened CIA not opened
Cancel Not received
Debit Balance Cancel
Page 141
ACCOUNTS
10. Company Accounts
CA SANKET SHAH
To Share First Call A/c [If amount due, but not paid]
To Share Final Call A/c [If amount due, but not paid]
To Forfeited Shares A/c [Amount received on forfeited shares]
SSHHAARREESS IISSSSUUEEDD AATT PPRREEMMIIUUMM AARREE FFOORRFFEEIITTEEDD
Case 1 : Securities Premium received & shares forfeited :
1) Received Amount Forfeited
3 2 4 1 SP 2
Step 1 Try to prepare Balance Sheet before forfeiture Entry
Balance Sheet (Extract)
E.S. Capital 10
(-) CIA (5) 5 Bank 7
Securities Premium 2
Total 7 Total 7
Sr.No. Particulars Dr Cr
Step 2 Passforfeiture entry (Securities premium received. Ignore it.)
E.S. Capital A/c Dr 10
To CIA A/c 5
To Shares Forfeiture A/c 5
Step 3 Balance Sheet after Forfeiture
Balance Sheet (Extract)
Shares Forfeiture 5 Bank 7
Securities Premium 2
Total 7 Total 7
2) Received Amount Forfeited
3 1 4 2 SP 2 2
Step 1 Try to prepare Balance Sheet before forfeiture Entry
Balance Sheet (Extract)
E.S. Capital 8
(-) CIA (4) 4 Bank 8
Securities Premium 4
Total 8 Total 8
CASE 1 : Securities Premium received.
CASE 2 : Securities Premium not received.
Don’t cancel it (Ignore) Cancel it by giving debit
Page 142
ACCOUNTS
10. Company Accounts
CA SANKET SHAH
Sr. no. Particulars Dr Cr
Step 2 Pass forfeiture entry (Securities premium received. Ignore it.)
E.S. Capital A/c Dr 8
To CIA A/c 4
To Shares Forfeiture A/c 4
Step 3 Balance Sheet after Forfeiture
Balance Sheet (Extract)
Shares Forfeiture 4 Bank 8
Securities Premium 4
Total 8 Total 8
3) Received Amount Forfeited
4 1 4 1 SP 2
Step 1 Try to prepare Balance Sheet before forfeiture Entry
Balance Sheet (Extract)
E.S. Capital 5
(-) CIA (1) 4 Bank 6
Securities Premium 2
Total 6 Total 6
Sr. no. Particulars Dr Cr
Step 2 Passforfeiture entry
E.S. Capital A/c Dr 5
To CIA A/c 4
To Shares Forfeiture A/c 1
Step 3 Balance Sheet after Forfeiture
Balance Sheet (Extract)
Shares Forfeiture 4 Bank 6
Securities Premium 2
Total 6 Total 6
Conclusion : Securities premium is shown.
Case 2 : Securities premium not received[Cancel i.e. give debit in forfeiture entry.]
1) Received Amount Forfeited
3 2 2 3 SP 2
Step 1 Try to prepare Balance Sheet before forfeiture Entry
Balance Sheet (Extract)
E.S. Capital 10
(-) CIA (5) 5 Bank 5
Securities Premium (2 - 2) 0
Total 5 Total 5
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ACCOUNTS
10. Company Accounts
CA SANKET SHAH
Sr. no. Particulars Dr Cr
Step 2 Pass forfeiture entry
E.S. Capital A/c Dr 10
Securities Premium A/c Dr 2
To CIA A/c (5 + 2) 7
To Shares Forfeiture A/c 5
Step 3 Balance Sheet after Forfeiture
Balance Sheet (Extract)
Shares Forfeiture 5 Bank 5
Total 5 Total 5
Conclusion : Securities premium not shown in Balance Sheet
Securities Premium
2) Received Amount Forfeited
5 1 2 2
Step 1 Try to prepare Balance Sheet before forfeiture Entry
Balance Sheet (Extract)
E.S. Capital 8
(-) CIA (2) 6 Bank 6
Securities Premium 2 0
(-) CIA (2)
Total 6 Total 6
Step 2 Pass forfeiture entry
E.S. Capital A/c Dr 8
To CIA A/c 4
To Shares Forfeiture A/c 6
Step 3 Balance Sheet after Forfeiture
Balance Sheet (Extract)
Shares Forfeiture 6 Bank 6
Total 6 Total 6
[3] FORFEITURE OF FULLY PAID-UP SHARES
Forfeiture for non-payment of calls, premium, or the unpaid portion of the face value of the shares is
one of the many causes for which a share may be forfeited.
But fully paid-up shares may be forfeited for realization of debts of the shareholder if the Articles
specifically provide it.
Received Not
Received
E.S. Capital A/c Dr. To CIA To Shares forfeiture A/c
E.S. Capital A/c Dr. Securities Premium Dr. To CIA To Shares forfeiture
SP isshown in B.S. afterforefeiture SP is not shown in B.S. afterforefeiture
Page 144
ACCOUNTS
10. Company Accounts
CA SANKET SHAH
CCOONNCCEEPPTT 1100 :: RREE--IISSSSUUEE OOFF FFOORRFFEEIITTEEDD SSHHAARREESS [TQ. 1(ii)]
Reissue of forfeited shares is not allotment of shares but only a sale.
The share, after forfeiture, in the hands of the company is subject to an obligation to dispose it of.
This practice, forfeited shares are disposed off by auction.
These shares can be re-issued at any price as long as total amount received (from the original allottee
and the second purchaser) for those shares is not less than the amount in arrear on those shares.
Accounting Entries :
Sr. No. Particulars
i) Bank A/c Dr. [Actual amount received]
Forfeited Shares A/c Dr. [Loss on re-issue]
To Share Capital A/c
(Being the re-issue of....shares @ Rs each as per Board's Resolution No. dated.)
ii) Forfeited Shares A/c Dr.
To Capital Reserve A/c
(Being the profit on re-issue, transferred to capital reserve)
Important Points :
[1] Loss on re-issue should not exceed the forfeited amount.
[2] Surplus balance in forfeited shares is transferred to Capital Reserve.
[3] The forfeited amount on shares not yet reissued should be shown under the heading 'share capital.'
[4] When the shares are re-issued at a loss, such loss is to be debited to "Forfeited Shares A/c".
[5] If the shares are re-issued at a price which is more than the face value of the shares, the excess
amount will be credited to Securities Premium A/c.
RREEIISSSSUUEE OOFF FFOORRFFEEIITTEEDD SSHHAARREESS ((AATT PPAARR))
☺ Example :
Amount already collected = Rs.6 = shares forfeited (Credit Balance)
Different Cases of Reissue
Sr. No. Particulars Dr Cr
a) Case 1 = Rs.3 (When Loss)
Bank A/c Dr 3
Shares Forfeited A/c Dr 6
Discount A/c Dr 1
To E.S. Capital 10
b) Case 2 = Rs.4 (When no Profit no Loss)
Bank A/c Dr 4
Shares Forfeited A/c Dr 6
To E.S. Capital 10
c) Case 3 = Rs.7 (When Profit)
Bank A/c Dr 7
Shares Forfeited A/c Dr 6
To E.S. Capital 10
To Capital Reserve (Not day to day profit) 3
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10. Company Accounts
CA SANKET SHAH
d) Case 4 = Rs.10 (When Profit)
Bank A/c Dr 10
Shares Forfeited A/c Dr 6
To E.S. Capital 10
To Capital Reserve (Not day to day profit) 6
e) Case 5 = Rs.12 (Issued for more than FV)
Bank A/c (Capital Rs.10 + SP Rs.2) Dr 12
Shares Forfeited A/c Dr 6
To E.S. Capital 10
To Capital Reserve (Not day to day profit) 6
To Securities Premium A/c 2
Conclusion :
[1] Capital Reserve Balance should not exceed shares forfeited.
[2] If shares reissued > FV, then difference of Reissue – FV = SP.
Example : Case 5 : Rs.12 -- Rs.10 = Rs.2 SP.
☺ Example :
Mrs. Tanushree who was the holder of 200 equity on which Rs.75 called up but could not pay
allotment & 1st call Rs. 25 each. 150 share are reissued to Mr. Vijayat Rs.65 (paid up Rs.75) Give
Journal entries
Received Amount. Forfeited
25 25 25 25
Sr.No. Particulars Dr Cr
1) E.S. Capital A/c (75*200) Dr 15,000
To CIA A/c (50*200) 10,000
To Shares Forfeiture A/c (25*200) 5,000
2) Bank A/c (65*150) Dr 9,750
Share forfeited A/c (25*150) Dr 3,750
To E.S. Capital (75 * 150) 11,250
To Capital Reserve 2,250
RREEIISSSSUUEE OOFF FFOORRFFEEIITTUURREE SSHHAARREE ((AATT PPRREEMMIIUUMM))
☺ Example :
[1] X Ltd. Issued 3000 E.S. of Rs10.
Application Rs.3, Allotment Rs.5 (Securities Premium Rs.2), Call Rs.4.
All share were subscribed. Money due on all share received except
[a] Ram holding 50 shares failed to pay allotment & call money.
[b] Shyam holding 100 shares failed to pay call money.
Of these, 125 shares are reissued to Bharat at Rs.8 per share.
Solution : Ram (50 Shares)
Received Forfeited
3 3 4 SP 2
Page 146
ACCOUNTS
10. Company Accounts
CA SANKET SHAH
Sr.No. Particulars Dr Cr
1) E.S. Capital A/c (10*50) Dr 500
Securities Premium A/c (2*50) Dr 100
To Shares Forfeiture A/c (3*50) 150
To CIA A/c (9*50) 450
2) Bank A/c (50*8) Dr 400
Share forfeited A/c (50*3) Dr 150
To E.S. Capital (50*10) 500
To Capital Reserve * 50
Shayam (100 Shares)
Received Forfeited
3 3 4
SP 2
Sr.No. Particulars Dr Cr
1) E.S. Capital A/c (10*100) Dr 1,000
To Shares Forfeiture A/c (6*100) 600
To CIA A/c (4*100) 400
2) Bank A/c (8*75) Dr 600
Share forfeited A/c (6*75) Dr 450
To E.S. Capital (10*75) 750
To Capital Reserve * 300
Total Capital Reserve =Rs.50 + 300 = Rs.350
[2] Reliance it issued 10,000 equity share of Rs.10 each.
Application = Rs.4 (Rs.1 SP), Allotment = Rs.4 (Rs.1 SP), Call = Rs.4
All shares were subscribed & money received. Except –
[a] Riddhi holding 500 shares failed to pay allotment & call money.
[b] Pushkaraj holding 1,000 share failed to call money.
Of these share, 1,250 shares are reissued to darshan atRs9/share.
Pass entries & paid out capital Reserve
Solution :
Ridhhi (500 Shares)
received Forfeited
3 3 4
SP 1 1
Sr.No. Particulars Dr Cr
1) E.S. Capital A/c (10*500) Dr 5,000
Securities Premium A/c (1*500) Dr 500
To Shares Forfeiture A/c (3*500) 1,500
To CIA A/c (8*500) 6,000
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ACCOUNTS
10. Company Accounts
CA SANKET SHAH
Pushkaraj (1,000 Shares)
Received Forfeited
3 3 4
SP 1 1
Sr.no. Particulars Dr Cr
1) E.S. Capital A/c (10*1,000) Dr 10,000
To Shares Forfeiture A/c (6*1,000) 6,000
To CIA A/c (4*1,000) 4,000
Reissue to Darshan : 1,250 Shares
1) Bank A/c (9*1,250) Dr 11,250
Share Forfeited A/c 1,500+[(6,000/1,000)*750]Dr 6,000
To E.S. Capital (10*1250) 12,500
To Capital Reserve * 4,750
[3] W Ltd. Issued 60,000 equity shares of Rs.100 each. Application Rs.30, Allotment Rs.50 (Premium
Rs.20), Call Rs.40.
All the shares were subscribed & money received. Except :
[a] Mr. A holding 1,000 share failed to pay allotment & call.
[b] Mr. B holding 2,000 shares failed to pay call money. Of these 2,500 shares reissued to k @ Rs.80
per share.
Solution :
Mr. A (1,000 Shares)
Received Forfeited
30 30 40
SP 20
Sr.No. Particulars Dr Cr
1) E.S. Capital A/c (100*1,000) Dr 1,00,000
Securities Premium A/c (20*1,000) Dr 20,000
To Shares Forfeiture A/c (30*1,000) 30,000
To CIA A/c (90*1,000) 90,000
Mr. B (2,000 Shares)
received Forfeited
30 30 40
SP 20
Sr.no. Particulars Dr Cr
1) E.S. Capital A/c (100*2,000) Dr 2,00,000
To Shares Forfeiture A/c (60*2,000) 1,20,000
To CIA A/c (40*2,000) 80,000
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ACCOUNTS
10. Company Accounts
CA SANKET SHAH
Reissue to K : 2,500Shares
1) Bank A/c (80*2,500) Dr 2,00,000
Share Forfeited A/c 30,000+[(1,20,000/2,000)*1,500] Dr 1,20,000
To E.S. Capital (100*2,500) 2,50,000
To Capital Reserve * 70,000
CCOONNCCEEPPTT 1111 :: IISSSSUUEE OOFF SSHHAARREESS FFOORR CCOONNSSIIDDEERRAATTIIOONN OOTTHHEERR TTHHAANN CCAASSHH [TQ. 2(ii)]
Public limited companies, generally, issue their shares for cash and use such cash to buy the various
types of assets needed in the business.
Sometimes, however, a company may issue shares in a direct exchange for land, buildings or other
assets.
Shares may also be issued in payment for services rendered by promoters, lawyers in the formation of
the company.
These shares should be shown separately under the heading 'Share Capital'.
Within specified time of allotment, company must produce before the Registrar a written contract of
sale of service in respect of which shares have been allotted.
Accounting Entries
Sr. No. Particulars Rs. Rs.
i) When assets are purchased in exchange of shares Assets A/c Dr. xx To Share Capital A/c xx
ii) When shares are issued to promoters Goodwill A/c Dr. xx To Share Capital A/c xx
CCOONNCCEEPPTT 1122 :: DDIIVVIIDDEENNDD
Dividend paid on = paid up value (Called up amount – calls in arrears)
Dont’t pay dividend on calls in advance.
CCOONNCCEEPPTT 1133 :: BBAALLAANNCCEE IINN PP&&LL
Computation of Balance in P&L
Sr.No. Particulars Rs.
i) Profit xx
ii) Last Years unpaid P.D (Cumulative Pref. Share) xx
iii) Pref. Dividend xx
iv) Equity dividend xx
v) Balance added in P&L (last Year) xx
vi) Total Balance in P&L xx
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ACCOUNTS
10. Company Accounts
CA SANKET SHAH
UUNNIITT 33 :: IISSSSUUEE OOFF DDEEBBEENNTTUURREESS
CCOONNCCEEPPTT 11 :: IINNTTRROODDUUCCTTIIOONN [TQ. 2]
CCOONNCCEEPPTT 22 :: MMEEAANNIINNGG
CCOONNCCEEPPTT 33 :: FFEEAATTUURREESS OOFF DDEEBBEENNTTUURREESS [TQ. 2]
[1] Document evidences loan made to Company.
[2] Fixed interest bearing security.
[3] Interest has to be paid in case of loss also.
[4] Original sum has to be repaid at a specific date or convertible into shares.
[5] May or may not create a charge on assets.
[6] Bought or sold through the stock exchange.
CCOONNCCEEPPTT 44 :: DDIISSTTIINNCCTTIIOONN BBEETTWWEEEENN DDEEBBEENNTTUURREESS AANNDD SSHHAARREESS [TQ. 1]
Sr.
No.
Point of
Difference
Debentures Shares
1) Debenture/Share
Holders
Creditors of the company. Owners of the company.
2) Voting Rights No Yes
3) Interest/
Dividend
Interest is paid at a predetermined
fixed rate. It is payable, whether there
is any profit or not.
Dividend is paid at a variable rate
depending on profits.
4) Taxable Profit Interest is the charges against profits
and it is deductible as an expense.
Dividends are appropriation of profits
and are not deductible.
5) Types Secured/Unsecured; Redeemable/
Irredeemable; Registered/Bearer;
Convertible/Non-convertible
Equity Shares and Preference Shares.
6) Shown in "Long Term Borrowings". "Shareholder's Fund".
7) Conversion Can be converted into shares. Cannot be converted into debentures.
8) Forfeiture Cannot be forfeited for non-payment. Can be forfeited for non-payment.
9) At Maturity Debenture holders get back their
money.
E.S.H. cannot get back their money.
10) At Liquidation Paid-off before the shareholders. Paid at last, after debenture holders.
One of the source of financing.
It reduces cost of capital.
It designs appropriate capital structure.
Debt instrument issued by Company
A debenture is a bond issued by a co Under its seal
Acknowledging a debt
& containing provisions as regards repayment of principal & interest.
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10. Company Accounts
CA SANKET SHAH
CCOONNCCEEPPTT 55 :: TTYYPPEESS OOFF DDEEBBEENNTTUURREESS
Sr. no. Type Explanation
1] SECURITY :
a] Secured Debentures These are secured by a charge upon some or all assets of the company.
There are two types of charges :
[i] Fixed charge; and
[ii] Floating charge.
A fixed charge is a mortgage on specific assets.
These assets cannot be sold without consent of the debenture holders.
Sale proceeds of these assets are utilized first for repaying debenture
holders.
A floating charge generally covers all the assets of the company
including future one.
b] Unsecured or
"Naked" Debentures
:
These debentures are not secured by any charge upon any assets.
A company merely promises to pay interest on due dates and to repay
the amount due on maturity date.
These types of debentures are very risky from investor view point.
2] CONVERTIBILITY :
a] Convertible
Debentures : These are debentures which will be converted into equity shares
(either at par or premium or discount) after a certain period of time
from the date of its issue.
These debentures may be fully or partly convertible.
In future, holders get a chance to become shareholders of the co.
b] Non-Convertible
Debentures : These are debentures which cannot be converted into shares in future.
As per the terms of issue, these debentures are repaid.
3] PERMANENCE :
a] Redeemable
Debentures : These debentures are repayable as per the terms of issue, for example,
after 8 years from the date of issue.
b] Irredeemable
Debentures : These debentures are not repayable during the life time of the co.
These are also called perpetual debentures.
These are repaid only at the time of liquidation.
4] NEGOTIABILITY :
a] Registered
Debentures : These are payable to a registered holder whose name, address &
particulars of holding is recorded in the Register of Debenture holders.
They are not easily transferable.
The provisions of the Companies Act, 2013 are to be complied with for
effecting transfer of these debentures.
Debenture interest is paid either to the order of registered holder or the
bearer of the interest coupons.
Security Convertibility
Permanence
Negotiability
Priority
Secured
Unsecured
Convertible
Non Convertible
Redeemable
Irredeemable
Registered
Bearer
Second Mortgage
First Mortgage
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10. Company Accounts
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b] Bearer Debentures : These debentures are transferable by delivery.
These are negotiable instruments payable to the bearer.
No kind of record is kept by the company in respect of holders
Therefore, interest is paid to the holder irrespective of any identity.
No transfer deed is required for transfer of such debentures.
5] PRIORITY
a] First Mortgage These debentures are payable first out of the property charged.
b] Second Mortgage Payable after satisfying first mortgage debentures.
CCEERRTTAAIINN TTEERRMMSS
2,000 8% Debentures of Rs100 each 2,000 = Nos
8% = Interest Rate
100 = F.V
Redeemable at Par : At the end pay Rs.100
Redeemable at Premium : At the end pay Rs.110
Redeemable at Discount : At the end pay Rs.90
CCOONNCCEEPPTT 66 :: IISSSSUUEE OOFF DDEEBBEENNTTUURREESS AATT
AACCCCOOUUNNTTIINNGG EENNTTRRIIEESS
Debentures issued at PAR
Sr. no Particulars Rs Rs
1) For receipt of Application Money
Bank a/c Dr 100
To Debentures Application a/c 100
2)
a)
b)
For Transfer of Application Money to Debenture A/c (Redeemable at Par)
Debentures Application Dr 100
To ---- % Debentures A/c 100
For Transfer of Application Money to Debenture A/c (Redeemable at Premium)
Debentures Application Dr 100
Discount issue of Debentures Dr 10
To ---- % Debentures A/c 100
To Premium on Redemption on Debenture 10
Debentures issued at PREMIUM
Sr. no Particulars Rs Rs
1) For receipt of Application Money
Bank a/c Dr 110
To Debentures Application a/c 110
PAR
PREMIUM
DISCOUN
T
REDEEMABLE AT PAR
REDEEMABLE AT PREMIUM
REDEEMABLE AT PAR
REDEEMABLE AT PREMIUM
REDEEMABLE AT DISCOUNT
REDEEMABLE AT PAR
REDEEMABLE AT PREMIUM
REDEEMABLE AT DISCOUNT
Page 152
ACCOUNTS
10. Company Accounts
CA SANKET SHAH
2)
a)
b)
Transfer of Application Money to Debenture A/c (Redeemable at Par & Disc)
Debentures Application Dr 110
To ---- % Debentures A/c 100
To Security Premium A/c 10
For Transfer of Application Money to Debenture A/c (Redeemable at Premium)
Debentures Application Dr 110
Loss on issue of Debentures Dr 5
To ---- % Debentures A/c 100
To Security Premium A/c 10
To Premium on Redemption on Debenture 5
Debentures issued at DISCOUNT
Sr. no Particulars Rs Rs
1) For receipt of Application Money
Bank a/c Dr 90
To Debentures Application a/c 90
2)
a)
b)
Transfer of Application Money to Debenture A/c (Redeemable at Par & Disc)
Debentures Application Dr 90
Discount on issue of Debenture A/c Dr 10
To ----- % Debenture A/c 100
For Transfer of Application Money to Debenture A/c (Redeemable at Premium)
Debentures Application Dr 90
Discount / Loss on issue of Debenture Dr 25
To ---- % Debentures A/c 100
To Premium on Redemption on Debenture A/c 15
UUTTIILLIISSAATTIIOONN OOFF DDEEBBEENNTTUURREESS PPRREEMMIIUUMM
The premium on debentures is credited to Security Premium Account.
Restriction of utilisation of debentures premium will also be governed by Sec 52 of Companies Act
2013.
Security Premium can be utilised for :
[a] Issue of Fully Paid Bonus Shares
[b] Writing off Preliminary Expenses
[c] Writing off : i) Expenses Incurred
ii) Commission paid
iii) Disc allowed on issue of debentures or shares of the company.
[d] Providing premium on redemption of debentures or Preference shares
CCOONNCCEEPPTT 77 :: IISSSSUUEE OOFF DDEEBBEENNTTUURREESS AASS CCOOLLLLAATTEERRAALL SSEECCUURRIITTYY
Collateral Security means Secondary security for loan if loan is unpaid.
The holder of such debentures is entitled to interest only on amount of loan.
METHOD I : NO DEBENTURE
ENTRIES AT THE TIME OF ISSUE
METHOD II : DEBENTURE
ENTRIES AT THE TIME OF ISSUE
METHOD OF ACCOUNTING
Page 153
ACCOUNTS
10. Company Accounts
CA SANKET SHAH
Sr. no. Particulars Method I Method II
1] At the time of issue
a] Receiving Loan amount Cash A/c Dr Cash A/c Dr
To Loan A/c To Loan A/c
b] Issue of Debentures No Entry Debenture Suspense A/c Dr
To Debentures A/c
2] At the time of Repayment of Loan
Case I : Loan is Repaid Loan A/c Dr Loan A/c Dr
To Cash A/c To Cash A/c
Debentures A/c Dr
To Debenture Suspense A/c
Case II : Loan is not paid Loan A/c Dr Loan A/c Dr
To Debentures A/c To Debenture Suspense A/c
CCOONNCCEEPPTT 88 :: IISSSSUUEE OOFF DDEEBBEENNTTUURREESS IINN CCOONNSSIIDDEERRAATTIIOONN OOTTHHEERR TTHHAANN CCAASSHH
Sr. No Particulars Rs Rs
a) Assets & Liabilities are taken over.
Sundry Assets A/c Dr 100
To Sundry Liabilities A/c 70
To Vendor A/c 30
b) Issue of Debenture
Vendor A/c Dr 30
To Debentures A/c 30
CCOONNCCEEPPTT 99 :: DDIISSCCOOUUNNTT OONN DDEEBBEENNTTUURREESS
[1] No restriction on Discount on debenture like shares.
[2] Discount on issue of debenture is shown under non-current asset& discount is charged to in P&L.
CCOONNCCEEPPTT 1100 :: IINNTTEERREESSTT OONN DDEEBBEENNTTUURREESS
[a] Interest payable on coupon debenture is treated as charge against the profits of the company.
[b] Always calculated on Nominal Value & TDS is applicable.
Sr. No Particulars Rs Rs
1) Interest Payable to Debenture Holder
Interest A/c Dr 100
To Debenture Holder A/c 100
2) Interest Paid to Debenture Holder after deducting TDS
Debenture Holder A/c Dr 100
To TDS Payable A/c 10
To Cash/ Bank A/c 90
3) TDS Paid
TDS Payable A/c Dr 10
To Cash/Bank A/c 10
4) Interest transferred to P & L A/c
Profit & Loss A/c Dr 100
To Interest A/c 100