Company accounts

Company Accounts

1. Company Accounts

2. Joint stock company is a voluntary association of persons formed by law for undertaking a business. Its capital is divided into a number of transferable shares. Lord Justice Lindley defined a company as an “ artificial person created by law with a perpetual succession and a common seal ” Meaning of joint stock company C O M P A N Y

3. Characteristics Separate legal entity Limited liability Separation of ownership and management Perpetual succession Capita contributed in the form of shares. Distribution of profit as dividend. Common seal is affixed in all forms of the company Maintenance of books under law. Annual audit is compulsory. Free transferability of shares. C O M P A N Y C O M P A N Y

4. CHARTERED COMPANIES : It is created through a royal charter or proclamation by the king or queen. East India Company is an example. It does not exist in India. STATUTORY COMPANIES : It is formed under special statute or act passed by Parliament or State Legislature. They are specially created by government. RBI, SBI, LIC etc. REGISTERED COMPANIES : Companies which are registered under Companies Act 1956 are called registered companies. It is regulated by the provisions of the Companies Act. Types of companies On the basis of incorporation C O M P A N Y C O M P A N Y

5. COMPANIES LIMITED BY SHARES : Here the liability of members is limited to the face value of shares held by him. COMPANIES LIMITED BY GUARANTEE : It is formed for promotion of sports, arts etc. No profit motive. The liability of members are limited to the amount guaranteed by them. UNLIMITED COMPANIES : Members of this companies have unlimited liability when company’s assets are insufficient to meet the obligation. Such companies are rare at present. Types of companies On the basis of liability C O M P A N Y C O M P A N Y

6. PRIVATE COMPANIES : Limits the number of members to 50. Restricts the right to transfer its shares. Prohibits an invitation to public to subscribe its shares. ’Private Limited’ or (P) Ltd. PUBLIC COMPANIES : It can Have any number of members, minimum being 7. Its shares are freely transferable and it can invite public to subscribe its shares. Types of companies On the basis of public interest C O M P A N Y C O M P A N Y

7. INDIAN COMPANY/DOMESTIC COMPANY : Companies registered in India under the provision of the Companies Act. FOREIGN COMPANY : It is incorporated outside India but having operations in India. GOVERNMENT COMPANY : It is a company in which not less than 51% share capital is held by the central government or state government. OTHER TYPES OF COMPANIES HOLDING COMPANY AND SUBSIDIARY COMPANY : A holding company is one which holds not less than 51% of the share capital of other company and that other company is called subsidiary company.. C O M P A N Y C O M P A N Y

8. JOINT STOCK COMPANIES CHARTERED COMPANY STATUTORY COMPANY REGISTERED COMPANY REGISTERED ON THE BASIS OF PUBLIC INTEREST REGISTERED ON THE BASIS OF LIABILITY OTHER COMPANIES PRIVATE COMPANY PUBLIC COMPANY COMPANIES LIMITED BY SHARES COMPANIES LIMITED BY GUARANTEE UNLIMITED COMPANIES INDIAN COMPANY FOREIGN COMPANY GOVT. COMPANY HOLDING & SUBSIDIARY CO C O M P A N Y

9. AUTHORISED, REGISTERED OR NOMINAL CAPITAL : It is the maximum amount of capital which a company is authorized to raise by its shares. This amount is shown in the capital clause of Memorandum Of Association of a company. ISSUED CAPITAL : That part of authorized capital which is offered to the public for subscription is called issued capital. SUBSCRIBED CAPITAL : It is that part of issued capital which is applied for by the public and allotted by the company. Unsubscribed capital is issued but not applied for by public. Share capital of a company C O M P A N Y C O M P A N Y

10. CALLED UP CAPITAL : The portion of subscribed capital that the directors require the shareholders to pay on the shares allotted to them is known as called up capital. Balance of called up is uncalled capital. PAID UP CAPITAL : That part of the called up capital which is actually paid by the shareholders is called paid up capital. The unpaid portion of the called up capital is called unpaid capital or calls in arrears. Share capital of a company C O M P A N Y C O M P A N Y

11. UN CALLED CAPITAL : It is the part of subscribed capital of a company which is not called up by the company. It includes both unreserved capital and reserved capital. UNRESEVED CAPITAL : That part of the uncalled capital which can be called up at any time by the board of directors to increase the capital. Share Capital Of A Company RESEVED CAPITAL : That part of the uncalled capital which is not to call up except in the event of winding up of company. C O M P A N Y C O M P A N Y

12. Journal Entries on Issue of Shares

13. When application money received Bank a/c Dr Share application a/c When application money transferred to share capital Share application a/c Dr Share capital a/c When excess application money refunded Bank a/c Share application a/c Dr When allotment money becomes due Share capital a/c Share allotment a/c Dr C O M P A N Y

14. When excess application money adjusted to allotment money Share allotment a/c Share application a/c Dr When allotment money received Share allotment a/c Bank a/c Dr When call money becomes due Share capital a/c Share call a/c Dr When call money received Share call a/c Bank a/c Dr C O M P A N Y

15. Alternate method When application money received Bank a/c Dr Share application and allotment a/c When application money transferred to share capital Share application and allotment a/c Dr Share capital a/c Receipt of allotment money Share application and allotment a/c Bank a/c Dr Combines Application and allotment account is maintained C O M P A N Y

16. Calls In Arrears Some shareholders may fail to pay allotment money or call money. That unpaid amount is called calls in arrears. Company may open a separate account called ‘Calls in Arrears Account’. It is not compulsory to open a separate account. When separate account is maintained Calls in arrears a/c Dr Share allotment a/c or Share call a/c C O M P A N Y

17. CLASSIFICATION OF ISSUE OF SHARES Issue of shares at par Issue of shares at premium Issue of shares at discount C O M P A N Y C O M P A N Y

18. ISSUE OF SHARES AT PAR When a company issues shares at a price which is equal to the face value of the share it is called issue of shares at par. C O M P A N Y

19. ISSUE OF SHARES AT PREMIUM When a company issues shares at a price which is more than the face value of the share it is called issue of shares at premium. The amount of premium is credited to separate account called ‘Security Premium Account’. It is treated as the profit and shown on the liability side of the balance sheet. C O M P A N Y

20. ISSUE OF SHARES AT DISCOUNT When a company issues shares at a price which is lower than the face value of the share it is called issue of shares at discount. The amount of discount is debited to separate account called ‘Discount on Issue of Shares’. It is shown on the asset side of the balance sheet. The amount of discount should not exceed 10% of the face value of shares. A new company cannot issue shares at discount. C O M P A N Y

21. FORFEITURE OF SHARES It means the cancellation of shares when a shareholder fails to pay allotment money or call money. The company has the power to cancel the share after giving a 14 days registered notice to the shareholder to pay the amount with interest. Shares once forfeited becomes the property of the company. C O M P A N Y

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