UNIT II COMPANY ACCOUNTS

Meaning of Company -Maintenance of Books of Account-Statutory Books- Profit or Loss Prior to incorporation- Final Accounts of Company- Alteration of share capital- Preferential allotment, Employees stock option- Buyback of securities.

1. ACCOUNTING
FOR
MANAGEMENT
UNIT-II
Semester: I
Course Code: BA5103
Dr.N.RameshKumar

2. COMPANYACCOUNTS
MeaningofCompany-MaintenanceofBooks
ofAccount-StatutoryBooks-ProfitorLoss
Priortoincorporation-FinalAccountsof
Company-Alterationofsharecapital-
Preferentialallotment,Employeesstockoption-
Buybackofsecurities.

3. Introduction
Acompanyisanartificialpersoncreatedby
law.
Acompanymeansagroupofpersons
associatedtogetherfortheattainmentofa
commonend,socialoreconomicgoal.

4. Definition
Section3(1)(i)oftheCompaniesAct,1956
definesacompanyas:“acompanyformedand
registeredunderthisActoranexisting
Company”.
‘ExistingCompany’meansacompanyformed
andregisteredunderanyoftheearlierCompany
Laws.

5. Characteristics of a company
•Separatelegalentity:anindependentcorporate
existence.
•Limitedliability:limitedbysharesoracompany
limitedbyguarantee
•Perpetualsuccession:Theexistenceofcompanycanbe
terminatedonlybylaw.
•Commonseal:Thecommonsealactsastheofficial
signatureofthecompany.
•Transferabilityofshares:Thesesharesare,subjectto
certainconditions,freelytransferable
•Separateproperty:Asacompanyisalegalperson
distinctfromitsmembers

6. •AnAssociationofPersons
•IncorporatedAssociation
•ArtificialLegalPerson
•DistinctLegalEntity
•PerpetualSuccession
•LimitedLiability
•TransferabilityofShares
•DiffusedOwnership
•Separationofownership
andmanagement
•CommonSeal
•CorporateFinance
•ObjectclauseofBusiness
•PublicationofAccounts
Features of Company as per Companies Act, 1956

7. TYPES OF COMPANIES
OnthebasisofIncorporation
Chartered
Companies
•Incorporated
under a special
royal charter
issued by the
king or head of
the state
•E.g. The East India
Company, Bank of
England, Hudson's Bay
Company
Statutory
Companies
•Established
by a Special
Act of the
Parliament to
State
Legislature
•MaynotuseLtd.
•E.g. RBI, IFCI, IDBI,
LIC etc.
Registered
Companies
•Formed and
registered under
the Indian
Companies Act,
1956
•E.g. Infosys, Wipro
etc.

8. OnthebasisofLiability
Limited by
Shares
•Liability of members
(share holders) is
limited to the extent
of face value of
shares held by them
Unlimited
Companies
•Liability of
members is
unlimited. They
have to pay the
liabilities of the
company from their
personal assets
Limited by
Guarantee
•Liability of
members is
limited to a fixed
amount which
they have
guaranteed on
LimitedCompanies UnlimitedCompanies
TYPES OF COMPANIES

9. On thebasisofNo.ofMembers
Private Companies
•Restricts the rights of the
members to transfer shares
•Limits the number of members to
200 (Act 2013) excluding past or
present employees of the
company
•Prohibits any invitation to the
public to subscribe for its shares,
debentures and public deposits
Public
Companies
•A public company is
one which is not a
private company
•To form a company at
least 7 members and there
is no limit
•Has to use the word
'Limited' at the end of its
name
Introduced in Act
2013
•One-Person-
Company
•Dormant
Company
TYPES OF COMPANIES

10. On the basis of Ownership and Control
Govt.
Companies
•Not less than 51%
of the share capital
of the company
owned by the Govt.
(Central/State/toge
ther)
Holding
Companies
•Owns more than
50% of nominal
value of equity share
capital of another
company or is
controlling the
composition of the
board of directors of
another company
•E.g.Tata Group
Subsidiary
Companies
•Controlled by a
holding company
since it owns less
than 50%
nominal value of
equity share
capital
•E.g. Reebok, Audi, TCS
TYPES OFCOMPANIES

11. OnthebasisofNationality
DomesticCompanies
Is a company that
is incorporated in
the country(India)
Foreign Companies
Thecompanywhichis
incorporatedoutside
Indiabuthasaplace
ofbusinessinIndia
throughitsbranches
oragenciesisknown
asforeigncompany
TYPES OF COMPANIES

12. It mainly consists of three levels of management.
They are as follows:
•Top level management
•Middle level management
•Lower level management

13. •Top-levelmanagementconsistsofboardsof
directors,presidents,vice-presidents,CEOs,general
managersandseniormanagers,etc.
•Theydevelopgoals,strategicplans,andcompany
policiesandmakedecisionsaboutthedirectionof
thebusiness.
•Topmanagersneedtohavemoreconceptualskill
thantechnicalskill.Theyunderstandhow
competition,worldeconomies,politics,andsocial
trendsaffectorganizationaleffectiveness.

14. Middlemanagementisatthecenterofa
hierarchicalorganization,subordinatetothesenior
managementbutabovethelowestlevelsof
operationalstaff.
Theyareaccountabletotopmanagementfortheir
department'sfunction.Theyprovideguidanceto
lower-levelmanagersandinspirethemtoperform
better.
indicatorstouppermanagement.

15. •Low-levelmanagersfocusoncontrolling
anddirecting.Theyserveasrolemodels
fortheemployeestheysupervise.
•Assigningemployeestasks.
•Guidingandsupervisingemployeesonday-
to-dayactivities.
•Ensuringthequalityandquantityof
production.

16. Ashareisdefinedas,“ashareinthesharecapitalofthe
companyandincludesstock”
•Sharecapitalofthecompanyiscollectedbyissueof
shares.
•Shareisoneoftheunitsintowhichtotalcapitalis
divided.
•Thepersonwhoownstheshareiscalledshareholder.

17. Preference Shares
1.It offers a fixed rate of dividend.
2.Right to get capital on winding up, before anything is paid to
equity shareholders.
Equity or Ordinary Share
1.These shares have voting rights.
2.It doesn’t offer a fixed rate of return.
3.They are not entitled to get capital on winding up, before
paying to preference shareholders.

18. 1.CumulativePreferenceShares
1.Fixedrateofdividendisguaranteed.
2.Atthetimeofinadequateprofit,theywillnot
lossanything.
3.Arrearwillgetinsubsequentyears.
2.Non-CumulativePreferenceShares
1.Fixedrateofdividendisguaranteed.
2.Atthetimeofinadequateprofit,theywillnot
getanything.

19. Participating Preference Shares
Fixed rate of dividend is guaranteed.
Entitled to share the surplus profit.
Non-Participating Preference Shares
Fixed rate of dividend is guaranteed.
Does not share the surplus profit.
Shares are repayable only at winding up.

20. RedeemablePreferenceShares
Shareswhichacompanymayrepayafter
afixedperiodoftimeorearlier.
IrredeemablePreferenceShares
Itdonotcarrythearrangementfor
redemption.

21. Convertible Preference Shares
It can be converted into Equity shares
within a certain period.
Non-Convertible Preference Shares
It cannot be converted into Equity
shares.

22. It is a share, which is not a preference
share is called equity share.
•Thewholeoftheprofitofacompanyis
entitledtotheseshareholders,afterpayinga
fixeddividendtopreferenceshareholders.
•Theydoesn'tgetafixedrateofdividend.
•Theywillgetbacktheircapitalonlyafter
payingpreferenceshareholders.

23. Itisissuedtoemployeesordirectorsofacompany
atdiscountedrate.
Issuedforconsiderationotherthancash.
Itmustfollowtheseconditions;
1.Authorisedbyspecialresolutioningeneralmeeting.
2.Number,price,consideration(ifany)andclassesshould
bespecifiedintheresolution.
3.Thecompanymustcompleteoneyear.
4.Equitysharesofthosecompanymustbelistedin
recognisedstockexchange.

24. EquityShares PreferenceShares
Nominal value is lower.
Dividend varies according to
profit.
No right for arrears of
dividend.
No priority in dividend and
repayment of capital.
Cannot be redeemed.
There is more risk.
Wider voting right.
Control over management.
Highly speculative.
Ready to take risk and to get
greater dividend prefer this.
Nominalvalueishigher.
Ratedividend isfixed.
Cumulative preference shares
get arrears.
Priority in dividend and
repayment of capital.
Can be redeemed.
The risk is lower.
Limited voting right.
No control over management.
Less speculative.
Not ready to take risk and
expect steady income prefer
this.