BBA V-I

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Meaning : Company

A company is an artificial person created by

law having independent existence with

perpetual succession and common seal.

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Characteristics of a company

1. Artificial person

2. Independent existence

3. Limited liability4. Incorporated Association

5. Perpetual succession

6. Common seal

7. Capacity to sue or be sued

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Shares:Meaning

The capital of a company is divided into a

number of indivisible units of a fixed amount.

These units are known as shares.

According to section 2(46) A share is a share

in the share capital of a company and includes

stock except where a distinction between

stock and shares is expressed or implied.

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Types of shares

Equity shares: Equity share is a share which is nota preference share.

1. Equity shareholders get returns in the form

of dividend the rate of dividend is notfixed.

2. They have a right to attend the meetings andvote on every resolution placed in the meeting.

3. They do not get any preference in therepayment of capital at the time of winding

up of the company.

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Preference Share

A preference share is a share which carries:

1. The right to be paid a fixed rate of

dividend.2. A preferential right as to the payment of

dividend at the time of winding up of the

company.

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Types of preference shares

Cumulative Preference shares

Non-cumulative preference shares

Participating preference shares Non-participating preference shares

Convertible preference shares

Non convertible preference shares

Redeemable preference shares

Non-redeemable preference shares

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Classes of share capital

Authorized capital

Issued capital

Subscribed capital

Called up capital

Paid up capital

Uncalled or reserve capital

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Procedure for issue of shares

Share application

Share allotment

Share first call

Share final call

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Issue of shares

A company can issue shares in two ways:

For cash, and

For consideration other than cash

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Calls in Advance

A company may accept from any member the whole orpart of the amount remaining unpaid on any sharesheld by him although no part of the amount has beencalled up.

In other words when an applicant sends more moneythen required, the excess money is called calls-in-advance.

According to sec 92, a company can accept calls inadvance only when it is authorised by its Articles. Thecompany is required to pay 6% p.a. interest on calls inadvance from the date of receipt to the due date of calls.

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Numerical

Rashmit Ltd. Issued 10,000 equity shares of Rs. 10 each tothe public and received amount as under:

On July 1, 2009 Application money Rs. 2.50

On Nov 1,2009 Allotment money Rs. 2.50

On April 1, 2010 First call Rs. 3

On July 1, 2010 Final call Rs. 2

Sohan who had 250 shares paid the amount of first andfinal call with the allotment. Mohan who had 50 sharespaid the amount of final call with the first call. According toArticles of Association interest on calls-in advance is to bepaid at 6% p.a. The interest was paid on July 1, 2010. Give

journal entries in the book of Rashmit Ltd.

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Accounting procedure

1. Record the receipt of application money

2. (a) When no. of shares applied = No. of shares offered.Transfer to share capital A/c

(b) When no. of shares applied< no. of shares offered.

In case minimum subscription has been received thantransfer to share capital A/c

In case minimum subscription not received than refundthe application money.

(c) When no. of shares applied> no. of shares offered. Prorata allotment can be done

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3.Make due allotment money on sharesallotted.

4. Record the receipt of allotment money.

5.Make due the First & Final call money.

6. Record the receipt of First & Final call money.

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Minimum Subscription

According to sec 69 minimum subscription refersto the amount which, in the opinion of directors,must be raised by the issue of shares inorder toprovide for the following:

1. Purchase price of any property purchased or tobe purchased.

2. Any preliminary expenses or commissionpayable.

3. Repayment of any money borrowed by thecompany in respect of any of the above twomatters.

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4. To meet the working capital needs.

5. Any other expenditure stating the nature and

purposes thereof and the estimated amount in

each case.

In case the company is not able to receive a

minimum subscription of 90% of the issued

amount within 60 days from the date of closureof the issue, the company is required to refund

the entire subscription amount.

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Under subscription

When the number of shares subscribed for is

less than the number of offered by the

company the issue can be said to be under

subscribed.

In such a case it is necessary to ensure

whether the company has received minimum

subscription or not.

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Over subscription

Shares are said to be over-subscribed whenthe number of shares subscribed for is more

than the number of shares offered by the

company.

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Issue of shares

At par

At Premium

At Discount

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ABC Ltd was registered with an authorised capital of Rs.20,00,000 divided into 20,000 equity shares of Rs. 100each. It issued 5,000 equity shares to the public at apremium of 20% payable as

Rs. 20 on application

Rs. 50 on allotment(incl premium)

Rs. 30 on first call

Rs. 20 on final call

All money was duly received. Expenses on issue of equityshares amounted to Rs. 20,000 which were written off fullyfrom premium on issue of shares account. Pass journalentries and prepare balance sheet.

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Issue of shares at a discount

Share is said to be issued at a discount when it isissued at a price which is lower than its nominalvalue or face value.

A company shall not issue shares at a discountexcept as provided in Section 79 of Companies

Act, 1956. These provisions are:

1. The issue of shares at a discount is authorised bya resolution passed by the company in generalmeeting and sanctioned by the company lawboard.

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2. The resolution specifies the maximum rate of discount at which the shares are to be issued.

3. Not less than one year as on the date of issue

has elapsed since the date on which thecompany was entitled to commence business.

4. The shares to be issued at a discount are issuedwithin two months after the date on which the

issue is sanctioned by the company law board orwithin such extended time as the company lawboard may allow.

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Where a company has passed a resolutionauthorising the issue of shares at a discount, itmay apply to the company law board for an

order sanctioning such issue. The Board may if it thinks proper to do so, sanction the issue onsuch terms and conditions as it thinks fit.

Every prospectus relating to the issue of shares shall contain particulars of discountallowed on the issue of shares.

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Amit Limited with an authorised capital of Rs.

10,00,000, issued 5,000 shares of Rs. 100 each

at a discount of Rs. 10 per share payable as Rs.

20 on application, Rs. 30 on allotment, Rs. 30

on first call and the balance on final call. All

the amounts were duly received. Pass

necessary journal entries in the books of AmitLimited also prepare the Balance sheet.

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Salman Ltd. Issued 20,000 shares of Rs. 10each to the public payable as Rs. 2 onapplication, Rs. 4 on allotment and Rs. 4 on

first call. Pass the journal entries in the booksof the company in the following casesassuming that the amount due was dulyreceived. (i) when applications for 5000 shares

are rejected and application money isreturned. (ii) when surplus application moneyis utilised for allotment.

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Ranbir Ltd. Issued 50,000 equity shares of Rs.10 each payable as Rs. 3 on application,Rs.4on allotment and balance on firstcall.

Application was received for 60,000 shares.Directors of the company allotted the sharesas under: For 40,000 shares full allotment,for15,000 shares: 10,000 shares, no shares to the

applicants of 5000 shares. All the money wasduly received. Pass the necessary entries inthe books of the company.

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Issue of shares for consideration other

than cash

Issue of shares to vendors:

On acquisition of assets.

On issue of fully paid shares to vendors.On issue of shares at a premium to

vendors.

On issue of shares at a discount to thevendors.

BBA V-I

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