Company Accounts Notes

8/12/2019 Company Accounts Notes

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COMPANY ACCOUNTS P a g e | 1

Chapter:1 Company Accounts - SharesJoint Stock Company is the most practical form of organization for large scale business. In India theIndian Companies Act of 195 go!erns "oint stock companies. #he capital of the company is di!idedinto shares and the o$ners hold shares of capital. #hey are therefore kno$n as shareholders of thecompany.

Share and Share CapitalMeaning, Nature and Types#he most striking feature of a "oint stock company is its o$nership structure. #he capital of a "ointstock company is di!ided into small shares of fi%ed !alue. #his facilitates easy in!estment and easytransfer. Shareholders do not directly mange the company. #hey elect directors $ho carry outmanagement. #he shareholders ha!e the safety of limited liability. In the e!ent of e%treme loss orli&uidation $ith e%cessi!e outside liability' the non in!ested $ealth of a shareholder is not affected.#he face !alue of the shares held by a person is the ma%imum amount that he can lose in a "ointstock company. If the shares are fully paid up he need not pay anything further e!en if the companyis li&uidated $ith hea!y unsettled claims. If the shares held are partly paid up' a shareholder might

be asked to pay the unpaid portion of the shares. Shares can be sold and purchased through the stock e%change. (y purchasing shares a persongets part o$nership of the business. A share holder does not attain an automatic right to managethe company. )irectors are the people $ho manage the business. #hey are elected byshareholders. #hus a shareholder can !ote to elect directors. *e can also contest in the election tobecome director.

A "oint stock company is regarded as an artificial person. It is considered to ha!e an identity apartfrom the shareholders. A company can enter into contract' buy or sell properties in its o$n name' filela$suits or can be sued. It can e!en file suit against its o$n shareholders.

Types of share capitalShare capital is basically classified into e&uity and preference share capital. +&uity capital is raisedby the issue of e&uity shares' $hich are the most common type of shares. #he benefits recei!ed bye&uity shares are directly related to the performance of the business. ,hen the business earnsgood profit e&uity shareholders $ill get more di!idends. -reference shares other hand are the ones ha!ing priority in the payment of di!idend andrepayment of capital in the e!ent of li&uidation of a company. )i!ided for the preference shares arepaid at a prescribed rate. -reference shareholders ha!e fi%ed income irrespecti!e of theperformance of the business. +&uity di!idend is declared each year' $hich $ill !ary according to theprofit earned by the business. #he e&uity shareholders are the ones $ho actually bear the risk in

business. ,hen the performance of the business is good' they get a high percentage of income.#he !alue of shares $ill also increase in the market. Capital appreciation is the prime attraction ofe&uity shares in a company ha!ing consistently good performance.

+&uity and -reference share capital are t$o basic channels of share capital. Apart from this basicclassification' share capital may be referred by different &ualifying terms highlighting certain specificaspects of share capital. In this regard follo$ing terms are used to &ualify share capital.

1. Authorised Capital or Registered Capital#his is the ma%imum amount of capital a company is authorised to raise from the public. Authorizedcapital is fi%ed little higher than the immediate capital re&uirement of the business becauseauthorised capital is specified in the emorandum of Association of the company and if the


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COMPANY ACCOUNTS P a g e | 2company needs more capital in the near future it cannot do so $ithout first altering thememorandum of association.2. Issued Capital

A company $ill raise capital from the public only to the e%tent it needs money for in!estment./nused fund indicates inefficiency. #he portion of authorized capital that is offered to the public forsubscription is kno$n as issued capital.3. Su scri ed Capital,hen the shares are offered to the public there is no guarantee that the public $ill purchase all ofthem. #he part of the issued capital that is actually subscribed by the public is kno$n as subscribedcapital.

!. Called up Capital,hen shares are offered to the public the company $ill indicate ho$ and $hen they ha!e to pay themoney. /sually the company $ill not demand full payment at the time of issue itself. Instead' thecapital is collected part by part at application stage' allotment stage' first call stage etc. Called upcapital is the portion of subscribed capital $hich is actually demanded by the company.

". #aid up Capital,hen company calls up capital some shareholders may fail to pay. #his amount is called calls inarrears. #he amount paid by the shareholders is kno$n as paid up capital. $. Reser%e Capital0eser!e capital is the part of the uncalled capital set aside as reser!e' by the company to call uponly in the e!ent of li&uidation of the company.Accounting for Share CapitalCapital of "oint stock companies is referred as share capital because it is di!ided into shares. Sharecapital is usually not collected in lump sum' but in instalments at !arious stages' such asapplication' allotment' 1 st call etc. or the purpose of con!enient accounting' a temporary accountrepresenting each of these stages $ill be opened in the ledger $hich $ill be closed once theamounts e%pected on that stage is fully collected or the shares are cancelled for unpaid amounts.

ollo$ing are the "ournal entries for issue of share capital2Share Application Stage#he first stage in issue of share is the application stage. At this point the company $ill gi!ee%tensi!e publicity to the share issue and in!ite the public to apply for the shares. A prospectus$hich is official in!itation to the public' containing details of the company' proposed number ofshares' its type' !alue etc. $ill be issued to the pubic and registered $ith the registrar of companies.

In response to the in!itation by the company' public $ill apply for the shares. A part of the !alue ofshares $ill be specified as application money $hich is to be paid along $ith the application. #hisamount $ill be deposited in the bank account of the company. Application money cannot be lessthan 354 of the issue price. ollo$ing "ournal entries are passed at the collection and capitalisationof application money. i.. When share application money is received (ank Account )r. #o Share Application Account ii. Application money credited to Capital Account


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COMPANY ACCOUNTS P a g e | 3Share Application Account )r. #o Share Capital

#he second entry $ill close the Share Application Account' and in the ledger there $ill be Cash at(ank on one side and Share Capital on the other' pro!ided the number of applications in!ited andthe number of applications recei!ed are the same. Share Allot&ent Stage

After the closure of share issue the directors proceed to the allotment of shares. An additionalamount to$ards the capital on the allotted shares is collected at this stage. #his amount is calledallotment money.

ollo$ing "ournal entries are passed at allotment stage2

i.. Allotment money credited to capital Share Allotment Account )r. #o Share Capital ii. Collection of allotment money

(ank Account )r. #o share Allotment Account Share Call

After the share allotment' the company $ill collect the remaining capital in one or t$o additionalinstalments $hich are kno$n as calls on shares. Same accounting entries are passed for all calls.

ollo$ing are the typical entries2

i. Call money credited to capital Share 1 st Call )r. #o Share Capital ii. Collection of call money

(ank Account )r. #o Share 1 st Call Illustration !.'1

A(C td. in!ited applications for 1666 shares of 0s.16 each on 1 st January' 3663. #he payments tobe made as follo$s2

0s.7 on application8 0s.7 on allotment8 0s. on 1 st call#he issue $as fully subscribed and the amounts due on allotment and first call ha!e been recei!ed.-ass necessary Journal +ntries.

(ournal )ntries


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COMPANY ACCOUNTS P a g e | 4#articulars *r. Cr

1.

Bank Account

Dr To Share Application Account (Application money on 1000 [email protected] per share)

3,000

3,000

3.

Share Application AccountDr To Share apital

(Application money cre!ite! to capitalaccount)

3,000 3,000

7.

Share Allotment Account Dr. To Share apital (Share Allotment money @Rs.3 pershare cre!ite! to apital)

3,000 3,000

.

Bank Account Dr. To Share Allotment (Share allotment money collecte!)

3000 3,000

5.

Share 1 st all Account Dr. To Share apital (Share 1 st call amount @Rs." per sharecre!ite! to capital)

",000 ",000

.

Bank Account Dr. To Share 1 st all (Share 1 st call amount recei#e!)

",000

",000

+%er Su scription and -nder Su scription+%er su scriptionIt is unlikely that the public apply for the e%act number of applications in!ited by the company. ,henapplications recei!ed e%ceed the number in!ited' the share is said to be o!er:subscribed. It alsomeans that the company recei!ed more application money than $hat $as originally in!ited. ;o$ thecompany cannot con!eniently increase the number of shares and keep the money as capital.Instead' it must refund the e%cess amount recei!ed or make a part allotment on applications ad"ustthe e%cess money against future calls from shareholders. ,hen there is o!er subscription share application account $ill not be closed by the transfer tocapital alone ne ofthe follo$ing entries $ill be passed to close the share application account depending on thetreatment of money.


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COMPANY ACCOUNTS P a g e | 5 i. If the excess amount is refunded to applicants

Share Application Account )r. #o (ank ii. If the excess amount is adjusted to Allotment

Share Application Account )r. #o Share Allotment

Illustration !.'2>n 1 st January 3667 A(C td. in!ited applications for 1666 shares of 0s. 16 each. #he payments tobe made as follo$s20s.7 on application0s.7 on allotment

0s. on 1 st call Applications ha!e been recei!ed for 1366 shares. +%cess applications ha!e been re"ected. Allotments $ere made. #he full amounts collected in due course.-ass necessary Journal +ntries to record the abo!e. ($ote% This illustrates the treatment o& o#ersu'scription. ere 1 00 applications ha#e 'een recei#e! on an issue o& 1000shares. ere the company has to stick to the 1000 shares issue!. ompare these three simple illustrations care&ully)

(ournal )ntries

#articulars *r. Cr

1.

Bank AccountDr To Share Application Account (Application money recei#e! on 1 00applications @Rs. per share)

3,*00 3,*00

3.

Share Application AccountDr. To Share apital

To Bank (Application money cre!ite! to capitalaccount an! the money on re+ecte!applications re&un!e!)

3,*00 3,000

*00

7.

Share Allotment AccountDr. To Share apital

3,000 3,000


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COMPANY ACCOUNTS P a g e | 6(Share Allotment money @Rs.3 pershare cre!ite! to apital)

.

Bank AccountDr. To Share Allotment (Share allotment money collecte!)

3000 3,000

5.

Share 1 st all AccountDr. To Share apital (Share 1 st call amount @Rs. per sharecre!ite! to capital)

",000 ",000

. Bank Account

Dr. To Share 1 st all (Share 1 st call amount recei#e!)

",000

",000

-nder su scription/nder:subscription is a situation "ust the opposite of o!er:subscription. *ere the company hasrecei!ed less number of applications than $hat $as in!ited. In case of under subscription thecompany $ill proceed to allotment $ith $hate!er number of shares applied by the public. Illustration !.'3>n 1 st January 3667 A(C td. in!ited applications for 1666 shares of 0s. 16 each. #he payments to

be made as follo$s20s.7 on application8 0s. on allotment8 0s.7 on 1 st call Applications ha!e been recei!ed for 966 shares. Allotments $ere made. #he full amounts collectedin due course.-ass necessary Journal +ntries to record the abo!e.

(ournal )ntries#articulars *r. Cr

1.

Bank AccountDr To Share Application Account (Application money recei#e! on 1 00applications @Rs. per share)

,-00

,-00

3.

Share Application AccountDr.

To Share apital(Application money cre!ite! to capital

,-00 ,-00


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COMPANY ACCOUNTS P a g e | 7account an! the money on re+ecte!applications re&un!e!)

7.

Share Allotment AccountDr. To Share apital (Share Allotment money @Rs.3 pershare cre!ite! to apital)

3,*00 3,*00

.


3,*00 3,*00

5.

Share 1 st all AccountDr.

To Share apital (Share 1 st call amount @Rs. per sharecre!ite! to capital)

,-00

,-00

. Bank AccountDr. To Share 1 st all (Share 1 st call amount recei#e!)

,-00

,-00

Issue and Allot&ent of #reference Shares-reference shares as also part of capital. (ut these shares as the name suggest are ha!ing some

special pri!ileges or preferences. ollo$ing are the important features of preference shares.-reference shares are issued $ith a prescribed rate of di!idend. #hus such shareholders ha!e anassured income from their shares. ,hen the company does not make huge profits there is anad!antage to the -reference shareholder. (ut $hen the profit is high' a preference shareholdermust satisfy $ith his prescribed rate of di!idend.In the e!ent of li&uidation of the company the preference shareholders get a priority o!er the e&uityshareholder in the repayment of capital.-reference shareholders ha!e less say in the management of the company. +&uity shareholders$ho are the real risk bearing in!estors mainly control management.

orm the accounting point of !ie$ there is no much difference bet$een the issue of e&uity shares or

preference shares. #he only difference is that the preference capital account $ill be clearly stated as?preference share capital@ in the "ournal entry. (ut there is no need to specify ?e&uity capital@ $henit is issued. #he term capital is understood as e&uity capital.

Illustration !.'! A limited company in!ited applications for 3666' 4 preference shares of shares of 0s.16 each on1 st January' 3663. #he payments to be made as follo$s20s.5 on application0s.5 on allotment#he issue $as fully subscribed and the amounts due on allotments $ere recei!ed. -ass necessaryJournal +ntries.


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1.

Bank AccountDr To re&. Share Application Account (Application money on 000 shares@Rs. per share recei#e!)

10,000 10,000

3. re&. Share Application AccountDr To / re&. Share apital (Application money cre!ite! to pre&.share capital account)

10,000 10,000

7.

re&. Share Allotment Account Dr. To / re&. Share apital (Share Allotment money @Rs. pershare cre!ite! to re&. apital)

10,000 10,000

A limited company in!ited applications for 5666' 94 preference shares of shares of 0s.16 each on1 st January' 3663. #he payments to be made as follo$s20s. on application8 0s. on allotment#he issue $as fully subscribed and the amounts due on allotments $as been recei!ed. -assnecessary Journal +ntries.#ri%ate #lace&ent and #u lic Su scription of Share CapitalIssue of shares under pri!ate placement implies the issue of shares to a selected group of persons.-ri!ate placement is an issue that is not a public issue. In order to make pri!ate placement' acompany should pass a special resolution to that effect. If the number of !otes cast in fa!our ofpri!ate placement is not sufficient to pass a special resolution' but more than the number of !otescast against' the directors can approach Central Bo!ernment for appro!al' stating that the proposedpri!ate placement is most beneficial to the company. )&ployee Stoc +ption #lan /)S+#0+mployees stock option plan implies the right gi!en to employees to purchase shares of thecompany at pre: determined lo$ price. +S>- is a kind of compensation to the employees to createa sense of belonging to the company. or the purpose of +S>- the term employees includepermanent employees and directors' of a company' its subsidiary companies andDor holdingcompanies. *o$e!er' employees belonging to promoters group or directors holding more than 164of the e&uity shares are not allo$ed participating in the +S>-. #he company keeps the plan open to


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COMPANY ACCOUNTS P a g e | 9for a certain period for the employees to e%ercise their option to purchase shares. At the end of thise%ercise period' the stock option $ill be closed. #he unused option $ill be considered lapsed. Anyshare issued under +S>- is not allo$ed to be traded for a period of one year lock:in period. #hiscondition is not applied for shares issued as part of public issue.Cash )ntries through Cash oo,hen cash book is used in accounting all entries of receipt and payment are entered in the cashbook directly. All other transaction $ill be entered in the normal "ournal. #he follo$ing e%ample illustrates the use of cash book and the effect of under subscription. Illustration !.'!>n 1 st January 3663' A(C td. in!ited applications for 1666 shares of 0s.16 each payable asfollo$s20s.3 on application8 0s.7 on allotment8 0s.5 on 1 st call

Applications ha!e been recei!ed for 966 shares. Amounts due on allotment and 1 st call ha!e beenduly collected. -repare Cash (ook


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COMPANY ACCOUNTS P a g e | 10 5.

Share 1 st all Account Dr. To Share apital (Share 1 st call amount @Rs. per sharecre!ite! to capital)

", 00 ", 00

Issue of shares at #re&iu&Shares of reputed companies are usually issued at a higher issue price that than the face !alue.#his e%tra amount is kno$n as share premium. #his is a gain to be credited separately into asecurities premium account. Share premium is usually collected along $ith the allotment money. Security premium is not an ordinary income of the company8 therefore it is not credited into the profitand loss account. It is comes under the category of capital recipt. Security premium can be utilizedin the follo$ing $ays8 to $rite off preliminary e%penses if anyto $rite off discount on issue of sharesto issue bonus sharesto pro!ide for the premium payable on any redeemable preference shares of the company. Illustration !.'"

A(C td. in!ited applications for 1666 shares of 0s.16 each at a premium of 0s.3 on 1 st January'3663. #he payments to be made as follo$s2 0s.7 on application8 0s.5 on allotment


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COMPANY ACCOUNTS P a g e | 11(Share Allotment an! securities premiumcre!ite! to respecti#e accounts)

.


000

,000

5.

Share 1 st all AccountDr.

To Share apital (Share 1 st call amount @Rs. per sharecre!ite! to capital)

",000 ",000

.

Bank AccountDr. To Share 1 st all (Share 1 st call amount recei#e!)

",000

",000

Issue at *iscount,hen shares are issued at a discount' the company is incurring a loss' $hich $ill be debited toEdiscount on issue of shares account. #his $ill remain as a fictitious asset in the books of thecompany and $ill be $ritten off in due course. /sually discount $ill be ad"usted at the time ofallotment of shares.Check the follo$ing illustration2

Illustration !.'$ A(C td. in!ited applications for 1666 shares of 0s.16 each at a discount of 0e.1 on 1 st January'3663. #he payments to be made as follo$s2 0s.3 on application8 0s.3 on allotment8 0s.5 on 1 st call #he issue ha!e been fully subscribed and the full amounts due on allotments and first call ha!ebeen recei!ed. -ass necessary Journal +ntries.


1.

Bank AccountDr To Share Application Account (Application money on 1000 shares@Rs. per share)

,000

,000


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COMPANY ACCOUNTS P a g e | 123.

Share Application AccountDr To Share apital(Application money cre!ite! to capitalaccount)

,000

,000

7.

Share Allotment Account

Dr.Discount on issue o& SharesDr. To Share apital Account (Share Allotte! at !iscount o& Re.1 pershare)

,000

1,000 3,000

.


,000 ,000

5.


,000 ,000

.

Bank Account Dr. To Share 1 st all (Share 1 st call amount recei#e!)

,000

,000

Calls in Ad%anceSometimes shareholders chose to pay the call money in ad!ance $hich should be credited to callsin ad!ance account. >!ersubscription of issue is another reason for opening Calls in Ad!ance

Account. Suppose a person applied for 166 shares and the company allotted him only 56 shares'the e%cess application money paid by him may be refunded or treated as calls in ad!ance. #hisamount is ad"usted against the amounts due from him in future. ( alls in a!#ance can 'e !irectlycre!ite! a4ainst ne5t call account, hich is an easier treatment. This metho! is &ollo e! in the&ollo in4 illustration) Interest is paid on the calls in ad!ance if it is specified in the in the Articles of Association of thecompany or if the company adopts #able A for internal administration interest can be paid at the rate

of 4. #he follo$ing entries are passed to account the interest on calls in ad!ance2 i. Interest due6nterest on alls in A!#ance Dr. To Sun!ry Sharehol!ers Account ii. Interest #aidSun!ry Sharehol!er7s Account Dr. To Bank Illustration !.'


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COMPANY ACCOUNTS P a g e | 13 A(C td. in!ited applications for 1666 shares of 0s.16 each on 1 st January' 3663. #he payments tobe made as follo$s2 0s.3 on application8 0s.7 on allotment8 0s.5 on 1 st call #he issue ha!e been fully subscribed. r. A' $ho is allotted 766 shares' paid the full amount at thetime of allotment. #he amounts due on allotment and first call ha!e been recei!ed. -ass necessaryJournal +ntries.

(ournal )ntries

#articulars *r. Cr

1. Bank AccountDr To Share Application Account (Application money on 1000 shares@Rs. per share)

,000 ,000

3.


,000

,000

7. Share Allotment AccountDr. To Share apital Account (Amount on allotment amount cre!ite! tocapital account)

3,000

3,000

.

Bank AccountDr. To Share Allotment To Share 1 st call

(Share allotment money collecte!)

", 00 3,000

1, 00

5. Share 1 st all AccountDr. To Share apital (Share 1 st call amount @Rs. per sharecre!ite! to capital)

,000

,000

. Bank AccountDr. To Share 1 st all

3, 00

3, 00


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COMPANY ACCOUNTS P a g e | 14(Share 1 st call amount recei#e!)

$ote% The a!#ance payment 'y 8r. A can 'e cre!ite! to call in a!#ance account in 9: 3. 6n that case the call in a!#anceshoul! 'e !e'ite! in 9: *, an! cre!it the &irst call account ith the &ull amount o& ,000.But the a'o#e treatment iseasier. Calls in ArrearsSometimes shareholders fail to pay the amount due on calls. In that case $e ha!e t$o options inpassing the "ournal entry. irst option is "ust recording the actual amount collected to the respecti!ecall account. ;ormally the call account $ill !anish from books $ith the collection of money. (ut inthis case the unpaid amount $ill remain in the books in the call account as debit balance. #hesecond option is to debit the (ank account for the amount recei!ed and debit the Calls in Arrears

Account for the unpaid amount and credit the respecti!e call account for the total. #he secondoption is follo$ed in this te%t book.

#he company can charge interest on calls in arrears at 54 per annum if it is specified in the Articlesof Association or if the company adopts #able A for the internal administration. #able A F the modelset of Articles of Association of a company F specifies interest chargeable on calls in arrears at 54.

ollo$ing "ournal entries are passed to account interest on calls in arrears i. Interest dueSun!ry Sharehol!er7s Account Dr. To 6nterest on alls in Arrears ii. Interest #aidBank Account Dr.. To Sun!ry Sharehol!ers Illustration !.'

A(C td. issued 1666 shares of 0s.16 each on 1 st January' 3663. #he payments to be made asfollo$s20s.3 on application8 0s.7 on allotment8 0s.5 on 1 st call#he issue ha!e been fully subscribed. r. A' $ho is allotted 766 shares failed to pay the 1 st callamount. #he full amounts due on allotment and first call from all other shareholders ha!e beenrecei!ed. -ass necessary Journal +ntries.


1.


,000

,000


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,000

,000

7.

Share Allotment Account

Dr. To Share apital Account (Amount on allotment amount cre!ite! tocapital account)

3,000 3,000

. Bank Account Dr. To Share Allotment (Share allotment money collecte!)

3,000

3,000

5.


,000

,000

.

Bank AccountDr.

alls in arrearsDr. To Share 1 st all (Share 1 st call amount recei#e!)

3, 00 1, 00

,000

Issue of Shares for Consideration other than CashCompany can issue shares in consideration of purchase of assets. ollo$ing "ournal entries arepassed for such issue2 a. Asset Account )r. #o Gendor s Account


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COMPANY ACCOUNTS P a g e | 16#articulars *r. Cr

1. Buil!in4 AccountDr To Deepa onstructions. (Buil!in4s purchase!)

22,000 22,000

3. Deepa onstructionsDr. To Share apital (Shares issue! in consi!eration o&Buil!in4 purchase)

22,000 22,000

Illustration !.1'>n 1 st January 3663' A(C td. purchased a building for 0s.99'666 from )eepa constructions' for$hich they issued e&uity shares at a premium of 164 to the !endor. -ass necessary "ournal entries.


1.

Buil!in4 Account

Dr To Deepa onstructions.(Buil!in4s purchase!)

22,000

22,000

3 Deepa onstructionsDr. To Share apital To Share apital (Shares issue! in consi!eration o&

Buil!in4 purchase)

22,000 20,000

2,000

$ote% 6t is #ery important that you un!erstan! ho the a'o#e Rs.20,000 is orke! out. n 1 st January 3663' A(C td. purchased a building for 0s.99'666 from )eepa constructions' for$hich they issued e&uity shares at a discount of 164 to the !endor. -ass necessary "ournal entries.


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1. Buil!in4 AccountDr To Deepa onstructions. (Buil!in4s purchase!)

22,000 22,000

3 Deepa onstructionsDr.Discount on 6ssue

Dr. To Share apital (Shares issue! in consi!eration o&Buil!in4 purchase)

22,000 11,000

110,000

$ote% This is +ust the opposite o& hat you ha#e seen in the earlier illustration. The shares are issue! at a !iscount. The#alue o& 'uil!in4 Rs.22,000 represents the cash you recei#e hen shares are issue! at !iscount. Suppose you issueone share o& Rs.10 at a !iscount o& 10 , you ill recei#e Rs.2 &rom that share. ere you recei#e! Rs.22,000 (in the&orm o& 'uil!in4s). Rs.2 recei#e! means Re.1 !iscount allo e!, an! Rs.10 capital cre!ite!. 6n other or!s Rs.22,000recei#e! means Rs.11,000 allo e! as !iscount.

5orfeiture of Shares 6 Accounting Treat&ent

;ormally a company is not allo$ed to cancel or take back its shares. (ut $hen a person fails to paythe allotment money or call money due on a share' the company is allo$ed to $ithdra$ thoseshares and reissue them to another party. orfeiture is $ithdra$al of shares due to non:payment ofdues by the shareholder.Capital representing the forfeited shares remo!ed from share capital account/nsettled balances in temporary accounts such as Share Allotment' Share Call etc.


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#he issue ha!e been fully subscribed. #he amounts due $ere collected for allotment and 1 st call $iththe e%ception of r. A' ha!ing 766 shares $ho failed to pay for the allotment and first call. #heseshares ha!e been forfeited. -ass necessary Journal +ntries.


1.

Bank Account

Dr To Share Application Account (Application money on 1000 shares@Rs. per share)

3,000 3,000

3.


3,000

3,000

7.

Share Allotment AccountDr. To Share apital Account (Amount on allotment amount cre!ite! tocapital account)

3,000 3,000

. Bank AccountDr.

alls in arrearsDr. To Share Allotment (Share allotment money collecte!, iththe e5ception o& 300 shares)

,100

200 3,000


",000

",000

.

Bank AccountDr.

alls in arrears Dr To Share 1 st all (Share 1 st call amount recei#e!)

,/00

1, 00

",000


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COMPANY ACCOUNTS P a g e | 19 H.

Share apital AccountDr. To Share =or&eiture Account To alls in Arrears Account (Shares &or&eite! &or non payment)

3000

200 ,100

$ote% 6n the a'o#e +ournal entry >- e ha#e taken out the entire capital o& Rs.3000 representin4 A7s 300 shares? the pai! up portion o& this capital ie. the application money is trans&erre! to =or&eiture Account an! the rest to the alls inarrears Account.

ii. 5orfeiture of shares issued at pre&iu&

a. here premium as collecte! Share Capital Account )r.


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Share Allotment AccountDr. To Share apital Account To Securities premium Account (Amount on allotment amount an! Share

premium cre!ite! to respecti#eaccounts)

,000

3,000 ,000

. Bank AccountDr.

alls in Arrears AccountDr To Share Allotment (Share allotment money collecte!, iththe e5ception o& 300 shares)

3, 00 1, 00 ,000


",000 ",000

.

Bank AccountDr.

alls in ArrearsDr.

To Share 1 st all (Share 1 st call amount recei#e!)

,/00

1, 00 ",000

H. Share apital AccountDr.Securities remium AccountDr To Share =or&eiture Account To alls in Arrears Account (Shares ith !e&ault ha#e 'een &or&eite!)

3,000 *00

200 ,-00

$ote% The a'o#e e5ample illustrates an important aspect. Stu!y this thorou4hly. ook at 9ournal entry > -. ou can seethe premium is also !e'ite! alon4 ith the capital. ou ha#e seen in an earlier section that i& premium is not collecte!on the shares to 'e &or&eite! the premium also shoul! 'e !e'ite!. Ri4ht. But hy shoul! you !e'it the premium Toun!erstan! this you must &irst stu!y the entry > 3 C ". 6n entry > 3 you &in! the share allotment account is !e'ite! ithRs. 000, hich inclu!es premium an! capital. 6n entry >",there is calls in arrears o& Rs.1, 00. This is not just capitalalone. It is unsettled share capital + unsettled premium. 6n other or!s you cannot ipe out the calls in arrears 'ysimply re#ersin4 the capital alone. $o re&er the ne5t illustration in hich there is a !e&ault, a&ter collectin4 the premium

here premium is not re#erse!. A4ain 6 remin! you not to mu4 up the rules, instea! learn these simple conceptsthorou4hly.

'. here premium not collecte! Share Capital Account )r.


21/66

COMPANY ACCOUNTS P a g e | 21 #o Share orfeiture Account


22/66


.

Bank Account Dr.alls in Arrears Dr.


,/00

1, 00 ",000

H.

Share apital AccountDr.

To Share =or&eiture Account To alls in Arrears Account (Shares ith !e&ault ha#e 'een &or&eite!)

3,000 1,/00

1, 00

$otice here that the calls in arrears account contains only unpai! capital. $o unpai! premium.. There&ore there is nonee! o& !e'itin4 the remium Account. ou can close the unsettle! account 'y +ust re#ersin4 the apital Account alone.

iii. 5orfeiture of shares issued at discount,hen shares issued at discount are forfeited' the discount account must be re!ersed irrespecti!e ofthe point at $hich default occurs. #his is because the capital account itself includes discount in it.

Share Capital Account )r.


23/66



3,000 3,000

7. Share Allotment AccountDr Discount AccountDr To Share apital Account (Amount on allotment an! !iscountaccount a!+uste! in the 'ooks)

,000

1,000 3,000

.

Bank AccountDr. To Share Allotment (Share allotment money collecte!, iththe e5ception o& 300 shares)

1,"00 1,"00

5.


",000 ",000

.

Bank AccountDr. To Share 1 st all (Share 1 st call amount recei#e!)

,/00

,/00

H.

Share apital AccountDr. To Share =or&eiture Account To Share Allotment Account To Share 1 st all Account To Discount Account (Shares ith !e&ault ha#e 'een &or&eite!)

3,000 200

*00 1, 00 300

Allot&ent on #ro rata asis-ro rate allotment means proportionate allotment. ,hen there is o!er subscription of applications'the company has the option to either re"ect the e%cess applications or to issue lesser number ofshares on the applications ad"usting the e%cess application money in to the amounts due atsubse&uent stages. #he second option is kno$n as pro:rata allotment.


24/66

COMPANY ACCOUNTS P a g e | 24 Illustration !.1$

A limited Company in!ited applications for 1666 shares of 0s.16 each on 1 st January' 3663. #hepayments to be made as follo$s20s.7 on application8 0s.7 on allotment8 0s. on 1 st call

Applications ha!e been recei!ed for 1566 shares. Allotments $ere made as follo$s2566 applications F 566 shares1666 applications F 566 shares #he full amounts due $ere collected $ith the e%ception of r. A belonging to category


25/66



",000

",000

.

Bank Account

Dr.alls in Arrears Dr. To Share 1 st all (Share 1 st call amount recei#e!)

,/00

1, 00

",000

H.

Share apital AccountDr. To Share =or&eiture Account To alls in Arrears Account (Shares ith !e&ault ha#e 'een&or&eite!)

3,000 200

,100

$ote on 9 : > "

ate4ory (') nee! not pay any amount at this point 'ecause their e5cess application money hich is carrie! &or ar! toallotment is su&&icient. ate4ory A, hol!in4 00 shares shoul! pay Rs.1 00 ( 00 5 3) A &aile! to pay his amount Rs.200(300 53) hich means amount is collecte! only &rom 00 shares ie Rs.*00 ( 00 53)

Illustration !.1 A limited Company in!ited applications for 1666 shares of 0s.16 each on 1 st January' 3663. #hepayments to be made as follo$s2

0s.7 on application8 0s.7 on allotment8 0s. on 1 st call

Applications ha!e been recei!ed for 1566 shares. Allotments $ere made as follo$s2

566 applications F 566 shares 1666 applications F 566 shares #he full amounts due $ere collected $ith the e%ception of Mr. A belonging to category b! ' $ho isallotted 766 shares and failed to pay the first call. *is shares ha!e been forfeited.

-ass necessary Journal +ntries.


1. Bank AccountDr To Share Application Account (cash recei#e! on 1 00 [email protected] per share)

", 00 ", 00


26/66


Share Application AccountDr To Share apital

To Share Allotment (Application money cre!ite! to capitalaccount)

", 00 3,000

1, 00

7. Share Allotment AccountDr To Share apital Account (Share capital cre!ite! on allotment)

3,000 3,000

. Bank Account Dr. To Share Allotment (Share allotment money collecte!, iththe e5ception o& 300 shares o& cate4orya)

ate4ory (') nee! not pay at this point'ecause their e5cess application moneyis su&&icient.

1, 00

1, 00

5.


",000

",000

.

Bank Account Dr.alls in Arresrs


,/00 1, 00

",000

H. Share apital Account Dr. To Share =or&eiture Account To alls in Arrears Account (Shares ith !e&ault ha#e 'een&or&eite!)

3,000 1,/00

1, 00

Re issue of 5orfeited Shares A company is allo$ed to reissue its forfeited shares. 0eissue reinstates the capital that $as $rittendo$n on forfeiture. #he amounts already collected on such shares and kept aside in the shareforfeiture account' can be utilized for gi!ing discount on reissue. #he balance in share forfeitureaccount' specifically pertaining to the shares reissued $ill be transferred to Capital 0eser!e

Account. If some of the forfeited shares are not reissued' the corresponding portion of shareforfeiture account should not be transferred to Capital 0eser!e. Illustration !.1



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COMPANY ACCOUNTS P a g e | 270s.7 on application8 0s.7 on allotment8 0s. on 1 st call

#he issue ha!e been fully subscribed. #he amounts $ere collected for allotment and 1 st call $ith thee%ception of r. A' $ho is allotted 766 shares and failed to for the allotment and first call. #heseshares ha!e been forfeited' and reissued 0s. per share. -ass necessary Journal +ntries.


1.


3,000 3,000

3.


3,000 3,000

7.

Share Allotment AccountDr.

To Share apital Account (Amount on allotment amount cre!ite! tocapital account)

3,000 3,000

.

Bank Account Dr.alls in Arrears Account Dr.

To Share Allotment (Share allotment money collecte!, iththe e5ception o& 300 shares)

,100

200 3,000

5.


",000 ",000

.

Bank AccountDr.

alls in Arrears Account Dr To Share 1 st all (Share 1 st call amount recei#e!)

,/00

1, 00 ",000


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COMPANY ACCOUNTS P a g e | 28 H.

Share apital AccountDr. To Share =or&eiture Account To alls in Arrears(Shares &or&eite! &or non payment)

3000 200

,100

.

Bank AccountDr.Share &or&eiture AccountDr. To Share apital (Reissue o& &or&eite! shares)

,"00

*00

3000

9.

Share =or&eiture AccountDr. To apital Reser#e(Balance in the share &or&eiture accounttrans&erre! to apital Reser#e.)

300

300

Illustration !.14


0s.7 on application8 0s.7 on allotment8 0s. on 1 st call

#he issue $as fully subscribed. #he full amounts due $ere collected for allotment and 1 st call $iththe e%ception of r. A' $ho is allotted 766 shares and failed to pay the amounts due on allotmentand first call. #hese shares ha!e been forfeited. 366 of these shares ha!e been reissued 0s.

per share. -ass the entries from forfeiture and reissue of A s shares. (ournal )ntries

#articulars *r. Cr

1.

Share apital Account Dr. To Share Allotment Account To Share 1 st all Account To Share =or&eiture Account (Shares &or&eite! &or non payment)

3,000 200

1, 00 200

3.

Bank AccountDr.Share &or&eiture AccountDr. To Share apital ( art o& the &or&eite! shares ha#e 'eenreissue!)

1,*00 "00

,000


29/66


Share =or&eiture Account

Dr. To apital Reser#e(The unuse! portion o& the share&or&eiture account representin4 thereissue! shares trans&erre! to capitalreser#e)

00

00

Illustration !.2'

A(C td. in!ited applications for 1666 shares of 0s.16 each at a premium of 0s.3 per share on 1 st

January' 3663. #he payments to be made as follo$s2 0s.7 on application0s.5 on allotment


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.

Bank Account Dr. To Share apital ( art reissue o& &or&eite! shares at par)

1,000

1,000

5. Share =or&eiture Account Dr. To apital Reser#e(Enuse! share &or&eiture amount onreissue! shares trans&erre! to capitalreser#e)

300 300

. Bank Account Dr. To Share apital To Securities remium Account (=or&eite! shares reissue! at premium)

1,100 1,000

100

H.

Share =or&eiture Account Dr. To apital Reser#e(Enuse! &or&eiture amount on reissue!shares trans&erre! to capital reser#e)

300

300

Illustration !.21

A limited company forfeited 766 shares of 0s.16 each' r. K $ho had applied for 566 shares onaccount of non payment of allotment money 0s.7 L 3 nly 0s.7 pershare $as recei!ed $ith application. >ut of these 366 shares $ere reissued to r. M as fully paidshares for 0s. per share e%cluding premium.

A company forfeited 156 shares of 0s.16 each fully called up issued at 164 discount on $hich 0s.7per share $as recei!ed $ith application. Amount re&uired to be paid $as 0s'3 on allotment' 0s.3 onfirst call and 0s.3 on final call. >ut of these 166 shares $ere reissued to r. as fully paid shares at0s. per share. NC(S+ 95OBi!e Journal +ntries relating to forfeiture and reissue.

(ournal )ntriesa.#articulars *r. Cr

1.

Share apital AccountDr.Securities remium AccountDr. To Share Allotment Account

,"00 *00 200

*00 1, 00


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3.

7.

To Share 1st all Account To Share =or&eiture Account (Shares &or&eite! &or non payment)

assumin4 that the shares are allotte!on proFrata 'asis on 00 applications

Bank AccountDr.Share =or&eiture AccountDr. To Share apital (Reissue o& &or&eite! shares) Share =or&eiture Account Dr. To apital Reser#e(:5cess o& &or&eiture amount, 'elon4in4to &or&eite! shares trans&erre! to capitalreser#e)

1,*00 "00

*00

,000

*00

.#articulars *r. Cr

1.

3.

7.

Share apital AccountDr.

To Share =or&eiture Account To Share Allotment Account To Share 1 st all Account To Share n! all Account To Discount on 6ssue Account (Shares &or&eite! &or non payment)

Bank AccountDr.

Discount on 6ssueDr.Share =or&eiture AccountDr. To Share apital (Reissue o& &or&eite! shares) Share =or&eiture Account Dr. To apital Reser#e(:5cess o& &or&eiture amount, 'elon4in4to &or&eite! shares trans&erre! to capital

1, 00

/00 100 100

00

" 0 300 300 300 1 0

1,000

00


32/66

COMPANY ACCOUNTS P a g e | 32reser#e)

Illustration !.22Journalise the follo$ing transactions in the books of -oonam td.2

166 shares of 0s.166 each' issued at a discount of 164 $ere forfeited for the non payment ofallotment money of 0s.56 per share. #he first and final call on these shares at 0s.36 per share $asnot made. #he forfeited shares $ere reissued for 0s.H'666 as fully paid up.56 shares of 0s.16 each issued at a premium of 0s.5 each payable $ith allotment $ere forfeited fornon payment of allotment money of 0s. 9 per share including premium. #he first and final call onthese shares at 0s.7 $as not made. #he forfeited shares $ere reissued at 0s.13 per share as fullypaid up.1666 shares of 0s.16 each issued at par $ere forfeited for the non payment of the final call of 0s.3per share. #hese shares $ere reissued 0s. per share as fully paid up. N)elhi 3663O

(ournal )ntries #articulars *r. Cr

1.

Share apital AccountDr. To Share =or&eiture Account To Share Allotment Account To Discount on 6ssue

Account (Shares issue! on !iscount &or&eite!)

/,000 ,000

,000 1,000

3. Bank Account Dr.Discount on 6ssue Account Dr Share =or&eiture Account Dr. To Share apital (=or&eite! shares reissue! as &ully pai!)

-,000 1,000

,000

10,000


1.

Share apital Account Dr Share remium Account Dr To Share =or&eiture Account To Share Allotment Account (Shares &or&eite! &or not payment)

3 0 0

1 0 " 0


33/66


Bank AccountDr. To Share apital To Securities remium(=or&eite! shares reissue! at premium)

*00 00

100

7.

Share =or&eiture Account Dr. To apital Reser#e(Share &or&eiture trans&erre!)

1 0

1 0


1.

Share apital Account Dr. To Share =or&eiture Account To Share =inal all Account (Shares &or&eite! &or non payment)

10,000 /,000

,000

3.

Bank Account Dr.Share =or&eiture Account Dr.

To Share apital ( =or&eite! shares reissue!)

/,000

,000 10,000 7.

Share =or&eiture Account Dr. To apital Reser#e (Share &or&eiture 'alance trans&erre!)

*,000

*,000

Illustration !.23Journalise the follo$ing transactions in the books of ;a!een td.2i. 566 shares of 0s.166 each' issued at a discount of 164 $ere forfeited for non payment of

allotment money of 0s.56 per share. #he first and final call of 0s.16 per share on these shares$as not made. #he forfeited shares $ere reissued at 0s. 6 per share as fully paid up.ii. 366 shares of 0s.16 each issued at a premium of 0s.5 per share payable $ith allotment $ere

forfeited for the non payment of allotment money of 0s.9 per share including premium. #he firstand final call of 0s.7 per share $as not made. #he forfeited shares $ere reissued at 0s.1 pershare as fully paid up.

iii. 66 shares of 0s.16 each issued at par $ere forfeited for the non payment of the final call of 0s.3per share. #hese shares $ere reissued at 0s. per share as fully paid up.


34/66

COMPANY ACCOUNTS P a g e | 34i0


1.

Share apital AccountDr. To Share Allotment Account To Discount on 6ssue Account To Share =or&eiture Account (Shares &or&eite! &or !e&ault)

" ,000 ,000

,000 1 ,000

3.

Bank Account Dr.Share =or&eiture Account Dr.Discount on 6ssue Account Dr. To Share apital(=or&eite! shares reissue!)

"0,000 ,000 ,000

0,000

7.

Share =or&eiture Account Dr. To apital Reser#e(:5cess amount in share &or&eitureaccount trans&erre!)

10,000

10,000

ii0


1. Share apital Account Dr.Share remium Account Dr. To Share =or&eiture Account To Share Allotment Account (Shares &or&eite! &or !e&ault)

1,"00 1,000

*00 1,/00

3.

Bank Account Dr. To Share apital To Share remium Account (=or&eite! shares reissue! at premium)

,/00

,000 /00

7. Share =or&eiture Account Dr. To apital Reser#e(Share &or&eiture account trans&erre! tocapital reser#e)

*00

*00


35/66

COMPANY ACCOUNTS P a g e | 35 iii0


1.

Share apital Account Dr. To Share =or&eiture Account To Share =inal all Account (Shares &or&eite! &or non payment)

/,000

*,"00 1,*00

3.

Bank AccountDr.Share =or&eiture Account Dr. To Share apital (=or&eite! shares reissue!)

*,"00 1,*00

/,000

7.

Share =or&eiture Account Dr. To apital Reser#e(Surplus in share &or&eiture trans&erre! tocapital reser#e)

",/00

",/00

Illustration !.2!>n 1 st January 3663 A(C td. in!ited applications for 1666 shares of 0s.16 each' at a discount of0e.1 per share. #he payments to be made as follo$s2 0s.7 on application8 0s.3 on allotment8 0s. on 1 st and final call

Applications ha!e bee recei!ed for 966 shares. #he amounts due for allotment and 1 st call ha!ebeen collected $ith the e%ception of 56 shares for allotment and first call. #hese shares ha!e beeforfeited and reissued at 0s. 16 per share.


1.

Bank Account Dr. To Share Application Account (Application recei#e! &or 200 shares)

,-00

,-00

3.

Share Application Account Dr To Share apital (Application money trans&erre! to sharecapital)

,-00

,-00


36/66


Share Allotment Account Dr.Discount on 6ssue Dr. To Share apital (Allotment an! !iscount amount cre!ite!to capital)

1,/00

200

,-00

.

Bank Account Dr. To Share Allotment (Allotment money collection ith thee5ception o& !e&aulte! shares)

1,-00

1,-00

5.

Share 1 st all Account Dr. To Share apital (1 st call amount cre!ite!)

3,*00

3,*00

.

Bank Account Dr. To Share 1 st all (Share 1 st call amount collecte!)

3,"00

3,"00

H.

Share apital Account Dr. To Share =or&eiture To Share Allotment Account To Share 1 st call To Discount on 6ssue Account (Shares &or&eite! &or !e&ault)

00

1 0 100

00 0

.

Bank Account Dr. To share apital (Shares reissue! at par)

00

00

9.

Share =or&eiture Account Dr To apital Reser#e(Enuse! &or&eiture amount trans&erre! tocapital reser#e)

1 0

1 0

$ote% ere shares are reissue! at par. There&ore reinstatin4 the !iscount account !oes not makesense. Illustration !.2">n 1 st January 3663 A(C td. in!ited applications for 1666 shares of 0s. 16 each. #he payments tobe made as follo$s20s.7 on application8 0s.7 on allotment8 0s' on 1 st and final call

Applications ha!e been recei!ed for 3766 shares. Allotments ha!e been made as follo$s2a. 566 applications F full allotmentb. 1666 applications F 564 allotmentc. 66 applications F re"ected


37/66

COMPANY ACCOUNTS P a g e | 37 Amounts due on the shares ha!e been recei!ed $ith the e%ception of 166 shares belonging tocategory


38/66

COMPANY ACCOUNTS P a g e | 38. Bank Account Dr.

Share =or&eiture Account Dr To Share apital Account (=or&eite! shares reissue!)

1,/00 00

,000

9. Share =or&eiture Account Dr. To apital Reser#e(Surplus in the share &or&eiture accounttrans&erre!)

-00 -00

Illustration !.2$>n 1 st January 3663 A(C td. in!ited applications for 1666 shares of 0s. 16 each at a premium of0s.3 per share. #he payments to be made as follo$s20s.7 on application0s.5 on allotment


39/66

COMPANY ACCOUNTS P a g e | 397. Share Allotment Account Dr.

To Share apitalTo Share remium

(Allotment money an! premium cre!ite!)

,000 3,000

,000

. Bank Account Dr. To Share Allotment (Allotment money collecte! ith !e&aulton 00 shares)

,/00 ,/00

5. Share 1 st all Account Dr. To Share apital (=irst call amount cre!ite! to sharecapital)

",000 ",000

. Bank Account Dr. To Share =irst all (=irst call amount recei#e! ith !e&aulton 00 shares)

3, 00 3, 00

H. Share apital Account Dr.Share remium Account Dr. To Share Allotment Account To Share 1 st all Account To Share &or&eiture Account (Shares ith !e&ault &or&eite!)

,000 "00

-00 /00 200

. Bank Account Dr.Share =or&eiture Account Dr To Share apital Account (=or&eite! shares reissue!)

/00 00

1,000

9. Share =or&eiture Account Dr. To apital Reser#e(Surplus in the share &or&eiture accounttrans&erre!)

0 0

*isclosure of Share Capital In Co&pany7s alance SheetShare capital is the first item sho$n on the liabilities side of a company s balance sheet. ScheduleGI' -art I of the Indian Companies Act is the detailed format of horizontal balance sheet. #his isdiscussed in the first chapter of Section II 6 Analysis of 5inancial State&ents. 5or infor&ation only

uy ac of Shares A company permitted to buy back its o$n shares for cancellation as per section HHA. (uy back can be from2a. from e%isting e&uity shareholders on a proportionate basisb. open market


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COMPANY ACCOUNTS P a g e | 40c. odd lot shareholdersd. employees of the company under +S>- scheme of s$eat e&uity #he follo$ing procedures are to be obser!ed in buy back of shares2(uy:back should be authorized by the Articles of Association of the company

A special resolution should be passed in the general meeting of shareholders to initiate the buy:back#he buy back should not e%ceed 354 of the paid capital and free reser!es in a financial year #he debt e&uity ratio should not be more that 321 after such buy:back

>nly fully paid up shares can be bought back(uy back should be completed $ith 13 months from the date of passing the special resolution#he company must file a sol!ency declaration $ith the 0egistrar and the S+(I in the form of affida!it signed by t$odirectors that the company is capable of meeting its liabilities and $ill not render insol!ent $ithin one year from the dateof declaration adopted by the (oard. Sec.HH A < = )8tinguish&ent of Certificates Sec. A / 0

A company that buys back its o$n shares should physically destroy the share certificates $ithin se!en of completion ofbuy:back in the presence of merchant bankers or 0egistrar or Statutory Auditor. No 5urther Issue Sec. A / 0

A company is not allo$ed to make fresh issue of shares $ithin 3 months from the date of buy:back of its o$n sharese%cept for the follo$ing cases2

-rior commitment of con!ersion of )ebentures or -reference shares into e&uity sharesIssue of (onus SharesIssue under +S>- or s$eat e&uity shares S) I 9uidelinesIn addition to the abo!e:mentioned conditions S+(I had issued certain guidelines regarding buy:back of shares.

ollo$ing are the important points2(uy:back cannot be through negotiated deals or pri!ate arrangement. #he company must make public announcementregarding buy:back at least in one ;ational +nglish )aily' one *indi )aily and one 0egional anguage daily all $ith $idecirculation $here registered office of the company is situated-ublic announcement should specify the follo$ing among other things2Specific date of buy back date bet$een 76 to 3 daysCompany must file information to S+(I $ithin se!en $orking days from the date of public announcement

#he offer for buy:back shall remain open to the members for a period of 15 to 76 days.#he company shall complete the !erification of offers $ith 15 days from the date of closure and the shares lodged shallbe considered accepted for cancellation unless the re"ection is made $ithin days from the date of closure. #roportionate uy acIn case the number of shares presented by shareholders is more than the number of securities to be bought back' thebuy:back from each member should be proportionately reduced. Suppose shareholders present 366 shares $here thecompany intends to buy only 166' only 564 of the shares submitted from each member shall be accepted. )scro: Account#he $ord escro$ means a contract or bond deposited $ith a third person' $ho is to deli!er it to the party in!ol!ed in acontract on fulfilment of certain conditions. In order to ensure that the company fulfils the obligation under buy back it isre&uired to open an escro$ account $ith a merchant banker $ith an amount e&ui!alent 354 of the total obligation under

buy:back scheme' $here the total is not more than 0s.166 crores2 and 164 of the obligations e%ceeding 0s.166 crores.#his account can consist of


41/66

COMPANY ACCOUNTS P a g e | 41e%isting shareholders appro!es such an allotment. Shares issued on preferential allotment are not to be sold in the openmarket for a period of three years. #his period is kno$n as lock in period.

S:eat );uityS$eat e&uity are shares issued to employees or directors of a company at reduced rate. #hey are issued forconsideration other than cash for such as technical kno$ ho$ or intellectual property. ollo$ing are the conditions to befulfilled for the issue of s$eat e&uity2#he company must ha!e been in business for not less than 1 year.S$eat e&uity shares should belong to a class of shares already issued.Issue of s$eat should be authorized by special resolution passed by shareholders.S+(I regulations should be follo$ed $here the shares are listed in a stock e%change.

Rights Issue,hen a company makes fresh issue of shares' the e%isting shareholders ha!e the right to subscribe them in theproportion in $hich they are holding shares. #his condition is a safeguard that enables e%isting shareholders to retaintheir control o!er the company. #hey ha!e the option to accept the offer' re"ect the offer or to sell their rights.

Chapter:2 Company Accounts - DebenturesMeaning of debentures)ebentures are debt instruments issued by a "oint stock company. Amounts collected by $ay ofdebentures form part of the loan capital of a company. #hey are repayable after a fi%ed period.)ebentures are issued in units of small !alue for con!enient buying and selling. )ebenture holdersget interest on their debentures. #hey are creditors of the company. #hey do not get di!idend. >nlyshareholders get di!idend.

According to S.3


42/66

COMPANY ACCOUNTS P a g e | 42#hey are normally repayable at the end of a fi%ed period. 0epayment of debenture or cancellation ofdebenture liability in the books of the company is kno$n as rede&ption of de entures.#hey can be issued at par' premium or at discount depending on the reputation of the company.#hey can either be placed pri!ately or offered for public subscription.#hey may or may not be listed in the stock e%change.If offered for public subscription' they should be rated by a credit rating agency appro!ed by S+(I'prior to listing.Interest is payable on debentures at a fi%ed rate irrespecti!e of the profit earned by the business.)ebentures may be issued $ith or $ithout the security of assets of the company.In the e!ent of $inding up of the company the debenture holders are treated as creditors and gi!enpriority in repayment of their money.)ebenture holders normally do not ha!e representation in the (oard of the company.

Distinction between Shares and Debentures Shares *e entures

1.

3.

7.

.

5.

.

H.

.

Shares represent the o$nership ofthe company

Share holders are paid di!idend onlyif the company makes profit

)i!idend is usually paid once a year #here is no fi%ed rate of di!idend onshares.

)irectors are elected byshareholders and thus theshareholders participate in themanagement throughrepresentati!es Shares are permanent


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Types of Debentures

)ebentures are classified as follo$s2

1. +n the asis of Repay&enta. Redee&a le *e entures

#hese debentures are paid off or redeemed after the prescribed period.. Irredee&a le or #erpetual *e entures#hese debentures are permanent debentures of a company. #hey are paid back only in the e!entof $inding up of a company.

2. +n the asis of Transfera ilitya. Registered *e entures#hese are debentures for $hich the company maintains record of debenture holders. #herefore$hen such debentures are sold or transferred it should be intimated to the company for makingchange in the register of debenture holders.

. earer *e entures#hese debentures are transferable by mere deli!ery. #here is no need or registration of transfer$ith the company.

3. +n the asis of Securitya. Si&ple or Na ed *e entures#hese are debentures not secured by any asset of the company. If the company goes intoli&uidation these debentures are treated as unsecured creditors.

. Mortgage *e enturesortgage debentures are issued on the security of certain assets of the company. #hey can be

secured by fi%ed assets or floating assets of the company. If the debentures are secured by afi%ed charge on assets' the company cannot sell or e%change the assets $ithout paying off thedebentures. *o$e!er in case of floating charge' the company can buy or sell the assets in!ol!eduntil the $inding up procedures are initiated or the debenture holders e%ercise their right toEcrystallise the claim.


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!. +n the asis of Con%ersiona. Con%erti le *e entures#hese debentures are issued $ith an option to debenture holders to con!ert them into sharesafter a fi%ed period. Con!ertible debentures are either partially con%erti le de entures or fullycon%erti le de entures . In case of partially con!ertible debentures part of the instrument is

redeemed and part of it is con!erted into shares.In case of fully con!ertible debentures the full !alue of the debenture is con!erted into e&uity.Con!ertible debentures are generally issued to pre!ent sudden outflo$ of the capital at the timeof maturity of the instrument' $hich may cause li&uidity problems. #he con%ersion ratio ' $hichis the number of e&uity shares e%changed per unit of the con!ertible debenture is clearly stated$hen the instrument is issued.

. Non Con%erti le *e entures#hese are debentures issued $ithout con!ersion option. #he total amount of the debenture $illbe redeemed by the issuing company at the end of the specific period.

". +n the asis of #re Mature Rede&ption Rights option A callable debenture is one in $hich the issuing company has the option of redeeming thesecurity before the specified redemption date at a pre:determined price.

. *e enture :ith =#ut> option#his is a debenture in $hich the holder has the option of getting it redeemed before maturity.

$. +n the asis of Coupon Rate /interest rate0a. 5i8ed Rate *e entures

ost of the time debentures are issued $ith a prefi%ed rate interest. #hese debentures are calledfi%ed interest debentures

. 5loating rate *e enturesloating rate as the names suggests keeps changing. It is usually linked $ith - 0


45/66

COMPANY ACCOUNTS P a g e | 45Journal entries for the issue of debentures $ill !ary according to the conditions of issue and theconditions of redemption. )ebentures can be issued at par' premium or discount. Similarly thedebentures can be redeemed at par' premium or discount. #hus there can be nine differentcombinations for the issue of debentures. 1. )ebentures issued at par' to be redeemed at par 3. )ebentures issued at par' to be redeemed at premium7. )ebentures issued at par' to be redeemed at discount

. )ebentures issued at premium' to be redeemed at par 5. )ebentures issued at premium' to be redeemed at premium

. )ebentures issued at premium' to be redeemed at discount H. )ebentures issued at discount' to be redeemed at par

. )ebentures issued at discount' to be redeemed at premium9. )ebentures issued at discount' to be redeemed at discount

urthermore' there are options for collecting the amount in lump sum or in instalments' like shares.

+!en though the abo!e combinations look like a deadly minefield for making "ournal entries' you cansafely $ork your $ay through if you remember the follo$ing simple facts2#re&iu& on Issue of debentures is an item of profit for the company' "ust like securities premiumyou studied in the pre!ious chapter.#re&iu& on Rede&ption of debentures is a loss for the company (4ain &or the !e'enturehol!er, 'ut e are ritin4 the 'ooks o& the company) . (e careful not to get confused bet$een theset$o premiums.*iscount on Issue is a loss for the company' "ust as the discount you kno$ in the pre!iouschapter.*iscount on Rede&ption is a gain for the company. 6ssue o& !e'entures un!er #arious con!itions are 4i#en 'elo . Gery simple illustrations are 4i#en

ith each case +ust to hi4hli4ht the amounts taken into account in each case.

a. Issue of *e entures at #ar

a 1. *e entures Issued at #ar :hich is Redee&a le at #ar /a&ount collected ininstal&ents0

:5ample% A limite! company issue! a !e'enture o& Rs.100, to 'e pai! as &ollo s% Rs. 0 onapplication, Rs.30 on allotment, an! Rs. 0 on 1 st call.

#articulars A&ount *r. A&ount Cr.i. A&ount recei%ed as application &oney(ank Account )r.#o )ebenture Application Account


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COMPANY ACCOUNTS P a g e | 46iii. 5or Allot&ent of *e entures)ebenture Allotment Account )r.#o )ebenture Account


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COMPANY ACCOUNTS P a g e | 47irst' the company accepts a liability to be settled in future in form of premium. #his premium

account should be credited because it is a liability' not because it is an income. (Remem'er this is!i&&erent &rom premium on issue hich is cre!ite! in 'ooks because it is an income ). Secondly' asthe company accepts a liability $ithout a corresponding asset' it incurs a loss. #his loss is debitedas E oss on Issue . < 6s this e5planation clear enou4h See the e5ample 'elo , then rea! thecomment 4i#en in 'o5)

:5ample% A limite! company issue! a !e'enture o& Rs.100, to 'e re!eeme! a&ter 3 years at a premium o& Rs.10. (i4nore application account) .

(ournal entry#articulars A&ount *r. A&ount Cr.

Bank Account Dr "oss on Issue #r.To De'enture AccountTo $remium on %edemption(De'enture issue! at par, repaya'le at

premium)

100 &'

100 &'

Do you kno e5actly hat happens hen e create a lia'ility in the 'ooks A lia'ility comes into 'ooks !ue to t o reasons% 1 F.By recei#in4 an asset, ith a commitment to 4i#e it 'ack in &uture. =or e5ample loan taken &rom 'ank, ere you 4et cash at 'ank(asset) hich is couple! ith a 'ank loan (lia'ility).


48/66

COMPANY ACCOUNTS P a g e | 48ey, hat happene! to that !iscount

Sh..sh..... keep ;uiet a'out the !iscount.. Issue of *e entures at #re&iu&

This is the type o& premium you stu!ie! in issue o& shares. This is a 4ain &or the company. There isno pro'lem in un!erstan!in4 the accountin4 &or this premium. -remium on issue of debenture is a gain for the issuing company. *ere the company collects morethan the face !alue of debenture. #his amount $ill be credited to the -remium on Issue of)ebenture $hich is regarded as capital re!enue. #here are three cases of issue at premium are discussed belo$. )ebentures issued at premium


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COMPANY ACCOUNTS P a g e | 49discount=

c. Issue of *e entures at *iscount)iscount on issue of debentures is a loss for the company. /nlike the discount on redemption ofdebentures this discount has to be accounted right at the time of issue itself. Journal entries for the!arious arrangements of issue of debentures at discount are as follo$s2

c1. Issue of *e entures at *iscount, Redee&a le at #ar #his is the normal discount. #he treatment is e%actly like that of issue of shares. #he companyrecei!es less money on the shares. #he loss is debited to discount account' and the debenture iscredited $ith the full !alue.

#articulars A&ount *r. A&ount Cr.(ank Account )r.)iscount on Issue of )ebenture )r.

#o )ebenture Account


50/66

COMPANY ACCOUNTS P a g e | 50at discount=

;o$ it is time for some simple illustrations highlighting the abo!e points.

;o$ it is time for some simple illustrations highlighting the abo!e points.

Illustration ".'1 A limited company issued 54 debentures of 0s.166 each for the total !alue of0s.566'666' at par repayable after 5 years at par. #he payments for debentures are to be made as0s.35 on application' 0s.35 on allotment and 0s.56 on 1 st call. #he company collected full amountson all these debentures. -ass necessary "ournal entries.

(ournal )ntries

#articulars A&ount *r. A&ount Cr.Bank Account Dr. De'enture Application Account (Application money recei#e! &or 000!e'entures)

1 ,000

1 ,000

De'enture Application Account Dr. To / De'enture Account (Application money trans&erre! to De'enture

Account)

1 ,000

1 ,000

De'enture Allotment Account Dr. To / De'enture Account (Allotment money cre!ite! to De'enture

Account)

1 ,000

1 ,000

Bank Account Dr. To De'enture Allotment Account (De'enture allotment money collecte!)

1 ,0001 ,000

De'enture 1 st all Account Dr. To / De'enture Account (De'enture 1 st call money !ue)

0,0000,000

Bank Account Dr. To De'enture 1 st all Account (De'enture 1 st call amount collecte!)

0,0000,000

Illustration ".'2-ass "ournal entries for the issue of )ebenture of 0s.166 under the follo$ing cases2

1. )ebenture issued at 0s.166' redeemable after 5 years at 0s.166

3. )ebenture issued at 0s.166' redeemable after 5 years at 0s.1657. )ebenture issued at 0s.166' redeemable after 5 years at 0s.9. )ebenture issued at a premium of 16' repayable at par

5. )ebenture issued at a premium of 0s.16' redeemable at a premium of 0s.5. )ebenture issued at a premium of 0s.5' redeemable after 5 years at 0s.9

H. )ebenture issued at 0s.9 ' redeemable at par . )ebenture issued at 0s.95' redeemable after 5 years at 0s.163

9. )ebenture issued at 0s.95' redeemable after 5 years at a discount of 0s.3

#articul

A&ount *r. A&ount Cr.


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COMPANY ACCOUNTS P a g e | 51ars1. Bank Account

Dr. ToDe'enture

Account (De'entureissue! at par,an! repaya'leat par)

166166

3. Bank AccountDr.

oss on 6ssueDr.

ToDe'enture

Account To

remium onRe!emption o&De'enture(De'entureissue! at par,repaya'le at

premium)

1665

1665

7. Bank Account Dr. To De'enture Account (De'enture issue! at par repaya'le at!iscount)

Discount on !e'enture not sho n in theBooks

166166

. Bank Account Dr. To De'enture Account To remium on 6ssue(De'enture issue! at premium, repaya'le at

par)

116166

16

5. Bank Account Dr.oss on 6ssue Dr.

To De'enture Account To remium on 6ssue Account To remium on Re!emption Account (De'enture issue! at premium, re!eema'leat premium)

1165

16616

5

. Bank Account Dr. To De'enture Account To remium on 6ssue(De'enture issue! at premium, re!eema'leat !iscount)

165166

5

H. Bank Account D Dr.Discount on 6ssue Dr.

93


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COMPANY ACCOUNTS P a g e | 52 To De'enture Account (De'enture issue! at !iscount, re!eema'leat par)

166

. Bank Account Dr.oss on 6ssue Dr.

To De'enture Account To remium o& Re!emption(De'enture issue! at !iscount., re!eema'leat premium)

95H

1663

9. Bank Account Dr.Discount on 6ssue Account Dr. To De'enture Account (De'enture issue! at !iscount, re!eema'leat !iscount)

955

166

*isposal of *iscount on Issue of *e entures,hen debentures are issued at discount' the discount account becomes a fictitious asset in thebooks of the company. (alance in this account $ill appear in all subse&uent balance sheets' underthe heading E iscellaneous +%penditure . )iscount on issue of debentures is $ritten off from thebooks in annual instalments' o!er the period for $hich the debentures are held by the company.#his ensures fair distribution of e%penses and pre!ents $ide fluctuations in profits.

Ratio of *istri ution#he general rule for distribution of discount on issue of debenture is determined on the basis of thee%act !alue of debentures held by the company. ,hen the debentures are redeemed in lump sum atthe end of a certain number of years' discount can be e&ually di!ided for those years' because thedebenture balances remain same in all these years. (ut if the debentures are redeemed ininstalments' the debenture balances are bound to change in each year. #he debenture held for theyear should be taken as standard for distributing the discount.

Illustration ".'3>n Jan 1 st 199 8 A(C td. issued 4 debentures of 0s.356'666 at a discount of 164. #hedebentures are to be paid off at the end of 5 years. Sho$ discount on debenture account for theperiod.

*e enture *iscount Account

*ate #articulars A&ount*r. *ate #articularsA&ount

Cr.122/ 9an.01

To /De'enture

,000

122/ Dec.31

By C . A c By Balance c !

,000 0,000

,000 ,000 12229an 01

To 'alance ' !

0,000

1222Dec.31

By C A c By Balance c !

,000

1 ,000 0,000 0,000

000 9an.01

To Balance ' !

1 ,000

000 Dec.31

By C Account By Balance ' !

,000

10,000 1 ,000 1 ,000

0019an.01

To Balance ' !

10,000

001Dec.31


,000 ,000


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COMPANY ACCOUNTS P a g e | 53 10,000 10,000

00 9an.01

To Balance ' !

,000

00 Dec.31

By C Account

,000

,000 ,000

Illustration ".'!>n Jan 1 st 199 8 A(C td. issued 4 debentures of 0s.356'666 at a discount of 154. #hedebentures are to be paid off in 5 e&ual instalments starting from the end of 1 st year. Sho$ discounton debenture account for the period. $ote% 6n the pre#ious illustration !e'enture 'alances ere the same &or all the years an! there&orethe !iscount as ritten o&& e;ually. ere the !e'enture 'alances ill chan4e at the en! o& eachyear.


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COMPANY ACCOUNTS P a g e | 54766'666766'666 Rem% 100,000 pai! at the en! only 366'666166'666

#he ratio of debenture is 7662766276623662166 ie.727272321

*e enture *iscount Account*ate #articulars A&ount*r. *ate #articulars

A&ountCr.

122/ 9an.01

To /De'enture

1/,000

122/ Dec.31

By C . A c By Balance c !

", 00

13, 00 1/,000 1/,000 12229an 01

To 'alance ' !

13, 00

1222Dec.31

By C A c By Balance c !

", 00 2, 00

13, 00 13, 00 000

9an.01 To Balance ' !

2, 00

000 Dec.31


", 00 ", 00

2, 00 2, 00 001


", 00

001Dec.31


3,000 1, 00

", 00 ", 00 00


1, 00

00 Dec.31

By C Account

1, 00

1, 00 1, 00 Illustration ".'$

A company issued debentures of 0s.76'666 at a discount of 164' to be redeemed at the end of 7years in lump sum. -ass Journal +ntries for the three years. The !iscount on issue o& !e'enture Rs.3000 is !istri'ute! e;ually &or the three years, 'ecause the!e'enture 'alances are same in all these three years.

#articulars A&ount

*r.

A&ount

Cr.1 st ear 'e4in.

Bank Account Dr.Discount on 6ssue o& De'. Dr. To De'enture Account (De'entures issue! at !iscount)

-,000 3,000

30,000

1 st year :n!

ro&it an! oss Account Dr. To Discount on 6ssue o&De'.(Discount on issue partly ritteno&&)

1,0001,000


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COMPANY ACCOUNTS P a g e | 55 n! ear

:n! ro&it an! oss Account Dr.

To Discount on 6ssue o&De'.(Discount on issue partly ritteno&&)

1,0001,000

3 r! ear :n!


1,0001,000

3 r! ear :n!

De'enture AccountDr. To Bank (Re!emption o& !e'entures 'ylump sum payment)

30,00030,000

Suppose the same !e'entures are re!eeme! 'y the company in three years, startin4 ri4ht &rom theen! o& &irst year, e cannot simply !i#i!e the !iscount into three years 'ecause the !e'enture'alances are !i&&erent. 6n the &irst year the company hel! !e'entures o& Rs.30,000. They pai!Rs.10,000 at the en! o& &irst year hich re!uces the !e'entures hel! in the secon! to Rs. 0,000. Atthe en! o& secon! year another payment o& Rs.10,000 makes the !e'enture to 10,000 &or the lastyear. Thus the ratio o& !e'entures hel! in the &irst, secon! an! three years 'ecomes30,000% 0,000%10,000 ie.3% %1.;o$ look at the "ournal entries for the abo!e t$o cases.

When debentures are redeemed in three annual instalments

#articulars A&ount

*r.

A&ount

Cr.1 st ear Be4in.

Bank Account Dr.Discount on 6ssue o& De'. Dr. To De'enture Account (De'entures issue! at !iscount)

-,000 3,000

30,000

1 st year :n!


10,00010,000

1 st year

:n!

ro&it an! oss Account Dr.

To Discount on 6ssue o&De'.(Discount on issue partly ritteno&&)

1, 00

1, 00

1 st year :n!

ro&it an! oss App.a c Dr. To De'enture Re!. reser#e(Appropriation to compensatere!emption o& !e'entures)

10,00010,000

n! ear :n!

De'enture AccountDr. To Bank

10,00010,000


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COMPANY ACCOUNTS P a g e | 56(Re!emption o& !e'entures 'ylump sum payment)

n! ear :n!


1,0001,000

n! ear :n!


10,00010,000

3 r! ear :n!


10,00010,000

3 r! ear :n!


0000

3 r! ear :n!


10,00010,000

Issue of *e entures for Consideration other than Cash)ebentures can be issued for purchase of assets. Accounting treatment is essentially the same.,hen cash is recei!ed the cash account is debited and the debenture account credited. ,hen anyother asset is recei!ed in place of cash that asset account is debited. ,hen part payment for theasset is made in cash or any other ad"ustments are done' it may be con!enient to credit the accountof the !endor $hile ac&uiring the asset. #he !endor s account can be settled in due courseaccording to the arrangement agreed upon.It is important to remember that the debentures can be issued at par' premium or discount in thiscase also. 6& you un!erstan! the asset purchase! is in &act AS in a !i&&erent &orm, the +ournalentries ill 'e #ery easy. Illustration ".'

Ara!ind ills imited ac&uired ne$ machinery costing 0s.566'666 for $hich 0s.35'666 $as paid incash. #he balance amount due to the seller $as settled by issue of 4 debentures. -ass "ournalentries assuming that2a. the debentures ha!e been issued at par and redeemable at par b. the debentures ha!e been issued at a discount of 54 and redeemable at par c. the debentures ha!e been issued at a premium of 354

(ournal )ntries#articulars A&ount *r.A&ount Cr.

8achinery Account Dr. To Gen!or Account (8achinery purchase! &rom Gen!or)

00,00000,000

Gen!or Dr. To ash

,000,000


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COMPANY ACCOUNTS P a g e | 57( art payment ma!e &or the purchase o&machinery)Case a!Gen!or Dr. To / De'enture Account (The amount !ue to #en!or settle! 'y issue o&!e'enture at par)

"- ,000

"- ,000

Case b.Gen!or Dr.Discount on 6ssue Dr. To / De'entures(De'entures are issue! at !iscount tosettle the 'alance !ue to #en!or &or machinery

purchase)

"- ,000

,000

00,000

Case c.Gen!or Dr. To De'enture Account To remium on 6ssue(De'entures are issue! at premium tosettle the 'alance !ue to the #en!or)

"- ,000

3/0,000 2 ,000

$ote%Case .#he amount due to !endor P 0s. H5'666;o of debentures to be issued P H5'666 D 95 P 5666 Case c.#he amount due to the !endor P 0s. H5'666;o of debentures to be issued P H5666 D 135 P 7 66

Issue of *e entures as Collateral SecurityCollateral security is additional security' or an e%tra security to a loan. ,hen the loan is paid off' thedebentures also $ill be cancelled. #hese debentures $ill not become an actual liability' unless thecompany fails to pay the loan' and the creditor e%ercises his option to reco!er the money from thedebenture. (ournal )ntries 5irst Methodn 1 st January 3667' a limited company had 134 debentures of 0s.56'666 due for redemption at apremium of 54. #he company issued e&uity shares of 0s. 6'666 at par and redeemed thedebentures. -ass necessary "ournal entries.

(ournal )ntries

#articulars A&ount *r.A&ount Cr.Bank Account Dr. To Share apital (Shares issue! at par)

*0,000*0,000

1 De'enture Account Dr.remium on Re!emption Dr.

To De'enture ol!ers7 Account (Trans&er o& !e'entures an! premium toDe'enture hol!ers &or re!emption)

0,000 , 00

, 00

De'enture ol!ers7 Account Dr. To Bank ( ayment to De'enture hol!ers in re!emptiono& !e'entures)

, 00, 00

ii. 0edemption of )ebentures : out of accumulated profits Accor!in4 to AD 00- re#elation 'y BS:, you ha#e to stu!y re!emption out o& capital only. But thesample paper contains ;uestions 'ase! on re!emption reser#es. A lar4e portion &rom this section isremo#e! an! kept asi!e. $e re#elations are likely to appear ne5t year. #he best preparation a company can make for the redemption of its debentures is to set asideenough profit for the redemption. -rior to the amendment in the companies Act in 3666 the decisionto set aside profit for redemption of debenture $as left to the discretion of the directors of thecompany. #he Companies nce the debentureholders are paid off the shareholders $ill get better di!idends. #hey also get bonus shares bycon!ersion of the reser!es. #he follo$ing illustration sho$s ho$ a company accumulates )00 $ithout in!esting it in securities2 Illustration ".1'


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COMPANY ACCOUNTS P a g e | 61>n 1 st January' 3667' a limited company issued 366' 4 debentures of 0s.1'666 each to beredeemed on 71 st )ecember 366 . #he debentures ha!e been fully subscribed and the full amount$as recei!ed $ith application. )ebenture interests ha!e been paid on 76 th June and 71 st )ecembereach year. #he company created minimum reser!e re&uired by S.11H C of the Companies

Amendment Act' 3666. -ass "ournal entries for all transactions related to debentures for t$o years'considering that the books are closed on 71 st )ecember.

(ournal )ntries#articulars A&ount *r. A&ount Cr.

0039an 01

Bank Account Dr. To / De'enture Application(De'enture application money recei#e!)

00,00000,000

0039an 01

/ De'enture Application accountDr. To / De'enture account (De'enture allotte! to applicants)

00,00000,000

003

9un 30

6nterest on De'entures account

Dr. To 'ank (6nterest pai! &or the 1 st hal& year)

/,000

/,000

003Dec 31

6nterest on De'e

Company Accounts Notes

Documents