Accounting for share capital

1. BCCC0011-Company
Accounts & Practices
Presented by:
Harshit Garg
Assistant Professor, IBM(UG)
GLA University, Mathura
BCCC 0011 Company Accounts And
Practices
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2. Company
• A company is a voluntary association of
people who contribute money for a common
purpose.
• A company is an artificial person and a
separate legal entity.
• It is created by following a process of law.
• it is invisible and intangible.
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Practices
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3. CHARACTERISTICS OF A
COMPANY
a. Separate legal entity
b. Limited Liability
c. Separation of ownership and management
d. Capital Contribution
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Practices
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4. e. Distribution of Profit
f. Transferability of shares
g. Common seal
CHARACTERISTICS OF A
COMPANY (Contd.)
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Practices
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5. Test Yourself
1. Which is a voluntary and autonomous association of
certain persons with capital divided in to numerous
transferable shares
a) Partnership
b) Company
c) Sole proprietorship
d) None of the above
2. Capital of a company divided into
a) Debentures
b) Bond
c) Share
d) None of the above
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6. 3. Find out features of a company
I. It is created by following a process of law.
II. It is an artificial person;
III. Company not issues shares
IV. it is invisible and intangible
V. Capital divided into shares
Options
a) I,II,V
b) I,II,IV,V
c) I,II,III,IV
d) All of the above
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7. 4. The persons who contribute the money through shares
are called………………
a) Debenture holder
b) Shareholders
c) Director
d) None of the above
5. the return shareholder gets on his investment is called
………..
a) Share
b) Capital
c) Shareholder
d) Dividend
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Practices
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8. 6. shares of company are ……………and are
transferable in the manner provided in the Articles
of Association
a) Moveable
b) Non moveable
c) Fixed assets
d) None of the above
7. Types of shares of a company.
a) Equity shares
b) Preference shares
c) Debentures
d) Both a and b
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9. 8. Which carries a preferential right in respect
of the dividends; and repayment of capital
a) Equity shares
b) Preference shares
c) Debentures
d) Both a and b
9. Who are the real owners of the company
a) Equity shares
b) Preference shares
c) Debentures
d) Both a and b
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10. 10. Which is the types of capital
a) Authorised share capital
b) Issued share capital
c) Subscribed share capital
d) All of the above
11. It is the sum mentioned in the capital clause of
Memorandum of Association. It is the maximum amount
which the company raise by issuing the shares
a) Authorised share capital
b) Called up Share capital
c) Issued share capital
d) Subscribed share capital
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11. 12. Part of authorized capital which has been offered for
subscription to members
a) Authorised share capital
b) Called up Share capital
c) Issued share capital
d) Subscribed share capital
13. Part of share capital which has been subscribed by
purchaser of shares in the company and which has been
allotted.
a) Authorised share capital
b) Called up Share capital
c) Issued share capital
d) Subscribed share capital
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12. 14. the total amount of called up capital on the shares
a) Authorised share capital
b) Called up Share capital
c) Issued share capital
d) Subscribed share capital
15. total amount of called up share capital which is actually paid
to the company by the members
a) Paid up share capital
b) Called up Share capital
c) Issued share capital
d) Subscribed share capital
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Practices
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13. 16.Shares on which rate of dividend is fixed
a) Equity shares
b) Preference shares
c) Debentures
d) Both a and b
17. Which is a mere collection of the shares of a
member of a company in a lump sum
a) Equity shares
b) Preference shares
c) Debentures
d) stock
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14. Match
a. Capital 1. smallest unit of share
capital
b. Share is 2. Shareholder
c. owner of the shares 3. amount invested in the
company
d. return shareholder gets
on his investment
4. Dividend
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15. 1. preferential right in
respect of the dividends;
a. Equity share
2. real owners of the
company
b. Preference share
3. Section 2 (84) c. shares
4.ROC d. Registrar of company
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16. Reliance Industries Ltd
Incorporation Year 1973
Registered Office 3rd Floor Maker Chambers IV,222 Nariman
Point,Mumbai, Maharashtra-400021
Chairman Mukesh D Ambani
Managing Director Mukesh D Ambani
Company Secretary K Sethuraman
Auditor SRBC & Co LLP/DTS & Associates
Face Value 10
Listing BSE , NSE ,London ,Luxembourg , NASDAQ,MSEI
Authorised share
capital
14,000 crore
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17. Capital Structure - Reliance
Capital Ltd.
Period Instrument
Authorized
Capital
Issued
Capital
- P A I D U P -
From To (Rs. cr) (Rs. cr)
Shares
(nos)
Face
Value
Capital
(Rs. Cr)
2017 2018
Equity
Share
300.0 254.0 252704682 10.0 252.7
2016 2017
Equity
Share
300.0 254.0 252632800 10.0 252.6
2015 2016
Equity
Share
300.0 254.0 252632800 10.0 252.6
2014 2015
Equity
Share
300.0 254.0 252632800 10.0 252.6
2013 2014
Equity
Share
300.0 247.0 244032800 10.0 244.0
2012 2013
Equity
Share
300.0 247.0 245632800 10.0 245.6
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18. Shares
• Share is the smallest unit into which the share
capital of a company is divided .
• A share is a measure of the interest in the
company’s assets held by a shareholder.
• The person who is the owner of the shares is
called ‘Shareholder’
• the return he gets on his investment is called
‘Dividend’.
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19. Example
• Total capital of a company is ₹ 5,00,000
• divided in to 50,000 shares of Rs. ₹ 10 each
• each share of Rs. ₹10 (₹5,00,000/50,000 )is
called share.
• In this case Numbers of share is 50,000
• the Share capital is Rs. ₹ 5, 00,000.
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20. Share Capital
• Capital refers to the amount invested in the
company so that it can carry on its activities.
• In a company capital refers to "share capital".
• Share capital refers to the amount of capital
raised or to be raised by a company by the
issue of shares
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21. Types of share capital
1.Nominal, authorised or registered capital –sum mentioned
in the capital clause of Memorandum of Association.
It is the maximum amount which the company raise by
issuing the shares
2.Issued capital -authorised capital which has been offered
for subscription to members
3.Subscribed capital-part of the issued capital which has been
subscribed by purchaser of shares in the company and which
has been alloted.
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22. 4.Called-up capital -the total amount of called up capital
on the shares issued and subscribed by the shareholders on
capital account.
EX . if the face value of a share is Rs. 10/- but the company
call only Rs. 6/- now and the balance Rs.4/- at a later date.
Rs. 6/- is the called up share capital and Rs. 4/- is the
uncalled share capital.
5.Paid-up capital - means the total amount of called up
share capital which is actually paid to the company by the
members.
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Practices
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23. Reliance Industries Ltd. Capital
Structure Analysis
Year Class Of
Share
Authorised
Capital
(Cr.)
Issued
Capital
(Cr.)
Subscribe
d Capital
(Cr.)
Called
up
Capital
(Cr.)
PaidUp
Shares
Face
Valu
e
PaidUp
Capital
(Cr.)
2019
Equity
Share
14,000.00 6,338.69 6,338.69 6,338.69 6338693823 10 6,338.69
2018
Equity
Share
14,000.00 6,334.65 6,334.65 6,334.65 6334651022 10 6,334.65
2017
Equity
Share
5,000.00 3,251.28 3,251.28 3,251.28 3251278100 10 3,251.28
2016
Equity
Share
5,000.00 3,240.38 3,240.38 3,240.38 3240376321 10 3,240.38
2015
Equity
Share
5,000.00 3,235.69 3,235.69 3,235.69 3235688765 10 3,235.69
2014
Equity
Share
5,000.00 3,231.90 3,231.90 3,231.90 3231901858 10 3,231.90
2013
Equity
Share
5,000.00 3,228.66 3,228.66 3,228.66 3228663382 10 3,228.66
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24. Types of shares:
According to Section 86 of the Companies Act,
a company can issue only two types of
shares
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25. Tata Capital Ltd – Preference Shares
Issue 2019
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26. BCCC 0011 Company Accounts And
Practices
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27. Equity Shares
VS
Preference Shares
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28. BASIS FOR
COMPARISON
EQUITY SHARES PREFERENCE SHARES
Meaning Equity shares are the ordinary
shares of the company
representing the part ownership
of the shareholder in the
company.
Preference shares are the shares that
carry preferential rights on the matters
of payment of dividend and repayment
of capital.
Payment of
dividend
The dividend is paid after the
payment of all liabilities.
Priority in payment of dividend over
equity shareholders.
Repayment of
capital
In the event of winding up of the
company, equity shares are
repaid at the end.
In the event of winding up of the
company, preference shares are repaid
before equity shares.
Rate of
dividend
Fluctuating Fixed
Redemption No Yes
Voting rights Equity shares carry voting rights. Normally, preference shares do not carry
voting rights. However, in special
circumstances, they get voting rights.
Convertibility Equity shares can never be
converted.
Preference shares can be converted into
equity shares.
Arrears of
Dividend
Equity shareholders have no
rights to get arrears of the
Preference shareholders generally get
the arrears of dividend along with theBCCC 0011 Company Accounts And
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29. 1. Priority in payment of dividend
a. Equity Shares
b. Preference shares
2. Get Fluctuating rate of dividend
a. Equity Shares
b. Preference shares
3. Preference shares can be converted into equity
shares
a. True
b. False
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30. 4. which shares have Voting rights in company
a. Equity Shares
b. Preference shares
5. Shareholders generally get right of the
arrears of dividend
a. Equity Shares
b. Cumulative Preference shares
c. Non Cumulative Preference shares
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31. Shares
Vs
Stock
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32. BASIS FOR COMPARISON SHARE STOCK
Meaning The capital of a company, is
divided into small units,
which are commonly known
as shares.
The conversion of the fully
paid up shares of a member
into a single fund is known
as stock.
Is it possible for a company
to make original issue?
Yes No
Paid up value Shares can be partly or fully
paid up.
Stock can only be fully paid
up.
Definite number A share have a definite
number known as
distinctive number.
A stock does not have such
number.
Fractional transfer Not possible. Possible
Nominal value Yes No
Denomination Equal amounts Unequal amountsBCCC 0011 Company Accounts And
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33. 1. Stocks have the Nominal value
a. True
b. False
2. Which can be transferred in a fractional
a. Share
b. Stock
3. Can the original issue of stock is possible
a. True
b. False
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34. • 4. which can be partly or fully paid up.
a. Share
b. Stock
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35. Shares
Vs
Debentures
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36. BASIS FOR
COMPARISON
SHARES DEBENTURES
Meaning The shares is the smallest part of
share capital of the company.
The debentures is
acknowledgement of debt.
Nature Shares represent the capital of
the company.
Debentures represent the debt
of the company.
Holder The holder of shares is known as
shareholder.
The holder of debentures is
known as debenture holder.
Status of Holders Owners Creditors
Form of Return Shareholders get the dividend. Debenture holders get the
interest.
Payment of return Dividend can be paid to
shareholders only out of profits.
Interest can be paid to
debenture holders even if there
is no profit.
Allowable deduction Dividend is an appropriation of
profit and so it is not allowed as
deduction.
Interest is a business expense
and so it is allowed as
deduction from profit.
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37. BASIS FOR
COMPARISON
SHARES DEBENTURES
Security for payment No Yes
Voting Rights The holders of shares have
voting rights.
The holders of debentures do
not have any voting rights.
Conversion Shares can never be converted
into debentures.
Debentures can be converted
into shares.
Repayment in the
event of winding up
Shares are repaid after the
payment of all the liabilities.
Debentures get priority over
shares, and so they are repaid
before shares.
Quantum Dividend on shares is an
appropriation of profit.
Interest on debentures is a
charge against profit.
Trust Deed No trust deed is executed in case
of shares.
When the debentures are
issued to the public, trust deed
must be executed.
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38. • 1. Which have voting rights.
a) Share
b) Debenture
2. Have the status of creditor / lender
a) Shareholder
b) Debenture holder
3. …………..is an appropriation of profit
a) Dividend on shares
b) Interest on debentures
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39. 4. Debentures represent the ……………of the
company.
a) Debt
b) Capital
5. Is trust deed is executed in case of shares.
a) True
b) False
6. Debentures can be converted into shares
a) True
b) False
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40. Interest
VS
Dividend
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41. BASIS FOR
COMPARISON
INTEREST DIVIDEND
Meaning Interest is the charge levied to the
borrower, for the use of money,
which belongs to somebody else.
Dividend is the return paid
by the company to its
shareholders for the capital
invested by them.
What is it? Charge against profit Appropriation of profit
Existence of Profit Not necessary, it should be paid
even after profit is not earned by the
company.
Necessary for the
distribution of dividend.
Paid to Creditors or lenders or debenture
holders
Shareholders
Compulsory Yes No
Rate Fixed Remains constant in the
case of preference shares,
but fluctuates in case of
equity shares.
Tax Tax shield is available because it is a
tax deductible expense.
Not a tax deductible
expense.
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42. Right Share
VS
Bonus Share
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43. BASIS FOR
COMPARISON
RIGHT SHARES BONUS SHARES
Meaning Right shares are the one
available to the existing
shareholders equivalent to
their holdings, that can be
bought at a fixed price, for a
definite period of time.
Bonus shares refers to the
shares issued by the company
free of cost to the existing
shareholders in the
proportion of their holdings,
out of accumulated profits
and reserves.
Price Issued at discounted prices Issued free of cost
Objective To raise fresh capital for the
firm.
To bring the market price per
share, within a more popular
range.
Renunciation Shareholders may fully or partly
renounce their rights.
No such renunciation
Paid up value Either fully or partly paid up. Always fully paid up.
Minimum subscription Mandatory Not required
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44. Capital Reserve
VS
Revenue Reserve
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45. Basis of
Comparison
Revenue Reserve Capital Reserve
Definition Revenue reserve is created to meet
unforeseen events in a business
organization
A capital reserve is created to
finance long term projects for a
business
Source Revenue earned from operating
profit of the business
Capital profit of the firm obtained by
selling off assets or profit earned by
the sale of shares
Term Can be used for short term purpose Can be used for long term projects
Utilization It can be used for any particular
purpose
It can only be used for the purpose
for which it is created
Dividend Can be used for distribution as a
dividend
Cannot be distributed as dividend
Example Retained earnings Capital reserve created by the sale of
fixed assets
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46. Capital Reserve
VS
Reserve Capital
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47. BASIS FOR
COMPARISON
CAPITAL RESERVE RESERVE CAPITAL
Meaning The profit earned by the
company through special
transaction, that is not available
for distributing dividend to
shareholders is known as Capital
Reserve.
The part of uncalled capital,
that is called up only on the
event of company's
liquidation is known as
Reserve Capital.
Created out of Capital profits Authorized capital
Disclosure On the equity & liabilities side of
the balance sheet under the
head Reserve and Surplus.
Not disclosed at all
Need of creation Mandatory Voluntary
Specific condition No such conditions Special Resolution should be
passed at AGM
Utilization To write of fictitious assets or
capital losses etc.
Only when the company is
about to wind up.
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