BCM2B02 FINANCIAL ACCOUNTING, COMPANY ACCOUNTS, MODULE 2, 2ND SEMESTER B. COM, UNIVERSITY OF CALICUT, 2019 SYLLABUS

1. Company Accounts
BCM2B02 FINANCIAL ACCOUNTING
MODULE 2.1

2. Origin
• The word ‘company’ is derived from the Latin word (Com = with or
together; panis = bread), and originally referred to an association of
persons who took their meals together.
• The word "company" derives from the Latin "cum panis" meaning "with
bread". Merchants would meet and discuss their business plans over
dinner ("with bread") and eventually their ventures were named for the
dinner meetings.- James C Morton

3. Definitions
According to the definition of a company by the Indian Act 2013;
‘‘A registered association which is an artificial legal person, having an independent legal,
entity with perpetual succession, a common seal for its signatures, a common capital
comprised of transferable shares and carrying limited liability.’’
According to Lord Justice Hanay," a company is an artificial person created by law with
perpectual succession and common seal."
According to Justice James, "A company is an association of persons united for a
common object."

4. Characteristics/Features
Artificial person
Separate Legal Entity
Voluntary Association
Limited Liability
Common Seal
Perpetual Succcession
Managed by the Board of Directors
Shares- Freely transferable

5. Types of Company

6. Books of Accounts
• Every company is required to keep at its registered office
books of account.
• These books are to be maintained in such a way so as to
disclose (a) The sums of money received and expended by the
company and the matter in respect of which the receipt and
expenditure has taken place. (b) All sales and purchases of
goods of the company. (c) All assets and liabilities of the
company.

7. Statutory Books
• Statutory books are those which a limited company is under
statutory obligation to maintain at its registered office.
• The main statutory books are: (i) Register of Investments held
and their names (ii) Register of charges (iii) Register of Members
(iv) Register of debenture holders (v) Annual returns (vi)
Minutes books (vii) Register of contracts (viii) Register of
Directors (ix) Register of shareholdings of the directors (x)
Register of loans to companies under the same management (xi)
Register of Investment in the shares of other companies.

8. Memorandum of Association
• An important corporate document in India.
• It is often simply referred to as the memorandum.
• It has to be filed with the Registrar of Companies during the process of incorporating
a company.
• It is the document that regulates the company’s external affairs
• 1. Name Clause
2. Situation/ Registered State Clause
3. Object clause
4. Liability clause
5. Capital Clause
6. Subscriber Clause

9. Articles of Association
• It is a document that contains the internal regulations of a company.
• The Articles of Association requires to be compulsorily registered in India.
• The AOA contains the bye-laws of the company. Therefore, the director and
other members must perform their functions as regards the management of
the company, its accounts, and audits in accordance with the AOA.
• An Articles of Association describes the manner in which a company issues
shares, pays dividends, audit financial records and highlights the voting
rights.

10. Difference between MoA & AoA

11. • Capital of a Company
• Raised through issue of shares
• Divided into small and equal units
• Person who buys share
Shareholder
Share Capital

12. Phases/ Categories of Share Capital
• Authorised/ Nominal/ Registered Capital
- Registered
- Registered in MoA
- Maximum amount of capital a company can issue
• Issued Capital
- Part of authorised capital
- Issued to public for subscription
- Includes qualification shares & bonus shares
• Subscribed Capital
- Part of issued capital
- subscribed(applied for) by the public

13. • Called Up capital
- Part of subscribed capital
- Amount asked by the company which the shareholders has to pay
• Paid up Capital
- Part of called up capital
- Actually paid up by the shareholders
- Unpaid capital – calls in arrears
• Reserved Capital
- By passing a special resolution
- A portion of the uncalled capital
- Only on winding up of the company

14. • To write off Capital Losses – No Yes
• Issue of bonus shares - No Yes
• Special Resolution required – Yes No

15. Equity Shares
An equity share, normally known as ordinary share is a part
ownership where each member is a fractional owner
Possess the right to vote.
ES (equity shares) does not create a sense of obligation and
accountability to pay a rate of dividend that is fixed

16. Preference Shares
• Preference shares are defined as those shares which are given priority
over other equity shares in terms of the payment of dividends.
• Preference shares are held by preference shareholders who are the first
to receive payouts in case the company decides to pay its investors any
dividends.

17. Differences between Preference and Equity
Shares

18. Types of Preference shareholders
• Cumulative preference shares
• Non-cumulative preference shares
• Participating preference shares
• Non-participating preference shares
• Redeemable preference shares
• Convertible preference shares
• Cumulative Convertible preference shares

19. Sweat Equity Shares
• Sweat Equity Share is defined under Section 2(88) of the Companies Act,
2013.
• The sweat equity shares mean shares issued by a company to its
directors or employees for non-cash consideration or at a discount for
making rights available in the nature of intellectual property rights or
providing know-hows or any providing any value additions in any form.
• Rule 8 of Companies (Share Capital and Debentures) Rules, 2014
regulates the procedure of issue of sweat equity shares.

20. Authorised by a special
resolution in the general
meeting
Resolution must be
specific
1 year after
commencement
As per SEBI regulations
Lock-in period of 1 year From 9-1-1999

21. Employee
Stock Option
Scheme(ESOS)
Offer equity shares
To whole time directors, officers,
employees
Now or at a future date at a
predetermined price
Exercised within the stipulated time
To retain good employees and create a
vested interest in company affairs
To attract and motivate efficient and
skilled employees

23. Stock
• A set of shares
put together in a
bundle

24. Issue of
Shares
A share is that smallest part, into
which the overall capital of the
company is divided.
Issue of shares is a process
through which
the company allocates fresh shares
to the new or existing shareholders.
The issue of shares is made to both
individuals, institutions or body
corporates.

25. Types of Issue of Shares – notes provided
Offer for sale

26. Procedure of Issue of new shares
• Fixed price offer method - Under fixed price, the company going public determines a
fixed price at which its shares are offered to investors. The investors know the share
price before the company goes public. Demand from the markets is only known once
the issue is closed. To partake in this IPO, the investor must pay the full share price
when making the application.
• Book building method - Under book building, the company going public offers a
20% price band on shares to investors. Investors then bid on the shares before the
final price is settled once the bidding has closed. Investors must specify the number
of shares they want to buy and how much they are willing to pay. Unlike a fixed
price offering, there is no fixed price per share. The lowest share price is known as
the floor price, while the highest share price is known as the cap price. The final
share price is determined using investor bids.

27. Fixed Price Offer Method
1. Selection of Merchant Banker
2. Issue of a Prospectus
3. Application for shares
4. Allotment of shares to applicants
5. Issue of Share Certificate

28. 1. Selection of
Merchant Banker
• Merchant bankers provide advice to
entrepreneurs right from the stage of
conception of the project till the
commencement of production. Merchant
bankers are in charge of the issue process.
They act as intermediaries between the
company and the investors. They are also
responsible for preparing the prospectus and
marketing the issue.
• https://accountlearning.com/merchant-bankers-
definition-services-offered-categories/

29. 2. Issue of a
Prospectus
• Invitation to public to subscribe its
share capital
• Immediately after incorporation
• Advertises in newspapers inviting
public to subscribe
• Printed notice
• Copy signed by directors filed with
Registrar

30. 3. Application for
shares
• An offer by an investor to subscribe for specified
number of shares in a company
• Each prospectus contains a printed applicatiob
form
- states amounts payable on application,
allotment, call(s)
• Application + application money
• SEBI – NOT less than 25% of issue price
- Companies Act – NOT less than 5% of the
nominal value of shares  25% of the issue price
cannot be less than 5% of the nominal value of
shares

31. 4. Allotment of
shares to
applicants
• Issuing shares to the applicants in response to their
application for shares
• After close of the last date of application
• Allotment made by Board of Directors
• Letter of allotment – shareholder required to pay allotment
money
• Letter of regret + application money
• Types - (a) Firm allotment – allotment of specified number of
shares to promoters, FIs, employees, NRIs, FIIs
- (b) Preferential allotment – Bulk allotment of shares @
predetermined price to pre-identified people (have strategic
stake in the company – promoters, venture capitalists, FIs etc.
- Special resolution passed in shareholder's meeting
- Lock-in period – 3 years

32. 5. Issue of Share Certificate
• Document that provides
evidence of ownership of
shares in a limited company
• Issues on receipt of
allotment money
• Under common seal
• Contains – Name of
shareholder, number and
class of shares, serial
number etc.
• Signed by at least one
director and company
secretary

33. Minimum Subscription
• Minimum amount of capital fixed by directors to be raised from the members
by way of subscription
• Stated in Articles of Association
• If not – No allotment
• 90% of issued amount, If Not – Entire subscription amount refunded
• Refund (1) Underwritten – within 7 days after closure (2) Non-underwritten –
within 15 days
• Minimum subscription must cover – assets price, preliminary expenses,
brokerage, underwriting expenses, working capital, day to day operation
expenses

34. Shares payable by instalments
• Usual procedure
• Each instalment is called call
• The money payable other than application and allotment , by the
shareholders as and when the company calls is called call money
• Call date – prospectus , If Not- Pass resolution by Board of Directors
and send notice to share holders
• Based on provisions in AOA, IF NOT – Table "F" Companies Act, 2013

35. Table "F"
• Not more than 25% of Issue price
• Interval of 1 month between 2 calls
• 14 days notice
• Call letter – amount of call, mode of payment, name of depositor'
bank, last date of payment
• Same class – uniform amount