2. Share Capital of a Company
A company, being an artificial person, cannot
generate its own capital which has necessarily
to be collected from several persons. These
persons are known as shareholders and the
amount contributed by them is called share
capital.
Since the number of shareholders is very
large, a separate capital account cannot be
opened for each one of them. Hence,
innumerable streams of capital contribution
merge their identities in a common capital
account called as ‘Share Capital Account’
3. Categories of Share Capital
From accounting point of view the share
capital of the company can be classified
as follows:
1. Authorised Capital
2. Issued Capital
3. Subscribed Capital
4. Called up Capital
5. Paid up Capital
4. Let us take the following example and show how the share
capital will be shown in the balance sheet.
Sunrise Company Ltd., New Delhi, has registered its capital
as Rs. 40,00,000, divided into 4,00,000 shares of Rs. 10
each.
The company offered to the public for subscription of
2,00,000 shares of Rs. 10 each, as Rs. 2 on application, Rs.3
on allotment, Rs.3 on first call and the balance on final
call.
The company received applications for 2,50,000 shares.
The company finalised the allotment on 2,00,000 shares
and rejected applications for 50,000 shares.
The company did not make the final call. The company
received all the amount except on 2,000 shares where call
money has not been received.
5.
6. Example:
Suppose ABC Ltd. is registered with a capital of Rs 1
crore divided into shares of Rs 10 each. It issues 8 lakh
shares to raise a fund of Rs 80 lakh but investors
subscribe for 6 lakh shares. The company calls for Rs 4
per share out of Rs 10 (Nominal value of shares) and it
receives payment for only 5 lakh and 50 thousands
shares.
7. Authorized share capital (10 lakh shares of 10 each) = 1
crore
Issued share capital (8 lakh shares of 10 each) = 80 lakh
Subscribed share capital (6 lakh shares of 10 each) = 60
lakh
Called up share capital (6 lakh × 4) = 24 lakh
Paid up share capital (5 lakh and 50 thousand × 4) = 22
lakh
Call in arrears (50 thousand × 4) = 2 lakh
8. Issue of shares
The important steps in the procedure of share issue are:
1. Issue of Prospectus
2. Receipt of Applications
3. Allotment of Shares
9. There is no fundamental difference in the manner in which financial
statements are prepared by companies and sole proprietors.
Books of accounts shall be kept on an accrual basis and according to
the double entry system of accounting.
According to section 2 of the companies act, 2013, “books of
account” include records maintained in respect of
all sums of money received and expended by a company and
matters
All sales and purchases of goods and services by the company
Assets and liabilities of the company
Corporate Financial Statements-
Special Features
10. Corporate Financial Statements-
Special Features
Companies have to follow the requirements of the Companies Act
and other applicable laws in preparing their financial statements.
Financial statements of companies are published for use by
interested parties; these are public documents.
Financial statements of companies carry comparative figures of
the previous accounting period.
11. Financial Statements
According to Ind AS 1 Presentation of Financial Statements, a
complete set of financial statements comprises:
(a) a balance sheet as at the end of the period ;
(b) a statement of profit and loss for the period;
(c) Statement of changes in equity for the period;
(d) a statement of cash flows for the period;
(e) notes, comprising a summary of significant accounting policies
and other explanatory information; and
(f) Comparative information in respect of the preceding period
Ex-Wipro buy back, Britannia issued bonus debentures(29) and
dividend
12. Consolidated Financial Statements
Where a company has one or more subsidiaries, it shall also
prepare a consolidated financial statement of the company
and of all the subsidiaries in the same form and manner as
that of its own,
These shall also be laid before the annual general meeting of
the company along with the laying of its financial statement.
Schedule III of the companies act 2013 provides the form for
preparing financial statements.
13. Statement of Profit and Loss
The Statement of Profit and Loss includes:
(1) Profit or loss for the period;
(2) Other Comprehensive Income for the period.
The sum of (1) and (2) above is ‘Total Comprehensive Income’.
14.
15. Name of the Company …………………….
Statement of Profit and Loss for the period ended …………… (Rupees in …………)
Particulars Note No. Figures for the Figures for the
current reporting previous reporting
period period
I Revenue From Operations
II Other Income
III Total Income (I + II)
IV Expenses:
Cost of materials consumed
Purchases of stock-in-trade
Changes in inventories of finished
goods, work-in-progress and stock-in-trade
Employee benefits expense
Finance costs
Depreciation and amortization expense
Other expenses
Total expenses (IV)
Form of Statement of Profit and Loss
16. V Profit/(loss) before exceptional items and tax (III– IV)
VI Exceptional items
VII Profit/(loss) before tax (V – VI)
VIII Tax expense
IX Profit (Loss) for the period from continuing
operations (VII – VIII)
X Profit (loss) from discontinued operations
XI Tax expense of discontinued operations
XII Profit (loss) from discontinued operations
(after tax) (X– XI)
XIII Profit (loss) for the period (IX+XII)
17. XIV Other Comprehensive Income
A (i) Items that will not be reclassified to
profit or loss
(ii) Income tax relating to items that will
not be reclassified to profit or loss
B (i) Items that will be reclassified to
profit or loss
(ii) Income tax relating to items that will
be reclassified to profit or loss
XV Total Comprehensive Income for the
period (XIII+XIV)(Comprising Profit
(Loss) and Other Comprehensive Income
for the period)
XVI Earnings per equity share (for continuing operations)
(1) Basic
(2) Diluted
XVII Earnings per equity share (for discontinued operations)
(1) Basic
(2) Diluted
XVIII Earnings per equity share (for discontinued &
continuing operations)
(1) Basic
(2) Diluted
18. Revenue from Operations
Revenue is the gross inflow of economic benefits during the
period arising in the course of the ordinary activities of an
entity when those inflows result in increases in equity, other
than increases relating to contributions from equity
participants.
A company has to disclose revenue from operations under the
following heads in the notes:
1. Sale of products (including excise duty or goods and services
tax)
2. Sale of services
3. Other operating revenues( sale of scrap, packaging material)
19. Other Income
(a) interest Income ;
(b) dividend Income; and
(c) other non-operating income (net of expenses directly attributable to
such income).
20. Expenses
Cost of material consumed = opening inventory of raw material +
material purchased – ending inventory of raw material
Purchases of stock in trade
Changes in inventory of finished goods , WIP and stock in trade
Cost of goods sold = costs of material consumed + direct
manufacturing costs + purchase of stock in trade + changes in
inventory of WIP + changes in finished goods and stock in
trade
21. Employee Benefits Expense
(i) salaries and wages,
(ii) contribution to provident and other funds,
(iii) staff welfare expenses.
22. Finance Costs
Finance costs shall be classified as:
interest;
dividend on redeemable preference shares;
other borrowing costs (specifying nature).
23. Depreciation and Amortization
The cost of an item of PPE needs to appropriated on a
systematic basis over its useful life
This process of appropriation is called depreciation for items
of PPE and amortization for intangible fixed assets
24. Other Expenses
Consumption of stores and spare parts
Power and fuel
Rent
Repairs to buildings
Repairs to machinery
Insurance
Rates and taxes, excluding taxes on income
25. Exceptional Items
Exceptional items are those items that occur during the
ordinary course of the business but need to be disclosed due
to their size or incidence.
E.g. Profit on disposal of surplus properties or
Profit on disposal of business/subsidiary
Impairment loss
26. Other Comprehensive Income
Other comprehensive income (OCI) comprises items
of income and expense (including reclassification
adjustments) that are not recognized in profit or
loss as required or permitted by different
accounting standards.
Thus, other comprehensive income comprises those
items that are not reported on the statement of
profit and loss but have an effect on the balance
sheet amount of equity.
27. Other Comprehensive Income
The components of other comprehensive income
include:
Gains and losses arising from translating the financial
statements of a foreign operation;
Gains and losses on re-measuring available-for-sale
financial assets;
28. Appropriation of Profit
Dividend
A part of the profit available for distribution is given out to the
shareholders as dividend
A company might have paid an ‘interim dividend’, that is, a
dividend declared and paid during the year
The final dividend is proposed by the director and paid to the
shareholders after obtaining their approval in the general meeting
of the shareholders
Both the interim and final dividends represent appropriation of
profit
28
29. Appropriation of Profit
Dividend Distribution Tax
The payment of dividend attracts a tax called the corporate
dividend tax or dividend distribution tax at the prescribed rate
It may be noted that this tax is in addition to the tax paid by the
company on its income
Since the distribution tax is incidental to the payment of dividend,
this is also treated as an appropriation of profit
As interim dividend has already been paid during the year, no
provision is required to be made in respect thereof
29
30. Appropriation of Profit
Transfer to Reserve
A part of the profits may be transferred to various reserves, for
example, general reserve
Transfer to reserve is also an appropriation of profit
The amount transferred to reserves is added to the shareholders’
funds in the balance sheet
A provision is a charge on profit, and for all practical purposes is
treated as a part of operating expenses
Reserves, on the other hand, are for the purposes of retention of
profits and are created after ascertaining profits
30
31. Earnings Per Share (EPS)
Basic EPS
Earnings attributable to equity shareholders / Number of
Ordinary (Equity) Shares.
Earnings attributable to equity shareholders
= Net Profit after Tax minus Preference Dividend
Diluted EPS
Earnings attributable to ordinary equity holders / Weighted
average number of shares outstanding adjusted for the
effects of all dilutive potential ordinary shares( convertible
preference, option)
38. Particulars Note No. Figures as at the Figures as at the end
end of the current of the previous
reporting period reporting period
1 2 3 4
EQUITY AND LIABILITIES
Equity
(a) Equity share capital
(b) Other equity
LIABILITIES
1. Non-Current Liabilities
(a) Financial liabilities
(i) Borrowings
(ii) Trade payables
(iii) Other financial liabilities (other than those specified in
item (b), to be specified)
(b) Provisions
(c) Deferred tax liabilities (net)
(d) Other non-current liabilities
39. Particulars Note No. Figures as at the Figures as at the end
end of the current of the previous
reporting period reporting period
1 2 3 4
2. Current Liabilities
(a) Financial liabilities
(i) Borrowings
(ii) Trade payables
(iii) Other financial liabilities (other than those specified in
item (c))
(b) Other current liabilities
(c) Provisions
(d) Current tax liabilities (net)
Total Equity and Liabilities
40. Form of Balance Sheet
Name of the Company …………………….
Balance Sheet as at………………………
(Rupees in …………)
Particulars Note No. Figures as at the Figures as at the end
end of the current of the previous
reporting period reporting period
1 2 3 4
ASSETS
I. Non-current assets
(a) Property, Plant and Equipment
(b) Capital work-in-progress
(c) Investment Property
(d) Goodwill
(e) Other Intangible assets
(f) Intangible assets under development
(g) Biological Assets other than bearer plants
(h) Financial Assets
(i) Investments
(ii) Trade receivables
(iii) Loans
(iv) Others (to be specified)
(i) Deferred tax assets (net)
(j) Other non-current assets
41. Particulars Note No. Figures as at the Figures as at the end
end of the current of the previous
reporting period reporting period
1 2 3 4
2. Current Assets
(a) Inventories
(b) Financial Assets
(i) Investments
(ii) Trade receivables
(iii) Cash and cash equivalents
(iv) Bank balances other than (iii) above
(v) Loans
(vi) Others (to be specified)
(c) Current tax assets (net)
(d) Other current assets
Total Assets
42. Assets - Non-current assets
(a) Property, Plant and Equipment
(b) Capital work-in-progress
(c) Investment Property
(d) Goodwill
(e) Other Intangible assets
(f) Intangible assets under development
(g) Biological Assets other than bearer plants
(h) Financial Assets
(i) Investments
(ii) Trade receivables
(iii) Loans
(iv) Others (to be specified)
(i) Deferred tax assets (net)
(j) Other non-current assets
43. Property, Plant and Equipment
AS 16-PPE are tangible assets
(a) Land
(b) Buildings
(c) Plant and equipment
(d) Furniture and fixtures
(e) Vehicles
(f) Office equipment
(g) Bearer plants
.
44. Companies required to show a reconciliation of the gross
and net carrying amounts of each class of assets at the
beginning and end of the reporting period showing
additions, disposals, acquisitions through business
combinations and other adjustments.
Depreciation related to these assets are to be disclosed
separately.
PPE…
45. A bearer plant is defined as a living plant that :
(a) is used in the production or supply of agricultural produce;
(b) is expected to bear produce for more than one period; and
(c) has a remote likelihood of being sold as agricultural produce,
except for incidental scrap sales.
Eg. Mango Tree.
https://tatacoffee.com/sites/default/files/collaterals/Annual-
Report-2018-19.pdf
Bearer plants
46. It is the amount invested in constructing a tangible non current asset
that is not yet complete and ready for its use.
Amounts paid as advance to the suppliers of such assets also fall under
this head.
IP
It is that property which is held by a company for long term rental
income or capital appreciation or both.
It is not occupied by the company.
Capital work in progress & Investment
Property
47. Goodwill is recorded when a company acquires (purchases) another
company and the purchase price is greater than
the fair value of the identifiable tangible and intangible assets
acquired, minus 2) the liabilities that were assumed.
Goodwill is considered to have indefinite useful life and hence is
not subject to amortization but tested for impairment at least
annually.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses.
Goodwill
48. An impairment loss is recognized whenever the carrying amount
of an asset exceeds its recoverable amount.
The recoverable amount of an asset is the greater of its fair value
less cost to sell and value in use. To calculate value in use, the
estimated future cash flows are used.
Assets that are subject to depreciation and amortization and
assets representing investments in subsidiary and associate
companies are reviewed for impairment, whenever events or
changes in circumstances indicate that carrying amount may not
be recoverable.
https://economictimes.indiatimes.com/news/economy/indicator
s/write-downs-to-surge-for-companies-as-covid-hits-
demand/articleshow/76781586.cms
Impairment of assets
49. Other Intangible Assets
Non-monetary assets which are without any physical substance and
identifiable
Brands/trademarks
Computer software
Publishing rights
Mining rights
Copyrights, patents and other intellectual property rights, services
and operating rights
Recipes, formulae, models, designs and prototypes
Licenses and franchise
Companies required to show a reconciliation of the gross and net
carrying amounts of each class of assets at the beginning and end of
the reporting period showing additions, disposals, acquisitions through
business combinations and amortization, separately.
50. Based on IAS 41, a biological asset is a living animal or plant
controlled by the entity as a result of past events.
Examples are potato, banana tree, sheep, dairy cattle, trees in
a timber plantation, fruit, wheat etc.
https://tatacoffee.com/sites/default/files/collaterals/Annual-
Report-2018-19.pdf
Biological assets…
51. Financial Assets
A financial instrument is any contract that gives rise to a financial
asset of one entity and a financial liability or equity instrument of
another entity.
Financial assets are classified as:
Investments
Trade Receivables
Loans
Others
52. Investments…
Investments are amounts of money invested outside the business.
Include investment in stocks, property, firms and subsidiary
companies
Required to be classified as:
(a) Investments in Equity Instruments;
(b) Investments in Preference Shares;
(c) Investments in Government or trust securities;
(d) Investments in debentures or bonds;
(e) Investments in Mutual Funds;
(f) Investments in partnership firms; or
53. Details about the name of the bodies in whom investment have been
made.
Amount of quoted investments and market value thereof and amount
of unquoted investments
Amount of impairment in value of investments
The investments which are quoted on stock exchange...e.g.
shares...say SBI, Infosys, SAIL, Tata Power etc... are quoted
investments.
Those which are not quoted on stock exchange are unquoted
investments. Say shares of private limited companies.
Investment …
54. TR is in respect of amount due on account of goods sold or
services rendered.
They are classified as
Secured ,considered good
Delegation of payment
Bank guarantees
Parent company guarantee
Unsecured, considered good
Doubtful
Separate disclosure is required for
Allowance for bad and doubtful debts
Debt due by the director or other officers
Trade receivables
55. It includes loans extended by the company to its officers,
directors or outside parties.
Loans are classified as
Security deposits
Loans to related parties
Other loans
Further sub classification
Secured, considered good
Unsecured, considered good
doubtful
Loans
56. Bank deposits with more than 12 months of original maturity.
Subsidy received from government.
Term deposits kept as margin money by the bank against
guarantee given by the bank
Other Financial Assets
57. Capital advances are money given as advance for procurement of
non current assets and the company does not expect to realize
these in next 12 months.
Security deposits with port, customs and other govt authorities
Advances to directors or other officers
Preliminary expenses
Other Non Current Assets
58. Current Assets
(a) Inventories
(b) Financial Assets
(i) Investments
(ii) Trade receivables
(iii) Cash and cash equivalents
(iv) Bank balances other than (iii) above
(v) Loans
(vi) Others (to be specified)
(c) Current tax assets (net)
(d) Other current assets
59. Inventories
For financial reporting, inventories shall be classified as:
(a)Raw materials;
(b)Work-in-progress;
(c)Finished goods;
(d)Stock-in-trade (in respect of goods acquired for trading);
(e)Stores and spares;
(f)Loose tools;
(g)Others (specify nature)
60. TR are classified same as TR in non current assets-secured,
unsecured, doubtful.
Separate disclosure for provisions allowed.
Debts due by directors and other officers needs to be disclosed
Loans are classified as
Security deposits
Loans to related parties
Other loans
Trade receivables, Loans
61. Cash and cash equivalents needs to separately disclose :
Balances with banks
Cheques, drafts on hand
Cash on hand
Others like earmarked balances with banks, unpaid dividend,
margin money
Cash and Cash equivalents
62. Equity And Liabilities
Equity share capital and other equity
Non-current liabilities (Borrowings, Trade Payables, Deferred tax
liabilities, other financial liabilities, Long-term provisions)
Current Liabilities ( Short-term borrowings, trade payables, other
financial liabilities, other current liabilities, short-term provisions
and current tax liabilities)
63. It refers to the amount invested in an enterprise by the owners
(shareholders).
When will change in equity happen (new, buyback, profit/loss)
Capital of the company is divided into small units called shares.
Company needs to disclose in the financial statements:
Number and amount of shares authorized (MOA), issued, subscribed
and fully paid, subscribed but not fully paid.
Par value per share
Rights and preferences attached to each class of shares
Shares held by its holding company or other subsidiaries
Shareholder holding more than 5% shares specifying no of shares
Others
Equity
64. Can a company issue shared for consideration other than cash?
Bonus shares? (capitalization of profits)(ex : Karnataka bank 1:10)
Accumulated profits and other reserves
Securities premium can be used
Revaluation reserves cannot be used
Buy back of shares? (Wipro, TCS, Vedanta)
Shares are undervalued and surplus cash
capital is reduced and cash too
Excess of price paid over the par value is adjusted from company’s
reserve .
Right issue (Reliance, PVR, M&M financials)
Dividend distribution (P&G, IRCTC, Gillette,TCS,1200%)
Equity-Bonus, Buy Back, Right,
Dividend
65. Other Equity
Share application money pending allotment
Equity component of compound financial instruments
Capital reserve
Securities premium reserve
Other Reserves
Retained earnings
Other comprehensive income
Revaluation surplus
Money received against share warrants
66. Share application money not refundable goes to equity and balance to be
refunded goes to other financial liabilities.
Equity component of compound financial instruments (convertible bond):The
liability and equity components are shown separately.
Capital reserve is created as a result of capital profits like
Sale of fixed assets
Profit on purchase of a business
Profit on redemption of debentures
Grant received by the company
CR not available for distribution of dividend.
It may be used to issue bonus shares.
Other Equity
67. Other reserves include capital redemption reserve and debenture
redemption reserve. They are created out of the statement of
profit and loss.
Revaluation surplus arises when the items of fixed assets are
revalued up.
A company cannot distribute its revaluation surplus as dividend to
shareholders.
Other Equity
68. Deferred Tax Liability/Assets
These arise due to difference between the profit as per
income statement and the taxable income calculated under
the Income Tax Act.
69. Non-Current Liabilities
(a) Financial liabilities
(i) Borrowings
(ii) Trade payables
(iii) Other financial liabilities (other than those specified in item
(b), to be specified)
(b) Provisions
(c) Deferred tax liabilities (net)
(d) Other non-current liabilities
70. Borrowings
more than 1 year are non current lia.
Bonds or debentures
Term loans
From banks
From other parties
Deferred payment liabilities
Deposits
Loans from related parties
Long-term maturities of finance lease obligations
Liability component of compound financial instruments
Other loans and advances (specify nature)
71. Bonds or debentures/loans
Small transferrable units
Sometimes placed privately with financial institutions
Fixed or floating interest rates
Zero coupon bonds
72. Deferred payment liability/Deposits
Current obligations
Payment deferred to future
Interest may be added
Deposits –from public and employees
Upto 3 years
Unsecured
No restrictive covenants
74. Provisions
Amount is kept aside for expected liability or for decrease in the value of
asset
Schedule III of CA, 2013 requires two types of provision
Provision for employees benefits-gratuity, pension, medical benefits post
retirement
Other provisions-taxes
75. Current Liabilities
(a) Financial Liabilities
(i) Borrowings-loans from banks, other parties, deposits
(ii) Trade payables
(iii) Other financial liabilities (other than those specified in
item (c)
(b) Other current liabilities
(c) Provisions
(d) Current Tax Liabilities (Net)
76. Other Financial Liabilities (Current)
(a) Current maturities of long-term debt;
(b) Interest accrued;
(c) Unpaid dividends;
(d) Unpaid matured deposits and interest accrued thereon
(e) Unpaid matured debentures and interest accrued thereon;
and
77. Current Liabilities
Other current liabilities
Revenue received in advance
Other advances
Provisions (short term )
Current tax liabilities