presentation of share application money in the balance sheet

What Is Share Application Money in a Balance Sheet?

by Daphne Adams

Published on 26 Sep 2017

Share application money is the amount received by a company from applicants who wish to purchase its shares. It is the money received in respect to an initial public offering of shares. This money can be more or less than the actual amount anticipated in respect to the number of shares floated. The recognition of share application money in a balance sheet should be carefully recorded; otherwise, it will lead to misstatement of the financial position of a company. These funds can be represented on a balance sheet in various states.

As Current Liability

Share application money may be reported on a balance sheet as current liability. Usually, during shares subscription, payment is divided into payment on application, on allotment and call payments. The total amounts received on application are carried forward as current liability until such time when stock is allotted. This is because not every subscription is incorporated in the amount of subscribed share capital. The excess of application funds is actually a current liability to a company.

Share application monies are converted to equity capital of an entity after allotment of shares to qualifying applicants. This means that the share application money becomes equity after the completion of the allotment process. It may, therefore, be recorded as equity share capital on the balance sheet as it awaits issue of stock.

A Financing Source Other than Share Capital and Reserves

The share application money awaiting allotment can be represented on the balance sheet separately between the equity capital and reserves. This will express it as distinct from equity and reserves. Any user of the balance sheet information will have a clear view of the extra funds since they are separately identified.

As an Asset

The applicants who wish to buy shares pay their application money to the company’s bank account. This money increases the cash in the company’s bank account, which consequently means that the current assets of the company increase by an amount equal to the share application money. It is in respect to this that the share application money can be an asset on the balance sheet.

Issue of shares - Application & Allotment

The share capital in a limited company consists of number of shares. These shares are denominated in units of monetary value - for example, $1 or $2. The value assigned to each share is called the nominal price or par value.

Issued price of a share is the price at which company issues its shares to general public. The shares may be issued at par (nominal price) or at a premium (above par value). For example ordinary shares of $1 are issued at $1.20 (Issued price – Nominal value = Premium of $0.20).

Example 1 – Issue of shares at par

A company issued 100 000 ordinary shares of $ 0.75 at par.

Ordinary share capital

= Number of shares * Nominal price

= 100 000 shares * $ 0.75

Example 2- Issue of shares at premium

A company issued 80 000 shares of $ 1 at $ 1.20

= 80 000 shares * $ 1

Share Premium

= Issued price – Nominal price

= $ 1.20 - $ 1

Example 3 – Issue of shares at a premium

A company issued 150 000 shares of $ 0.80 at a premium of 30%.

= 150 000 shares * $ 0.80

= $ 120 000

Issued Price

= 0.80 * 130/100

= $ 1.04 - $ 0.80

The share capital of a company may be subject to certain changes. The nominal price of a share cannot be changed, but the number of shares can be increased by means of

Prospectus issue
Bonus issue
Rights Issue

Prospectus Issue

An investor buying a company’s shares usually pay in installments. They usually pay a certain amount with an application form as an offer to purchase the shares (on application). The company responds the offer by sending the investor a letter of allotment and requesting further payment (on allotment). A temporary share holding account is used to record money received on application and allotment.

The main double entries are:

Worked example

F Limited is a large retail company. On 1 February 2016, the company invited applications for 50 000 ordinary shares of $ 1 each at an issue price of $ 1.20. The following terms applied:

Payable on application $ 0.50

Payable on allotment $ 0.70

Applications were received for 65 000 shares.

All monies received in respect of the share issue were posted to the bank account and a share issue holding account until the shares were allotted.

At the time of allotment, transfers were made to the share capital account and the share premium account and monies were returned to the unsuccessful applicants.

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Share Application money pending allotment – Ind-As/ IFRS

It is quite common where an entity provides some amounts as Share Application Money for the sake of allotment of such shares in future. The amount in substance will be advance given for such investment and the entity is waiting for the same to be converted into an Equity in future. Now, there was a query which has been sent to the Expert Advisory Committee (EAC) of ICAI to know about the treatment of such amounts to be shown in the books of accounts and its impairment etc.

EAC received the below query for the pending allotment money –

i) Whether share application money is to be considered for making provision for diminution in the value of investments even though the shares for the same are yet to be allotted.

ii) Whether share application money, in respect of which shares are allotted subsequent to the end of the financial year but before the adoption of accounts of the company, should be considered as share capital for the purpose of making the provision for diminution in the value of Investments.

iii) For making provision for diminution in the value of investments, whether the company can consider the fact that the revaluation of assets is under progress and that the fair market value of assets would be higher than the historical value/cost of assets?

Reader can refer this opinion in detail by using this link http://resource.cdn.icai.org/33930eac23624-10.pdf related to “Opinion finalised by the committee on 21.5.2013 and 22.5.2013”

In this case EAC has given the opinion of which relevant text is reproduced here “……. since the money would not be refundable to the company, share application money pending for allotment should be considered as long-term investment while making provision for diminution in the value of investments. Even if the share application money would have been refundable and as such, shown as ‘advances’, an appropriate provision should be made based on their recoverability…..”.

After the applicability of Ind-As the situation will be different and one needs to refer different interpretation and classification of such amounts in contrast to the existing practices which can briefly be noted as below (for reader to have more practical way of thinking)-

1. As per the guidelines prescribed by Ind-As 32 –Financial Instruments- Presentations” if such pending allotment is legally giving all powers/ rights/ entitlements to the investor and it’s just a matter of procedure/time to allot such shares (shares has been identified in numbers as well and non-refundable advance given) then this pending amount for allotment will be treated in substance as Equity Investment (whether it is Investment for trading purposes, Investment in associates/ Joint ventures etc) unlike in present practice it will never be classified as equity unless actual allotment of shares happened (refer EAC opinion above),

2. Now, one can argue that what this would change after its equity classification, Firstly the equity treatment will affect both investor and investee in same way hence investee (who needs to issue such shares) will also need to treat these shares as its capital issued even share certificates has not been issued, Secondly once we have identified that this is equity investment then it will be analysed for its impairment testing based on the category in which such investment has been classified. Example-

a) Where such Investment is valued at fair value through PL / OCI then it will not be required for separate impairment testing,

b) If the investment is treated as associate/ JV investment then it will further be classified in two scenarios where separate financial statements is being prepared then these investment will be measured at cost as per Ind-As 27- “Separate Financial Statements” and will be subject to impairment testing as per Ind-As 36 – “Impairment of Assets”, However if such investment is for consolidated financial statements then equity accounted balances will be used and impairment losses will be analyzed by using reference from Ind-As 28 para 40 to 43 unlike in current accounting practice it is being tested for impairment other then temporary,

3. Now, another situation could be where the amount is being treated just as advance given then it will be recognized as Financial Asset which requires it to measured at fair value at its initial recognition and one needs to look at all other relevant facts if this can be treated as receivable then “Expected credit loss model” (applicable for amortized cost instruments) will also be applicable as defined in Ind-As -109,

4. Another thought would be that where such pending allotment meets equity investment classification and does not fall into either associate/ JV or subsidiary investment then it has to be fair valued (no exception for equity investments other than fair valuation under Ind-As 109) unlike in current accounting where simply these can be shown at cost ,

Here the idea is to provide an approach towards some of the changes that is happing because of new accounting standards applicable in India and reader can take this as a tool to navigate standards as per its own specific requirements.

A reader will appreciate about the main objective of the standard and an approach which one can follow while keeping in mind the basis of origin of such requirements. There could possibly be some specific situations or circumstances where the interpretation of any standard will be different as we should always keep in mind that IND-AS is principle based standards and lot more areas need management judgment in line with the standards relevant interpretation and best practices.

One has to look into all related facts and patterns before concluding this type of assessment based on this concept. Readers are requested not to take this article as any kind of advice (it is not exhaustive in nature) and should evaluate all relevant factors of each individual cases separately.

For any further discussion please feel free to drop an email on [email protected] or whats-app on +91- 9634706933

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Name: CA Anuj Agrawal

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presentation of share application money in the balance sheet

One Comment

Dear Sir , I would appreciate if you help me in solving my query below :- What shall be accounting treatment of money recevied for allotment of right issue, but yet not alloted. Is such amount received be treated as liability utill share on under riggt issue not alloted. I solicit your kind guidance at the earliest.

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SHARE APPLICATION MONEY Definition

SHARE APPLICATION MONEY is that money received by a company during an IPO. Payments received for a subscription of stock is normally received over the IPO life. For example: Widgets Limited has been registered with an authorized capital of $2,00,000 divided into 2,000 shares of $100 each of which, 1,000 shares were offered for public subscription at a premium of $5 per share, payable as:

on application $10
on allotment $25 (including premium)
on first call $40
on final call $30

For a total of $105/share

The amounts received would be carried as a current liability until such time as the stock is issued, then it would be considered as part of equity.

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Home » Blog » Know all about the Financial Statements of Companies

Know all about the Financial Statements of Companies

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Table of Contents

Financial Statements
Share Warrant
Share Application Money Pending Allotment
Schedule III to the Companies Act, 2013
General Instructions for Preparation of Balance Sheet

1. Financial Statements of a Company

1.1 meaning of financial statement.

“According to S. 2(40) financial statement in relation to a company, includes— (i) a balance sheet as at the end of the financial year; (ii) a profit and loss account, or in case of a company carrying on any activity not for profit, an income and expenditure account for the financial year; (iii) cash flow statement for the financial year; and (iv) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv).

However, the financial statement, with respect to One Person Company, small company and dormant company (S. 455) may not include cash flow statement.

1.2 Meaning of Financial Year

According to S. 2(41), financial year, in relation to any company or body corporate, means the period ending on the 31st day of March every year. Where a company has been incorporated on or after 1st day of January of a year, the first financial year will end on 31st day of March of the following year.

If a company or body corporate which is a holding company or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year.

1.3 Types of Financial statements on the Basis of Period

The following are the two types of financial statements :

Annual financial statements: These are prepared once in a financial year
Quarterly financial statements: These are prepared by listed companies on quarterly basis as per SEBI requirements.

1.4 Legal Requirements related to Financial Statements as provided in S. 129

Sections 128 to 138 deal with financial requirements. The following are the legal requirements as provided in section 129:

Section 129(1) of the Companies Act, 2013 provides that the financial statements

(i) shall give a true and fair view of the state of affairs of the company or companies,

(ii) comply with the accounting standards notified under S. 133,

(iii) shall be in the form or forms as may be provided for different class or classes of companies in Schedule III and (iv) the items contained in such financial statements shall be in accordance with the accounting standards.

However, the aforesaid provisions of S. 129(1) shall not apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which form of financial statement has been specified in or under the Act governing such class of company.

Section 129(2) provides that at every general meeting of a company, the Board of Directors of the Company shall lay before such meeting financial statements for the financial year.

Section 129(3) provides that where a company has one or subsidiaries or associate companies, it shall, in addition to standalone financial statement prepared under section 129(2), prepare a consolidated financial statement of the company and of all the subsidiaries and associate companies. The consolidated financial statement shall be prepared by the company in the same form and manner as that of its own and in accordance with applicable standards. The consolidated financial statement shall also be laid before the annual general meeting of the company along with the laying of the standalone financial statement.

Section 129(4) states that the provisions of the Act applicable to the preparation, adoption and audit of the financial statements of a holding company shall, mutatis mutandis, apply to the consolidated financial statements referred in S. 129(3).

Section 129(5) provides that where the financial statements of a company do not comply with the accounting standards referred to in S. 129(1), the company shall disclose in its financial statements, the deviation from the accounting standards, the reasons for such deviation and the financial effects, if any, arising out of such deviation.

Section 129(6) empowers the Central Government to exempt any class or classes of companies from complying with any of the requirements of S. 129 or rules made thereunder, if it is considered necessary to grant such exemption in the public interest. The Central Government may, by notification, constitute a National Financial Reporting Authority to provide for matters relating to accounting and auditing standards under the Companies Act, 2013 [S. 132].

The Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, in consultation with and after examination of the recommendations made by the National Financial Reporting Authority [S. 133].

2. Share Warrant

As per AS-20, Earnings of per Share, defines ‘share warrants’ as “financial instruments which give the holder the right to acquire equity shares”. Thus, share warrants would ultimately form part of the shareholders’ funds. As shares are yet to be allotted against share warrants, these are not shown as part of share capital. It is shown as a separate line item: ‘Money received against share warrants’.

3. Share Application Money Pending Allotment

Share application money pending allotment is to be disclosed as a separate line time on the face of the balance sheet between “Shareholders’ Funds” and “Non-current liabilities”. Share application money not exceeding the issued capital and to the extent not refundable is to be disclosed under line item: “Share application money pending allotment”. The balance of such money is shown under the head “Other current liabilities”. But the amount due for refund and interest thereon, if any, will be shown under the head “Other current liabilities”.

4. Schedule III to the Companies Act, 2013

Schedule III of the Companies Act, 2013 provides the manner in which every company registered under the Act shall prepare its Statement of Profit and Loss, Balance Sheet and Notes to Accounts or Notes to Financial Statements. There was a need of enhancing the disclosure requirements under the Old Schedule VI to the Companies Act, 1956 to harmonise them with the notified accounting standards. Therefore, the Ministry of Corporate Affairs issued a revised form of Schedule VI, vide Notification No. S.O. 447(E), dated February 28, 2011. The Revised Schedule VI to the Companies Act, 1956 was applicable to the companies for the Financial Statements to be prepared for the financial year commencing on or after April 1, 2011. As per the new Companies Act, 2013 this has been numbered as Schedule III. Schedule III to the Companies Act, 2013 prescribes format of financial statements for the following three categories:

DIVISION I Financial statements for a company whose financial statements are required to comply with the Companies (Accounting Standards) Rules, 2006.

DIVISION II Financial Statements for a company whose financial statements are drawn up in compliance of the Companies (Indian Accounting Standards) Rules, 2015.

DIVISION III Financial Statements for a Non-Banking Finance Company whose financial statements are drawn up in compliance of the Companies (Indian Accounting Standards) Rules, 2015.

4.1 Schedule III | Division-I Non Ind AS

Financial Statements for a company whose financial statements are required to comply with Companies (Accounting Standards) Rules, 2006.

General Instructions for Preparation of Financial Statements

1. Overriding status to other requirements of the Companies Act and to the Accounting Standards: Schedule III of the Companies Act, 2013 Act provides that where compliance with the requirements of the Act including Accounting Standards as applicable to the companies require any change in treatment or disclosure including addition, amendment, substitution or deletion in the head/sub-head or any changes inter se, in the Financial Statements or statements forming part thereof, the same shall be made and the requirements of the Schedule III shall stand modified accordingly. Thus, the Schedule III of the Companies Act, 2013 gives overriding status to the other requirements of the Companies Act, 2013 and the Accounting Standards as applicable to the companies. In other words, the requirements of the Accounting Standards and other provisions of the Companies Act would prevail over the Schedule.

2. Disclosure requirements of the Schedule III are in addition to and not in substitution of disclosure requirements of the Accounting Standards: Disclosure requirements specified in Part I (Form of Balance Sheet) and Part II (Form of Statement of Profit and Loss Account) of the Schedule are in addition to and not in substitution of the disclosure requirements specified in the Accounting Standards prescribed under the Companies Act, 2013. Additional disclosures specified in the Accounting Standards shall be made in the Notes to Accounts or by way of additional statement unless required to be disclosed on the face of the Financial Statements. Similarly, all other disclosures as required by the Companies Act shall be made in the Notes to Accounts in addition to the requirements set out in the Schedule.

3. Notes to Accounts shall contain information in addition to that presented in Financial Statements: The Notes to Accounts shall contain information in addition to that presented in the Financial Statements and shall provide where required

(a) narrative descriptions or disaggregations of items recognized in those statements and

(b) information about items that do not qualify for recognition in those statements. These items normally include contingent liabilities and commitments which are not shown on the face of the Balance Sheet.

It further provides that each item on the face of the Balance Sheet and Statement of Profit and Loss shall be cross-referenced to any related information in the Notes to Accounts. In preparing the Financial Statements including the Notes to Accounts, a balance shall be maintained between providing excessive detail that may not assist users of Financial Statements and not providing important information as a result of too much aggregation. The manner of cross reference has been changed to “Note No.” as compared to “Schedule No.”

4. New norms of rounding off: New norms of rounding off have been introduced depending upon the turnover of the company. The figures appearing in the Financial Statements may be rounded off as below:

Once a unit of measurement is used, it should be used uniformly in the Financial Statements.

5. Figures for immediately preceding period: Except in the case of the first Financial Statements laid before the Company (after its incorporation) the corresponding amounts (comparatives) for the immediately preceding reporting period for all items shown in the Financial Statements including notes shall also be given.

6. Terms used in the Schedule: The terms used in the Schedule shall be as per the applicable Accounting Standards. Notes to General Instructions: This part of Schedule sets out the minimum requirements for disclosure on the face of the Balance Sheet, and the Statement of Profit and Loss (hereinafter referred to as “Financial Statements” for the purpose of this Schedule) and Notes, Line items, sub-line items and sub-totals shall be presented as an addition or substitution on the face of the Financial Statements when such presentation is relevant to an understanding of the company’s financial position or performance or to cater to industry/sector-specific disclosure requirements or when required for compliance with the amendments to the Companies Act or under the Accounting Standards.

4.2 Part I | Format of BALANCE SHEET

The following is the form of the Balance Sheet as per Schedule III (Division I – Non Ind AS) of the Companies Act, 2013, as amended in 2018:

Name of the Company ……… Balance Sheet as at ……………

(Rupees in………)

See accompanying notes to the financial statements.

5. General Instructions for Preparation of Balance Sheet

The general instructions for preparation of Balance Sheet as per Schedule III are reproduced below:

5.1 An asset shall be classified as current when it satisfies any of the following criteria

( a ) it is expected to be realized in, or is intended for sale or consumption in, the company’s normal operating cycle;

( b ) it is held primarily for the purpose of being traded;

( c ) it is expected to be realized within twelve months after the reporting date; or

( d ) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.

All other assets shall be classified as non-current.

Explanation of the definition of current assets

Clause (a): If an asset is expected to be realised in, or is intended for sale or consumption in the company’s normal operating cycle: It include debtors, finished goods, stock-in-trade and raw material. Debtors are expected to be realised within the operating cycle of the business and debtors are current assets. However, if some debtors are not expected to be realised within 12 months from the reporting date or in the normal operating cycle of the business, then those debtors will be classified as non-current assets.

Clause (b): If an asset is held primarily for the purpose of being traded: It include stock-in-trade and finished goods, as these are held primarily for the purpose of being traded, and hence these are current assets. Investments may also come under this clause, if these are primarily held for the purpose of being traded.

Clause (c): If an asset is expected to be realised within 12 months after the reporting date: It include investments made in the debentures of another company and maturing within 12 months after the reporting date. Such part of the investments are classified as current assets.

Clause (d): If an asset is cash or cash equivalents unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date: Cash equivalents are short-term (upto 3 months), highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. However, if cash or cash equivalents is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date, then it will not be classified as current asset. For example, if a company has a bank balance of ` 50,000 in a bank and it has taken a loan of ` 5,00,000 and there is an agreement between the company, bank and the lender under which there is restriction for use of ` 40,000 out of the aforesaid ` 50,000 for more than 12 months after the reporting date (balance sheet), the bank balance of ` 40,000 out of ` 50,000 is not a current asset for the reporting date (balance sheet).

The period of three months should be counted from the date of investment to determine whether the investment is cash equivalent or not.

5.2 Operating Cycle

An operating cycle is the time between the acquisition of assets for processing and their realization in cash or cash equivalents. Operating cycle may be a period of less than 12 months, equal to 12 months or more than 12 months. Where the normal operating cycle cannot be identified, it is assumed to have a duration of 12 months.

Items of inventory which may be consumed or realised within the company’s normal operating cycle should be classified as current even if the same are not expected to be consumed or realised within twelve months after the reporting date.

5.3 Liability

A liability shall be classified as current when it satisfies any of the following criteria:

( a ) it is expected to be settled in the company’s normal operating cycle;

( c ) it is due to be settled within twelve months after the reporting date; or

( d ) the company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterpart, result in its settlement by the issue of equity instruments do not affect its classification.

All other liabilities shall be classified as non-current.

Explanation of definition of current liabilities

Clause (a): If a liability is expected to be settled in the company’s normal operating cycle: A liability, whether arising in the ordinary course of business or otherwise, will be classified as a current liability if it is expected to be settled in the company’s normal operating cycle. Therefore, trade creditors are classified as current liability as they are expected to be settled within the normal operating cycle of the business which may be less than, equal to or more than 12 months.

Clause (b): If a liability is held primarily for the purpose of being traded: If a liability is primarily held for the purpose of being traded, it will be classified as a current liability. This happens when a company trades in the liability (current or non-current) of other organization for a commission or any other form of compensation.

Clause (c): If a liability is due to be settled within 12 months after the reporting date: If a liability is due to be settled within 12 months after the reporting date, it will be classified as a current liability. Such liability may or may not arise in the ordinary course of business of the company. For example, if creditors of the company are to be paid within 3 months of the reporting date, will be classified as a current liability. Further, if a part of the long term liability is payable within 12 months of the reporting date, that part of the long-term liability will be classified as current liability. For example, current maturity of the long-term debentures will be classified as a current liability.

Clause (d): When the company does not have an unconditional right to defer the settlement of the liability for at least 12 months after the reporting date: A liability is classified as a current liability if the company does not have an unconditional right to defer the settlement of the liability for at least 12 months after the reporting date. For example, if a company declares dividend at an Annual General Meeting, the dividend is payable within one month of the declaration. If a part of the dividend payable remains unpaid within the prescribed time, the unpaid dividend is transferred to separate “Unpaid Dividend Account” and has to be transferred to separate bank account. The concerned shareholder can make a claim of the unpaid dividend from the company within 7 years. Thus, the company does not have unconditional right to defer the settlement of the liability for at least 12 months after the reporting date. Therefore, unpaid dividend will be classified as a current liability.

5.4 Definition of Trade Receivable

A receivable shall be classified as a ‘trade receivable’ if it is in respect of the amount due on account of goods sold or services rendered in the normal course of business.

5.5 Definition of Trade Payable

A payable shall be classified as a ‘trade payable’ if it is in respect of the amount due on account of goods (i.e. raw material, work-in-progress or stock-in-trade) purchased or services received in the normal course of business.

Taxmann's Illustrated Guide to Indian Accounting Standards (Ind AS)

5.6 A company shall disclose the following in the Notes to Accounts

A. Share Capital

For each class of share capital (different classes of preference shares to be treated separately)

( a ) the number and amount of shares authorized;

( b ) the number of shares issued, subscribed and fully paid, and subscribed but not fully paid;

( c ) par value per share;

( d ) a reconciliation of the number of shares outstanding at the beginning and at the end of the reporting period;

( e ) the rights, preferences and restrictions attaching to each class of shares including restrictions on the distribution of dividends and the repayment of capital;

( f ) shares in respect of each class in the company held by its holding company or its ultimate holding company including shares held by subsidiaries or associates of the holding company or the ultimate holding company in aggregate;

( g ) shares in the company held by each shareholder holding more than 5 per cent shares specifying the number of shares held;

( h ) shares reserved for issue under options and contracts/commitments for the sale of shares/disinvestment, including the terms and amounts;

( i ) for the period of five years immediately preceding the date as at which the Balance Sheet is prepared—

Aggregate number and class of shares allotted as fully paid up pursuant to contract(s) without payment being received in cash.
Aggregate number and class of shares allotted as fully paid up by way of bonus shares,
Aggregate number and class of shares bought back.

( j ) terms of any securities convertible into equity/preference shares issued along with the earliest date of conversion in descending order starting from the farthest such date;

( k ) calls unpaid (showing aggregate value of calls unpaid by directors and officers);

( l ) forfeited shares (amount originally paid up).

The disclosure, inter alia, will be as follows:

Notes to Accounts

Note: It may be noted that unpaid amount towards shares subscribed by the subscribers of the memorandum of association should be considered as ‘Subscribed and paid up capital’ in the balance sheet and debts due from the subscriber should be appropriately disclosed as an asset in the balance sheet.

Reconciliation of shares outstanding at the beginning and at the end of the reporting year will be shown as follows:

Similarly, reconciliation of preference shares will be shown:

B. Reserves and Surplus

(i) Reserves and Surplus shall be classified as :

( a ) Capital Reserve;

( b ) Capital Redemption Reserve*;

( c ) Securities Premium [*****];

( d ) Debenture Redemption Reserve;

( e ) Revaluation Reserve;

( f ) Share Options Outstanding Account;

( g ) Other Reserves—(specify the nature and purpose of each reserve and the amount in respect thereof);

( h ) Surplus i.e. balance in Statement of Profit and Loss disclosing allocations and appropriations such as dividend, bonus shares and transfer to/from reserves, etc.

(Additions and deductions since last Balance Sheet to be shown under each of the specified heads)

( ii ) A reserve specifically represented by earmarked investments shall be termed as a ‘fund’.

( iii ) Debit or negative balance of Statement of Profit and Loss shall be shown as a negative figure under the head ‘Surplus’. Similarly, the balance of ‘Reserves and Surplus’, after adjusting negative balance of Surplus, if any, shall be shown under the head ‘Reserves and Surplus’ even if the resulting figure is in the negative.

When there has been a change in the balance of any reserve as compared to the last year, disclose the movement in the reserve.

Similarly, show the additions and deductions since the last balance sheet in the surplus i.e. balance in the statement of profit and loss.

C. Long-term Borrowings

( i ) Long-term borrowings shall be classified as :

( a ) Bonds/debentures

( b ) Terms loans

( A ) From banks

( B ) From other parties

( c ) Deferred payment liabilities

( d ) Deposits

( e ) Loans and advances from related parties

( f ) Long-term maturities of finance lease obligations

( g ) Other loans and advances (specify nature)

(ii) Borrowings shall further be sub-classified as secured and unsecured. Nature of security shall be specified separately in each case.

(iii) Where loans have been guaranteed by directors or others, the aggregate amount of such loans under each head shall be disclosed.

(iv) Bonds/debentures (along with the rate of interest and particulars of redemption or conversion, as the case may be) shall be stated in descending order of maturity or conversion, starting from farthest redemption or conversion date, as the case may be. Where bonds/debentures are redeemable by instalments, the date of maturity for this purpose must be reckoned as the date on which the first instalment becomes due.

(v) Particulars of any redeemed bonds/debentures which the company has power to reissue shall be disclosed.

(vi) Terms of repayment of term loans and other loans shall be stated.

(vii) Period and amount of continuing default as on the Balance Sheet date in repayment of loans and interest, shall be specified separately in each case.

D. Other Long-term Liabilities

Other Long-term Liabilities shall be classified as :

( a ) Trade payables

( b ) Others

Dues payable in respect of purchase of property, plant and equipment, intangible assets, etc. cannot be included under trade payable. Such payables should be classified as “Others” and each such item should be disclosed nature-wise. However, long-term bills payable should be disclosed as part of trade payable.

E. Long-term Provisions

The amounts shall be classified as :

( a ) Provision for employee benefits

( b ) Others (specify nature)

F. Short-term Borrowings

( i ) Short-term borrowings shall be classified as :

( a ) Loans repayable on demand

From other parties

( b ) Loans and advances from related parties

( c ) Deposits

( d ) Other loans and advances (specify nature)

(iv) Period and amount of default as on the Balance Sheet date in repayment of loans and interest, shall be specified separately in each case.

(v) Current maturities of long-term borrowings* (inserted w.e.f. 1-4-2021).

Bank overdraft is shown under “short-term borrowings”. An overdraft is not ordinarily offset with the bank balance, unless there is a legal right to do so.

*FA. Trade payables

The following details relating to Micro, Small and Medium Enterprises shall be disclosed in the notes:-

( a ) the principal amount and the interest thereon (to be shown separately) remaining unpaid to any supplier at the end of each accounting year;

( b ) the amount of interest paid by the buyer in terms of section 16 of the Micro, Small and Medium Enterprises Development Act, 2006, along with the amount of the payment made to the supplier beyond the appointed day during each accounting year;

( c ) the amount of interest due and payable for the period of delay in making payment (which) have been paid but beyond the appointed day during the year) but without adding the interest specified under the Micro, Small and Medium Enterprise Development Act, 2006;

( d ) the amount of interest accrued and remaining unpaid at the end of each accounting year; and

( e ) the amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues above are actually paid to the small enterprise, for the purpose of disallowance of a deductible expenditure under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006.

Explanation.- The terms ‘appointed day’, ‘buyer’, ‘enterprise’, ‘micro enterprise’, ‘small enterprise’ and ‘supplier’, shall have the same meaning assigned to those under clauses ( b ), ( d ), ( e ), ( h ), ( m ), and ( n ) respectively on section 2 of the Micro, Small and Medium Enterprises Development Act, 2006.]

G. Other Current Liabilities

( a ) Omitted w.e.f. 1-4-2021

( b ) Current maturities of finance lease obligations

( c ) Interest accrued but not due on borrowings

( d ) Interest accrued and due on borrowings

( e ) Income received in advance

( f ) Unpaid dividends

( g ) Application money received for allotment of securities and due for refund and interest accrued thereon.

Share application money includes advances towards allotment of share capital. The terms and conditions including the number of shares proposed to be issued, the amount of premium, if any, and the period before which shares shall be allotted shall be disclosed. It shall also be disclosed whether the company has sufficient authorized capital to cover the share capital amount resulting from allotment of shares out of such share application money. Further, the period for which the share application money has been pending beyond the period for allotment as mentioned in the document inviting application for shares along with the reason for such share application money being pending shall be disclosed. Share application money not exceeding the issued capital and to the extent not refundable shall be shown under the head Equity and share application money to the extent refundable i.e., the amount in excess of subscription or in case the requirements of minimum subscription are not met shall be separately shown under ‘Other current liabilities.’

( h ) Unpaid matured deposits and interest accrued thereon

( i ) Unpaid matured debentures and interest accrued thereon

( j ) Other payable (specify nature);

Term deposits and security deposits which are not in the nature of borrowings should be classified under ‘Other Non-current liabilities’ or ‘Other current liabilities’, as the case may be.

H. Short-term Provisions

( b ) Others (specify nature)

Others would include all provisions other than provision for employee benefits such as provision for taxation, provision for warranties, etc. These should be disclosed separately specifying nature thereof.

Schedule III provides that current tax ( i.e . provision for tax) is to be disclosed under ‘short-term provisions’ on the equity and liabilities part of the balance sheet; and advance tax is to be disclosed under ‘Loans and advances’ on the Assets side part of the balance sheet.

AS-22, Accounting for Taxes on Income , has a specific requirement with respect to off-setting. As per paragraph 27, an enterprise should offset asset and liabilities representing current tax ( i.e. provision for tax) if the enterprise:

( a ) has a legally enforceable right to set off the recognised amounts; and

( b ) intends to settle the asset and liability on a net basis.

Therefore, where the enterprise can in fact fulfil the criteria set in paragraph 27 of AS-22, disclose the advance tax/current tax (i.e. provision for tax) on a net basis, mentioning the adjusted amount in the inner column.

I. Property, Plant and Equipment

( i ) Classification shall be given as :

( b ) Buildings

( c ) Plant and Equipment

( d ) Furniture and Fixtures

( e ) Vehicles

( f ) Office equipment

( g ) Others (specify nature)

(ii) Assets under lease shall be separately specified under each class of asset.

(iii) A reconciliation of the gross and net carrying amounts of each class of assets at the beginning and at end of the reporting period showing additions, disposals, acquisitions through business combinations, amount of change due to revaluation (if change is 10% or more in the aggregate of the net carrying value of each class of Property, Plant and Equipment) and other adjustments and the related depreciation and impairment losses/reversals shall be disclosed separately.

(iv) Where sums have been written off on a reduction of capital or revaluation of assets or where sums have been added on revaluation of assets, every Balance Sheet subsequent to date of such write-off, or addition shall show the reduced or increased figures as applicable and shall by way of a note also show the amount of the reduction or increase as applicable together with the date thereof for the first five years subsequent to the date of such reduction or increase.

Notes to Accounts of Property, Plant and Equipment is to be prepared as follows:

Note No…… Property, Plant and Equipment

J. Tangible Assets

( i ) Classification shall be given as :

( a ) Land

( f ) Office equipment

( g ) Others (specify nature)

(iii) A reconciliation of the gross and net carrying amounts of each class of assets at the beginning and at end of the reporting period showing additions, disposals, acquisitions through business combinations and other adjustments and the related depreciation and impairment losses/reversals shall be disclosed separately.

Note: Guidance note on Division I of Schedule III (second edition July, 2019) States that “Tangible Assets” be named as “Property, Plant and Equipment (Tangible Assets)”. Its Notes to Accounts may be prepared as follows:

Note | Tangible Assets

K. Intangible Assets

(i) Classification shall be given as :

( a ) Goodwill

( b ) Brands/trademarks

( c ) Computer software

( d ) Mastheads and publishing titles

( e ) Mining rights

( f ) Copyrights, and patents and other intellectual property rights, services and operating rights

( g ) Recipes, formulae, models, designs and prototypes

(h) Licenses and franchise

( i ) Others (specify nature).

( ii ) A reconciliation of the gross and net carrying amounts of each class of assets at the beginning and at the end of the reporting period showing additions, disposals, acquisitions through business combinations and other adjustments and the related amortization and impairment losses/reversals shall be disclosed separately.

( iii ) Where sums have been written off on a reduction of capital or revaluation of assets or where sums have been added on revaluation of assets, every Balance Sheet subsequent to date of such write-off, or addition shall show the reduced or increased figures as applicable and shall by way of a note also show the amount of the reduction or increase as applicable together with the date thereof for the first five years subsequent to the date of such reduction or increase.

Note No. …… Intangible Assets

(in rupees)

L. Non-current Investments

( i ) Non-current investments shall be classified as trade investments and other investments and further classified as :

( a ) Investment in property

( b ) Investments in Equity Instruments

( c ) Investments in preference shares

( d ) Investments in Government or trust securities

( e ) Investments in debentures or bonds

( f ) Investments in Mutual Funds

( g ) Investments in partnership firms

( h ) Other non-current investments (specify nature)

Under each classification, details shall be given of names of the bodies corporate (indicating separately whether such bodies are (i) subsidiaries, (ii) associates, (iii) joint ventures, or (iv) controlled special purpose entities in whom investments have been made and the nature and extent of the investments so made in each such body corporate (showing separately investments which are partly-paid). In regard to investments in the capital of partnership firms, the names of the firms (with the names of all their partners, total capital and the shares of each partner) shall be given.

(ii) Investments carried at other than at cost should be separately stated specifying the basis for valuation thereof.

(iii) The following shall also be disclosed :

( a ) Aggregate amount of quoted investments and market value thereof;

( b ) Aggregate amount of unquoted investments;

( c ) Aggregate provision for diminution in value of investments.

Taxmann.com | Research | Accounts & Audit

M. Long-term Loans and Advances

(i) Long-term loans and advances shall be classified as :

( a ) Capital Advances;

( b ) Security Deposits;

( c ) Loans and advances to related parties (giving details thereof);

( d ) Other loans and advances (specify nature).

(ii) The above shall also be separately sub-classified as :

( a ) Secured, considered good;

( b ) Unsecured, considered good;

( c ) Doubtful.

(iii) Allowance for bad and doubtful loans and advances shall be disclosed under the relevant heads separately.

(iv) Loans and advances due by directors or other officers of the company or any of them either severally or jointly with any other persons or amounts due by firms or private companies respectively in which any director is a partner or a director or a member should be separately stated.

N. Other Non-current Assets

Other non-current assets shall be classified as :

(i) Long-term Trade Receivables (including trade receivables on deferred credit terms);

(ia) Security Deposits.

(ii) Others (specify nature).

(iii) Long-term Trade Receivables, shall be sub-classified as:

(A) Secured, considered good;

(B) Unsecured considered good;

Allowance for bad and doubtful debts shall be disclosed under the relevant heads separately.

Debts due by directors or other officers of the company or any of them either severally or jointly with any other person or debts due by firms or private companies respectively in which any director is a partner or a director or a member should be separately stated.

(iv) For trade receivables outstanding, following ageing schedule shall be given:

Trade Receivables Ageing Schedule

(Amount in `)

Similar information shall be given where no due date of payment is specified, in that case, disclosure shall be from the date of transaction.

Unbilled dues shall be disclosed Separately.

O. Current Investments

(i) Current investments shall be classified as :

( a ) Investments in Equity Instruments;

( b ) Investment 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;

( g ) Other investments (specify nature).

Under each classification, details shall be given of names of the bodies corporate (indicating separately whether such bodies are : (i) subsidiaries, (ii) associates, (iii) joint ventures, or (iv) controlled special purpose entities) in whom investments have been made and the nature and extent of the investment so made in each such body corporate (showing separately investments which are partly-paid). In regard to investments in the capital of partnership firms, the names of the firms (with the names of all their partners, total capital and the shares of each partner) shall be given.

(ii) The following shall also be disclosed :

( a ) The basis of valuation of individual investments;

( b ) Aggregate amount of quoted investments and market value thereof;

( c ) Aggregate amount of unquoted investments;

( d ) Aggregate provision made for diminution in value of investments.

P. Inventories

(i) 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).

_____________________

*Substituted by G.S.R. 1022(E), dated 11th October, 2018 for “Fixed Assets” (w.e.f 11-10-2018).

*The word “Reserve” omitted by GSR 1022(E), dated 11th October, 2018 (w.e.f. 11-10-2018)

*Inserted by G.S.R. 679( E ), dated 4th September, 2015.

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

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Module 13: Accounting for Corporations

Balance sheet presentation, learning outcomes.

Illustrate the balance sheet presentation of stockholder’s equity

Let’s take another look at the most current regulatory reports for The Home Depot, Inc . On page 33 of the 2019 annual report, the company reported the following components of stockholders’ equity:

Let’s take a look at a side-by-side comparison of a sole proprietorship’s owner’s equity and that of a corporation:

It’s unlikely a sole proprietorship will be following all aspects of GAAP. It would be unlikely to include Other Comprehensive Gains and Losses unless a bank or other influential stakeholder [1] required full GAAP compliance. Other comprehensive gains and losses usually arise from changes in market value of short-term investments and adjustments that arise in translating information from subsidiaries that do business in other nations and therefore use other currencies (foreign currency translation).

In short, other than some differences in terminology and technical differences, the basic expanded version of the accounting equation still holds true:

A = L + E, where E = capital contributions − withdrawals + revenue − expenses.

For a corporation, it could be listed as:

Equity = paid-in capital from the sale of stock (par and in excess of par) − dividends and treasury stock + revenues and other comprehensive income − expenses and other comprehensive losses.

One final note: The balance in retained earnings is generally available for dividend declarations. Some companies state this fact. In some circumstances, however, there may be retained earnings restrictions . These make a portion of the balance currently unavailable for dividends. Restrictions result from one or more of these causes: legal, contractual, or voluntary. For instance, a contractual restriction may be the result of loan covenants. A voluntary restriction may be because of a board resolution. A legal restriction may be imposed as part of a lawsuit settlement. Companies generally disclose retained earnings restrictions in the notes to the financial statements.

In the next section, we’ll study the Statement of Changes in Stockholders’ Equity, but first, check your understanding of the balance sheet presentation.

Practice Question

A stakeholder is different from a shareholder or stockholder. Employees, creditors, customers, government agencies, and a wide variety of other interested parties can be stakeholders. This means they have some kind of stake in the company and what it does (for instance, a not-for-profit concerned with the environment could be a stakeholder in a manufacturing firm). A shareholder/stockholder is an owner because they hold shares of stock. ↵
Balance Sheet Presentation. Authored by : Joseph Cooke. Provided by : Lumen Learning. License : CC BY: Attribution

How to Categorize Your Money Market Funds on a Balance Sheet

Small Business
Money & Debt
Money Market
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Money market funds are a fixed income investment that buys debt securities characterized by a short maturity -- less than one year -- and low credit risk -- investing in short-term bonds issued, for example, by government entities. The funds are considered a liquid investment because shares can be redeemed at any time for cash. This liquidity is what places money market funds in the current asset category of your balance sheet.

Balance Sheet

The balance sheet lists your company’s assets, liabilities and equity. The information is listed in the format where total assets equals total liabilities plus equity. While there is no standard in accounting for the creation of a balance sheet, customary use has resulted in a typical balance sheet containing two columns. The left-hand column contains information assets and the right-hand column contains information on liabilities and equity.

Current Assets

There are two general categories on the asset side: current assets and long-term assets. Assets fall under current if they can be converted into cash in less than one year. Examples would be money in a checking account, accounts receivable, notes payable within 365 days, and cash. Because funds held in a money market can easily be turned into cash, it belongs in the current asset category.

Determine Value

Determine the value of your money market funds. Call your broker or call the fund manager directly. You will receive the value of the fund as of the previous day's market closing time.

Create Line Item

Create a line item under current assets for the money market fund entry. If using accounting software, create an asset line item and note it as current. If using paper and pencil, add a line for money market fund under the last item in the current assets list. Enter the value of the money market fund and add to the value of the other current assets.

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Diane Stevens' professional experience started in 1970 with a computer programming position. Beginning in 1985, running her own business gave her extensive experience in personal and business finance. Her writing appears on Orbitz's Travel Blog and other websites. Stevens holds a Bachelor of Science in physics from the State University of New York at Albany.

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Example of Share Premium Account

Uses of share premium account funds, share premium example.

Share Premium and Shareholders' Equity
Stock Trading

How Does a Share Premium Account Appear on the Balance Sheet?

Gordon Scott has been an active investor and technical analyst or 20+ years. He is a Chartered Market Technician (CMT).

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

A share premium account shows up in the shareholders’ equity portion of the balance sheet. The share premium account represents the difference between the par value of the shares issued and the subscription or issue price. It's also known as additional paid-in capital, or contributed surplus and can be called paid-in capital in excess of par value. This account is a statutory reserve account, one that's non-distributable.

The share premium can be money received for the sale of either common or preferred stock . A balance is recorded in this account only when there's a direct share sale from the company, usually from a capital raise or initial public offering . Secondary trading between investors does not impact the share premium account.

Key Takeaways

Share premium is the credited difference in price between the par value, or face value, of shares, and the total price a company received for recently-issued shares.
The amount credited in the share premium account typically fluctuates quarter-to-quarter as a company issues new shares at market value, rather than at the par value.
The share premium cannot be used for distributing dividends or any other payouts and can only be used for whatever has been expressly laid out in the company's bylaws.
A share premium account appears in the shareholders' equity section of the balance sheet.

Many companies issue shares at nominal par value, such as $0.01 per share, meaning many companies will have a share premium account balance.

For example, say a company issues 1,000 shares at a par value of $0.01 per share. The company actually received $15 per share during an offering. The difference between the par value and the subscription amount is the share premium. Ten dollars is credited to the common stock account and the additional $14,990 is credited to the share premium or additional paid-in capital account.

A share premium account can be used to write off certain expenses, such as the cost of underwriting, commissions paid, and certain discounts. The accounts can also be used to issue bonus shares.

The value of a share premium account likely changes over time as a company issues new shares at the market value as opposed to the par value.

The funds in the share premium account cannot be distributed as dividends and may only be used for purposes outlined in the company’s bylaws or other governing documents. Often, the share premium can be used to pay the expenses of issuing equity, such as underwriter fees or for issuing bonus shares to shareholders.

Beyond selling shares above par, the share premium account can be credited if the government donates land to the company.

Such expenses that can be written off include commissions paid and discounts allowed. Buybacks can also reduce this account—that is, if the sale price was less than the repurchase price, the difference is debited to additional paid-in capital.

For example, a company buys back 1,000 shares at $10 a share, where the par value is $0.01. The original price from the initial sale of this stock was $5 a share. The transaction would be a $10 debit to common stock, $4,990 debit to additional paid-in capital, and a $5,000 debit to retained earnings. Plus, the $10,000 credit to the cash account used for the purchase.

Share Premium and Shareholders' Equity

The shareholders’ equity portion of the balance sheet shows the initial amount of money invested in the business. The shareholders’ equity also lists retained earnings as the value of net earnings not paid out as dividends.

Retained earnings are often used to pay off debt, reinvest back into the company for research and development purposes, or for a new business or capital acquisitions. A company’s net earnings, after taxes, and its retained earnings represent the total net worth of the company. If a net loss is greater than the retained earnings, there are negative retained earnings shown as a deficit.

The share premium, or the additional paid-in capital account, and retained earnings are usually the two biggest components of shareholders’ equity. In terms of the shareholders’ equity, the first account is usually the common stock account followed by the additional paid-in capital account. Other accounts appearing in the shareholders’ equity section of the balance sheet can include accumulated other comprehensive income, treasury stock, and unearned compensation.

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Human Resource Management
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CBSE Class 12 Accountancy Notes

Chapter 1: Accounting for Non-for-Profit Organization

Not for Profit Organisations- Features and Financial Statements
Difference Between Not for Profit Organisation and Profit Earning Organisation
Income and Expenditure Account of a Not for Profit Organisation
Difference between Receipt and Payment Account And Income and Expenditure Account
Accounting Treatment for Subscriptions and Expenses
Accounting Treatment of Consumable Items: Stationery and Sports Material
Accounting Treatment: Admission or Entrance Fees, Donation and Legacies, Grants from Government, Sale of Fixed Assets, Life Membership Fees
Fund based Accounting
Receipt and Payment Account for Not for Profit Organisation
Income & Expenditure Account: Accounting Treatment
Balance Sheet for Not for Profit Organisation
Practical Questions on Balance sheet for Not for Profit Organisation
Practical Questions on Receipt & Payment Account

Chapter 2: Accounting for Partnership: Basic Concepts

Introduction to Accounting for Partnership
Partnership Deed and Provisions of the Indian Partnership Act 1932
Difference between Limited Liability Partnership and Partnership Firm
Accounting Treatment for Interest on Partner's Capital
Interest on Drawing in case of Partnership
Accounting Treatment of Partner's Loan, Rent Paid to a Partner, Commission Payable to a Partner, Manager's Commission on Net Profit
Profit and Loss Appropriation Account : Journal Entries & Format
Difference between Profit and Loss Account And Profit and Loss Appropriation Account
Capital Accounts of the Partner: Fixed Capital Method
Capital Accounts of the Partner: Fluctuating Capital Method
Difference between Fixed Capital Account and Fluctuating Capital Account
Past Adjustments in Partnership
Guarantee of Minimum Profit to a Partner

Chapter 3: Reconstitution of a Partnership Firm: Change in Profit Sharing Ratio

Reconstitution of a Partnership Firm : Reasons and Change in Profit Sharing Ratio
Goodwill: Meaning, Factors Affecting Goodwill and Need for Valuation
Methods of Valuation of Goodwill
Average Profit Method of calculating Goodwill
Super Profit Method of Calculating Goodwill
Capitalisation Method of Calculating Goodwill
Accounting Treatment of Accumulated Profits and Reserves: Change in Profit Sharing Ratio
Accounting Treatment of Workmen Compensation Reserve: Change in Profit Sharing Ratio
Change in Profit Sharing Ratio: Accounting Treatment of Investment Fluctuation Fund
Accounting Treatment of Revaluation of Assets and Liabilities: Change in Profit Sharing Ratio
Accounting Treatment of Partner's Capital Account in case of change in Profit Sharing Ratio (Fixed Capital)
Accounting Treatment of Partner's Capital Account in case of change in Profit Sharing Ratio (Fluctuating Capital)
Adjustment in Existing Partner's Capital Account in case of Change in Profit Sharing Ratio

Chapter 4: Reconstitution of a Partnership Firm: Admission of a Partner

Computation of New Profit Sharing Ratio: Admission of a Partner
Computation of Sacrificing Ratio in case of Admission of a Partner
Accounting Treatment of Goodwill in case of Admission of a Partner
Hidden Goodwill: Admission of a Partner
Accounting Treatment of Revaluation of Assets and Liabilities in case of Admission of a Partner
Accounting Treatment of Accumulated Profits and Reserves in case of Admission of a Partner
Accounting Treatment of Workmen Compensation Reserve: Admission of a Partner
Accounting Treatment of Investment Fluctuation Fund in case of Admission of a Partner
Accounting Treatment of Partner's Capital Account: Admission of a Partner (Fixed Capital)
Accounting Treatment of Partner's Capital Account: Admission of a Partner (Fluctuating Capital)
Preparation of Revaluation Account, Capital Account and Balance Sheet
Adjustment of Partner's Capital Account: Admission of a Partner

Chapter 5: Reconstitution of a Partnership Firm: Retirement or Death of a Partner

Retirement of a Partner in case of Reconstitution of a Partnership Firm
Computation of New Profit Sharing Ratio: Retirement of a Partner
Calculation of Gaining Ratio: Retirement of a Partner
Difference between Sacrificing Ratio and Gaining Ratio
Accounting Treatment of Goodwill in case of Retirement of a Partner
Hidden Goodwill in case of Retirement of a Partner
Accounting Treatment of Revaluation of Assets and Liabilities in case of Retirement of a Partner
Accounting Treatment of Accumulated Profits and Reserves in case of Retirement of a Partner
Accounting Treatment of Workmen Compensation Reserve in case of Retirement of a Partner
Accounting Treatment of Investment Fluctuation Fund in case of Retirement of a Partner
Accounting Treatment of Partner's Capital Account in case of Retirement of a Partner (Fixed Capital)
Accounting Treatment of Partner's Capital Account in case of Retirement of a Partner (Fluctuating Capital)
Settlement of Amount due to a Retiring Partner when Full Amount is Paid
Settlement of Amount due to a Retiring Partner: Amount Paid in Instalment
Settlement of Amount due to a Retiring Partner: Transferred to Loan Account
Adjustment of Capital Account in case of Retirement of a Partner
Reconstitution of a Partnership Firm in case of Death of a Partner
Calculation of Share of Profit up to the Date of Death of a Partner
Adjustment of Interest on Deceased Partner's Capital, Deceased Partner's Share in Goodwill and Accumulated Profits and Reserves
Accounting Treatment of Revaluation of Assets and Liabilities in case of Death of a Partner
Accounting Treatment of Accumulated Profits and Reserves in case of Death of a Partner
Accounting Treatment of Workmen Compensation Reserve in case of Death of a Partner
Accounting Treatment of Investment Fluctuation Fund in case of Death of a Partner
Accounting Treatment of Partner's Capital Account in case of Death of a Partner (Fixed Capital)
Accounting Treatment of Partner's Capital Account in case of Death of a Partner (Fluctuating Capital)
Accounting Treatment of Amount Due to Deceased Partner
Accounting Treatment of Joint Life Policy in case of Death of a Partner
Accounting Treatment of Individual Life Policy in case of Death of a Partner

Chapter 6: Dissolution of Partnership Firm

Dissolution of a Partnership Firm: Meaning, Modes of Dissolution, Modes of Settlement of accounts (Section 48)
Difference between Dissolution of Firm and Dissolution of Partnership
Difference between Firm's Debt and Private Debt
Difference between Realisation account and Revaluation account
Accounting treatment of Accumulated Profits, Reserves, and Losses in case of Dissolution of Firm
Dissolution of Firm: Partner's Capital Account
Dissolution of Partnership Firm: Meaning and Example
Accounting Treatment of Goodwill in case of Dissolution of Firm
Accounting Treatment of Joint Life Policy in case of Dissolution of a Firm
Accounting Treatment of Contingent Assets and Contingent Liabilities in case of Dissolution of a firm

Chapter 7: Accounting for Share Capital

Company and its Types
Difference between Public Company and Private Company
Shares : Meaning, Nature and Types
Difference between Preference Shares and Equity Shares
Share Capital: Meaning, Kinds, and Presentation of Share Capital in Company's Balance Sheet
Difference between Capital Reserve and Reserve Capital
Accounting for Share Capital: Issues of Shares for Cash
Issue of Shares At Par: Accounting Entries
Issue of Shares at Premium: Accounting Entries
Issue of Share for Consideration other than Cash: Accounting for Share Capital
Issue of Shares: Accounting Entries on Full Subscription with Share Application
Calls in Arrear: Accounting Entries on Issue of Shares
Calls in Advance: Accounting Entries on Issue of Shares
Oversubscription of Shares: Accounting Treatment
Oversubscription of Shares: Pro-rata Allotment
Oversubscription of Shares: Pro-rata Allotment with Calls in Arrear
Forfeiture of Shares : Accounting Entries on Issue of Shares
Accounting Entries on Re-issue of Forfeited Shares
Disclosure of Share Capital in the Balance Sheet: Accounting Entries on Issue of Shares

Chapter 8: Issue and Redemption of Debentures

Issue of Debentures: Meaning, Characteristics, Purpose of Issuing Debentures and Example
Types of Debentures
Difference between Shares and Debentures

Issue of Debentures: Accounting Treatment of Issue of Debenture and Presentation of debentures in balance sheet (with format)

Issue of Debenture at Par and Premium
Issue of Debentures for Consideration other than Cash
Issue of Debenture as Collateral Security
Interest on Debentures
Redemption of Debentures
Redemption of Debentures: Meaning, Sources and Rules regarding Redemption
Redemption of Debentures in case of Lump-Sum
Redemption of Debentures in case of Installment
Redemption of Debentures in case of Purchase of Own Debentures
Redemption of Debentures: Conversion into Shares or New Debentures

Part-B Chapter 1: Financial Statements of a Company

Financial Statements : Meaning, Objectives, Types and Format
Objectives and Characteristics of Financial Statements
Financial Statement of a Company: Balance Sheet
Profit and Loss Account - Meaning, Format and General Instructions

Chapter 2: Analysis of Financial Statements

Financial Analysis: Need, Types, and Limitations
Financial Analysis: Uses, Importance, Limitations
Comparative Statement: Meaning, Importance and Techniques of Presenting Financial Statements
Comparative Balance Sheet: Objectives, Advantages and Format of Comparative Balance Sheet
Comparative Income Statement: Objectives, Advantages and Preparation and Format of Comparative Income Statement
Common Size Income Statement: Objectives, Preparation, Format of Common Size Statement
Common Size Balance Sheet: Meaning, Objectives and Format of Common Size Balance Sheet

Chapter 3: Accounting Ratios

Ratio Analysis- Importance, Advantages and Limitations
Liquidity Ratio: Meaning, Types, Formula and Illustrations
Current Ratio: Meaning, Significance and Examples
Liquid/Quick Ratio: Meaning, Formula, Significance and Examples
Solvency Ratio: Meaning, Formula, and Significance
Debt-Equity Ratio: Meaning, Formula, Significance and Examples
Total Assets to Debt Ratio: Meaning, Formula and Examples
Proprietary Ratio: Meaning, Formula, Significance and Examples
Activity Ratio: Meaning, Formula and Significance
Trade Payable Turnover Ratio: Meaning, Formula, Significance and Examples
Working Capital Turnover Ratio: Meaning, Formula, Significance and Examples
Overall Profitability Ratio: Meaning, Formula, Significance, and Examples
Gross Profit Ratio: Meaning, Formula, Significance and Examples
Operating Ratio | Formula and Examples
Operating Profit Ratio: Meaning, Formula, Significance and Examples
Net Profit Ratio
Return on Investment (ROI): Meaning, Formula, Significance and Illustrations
Ratio Analysis Formula

Chapter 4: Cash Flow Statement

What is a Cash Flow Statement?
Cash Flow Statement: Objectives, Importance and Limitations
Classification of Business Activities in Cash Flow: Operating, Investing and Financing Activities
Cash Flow from Operating Activities
Treatment of Special Items in Cash Flow Statement
Treatment of Special Items in Cash Flow Statement-II
Examples of Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Financing Activities
Cash Flow Statement: Two Examples

Part-B Chapter 1: Overview of Computerised Accounting System

Sourcing of Accounting Software
Computerised Accounting System
Computerized Accounting System - Meaning, Features, Advantages and Disadvantages
Difference between Manual and Computerised Accounting
Difference between Management Information System (MIS) and Accounting Information System (AIS)
Evolution and Features of Computerised Accounting
Components of Computer

CBSE Previous Year Papers (2020)

CBSE Class 12 Accountancy Solved Question Paper (Paper Code: 67/1/1, 2020)
CBSE Class 12 Accountancy Solved Question Paper (Paper Code: 67/1/2, 2020)
CBSE Class 12 Accountancy Solved Question Paper (Paper Code: 67/1/3, 2020)
CBSE Class 12 Accountancy Solved Question (Paper-67/2/1-2020)
CBSE Class 12 Accountancy Solved Question Paper-67/2/2
CBSE Class 12 Accountancy Solved Question Paper (Paper Code: 67/2/3, 2020)
CBSE Class 12 Accountancy Solved Question Paper (67/4/1, 2020)

What is a Debenture?

A written instrument or document which is issued by the company acknowledging the borrowings is known as Debenture . In this document, the terms of repayment of principal and payment of interest at a specific rate are stated.

According to Section 2(30) of the Companies Act, 2013 ,”Debenture includes debenture stock, bonds and any other instrument of the company evidencing a debt, whether constituting a charge on the assets of the company or not.” According to Topham, ” A debenture is a document given by a company as evidence of a debt to the holder usually arising out of a loan and most commonly secured by a charge.”

The person to whom debentures are issued is called Debentureholder .

Characteristics of Debenture:

The characteristics of debentures are as follows:

A debenture is a certificate or written document, which is an acknowledgement of debt taken by a company.
It is borrowing of a company.
It is issued under the seal of a company.
Interests on Debentures is a charge against profit.
It contains a contract for the repayment of the principal sum at a specified date.
The funds raised by the issue of debentures are for a long period of time, such as 7 years, 10 years, or 12 years, and the loan raised by the issue of debentures is also called ‘Loan Capital’.

Issue of Debentures:

A listed company can go for the issue of debentures for public subscription, but an unlisted company cannot issue debentures to the public in general. However, by private placement, both listed and unlisted companies may issue debentures. The accounting entries and procedures for issuing debentures are similar to that for the issue of shares. Debentures may be issued for cash; consideration other than cash; and as collateral security.

Debentures may be issued at par; premium; or at discount whether issued for cash or consideration other than cash.

Accounting Treatment of Issue of Debenture:

The journal entries passed for issuing debentures are the same as in the case of shares. Only ‘Debenture A/c’ is used in place of ‘Share Capital A/c’. The rate of interest is usually pre-fixed with Debenture A/c.

1. On receipt of application money:

2. On transfer of application money to Debenture A/c:

3. On allotment due:

4. On receipt of allotment money:

5. On due of call money:

6. On receipt of call money:

Presentation of Debenture A/c in Balance Sheet:

Notes to Balance Sheet:

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What Is Share Application Money in a Balance Sheet?
The share application money awaiting allotment can be represented on the balance sheet separately between the equity capital and reserves. This will express it as distinct from equity and reserves. Any user of the balance sheet information will have a clear view of the extra funds since they are separately identified.
PDF Presentation of Financial Statements IAS 1
Approval by the Board of Classification of Liabilities as Current or Non-current—Deferral of Effective Date issued in July 2020. Classification of Liabilities as Current or Non-current—Deferral of Effective Date, which amended IAS 1, was approved for issue by all 14 members of the International Accounting Standards Board. Hans Hoogervorst.
Issue of shares
For example ordinary shares of $1 are issued at $1.20 (Issued price - Nominal value = Premium of $0.20). Example 1 - Issue of shares at par. A company issued 100 000 ordinary shares of $ 0.75 at par. Ordinary share capital. = Number of shares * Nominal price. = 100 000 shares * $ 0.75. = $ 75 000. General Journal. $.
Share Application money pending allotment
EAC received the below query for the pending allotment money -. i) Whether share application money is to be considered for making provision for diminution in the value of investments even though the shares for the same are yet to be allotted. ii) Whether share application money, in respect of which shares are allotted subsequent to the end of ...
1.1 Financial statement presentation and disclosure requirements
The presentation and disclosure requirements discussed in this guide presume that the related accounting topics are considered to be material and applicable to the reporting entity. ... S-X, Article 8 notes that for annual financial statements, a Smaller Reporting Company should file an audited balance sheet as of the end of each of the two ...
Ind AS Schedule III Checklist
e) Balance at the end of the current/previous reporting period. III. Whether the company has provided the reconciliation for current/previous reporting periods for the 'Other Equity' under the Statement of Changes in Equity as a part of one single statement: a) Share application money pending allotment
Share Application money pending allotment
EAC received the below query for the pending allotment money -. i. Whether share application money is to be considered for making provision for diminution in the value of investments even though the shares for the same are yet to be allotted. ii. Whether share application money, in respect of which shares are allotted subsequent to the end of ...
IAS 32
IAS 32 outlines the accounting requirements for the presentation of financial instruments, particularly as to the classification of such instruments into financial assets, financial liabilities and equity instruments. The standard also provide guidance on the classification of related interest, dividends and gains/losses, and when financial assets and financial liabilities can be offset.
PDF Preparation and Presentation of Companies Final Accounts
A Balance sheet at the end of the financial year ... Consistency of presentation - follow a presentation and classification of items consistently unless there is ... Share application money pending allotment (3) Non-Current Liabilities a. Long-Term Borrowings (C) b. ...
Accounting for Share Capital: Issues of Shares for Cash
The company will accept the application only when it is submitted along with the application money. The application money should not be less than 25% of the issue price per share. The public must deposit the amount of application money in a scheduled bank, mentioned by the company at the time of issuing the prospectus. Till the company has ...
How to Present a Balance Sheet
A balance sheet is one of the three most common financial statements required to be presented to executives, Boards, and investors. It is different from an income/profit & loss statement and a cash flow statement because it reports values at a single point in time, not over a time period. In most cases, financial professionals simply copy the ...
Balance Sheet: Explanation, Components, and Examples
Balance Sheet: A balance sheet is a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments ...
Treatment of Share Application Money Pending Allotment
20 October 2021 As share application money pending allotment is neither free reserve nor paid up capital, the same cannot be included in the computation of net worth. The share application money awaiting allotment can be represented on the balance sheet separately between the equity capital and reserves. This will express it as distinct from ...
SHARE APPLICATION MONEY DEFINITION
For example: Widgets Limited has been registered with an authorized capital of $2,00,000 divided into 2,000 shares of $100 each of which, 1,000 shares were offered for public subscription at a premium of $5 per share, payable as: on application $10 ; on allotment $25 (including premium) on first call $40; on final call $30; For a total of $105 ...
Balance Sheet
The balance sheet displays the company's total assets and how the assets are financed, either through either debt or equity. It can also be referred to as a statement of net worth or a statement of financial position. ... Share Capital. This is the value of funds that shareholders have invested in the company. When a company is first formed ...
How companies are misusing 'share application money' to guise
The share application money figure was Rs 33.8 crore in March 2010 and Rs 21 crore in March 2009. Nagpur-based businessman Manish Mehta, whose family has a 98% stake in Chintamani, did not respond to an email query on the disproportionate, and continuous, level of share application money in the company.
Know all about the Financial Statements of Companies
It is shown as a separate line item: 'Money received against share warrants'. 3. Share Application Money Pending Allotment. Share application money pending allotment is to be disclosed as a separate line time on the face of the balance sheet between "Shareholders' Funds" and "Non-current liabilities".
Disclosure of Share Capital in the Balance Sheet ...
Sukant, who holds 4,500 shares, has not paid anything after Application Money (₹3 per share) Sayeba, who holds 500 shares, has paid only ₹6 per share. Sahil, who holds 500 shares, has paid only ₹6 per share. ... Accounting Treatment of Issue of Debenture and Presentation of debentures in balance sheet (with format)
Balance Sheet Presentation
Common stock, par value $0.05; authorized 10,000 shares; issued: 1,786 shares at February 2, 2020 and 1,782 shares at February 3, 2019; Outstanding: 1,077 shares at February 2, 2020 and 1,105 shares at February 3, 2019 ... check your understanding of the balance sheet presentation. Practice Question. A stakeholder is different from a ...
How to Categorize Your Money Market Funds on a Balance Sheet
Create a line item under current assets for the money market fund entry. If using accounting software, create an asset line item and note it as current. If using paper and pencil, add a line for ...
Solutions for Chapter 8: Company Accounts
The excess application money was adjusted towards allotment. Mrs. Shobha who were allotted 200 equity shares failed to pay F/F/C and her shares were forfeited after the final call. Show Journal entries in the books of Suhas Ltd. and also show its presentation in Balance sheet.
Share Premium Accounts and the Balance Sheet
A share premium account appears on the balance sheet, and is the amount of money paid for a share above the cost of the share. more Stock Dividend: What It Is and How It Works, With Example
Issue of Debentures: Accounting Treatment of Issue of ...
Disclosure of Share Capital in the Balance Sheet: Accounting Entries on Issue of Shares; ... Accounting Treatment of Issue of Debenture and Presentation of debentures in balance sheet (with format) Last Updated : 05 Apr, 2023. Improve. Improve. Like Article. ... On receipt of application money: 2. On transfer of application money to Debenture A ...