Group members: 61-68

SHARE CAPITAL

• Equity share capital

• Preference share Capital

Equity share capital• Invested money that, in contrast to debt capital, is not

repaid to the investors in the normal course of business. It represents the risk capital staked by the owners through purchase of the firm's common stock (ordinary shares).

• Funds raised by issuing shares in return for cash or other considerations. The amount of share capital a company has can change over time because each time a business sells new shares to the public in exchange for cash, the amount of share capital will increase.

• Also known as "equity financing".

Preference share Capital

• Capital stock which provides a specific dividend that is paid before any dividends are paid to common stock holders, and which takes precedence over common stock in the event of a liquidation.

• Capital reserve.• Capital redemption reserve.• Share premium.• Sinking fund.• Other reserve .• Less-Debit balance in profit & loss account (if any)• Securities premium• Profit &loss credit balance• Debenture redemption reserve• Contingency reserve• Workmens compensation fund

RESERVES AND SURPLUS

Capital reserve.• A type of account on company's balance sheet that is reserved for

long-term capital investment projects or any other large and anticipated expense(s) that will be incurred in the future. This type of reserve fund is set aside to ensure that the company has adequate funding to at least partially finance the project.

• Contributions to the capital reserve account can be made from government subsidies, donated funds, or can be set aside from the firm's or municipality's regular revenue-generating operations. Once recorded on the reporting entity's balance sheet, these funds are only to be spent on the capital expenditure projects for which they were initially intended, excluding any unforeseen circumstances.

Capital redemption reserve.

A reserve created if a company purchases its own shares in circumstances that result in a reduction of share capital. It is a reserve that cannot be distributed to the shareholders and thus ensures the maintenance of the capital base of the company and protects the creditors' buffer (which gives creditors confidence to invest in the company, e.g. as suppliers or debenture holders).

Share premium

• Excess amount received by a firm over the par value of its shares. This amount forms a part of the non-distributable reserves of the firm which usually can be used only for purposes specified under corporate legislation.

Sinking fund.

• A means of repaying funds that were borrowed through a bond issue. The issuer makes periodic payments to a trustee who retires part of the issue by purchasing the bonds in the open market.

• Rather than the issuer repaying the entire principal of a bond issue on the maturity date,  another company buys back a portion of the issue annually and usually at a fixed par value or at the current market value of the bonds, whichever is less. Should interest rates decline following a bond issue, sinking-fund provisions allow a firm to lessen the interest rate risk of its bonds as it essentially replaces a portion of existing debt with lower-yielding bonds.

Debenture redemption reserve

• A provision that was added to the Indian Companies Act of 1956 during an amendment in the year 2000. The provision states that any Indian company that issues debentures must create a debenture redemption service to protect investors against the possibility of default by the company.

Contingency reserve

• Alternative term for contingent fund.

• An amount of money established from retained earnings to allow for unforeseen losses in business.

Workmen's compensation fund

• Workers who are affected by occupational injuries and diseases are entitled to compensation

Miscellaneous expenses

• Preliminary expenses

• Brokerage on issue of shares and debentures

• Underwriting commission on issue of shares and debentures

• Discount on issue of shares and debenturesProfit &loss debit balance

Preliminary expenses

• Expenses incurred to the formation of a company are called ‘Preliminary Expenses’. Preliminary expenses include the following:(a) Expenses incurred in order to get the company registered.(b) Expenses incurred for the preparation, printing and issue of prospectus.(c) Cost of preliminary books and Common Seal.(d) Duty payable on Authorized Capital.(e) Underwriting Commission etc.

Underwriting commission on issue of shares and debentures

• Underwriting is an agreement, entered into by a company with a financial agency, in order to ensure that the public will subscribe for the entire issue of shares or debentures made by the company. The financial agency is known as the underwriter and it agrees to buy that part of the company issues which are not subscribed to by the public in consideration of a specified underwriting commission.

• This commission paid to the financial agency is called as the Underwriting commission on issue of shares and debentures

Discount on issue of shares and debentures

Profit &loss debit balance

• DEBIT BALACE OF P/L A/C MEANS : IN P/L A/C, DEBIT SIDE IS HEAVIER THAN CREDIT SIDE.AS-DEBIT SIDE REPRESENTS THE EXPENSES AND CREDIT SIDE REPRESENTS THE INCOMES,THEN IN THIS SITUATION EXPENSES IS HEAVIER THAN INCOME.AND THIS IS ABSOLUTELY CALLED AS LOSS.

Schedule No. - -

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INCOME Net Sales Other income Total income (less) EXPENDITUREManufacturing expenses(+/-)Stock adjustment Cost of goods soldAdministration expensesSelling and Distribution expensesDepreciationProfit before interest and tax InterestProfit before tax Provision for taxationNet profit after taxBalance broadband from previous yearProfit available for appropriationAppropriations Tanseffered to general reserve Transferred to capital reserve Interim dividends paid Proposed dividendsBalance carried to balance sheet

- - - - - - - - - - - -

Rs - - - - - - - - - - - - - - - -

Rs - - - - - - - - - - - - - - - -

Profit and Loss Appropriation Account

Credit Items (Ready for appropriations this year)

1. Net Profit b/d /Retained Profit b/d/Unappropriated Profit b/dThis is the net profit brought down from last year. This portion of profit had notbeen apportioned.Debit Items (Deductions from appropriations)

1. Transfers to General Reserves ( )The directors may decide to transfer some of the profits to reserves. There aretwo types of reserves – Fixed Reserves and General Reserves. The use of fixed reserves is restricted to specific purpose but the use of General Reserves is for general purpose.Double entry: Debit ___________________________________Credit ________________________________

2. DividendsTwo kinds of dividends – preference dividend and ordinary dividend.Calculate the following:8% 50,000 Preference Shares at 10 each 200,000 Ordinary Shares at 10 each10% dividend is proposed

The company may distribute dividend 2 times in a financial year –

(a)Interim Dividend : It is distributed in the middle of the year. The interimdividend had been paid. It is only recorded in the Appropriations Account but NOT in the Balance Sheet.

Double-entry : Debit ________________________________Credit ______________________________

(b) Final/Proposed Dividend : It is distributed at the end of the year. It has not been paid in the year and therefore is treated as a CURRENT LIBAILITY in the Balance Sheet. It should be recorded in BOTH the Profit and Loss Appropriations Account and BALANCE SHEET.

Double-entry : Debit _________________________________Credit _______________________________

(c) Tax PaidLimited Company needs to pay Profits Tax. It should be recorded in theAppropriations Account.

Double-entry : Debit ________________________________Credit _______________________________* If the tax has not been paid:Debit ________________________________

Credit ______________________________

(d) Preliminary expenses/Formation expenses written offPreliminary expenses is the expenses paid before the company is set up. These include, e.g. legal expenses, expenses in issuing shares, etc. It is a one- off Expenses and therefore should not be treated as normal expenses in the profit and loss account. It should be written-off in the Appropriations account over a number of years.Example:Preliminary expenses is $20,000. It is decided to write off over 5 years