KDF1D Advanced Corporate Accounting and Accounting ... · Receiving applications for shares: 5% of...
Transcript of KDF1D Advanced Corporate Accounting and Accounting ... · Receiving applications for shares: 5% of...
KDF1D
Advanced Corporate
Accounting and
Accounting StandardsUnit : 1-5
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•Advanced problems in share capital
• Debenture transactions including underwriting
• Valuation of goodwill and shares
UNIT-1 (SYLLABUS)
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KDF1D-Advanced corporate accounting and accounting standards
Types of share capital
Issued
Capital
Authorized
Capital
Paid-Up
Capital
Subscribed
Capital
Called-Up
Capital
Un-Called
Capital
Calls in
Arrears
Un-Issued
Capital
Unsubscribed
Capital
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Authorized or Registered Share Capital
Maximum amount of capital, which a company is allowed to raise
during its lifetime.
Issued Capital
The portion of authorized capital, which has been issued to all the
investors including public
Subscribed Capital
The portion of the issued capital, which has been subscribed by all
the investors including the public
Called up Capital
The portion of the subscribed capital that has been called up by the
company for payments is the called up capital
Paid-up Capital
That part of called up capital, which has been paid up by the
subscribers of share capital
Cont ..
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Kinds of Shares
Preference
Shares Equity
Shares
Shares with difference
rights
Cumulative Non-cumulative
Participating Redeemable
Guaranteed
Deferred i.Dividend
ii.Voting rights
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Issue of shares can be classified as :
1. for full consideration --- a. for cash b. Non- cash
2. for consideration receivable as calls :
a. Receiving applications for shares: 5% of share value or 25%
of the issue price is received as application money.
b. Allotment of shares: receiving Min. subscription shares are
allotted.
. Without consideration- bonus shares.
. Rights issue, employee stock schemes, sweat equity.
Under subscription : Applications received less than issue.
Over subscription : Applications received more than issue.
Cont.
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Full allotment : Board of Directors make allotment to Applicants.
Partial allotment : Shares are partially allotted according to ratios.
Pro-rata allotment : Shares may be allotted proportionate to the
applications received excess appl. Money adjusted
towards allotment and calls.
Calls of shares : Call money is collected for the balance amount
after application and allotment money.
Calls-in-Arrears : When shareholder fails to pay the amount due
towards allotment/calls. 5% interest is charged.
Calls-in-Advance :Shareholders pay in advance towards calls not yet
made by the company. 6% interest is paid
Cont..
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Issue of shares
•Issue at Par Value : Shares are issued at the face value
•Issue of Shares at Premium : Shares are issued at a price higher than
their face value. Excess amount is share
premium transferred to Securities
Premium A/c.
•Issue of Shares at Discount : Shares are issued below their face
value. It is capital loss and to be shown
in B/S under Mis.Exp.
•Forfeiture of shares : A shareholder ceases to be member
because of default in payment of
allotment/call money.
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•Reissue of forfeited shares : They become property of the
company and can be reissued at
par or at discount or at premium.
They are fully or partly reissued.
•Issue of Bonus shares : Shares are issued to the existing
shareholders in settlement of the
bonus are ‘Bonus shares’-
process is Capitalisation of profits.
•Buy –back of shares : Repurchase of shares by the
company of its own shares .
•For Journal Entries follow the given link below.
•https://youtu.be/O4ajUPoOi-Y
Cont..
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Meaning - It is a contract entered into by the company with persons
or institutions for undertaking shares or debentures to subscribe for public. Underwriters
Underwriting of shares
• They guarantee subscription for a company ‘s shares and debentures. He takes financial risks.Underwriters
• An underwriter may appoint one or more sub-underwriters to under take work under them.Sub-underwriters
• A broker brings his customers and the company together for brokerageBrokers
• Managers are appointed to issue and fees is paid.
Managers to the issue
• For shares it should not exceed 5% and for debentures 2.5% of the issue price.
Underwriting commission
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o Pure underwriting - Public subscribes for entire issue.
a. Complete underwriting- Whole issue is underwritten.
b. Partial underwriting -Only a part of the issue is underwritten.
oFirm underwriting - Underwriter’s liability is partly definite and
partly contingent.
o Marked applications - Applications bearing the Marking or stamp of
the underwriter.
oUnmarked applications - Applications issued by the company to the
public directly.
oFirm underwriting applications- Underwriters in addition to the shares
underwritten take up firm’s shares.
Types of Underwriting
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Debentures -- It includes debenture stock, bonds and any other
securities of a Company, whether constituting a
charge on the assets of a Company or not. It is
‘creditor ship securities’ issued by the companies.
Classification of Debentures on the basis of
Security Permanence Priority Convertibility Recording
Debentures
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1. Issue of debentures for cash.
2. Issue of debentures for consideration other than cash.
3.Issue of debentures as Collateral Security.
4. Issue may be at ‘par’ or at ‘discount’ or at ‘premium’.
5. Redemption of debentures may be repayable at ‘par’ or at
‘discount’ or at ‘premium’.
https://www.youtube.com/watch?v=uTNC0Wk5YMk
Issue of Debentures
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Goodwill is the 'good name' or 'reputation' earned by a firm as it
trades.
To express the intangible but quantifiable "prudent value" of an
ongoing business beyond its assets.
The difference between the purchase price and the sum of the fair
value of the net assets is by definition the value of the "goodwill" of the
purchased company.
It has hopefully have a positive impact on the future turnover and
profits of the business.
Valuation of Goodwill and Shares
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Methods of valuation of Goodwill
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Average Profit Method Average Profit = Total Profits/ No. of Years Goodwill = Average Profit x No. of Years Purchased
Methods of valuation of Goodwill
Super Profit Method Super Profit = Actual Average Profit – Normal Profit Normal Profit = Average Capital Employed x Normal Rate of ReturnGoodwill = Super Profit x No. of Years Purchased
Capitalisaton methodCapitalised value of the business= Expected average net profit x 100
Normal rate of return
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Valuation of Goodwill
Annuity methodQ = 1-(1+ r/n)
r\100Goodwill = Average annual super profit x Annuity rate.
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Need for valuation of
shares
Purchase / Sale Raising loans Reconstruction
Amalgamation/absorption Assessment
Conversion of shares
When Nationalisation
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Methods of Valuation of
Shares
For formula view:
https://www.youtube.com/watch?v=89upaxHAMzo
https://youtu.be/uSt5wCOksM4
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UNIT II
• Acquisition
• Amalgamation
• Absorption and reconstruction (internal and external) schemes
• Statements for liquidation of companies
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AMALGAMATIONMEANING:-
When two or more existing companies combine together to form a
new company is known as Amalgamation .
For e.g. If a new co XY Ltd. Is formed to take over the business of two
existing companies, X Ltd. and Y Ltd. ,it is a case of amalgamation
https://youtu.be/LMfx-Y7LjU4
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ABSORPTION
MEANING:-
Term absorption is used when one or more existing
company goes into liquidation and some existing company
takes over its business.
Foe e.g. if the business of existing co X Ltd. Is taken over
by another co. Y Ltd. ,it is a case of absorption
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RECOSTRUCTION OF
COMPANIES
MEANING:-
Term is used when one existing company goes into liquidation
and a new co. is formed to take over its business.
Foe e.g. if a new company X (New) Ltd. Is formed to take
over the business of an existing co. X Ltd. Then it is a case of
External reconstruction
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Types of Amalgamation
• Amalgamation in the nature of merger
• Amalgamation in the nature of purchase
Amalgamation in the nature of merger includes:-
1. Transfer of all assets and liabilities
2. Same equity shareholders holding 90%
3. Purchase consideration in equity shares
4. Same business
5. Recording of Assets and liabilities at book value
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Methods of Accounting for Amalgamation
in the nature of merger
POOLING OF INTEREST METHOD:- It includes:-
Recording of assets and liabilities
Recording of Reserves( whether capital or revenue or arising on
revaluation)
Recording of balance of profit & loss A/c
Difference between the purchase consideration and the amount of
share capital of the transferor Co.
Uniform set of Accounting policies
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Amalgamation in the nature of
purchase
It is an amalgamation which does not satisfy anyone or more
of the condition specified for amalgamation in the nature of
merger.
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CALCULATION OF PURCHASE
CONSIDERATION
• https://youtu.be/yoY4Ypf6S9g
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Liquidation or winding up is a process by which a company is
dissolved.
The process of winding-up of a company is completed by
selling all its assets and paying all creditors in preferential
orders. For this purpose, a liquidator is appointed by the court to
complete the liquidation process.
The duties of the liquidator are to realize the assets, discharge
the liabilities and distribute the surplus, if any to the shareholders
Meaning of Liquidation
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Percentage On Assets Realized
Here, assets realized means the amount collected if Percentage
On Amount Distributed To Equity Shareholders
For the calculation of this commission, firstly the amount available for
equity shareholders should be ascertained. For finding out the amount
available for equity share holders, the following equation can be used:
Amount available = Total receipt - Total Payment ( up to the payment
made to preference shareholders)
If the amount available is sufficient for the payment of equity share
capital amount:
Commission = Equity share capital amount X Commission rate/100
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If the amount available is sufficient for the payment of equity share
capital amount:
Commission = Equity share capital amount X Commission rate/100
If the amount available is not sufficient:
Commission = Amount available X Commission rate/100+
Commission raterom the realization of fixed assets, current assets and
other assets, other than fictitious assets. The cash and bank
balance should not be included in total assets for the calculation of
remuneration. But in the question, if the cash and bank balance are
given in the list of assets, then cash and bank balance should be
included in the total assets for the calculation of remuneration
Cont..
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UNIT-III(SYLLABUS)
• Consolidated final statement of Holding companies and subsidiary
companies.
• inter-company holdings.
• owings -treatment of dividends
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A Holding company is one which controls one or more
other companies by means of:
a) Holding majority shares or
b) Controlling the composition of Board of directors
c) Controlling a holding company with subsidiary
Holding company
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Sec.4(4) of the Companies Act says
A company shall be deemed to be the holding company of
another, if, but only if, that other is its subsidiary
https://youtu.be/8POAFKkZ0W8
Subsidiary Company
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The consolidated profit & loss a/c of the holding
Company and it’s subsidiaries are prepared to show the
operating activities of the Companies.
The items appearing in the P&L a/c of both individual
companies are aggregated in the consolidated P&L a/c.
Consolidation of P&L A/c
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Cont..
While consolidating, the following adjustments has to be made:
profit and loss account in columnar form. Amounts relating to inter
company transactions are entered in the adjustment column and are
subtracted.
All inter company operating transaction such as purchase and sale
of goods, interest on loans among the companies are eliminated
All inter company profits are adjusted.
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Cont..
Dividends received by the holding company from the
subsidiary company should be eliminated.
Interest accrued and outstanding on debenture of the
subsidiary company held but the holding company should be
accounted by both and then eliminated
The balance in holding company columns will represent the
total profit or loss made by the company as a whole
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It is where the balance sheet of the holding company and the
subsidiary company is combined.
Few points to be kept on mind when consolidating:
Share of holding company and share of minority(outside
shareholders)
Date of balance sheet of the holding company and that of the various
other subsidiary companies must be same.
Inter company owing
Consolidation of Balance Sheet
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Minority interest is the share of the outsider in the following:
Share in share capital of subsidiary.
Share in reserves
Share in accumulated loss should be deducted.
Proportionate share of profit or loss on revaluation of assets.
Minority Interest
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The holding and the subsidiary company may have a number of inter
company transactions. Some are:
Loan advanced by the holding company to the subsidiary company or
vice versa.
Sale or purchase of goods on credit by the holding company from the
subsidiary company or vice versa.
Debentures issued by one company may be held by the other.
Inter Company Transactions
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UNIT-4
• Final statements of banking companies.
• Insurance companies Accounting for price level changes.
• Social responsibility accounting.
• Human resources Accounting
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Section 5 of banking regulation act defines banking as
―the accepting, for the purpose of lending or investment, of
deposit of money from the public repayable on demand or
otherwise and with drawable by cheque, draft, order or
otherwise.
DEFINITION
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Accounting System
• The accounting system of a banking company is different from that
of a trading or manufacturing company. A bank has a large number
of customers whose acc are to be maintained in such a way so that
these should be kept upto date.
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Features Of Banking Acc System
• Entries in the personal ledgers are made directly from vouchers.
• From such entries in personal acc each day summary sheets in total are prepared.
• The general ledger’s trial balance is extracted and agreed every day.
• A trial balance of detailed personal ledger is prepared periodically and get agreed with general ledger.
• Two vouchers are prepared for every transaction not involving cash-debit and credit voucher.
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Principal Books Of Accounts Are:
• Cash book:
This book gives the summary of the receiving cashier’s counter cash
book and paying cashier’s cash book.
• General ledger:
This ledger contains control acc for subsidiary ledger listed above
and acc of expenses and assets not covered by the subsidiary
ledger.
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Notes And Instruction For Compilation
• The formats of balance sheet and profit or loss account cover all items
likely to appear in these statement.
• The words ‘current year’ and ‘previous year’ used in the formats are only
to indicate the order of presentation and may not appear in account.
• Figures should be rounded off to nearest thousand.
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BANKING REGULATION ACT, 1949
THE FINAL ACCOUNTS OF BANK ARE IN VERTICAL FORMAT
THE FINAL ACCOUNTS CONSIST OF :-
a) PROFIT and LOSS ACCOUNT
b)PROFIT and LOSS APPROPRIATION ACCOUNT
c) BALANCE SHEET
THERE ARE 16 SCHEDULES IN THE FINAL ACCOUNTS OF BANKS.
https://youtu.be/Si87q8hVrgc
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Balance Sheet
PARTICULARS SCHEDULE NO.
Equity and Liabilities
Capital 1
Reserves and surplus 2
Deposits 3
Borrowings 4
Other liabilities 5
Total
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Assets
Cash in hand and with RBI 6
Balance with other banks and money at
Call and short notice 7
Investments 8
Advances 9
Fixed assets 10
Other assets 11
Total
CONTINGENT LIABILITIES 12
Cont….
PARTICULARS SCHEDULE NO.
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PROFIT AND LOSS ACCOUNT
INCOMES:-
Interest earned 13
Other incomes 14
TOTAL(A) EXPENDITURE:-
Interest expanded 15
Operating expenses 16
Provision and contingencies
TOTAL (B)
PROFIT (A-B)
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TYPES OF INSURANCE
LIFE INSURANCE
GENERAL INSURANCE
Preparation of Final Accounts of Life Insurance:
The preparation of final accounts must be made in accordance
with the provisions of the Insurance Act, 1938, together with its
prescribed forms.
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FORMS of final accounts prescribed by
the Insurance Act, 1938, are:
(i) FORM A: Form of Balance Sheet—both for Life and General
Insurance.
(ii) FORM B: Form of Profit and Loss Account—both for Life
and General Insurance.
(iii) FORM C: Form of Profit and Loss Appropriation—both for Life and
General Insurance.
(iv) FORM D: Form of Revenue Account—for Life Insurance only.
(v) FORM F: Form of Revenue Account—for General Insurance only.
(vi) FORM I: Valuation Balance Sheet.
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Life Insurance Revenue Account
(a)Premium (Schedule 1)
It includes:
(i) Premiums;
(ii) Re-insurance ceded;
(iii) Re-insurance accepted.
(b) Income from Investment:
These include:
(i) Interest Dividends; Rent;
(ii) Profit on sale/redemption of investments;
(iii) Loss on sale/redemption of investments;
(iv) Transfer/Gain on revaluations, etc.
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Cont….
( c) Commission (Schedule 2)
Commission is paid on premium paid by the policyholders on first
year, or on renewal or on single premium. The life insurance companies
pay premium to their agents. In case of re-insurance, commission is
paid to other companies.
(d) Operating Expenses (Schedule 3)
Operating expenses include office and administration, selling and
distributions expenses and comes under the head Schedule 3. These
expenses include: Rents, Rates and Taxes, Training Expenses,
Depreciation, Repairs, Auditor Fees etc.
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Cont…
(e) Benefits paid (Net) (Schedule 4)
It includes:
(i) Annuities;
(ii) Surrenders; and
(iii) Claims.
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Profit and Loss Account
The incomes or expenses which are not related to any
particular fund are recorded in this account (including tax payable
to Government).
It is practically the Profit and Loss Account of a business as a
whole. It highlights the amount of profit paid to the shareholders
and the amount that is transferred to any particular fund.
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Balance Sheet
As per IRDA Regulation, a Balance Sheet is divided into two parts:
(a) Sources of Fund; and
(b) Application of Funds.
Sources of Fund
The first one under this head is the Shareholders’ Fund. Under the head,
various classification of capital is to be shown separately (viz, Authorized
Capital, Issued Capital, etc.).
Application of Funds
It must be remembered that Shareholders’ Fund and Policyholders
Fund are to be shown separately
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UNIT-V
• Basic postulates of accounting theory
• Generally accepted accounting principles
• Practices recommended by the ICAI
• Mandatory Accounting Standards (AS) issued by the ICAI
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