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.
RESERVES AND SURPLUS
• 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
 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 debentures

Profit &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.
 - Rs Rs
INCOME Schedule
- No.
-
-
-
-
-
-
Net Sales -- - - -
- - - -
Other income - - -
Total income -
-
-
-
-
-
(less) EXPENDITURE - - -
- - -
Manufacturing expenses - - -
(+/-)Stock adjustment - - -
- -
Cost of goods sold - -
- -
Administration expenses - -
Selling and Distribution expenses - -

Depreciation
Profit before interest and tax
Interest
Profit before tax
Provision for taxation
Net profit after tax
Balance broadband from previous year
Profit available for appropriation
Appropriations
Tanseffered to general reserve
Transferred to capital reserve
Interim dividends paid
Proposed dividends
Balance carried to balance sheet
Profit and Loss Appropriation Account

Credit Items (Ready for appropriations this year)

1. Net Profit b/d /Retained Profit b/d/Unappropriated Profit b/d

This is the net profit brought down from last year. This portion of profit had not
been 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. Dividends
Two 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 each
10% 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.

t has not been paid in the year and therefore is treated as a
CURRENT LIBAILITY in the Balance Sheet. It should be recorded
n BOTH the Profit and Loss Appropriations Account and
BALANCE SHEET.

Double-entry : Debit _________________________________

Credit _______________________________
(c) Tax Paid
Limited Company needs to pay Profits Tax. It should be recorded in the
Appropriations Account.

Double-entry : Debit ________________________________

Credit _______________________________
* If the tax has not been paid:
Debit ________________________________

Credit ______________________________

(d) Preliminary expenses/Formation expenses written off

Preliminary 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