Duration: 60

mins
Slides: 17

LMT SCHOOL OF MANAGEMENT, THAPAR

UNIVERSITY
Masters of Business Administration

Course: Financial Reporting and Analysis

Faculty: Dr. Sonia Garg (Email:
sonia.garg@thapar.edu)

Session 7: Process of Preparation of Financial

Statements for Corporate Entities

Basic Features of Company

Registration: Register with the Registrar of Companies under the
Companies Act 1956
Registration process involves registration of two important documents
Memorandum of Association: name of company, name of state of
registered office, objects of company, statement of liability,
authorized share capital, no. of shares taken by each subscriber
Articles of Association: Rules for internal management (issue of
shares and debentures, rights of members, shareholders meetings,
appointment of directors, board meetings, buy back, etc)
Preliminary Expenses: expenses incurred in company formation
Board of Directors: Promoters/eminent person who look after the
business of the company

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Process of Preparation of Financial

Statements for Corporate Entities

Types of Companies
Public Limited

Private Limited

Limited/Ltd.
Minimum 7 members
or shareholders
Can raise capital from
public
Minimum 90%
subscription required
before allotment

Private Limited/Pvt.
Ltd.
Minimum 2 and
maximum 50
shareholders
Kept away from public
domain

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Process of Preparation of Financial

Statements for Corporate Entities

Example of Shares to be taken by

shareholders/members in MoA

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Statements for Corporate Entities

Share Capital
Authorized Capital: Maximum capital that a company may raise authorized
by its MoA
Issued Capital: is that part of the authorized capital which the company
has actually issued at a given point in time
Subscribed capital: is that part of the issued capital that has been actually
subscribed to by the investors (Co. can go ahead with allotment only if
90% of the issued is subscribed to)
Called-up capital: is that part of the subscribed capital that the company
has actually called on the investors; this may be done in trenches: partly
on application, partly on allotment and the balance in one or more calls
Paid-up capital: is that part of the called-up capital that is fully paid by the
investor
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Process of Preparation of Financial

Statements for Corporate Entities

Types of Capital
Preference Share Capital: have preferential rights in
respect of fixed dividends and repayment of capital
in case of liquidation
Equity Share Capital: residual right- the real owners
of the company
Public Issue Expenses: fees to managers to the issue
and legal advisers, fees paid to SEBI, fees to ROC,
underwriting commission, brokerage to members of
stock exchange, printing and publication of
application forms, advertising, etc.
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Process of Preparation of Financial

Statements for Corporate Entities

Accounting treatment of Share

Capital

(1) Example of Private Limited

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(2) Example of Public Limited

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12

Share Capital in Balance

Sheet

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Statements for Corporate Entities

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Forfeiture of Shares
If in the above example, the company decides to
forfeit the 4 lac shares on which the first call
money of Rs. 2 has not been paid by the 100
share holders. This means
The 4 lac shares will be treated as unsubscribed
Rs. 24 lac already paid by the shareholders stands
forfeited
Call-in-Arrears of Rs. 8 lacs is automatically no more
due

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Statements for Corporate Entities

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Note:
1. Now 1.36 crore shares are subscribed instead of 1.4 crores
2. Some companies show the amount paid-up on shares forfeited
as a reserve

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Statements for Corporate Entities

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Issue of shares for consideration other

than cash: when a company purchases
another business it may issue capital
in lieu of paying cash
The effect of purchasing land woth 1.5
crores for 15 lac shares is shown below

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Statements for Corporate Entities

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Statements for Corporate Entities

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