Corporate Accounting Notes

Corporate Accounting Notes

UNIT-I

Share Issue, Forfeiture and Re-issue

  • Definition of Shares: A share represents a portion of a company's capital and entails certain rights and obligations for the shareholder. It can be partial or fully paid, with a fixed value.

  • Types of Shares:

  • Equity Shares: Provides ownership and voting rights but dividends depend on profit.

  • Preference Shares: Given preference for dividends and repayment during liquidation. Types include:

    1. Cumulative Preference Shares: Arrears accumulate if unpaid.

    2. Redeemable Preference Shares: Can be paid back after a fixed time.

    3. Participating Preference Shares: Right to excess profits after dividends

Characteristics of Shares

  • Fixed value, identifiable by serial number, owners of the company, can be sold, mortgaged, or transferred.

Issue of Shares

  • At Par: Issued at face value.

  • At Premium: Issued above face value.

  • At Discount: Issued below face value.

  • Journal Entries include bank account debits and share capital credits accordingly.

Forfeiture of Shares

  • Occurs when shareholders fail to pay required amounts. Procedure:

  1. Directors pass a resolution for forfeiture.

  2. Defaulting shareholders are notified.

  3. Forfeited amounts are transferred to a separate account.

  • Journal Entries: Debit Share Capital, credit Forfeiture Account.

Key Points on Redemption of Shares and Debentures

  • Preference and equity shares can be redeemed based on company policies, decreed in law (Companies Act, 2013).

UNIT-II

Financial Statements

  • Definition: Financial statements summarize the financial performance and position of an organization over a specific period.

  • Components: Income Statement, Balance Sheet, Cash Flow Statement, Statement of Changes in EquitHomey.

  • Utility: For management decision-making, investment analysis, credit evaluations, etc.

Final Accounts of Company

  • Transactions are recorded as per the Companies Act, adhering to specified formats. Presentation should ensure a 'true and fair' view of the financial condition.

Valuation of Goodwill

  • Goodwill Definition: Intangible asset representing the excess value of the business beyond its tangible assets. Factors include business reputation, customer relations, profitability, etc.

  • Methods of Valuation:

  1. Average Profit Method

  2. Super Profit Method

  3. Capitalization Method

UNIT-III

Valuation of Shares

  • Necessity: Required during mergers, company sales, share transfers, or shareholder changes.

  • Types: Par Value, Market Value, Book Value, Intrinsic Value.

  • Methods: Net Assets method, Yield method, and Fair Value method used to determine share valuations.

Amalgamation of Company

  • Definition: Combination of two companies into a single entity, resulting in shared management. Can be an amalgamation in the nature of merger or purchase.

  • Objectives: Reduce competition, achieve economies of scale, stabilize financial and operational structures.

UNIT-IV

Internal Reconstruction

  • Purpose: To adjust the financial structure without liquidating the business. It includes share capital reduction and changes in asset values.

Accounting Standards

  • AS-21: Governs preparation of consolidated financial statements, aiming for clarity and comprehensive information regarding parent-subsidiary relationships.

Consolidated Balance Sheet

  • A financial statement that presents the financial position of the holding company and its subsidiaries as a single entity. It includes all assets, liabilities, revenues, and expenses consolidated from both entities.

Example Portion for Preparation

  1. Determine the minority interests.

  2. Consolidate revenues and profits/losses.

  3. Adjust for any unrealized profits between holding and subsidiary companies.

Conclusion

  • Understanding corporate accounting principles, including share capital management, amalgamation, and financial reporting standards, is crucial for anyone in accounting or finance roles. Methodical documentation and adherence to legal frameworks are essential in ensuring accuracy and compliance for shareholders and stakeholders.