Accounting for share Capital Test - 5

Authorised capital is to be stated in the Memorandum of association of a company. Authorized capital is also known as nominal capital of the company.

There is no limit of securities premium on issue of shares. Share of a company whose face value is Rs.10 can be issued at a price of 300 Rupees (including premium 290).

 A company cannot issue its shares at discount.It can only issue shares at par and premium.

A company is not a natural person. Following three points are correct about a company:
1.Company is an Artificial Person
2.Company has separate entity
3.Company has a common seal

Sweat equity shares” are such equity shares, which are issued by a Company to its directors or employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

A company cannot use securities premium reserve as working capital. It can use securities premium for the following purpose:
•Writing off preliminary expenses
•Issuing fully paid bonus shares to the shareholders
•Buy back of shares

At the time of forfeiture of shares, share capital account should be debited with the called up amount and not with the face value or paid up amount etc.(i.e. number of shares forfeited x called up amount per share)

If a company receives any excess amount on application and pro-rata allotment is made to such applicants, in such a case, excess money received should be adjusted on the allotment first.

When the public company does not have its own Articles of Association, in such a case Table F will be applicable. For private company it is compulsory to have articles of association.

When a company buy fixed assets or a running business and make payment through equity shares in such a case number of shares to be issued to the vendor should be calculated as follows:
Purchase Consideration/ Issue Price of share