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Accounting terms
share capital and others……

Types of Company 
• Private 
– Minimum Capital of Rs. 100000
– 2 to 200 members/owners
– No public issue allowed
• Public company
– Minimum capital of Rs. 500000
– 7 to unlimited shareholders
– Public issue through prospectus

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• One person company
– Allowed since 2013

• Dormant company
– Registered for future project
– No significant accounting transactions

• Holding company
– Company which has one or more subsidiaries

• Subsidiary company
– More than half of the capital and control of BOD 
is with holding company
• Government company 
– At least 51% shares with the central and/or state 
government 

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Registering a company
• Promoter getting an idea
• Filing documents with ROC
• Getting incorporation certificate (Pvt. Co. 
starts immediately after this)
• Issuing prospectus (IPO)
• Commencing business

Important documents
• Memorandum of association (MOA)
– Name, HO address, Capital requirement, objective 
etc.
• Articles of Association
– Internal functioning
– Meetings, agenda, notices etc.

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Share Capital 

• Authorized capital
– Maximum capital to be collected as mentioned in 
MOA
– Can be changed only with permission from ROC

• Issued capital
– Issued to public in IPO

• Subscribed capital
– Subscribed by public as response through IPO
• Called up
– Asked by company at different stage
• Paid up
– Actual amount paid by the shareholders

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Types of Shares
• Each share has face value/nominal value
• Equity  (Common Stock)
– IPO
– Bonus
– Right
• Preference (Preferred stock)

• Equity Shares/Common Stock
– Permanent capital
– Voting rights
– Dividend based on declaration 
• Preference Shares/Preferred Stock
– For limited period/redeemable
– Limited voting rights
– Fixed dividend
– Preference over equity shareholder in getting 
dividend and money back at the time of winding

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• Bonus shares/stock dividend 
– Issued to equity shareholders
– Free of cost
– From reserves
• Right shares
– Issued to existing equity holders
– Like IPO there is right issue

Face Value/Par Value
• If the issue price per equity share is INR500 or 
more, the face value determined to be at less 
than INR10 per equity share 
• The face value should not be less than INR1 
per equity share.
• If the issue price per equity share is less than 
INR500, the face value determined to be 
INR10 per equity share. 

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• http://www.moneycontrol.com/stocks/marketinfo/bonus/

• http://www.moneycontrol.com/pehlakadam/primarymarketsmain.
php#issuetypes

• http://www.moneycontrol.com/ipo/ipoissues/ipoissues.php?s=LI

• http://www.sebi.gov.in/faq/pubissuefaq.pdf

• http://www.businesstoday.in/magazine/money/the‐facevalue‐
trap/story/4324.html

Dividend 
• Share from the profit distributed to the 
shareholder
• First preference dividend is paid than equity 
dividend
• Based on face value of shares
• Once declared it is mandatory
• Interim or final 
• Unclaimed dividend: if shareholders does not 
collect on time, it is liability for the company 

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• http://economictimes.indiatimes.com/news/e
conomy/finance/budget‐2016‐with‐10‐tax‐on‐
dividend‐income‐rush‐of‐interim‐payouts‐
likely/articleshow/51217301.cms
• http://www.business‐
standard.com/article/markets/companies‐
rush‐to‐announce‐dividends‐to‐avoid‐tax‐
outgo‐in‐april‐116030300224_1.html

Debentures 
• Debt instrument to finance business
• Fixed Interest to be paid mandatorily
• Redeemable after specific period
• Secured or unsecured

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Loans 
• Borrowed from banks or financial institutions
• Long term or short term
• Secured or unsecured

Provisions vs. reserves
• Reserve is created from profit, provision is 
created against loss or liability
• Reserve is to strengthen future financial 
position; provision is more to meet near 
future liability or loss

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Tax 
• Advance tax on quarterly basis
• Provision for tax based on estimation
• Current vs. deferred tax 

Buyback of Shares
• The term buyback of shares implies the act of purchasing 
its own shares by a company either from free reserve, 
securities premium, or proceeds of any shares or securities. 
• Company opts for buyback when they have excess cash 
surplus. Buy back signals to the stock market that 
companies’ shares are underpriced and company is willing 
to pay cash to buy back and cancel the shares. 
• A company can buy its own shares either from the existing 
equity shareholders on a proportionate basis, open market, 
odd lot shareholders, or employee of the company 
pursuant to a scheme of stock option or sweat equity.

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• https://www.business‐
standard.com/article/markets/28‐companies‐
announce‐buyback‐plans‐aggregating‐rs‐213‐
billion‐118062000284_1.html

• https://economictimes.indiatimes.com/marke
ts/stocks/news/lts‐share‐buyback‐plan‐is‐
expected‐to‐be‐the‐first‐of‐
many/articleshow/65481799.cms

• http://profit.ndtv.com/news/market/article‐coal‐india‐
slips‐as‐buyback‐offer‐disappoints‐market‐1430453
• http://profit.ndtv.com/news/corporates/article‐coal‐india‐
seeks‐shareholder‐nod‐for‐rs‐3‐650‐crore‐share‐buyback‐
1433525
• http://archive.indianexpress.com/news/reliance‐industries‐
share‐buyback‐closes‐gets‐38‐‐of‐target/1062121/
• http://www.business‐
standard.com/article/markets/buybacks‐on‐india‐inc‐s‐
radar‐as‐dividend‐tax‐goes‐up‐116042500861_1.html
• http://economictimes.indiatimes.com/markets/stocks/new
s/cash‐rich‐indian‐companies‐take‐buyback‐route‐to‐
reward‐investors/articleshow/52529544.cms

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Stock splits
• A stock split or stock divide increases the 
number of shares in a public company. 
• for example, a company with 100 shares of stock 
priced at Rs.10 per share. (Rs. 1000)
• The company splits its stock 2‐for‐1. 
• There are now 200 shares of stock and each 
shareholder holds twice as many shares. 
• The price of each share is adjusted to Rs.5. 
• The shares value is 200 × Rs.5 = Rs.1000, the 
same as before the split.

• https://economictimes.indiatimes.com/marke
ts/stocks/news/over‐50‐companies‐split‐
shares‐in‐fy17‐will‐mrf‐or‐eicher‐follow‐suit‐
in‐fy18/articleshow/58006595.cms

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• http://www.business‐
standard.com/article/markets/five‐
companies‐approves‐stocks‐split‐in‐last‐week‐
115081700346_1.html
• http://money.livemint.com/iid85/company‐
splits‐value/equity.aspx

• http://articles.economictimes.indiatimes.com
/2014‐11‐20/news/56304010_1_india‐gains‐
state‐bank‐stock‐split

• http://www.livemint.com/Companies/fGkQH
wk6QXsVXA6R3d5dbM/Bank‐of‐Baroda‐
becomes‐8th‐bank‐to‐approve‐stock‐split‐
this.html

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• http://economictimes.indiatimes.com/market
stats/pid‐27,companyid‐0,year‐0,pageno‐
1,filtertype‐latest,sortby‐3,sortorder‐asc.cms

Other important regulations as per 
Companies Act 2013
• At least one female director
• An individual can be director of 15 companies
• Mandatory auditor rotation after 5 years
• 2% of net profit as CSR

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Net worth
• the aggregate value of the paid‐up share 
capital 
• and all reserves created 
• after deducting the aggregate value of the 
accumulated losses, deferred expenditure and 
miscellaneous expenditure not written off

Example 

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Year 1 beginning
• ABC Ltd. issues 10000 shares in an IPO at 
Rs.100 (par/face value Rs.10)
• Oversubscription – 2 times

Liabilities Assets

Equity (at par 
10000@10) 100000Cash 1000000

Securities Premium 900000

1000000 1000000

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Year 1 ending 
• Profit earned  Rs.200000
• Other assets Rs.500000
• Other liabilities Rs.300000

Liabilities Assets

Equity (at par 
10000@10) 100000Cash 1000000
Reserves and surplus 
(incd. Securities  Other 
Premium) 1100000 Assets 500000
other liabilities 300000

1500000 1500000

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Year 2
• Company declares bonus/stock dividend 1 for 
every 2 shares held

Accounting effects
• New shares 5000 without receiving cash 
• Use existing reserves

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Liabilities Assets

Equity (at par 
15000@10) 150000Cash 1000000
Reserves and surplus 
(incd. Securities  Other 
Premium) 1050000 Assets 500000
other liabilities 300000

1500000 1500000

Year 3
• Company decides to go for buyback (stock 
repurchase) of their shares (1 for every 3 
shares)
• At Rs. 120 (MP RS.115)
• Assume buyback is successful

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Accounting effects
• 5000 shares to be cancelled
• Cash returned to shareholders @ Rs.120 
(Rs.10 FV and RS.110 premium)

Liabilities Assets

Cash 
Equity (at par  (1000000‐
10000@10) 100000 600000) 400000
Reserves and surplus 
(incd. Securities 
Premium) (1050000‐ Other 
550000) 500000 Assets 500000
other liabilities 300000

900000 900000

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Year 4 
• Right issue (only to existing share holders)
• Offered 1 for every 2 shares at Rs. 90 (10 FV 
plus 80 premium)
• 50% shareholders agrees

Accounting effects
• Cash received (2500*90)
• Par value (2500*10)
• Premium (2500*80) 

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Liabilities Assets

Equity (at par  Cash
12500@10) 125000 (400000+225000) 625000
Reserves and surplus 
(incd. Securities 
Premium) 
(500000+200000) 700000Other Assets 500000
other liabilities 300000

1125000 11250000

Year 5
• Stock splits announced in the ratio of 2:1

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Liabilities Assets

Equity (at par  Cash
25000@5) 125000 (400000+225000) 625000
Reserves and surplus 
(incd. Securities 
Premium) 
(500000+200000) 700000Other Assets 500000
other liabilities 300000

1125000 11250000

Dividend/cash dividend
(Accounting equation)
• When declared
Dividend ‐ expense/P&L Account/RE  (     )              
Dividend payable – liabilities (     )

• When paid
Dividend payable – liabilities (     )
Cash  ‐ Assets (     )

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• https://www.sebi.gov.in/legal/regulations/jun‐
2018/securities‐and‐exchange‐board‐of‐india‐
issue‐of‐capital‐and‐disclosure‐requirements‐
regulations‐2009‐last‐amended‐on‐february‐
12‐2018‐_39242.html

• https://assets.kpmg.com/content/dam/kpmg/
in/pdf/2018/02/The‐SEBI‐ICDR‐and‐Listing‐
Regulations.pdf

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