Questions
8–10 questions in accounting-based PSU/CUET papers
Difficulty
Medium-Hard
Importance
High yield for PSU Finance exams and CUET Commerce
Overview
Company Accounts form the bedrock of corporate accounting, focusing on the capital structure, debt instruments, and financial reporting mandated for public and private limited companies. Mastery of this topic is essential for competitive exams as it tests both procedural bookkeeping and the analytical application of accounting standards required for evaluating financial health.
Issue of Shares and Debentures
This subtopic covers the accounting treatment for raising capital via equity or debt. Aspirants must focus on the journal entries for application, allotment, and calls, specifically handling instances of oversubscription and pro-rata allotment.
- Oversubscription: Excess money is either refunded or adjusted against allotment.
- Security Premium Account: Must be treated as per Section 52 of Companies Act, 2013.
- Pro-rata calculation: Surplus = (Shares applied - Shares allotted) * Application price.
- Debenture issue at discount: Discount on issue is a capital loss to be written off.
- Interest on Calls-in-Arrears: Charged as per Table F at 10% p.a.
Forfeiture and Reissue of Shares
Forfeiture involves the cancellation of shares due to non-payment of calls, requiring the reversal of share capital and forfeiture accounts. Reissue allows the company to sell these shares at a discount provided the total discount does not exceed the amount already forfeited.
- Debit Share Capital with the called-up amount per share.
- Credit Share Forfeiture with the amount actually received.
- Reissue Price: Cannot be lower than the amount unpaid on the original share.
- Capital Reserve: Transferred balance of Forfeiture account after adjusting losses on reissue.
- Formula: Capital Reserve = (Amount forfeited on reissued shares) - (Discount on reissue).
Financial Statements of Companies
Financial reporting for companies must strictly adhere to Schedule III of the Companies Act, 2013. Understanding the presentation of Balance Sheets and Statements of Profit and Loss is crucial for analyzing company liquidity and solvency ratios.
- Vertical format for Balance Sheet is mandatory.
- Classification into Current and Non-Current assets/liabilities is fundamental.
- Share Capital must be disclosed with authorized, issued, subscribed, and paid-up values.
- Reserves and Surplus: Disclosed under Shareholders' Funds.
- Notes to Accounts are as important as the main financial statements.
Redemption of Debentures
This involves the repayment of debt capital, usually out of profits (DRR) or fresh issue of shares. Understanding the specific reserve requirements and the impact on the balance sheet is vital for solving complex problems.
- DRR requirement: 10% of the value of outstanding debentures before redemption.
- Redemption out of capital vs. redemption out of profits.
- Cum-Interest vs. Ex-Interest prices for open market purchases.
- Interest on debentures is a charge against profits.
- Profit on cancellation of own debentures transferred to Capital Reserve.
Formula Sheet
Amount forfeited = (Shares forfeited * Application/Allotment/Call money received)
Capital Reserve = (Forfeited amount per share - Loss on reissue per share) * Number of reissued shares
DRR = 10% of Nominal value of debentures
Shares to be allotted = (Total shares available / Total shares applied) * Applied shares per category
Exam Tip
Always verify the 'called-up' value versus the 'paid-up' value before calculating capital reserve, as using the wrong face value is the most common cause of calculation errors in MCQ exams.
Common Mistakes
- Confusing the treatment of Securities Premium account in the forfeiture entry.
- Incorrectly calculating pro-rata adjustments when application money is adjusted against calls-in-advance.
- Forgetting to create Debenture Redemption Reserve (DRR) where applicable by law.
More Revision Notes
Ready to test yourself?
Play topic-wise Company Accounts questions in Aspirant Arcade — gamified MCQ practice.
Download Free