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CPT Section A, Chapter 9, Fundamental of Accountancy, Unit I

CA. Shakuntala Chhangani smchhangani@yahoo.com

To understand the need for company

To understand the meaning of the company

To know about the features of a company

To know about the books of accounts to be maintained by the company

To give glimpse of revised Schedule VI Balance Sheet and Profit and Loss Account

Summary of the unit

Practical Questions solution practice

Why company?

One of the best institutional form for business entity

The term company is derived from latin words

“com” i.e. together

“panies” i.e. bread

• “a corporation formed and registered under the Companies Act 1956 or an existing company formed and registered under any of the previous laws for the time being in force.”

Under companies Act, 1956:

• “ a company is an artificial person created by law with a perpetual succession and a common seal.”

According to Lord Justice

Henry:

Incorporated association

Separate legal entity

Perpetual succession

Common seal

Limited liability

Distinction between ownership and management

Not a citizen

Transferability of shares

Maintenance of books of accounts

Periodic audit

Right of access to information

Statutory company:

• Created under special Act of state legislation or parliament

• Formed for special purpose • E.g. state bank of India, Unit trust of India, Reserve

Bank of India, LIC of India etc.

Audit of accounts by CAG

Accountable to state legislature or parliament

Defined u/s 617 of companies Act

A Govt. Co. means any company in which not less than 51% of the PAID UP CAPITAL is held by the

Central Govt. or

State Govt / Govts.

Partly by central govt and partly by state govt / govts and

Includes a company which is a subsidiary of govt co.

A foreign co. is one which is incorporated outside India but has a place of business in India.

U/s 4(1), a company is deemed to be subsidiary of other company if and only if:

That other company holds > 50% of the nominal value of its equity share capital; or

That other company controls the composition of its board of directors

If the co. is the subsidiary of any co. which, in turn, is the subsidiary of that other co.

If a company is registered outside India, a subsidiary or holding of that co. as per foreign laws will be deemed to be a subsidiary or holding co. for the purpose of Companies Act, 1956 irrespective of the above conditions.

• “A company is deemed to be the holding company if the other company is its subsidiary Co.”

• Holding co. ----- Parent Co.

U/s 4(4) of the

Companies Act, 1956

• “Registered company is one which is registered under The Companies Act, 1956”

Registered Company

• A Co. in which the liability of the shareholder is limited to the ISSUE PRICE of the shares subscribed by him is called Limited Liability Co.

Limited Liability

Company

• A Co. in which liability of shareholder is not limited to the issue price of the shares subscribed by him is known as unlimited liability co.

Unlimited Liability

Company

Public Company Private Company

Defined u/s 3(1)(iv) Minimum paid-up capital of Rs. 5,00,000

Minimum 7 members No limit on maximum no. of members

Free transferability of shares

Can invite public at large to subscribe to its shares and securities

Can accept deposits from public

Defined u/s 3(1)(iii) Minimum paid-up capital

of Rs. 1,00,000

Minimum 2 members Maximum no. of

members can not exceed 50 excl. present and past employees

R t i t th i ht f it

• Public co. which has its shares or securities listed on any recognised stock exchange

Listed Company

• a company whose shares or securities are not listed on any recognised stock exchange

Unlisted Company

Mai

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ance

of b

ooks

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unts

u/s

209

:

Such books maintained as per accrual basis, follow double entry system of book-keeping and give

true and fair view of state of affairs of the co.

Maintenance of proper books of accounts with respect to :

All sums of money received and expended by the co.

All sales and purchases of goods by the co.

All Assets and liabilities of the co.

Cost records in case of a manufacturing Co.

• At every AGM the BOD of the co. shall lay before the co.

• A balance sheet as at the end of the period.

• A statement of profit and Loss for that period (Income and Expenditure for a company not carrying on business for profit)

U/s 210:

• True and fair view U/s 211

• Format of Financial Statements Schedule VI

• Balance Sheet Part I of Schedule VI

• Profit and Loss Account Part II of Schedule VI

Name of the company ……… Balance Sheet as at ……… (Rs. in……) Particulars Notes Current Year Previous Year Equity and Liabilities :

1. Shareholders Funds : a) Share Capital XX XX b) Reserves and Surplus XX XX c) Money received against share warrants XX XX XX XX 2. Share Application money received pending allotment XX XX 3. Non-Current Liabilities : a) Long-term borrowings XX XX b) Deferred tax liabilities XX XX c) Other long-term liabilities XX XX d) Long term provisions XX XX XX XX 4. Current Liabilities : a) Short-term borrowings XX XX b) Trade payables XX XX c) Other short-term liabilities XX XX d) Short-term provisions XX XX

XX XX Total (1 + 2 + 3 + 4) XX XX

Assets: 1. Non-current Assets a) Fixed Assets – Tangible XX XX Intangible XX XX Capital work-in-progress XX XX Intangibles under development XX XX XX XX b) Non-current Investments XX XX c) Deferred tax assets XX XX d) Long-term loans and Advances XX XX e) Other long term assets XX XX XX XX 2. Current Assets: a) Current Investment XX XX b) Inventory XX XX c) Trade receivables XX XX d) Cash and cash equivalents XX XX e) Short-term loans and advances XX XX f) Other current assets XX XX XX XX Total Assets (1 + 2) XX XX

Working Capital = Current Assets – Current Liabilities

Proprietors Funds = shareholders funds = owners equity

Total outside liabilities = Non-current liabilities + Current Liabilities

Shareholders Funds = Total of equity and liabilities Less all outside liabilities

Total Assets = Non-current Assets + Current Assets

MCQ’s

a) Separate legal entity

b) Common seal

c) Perpetual succession

d) Members have unlimited liability

Answer: (d)

a) 50%

b) 51%

c) Not less than 51%

d) None of the above

Answer: (d)

a) 50%

b) 51%

c) Not less than 51%

d) None of the above

Answer: (c)

a) Rs. 1,00,000

b) Rs. 3,00,000

c) Rs. 5,00,000

d) None of the above

Answer: (c)

a) Rs. 1,00,000

b) Rs. 3,00,000

c) Rs. 5,00,000

d) None of the above

Answer: (a)

a) Reserve Bank of India

b) Unit Trust of India

c) State Bank of India

d) All of the above

Answer: (d)

a) Restricts transfer of shares

b) Maximum no. of members unlimited

c) Prohibits acceptance of deposits from public

d) Prohibits invitation to public to subscribe to shares in or debentures of the company

Answer: (b)

a) Total assets – current assets

b) Total assets – current liabilities

c) Current assets – current liabilities

d) Total outside liabilities – current liabilities

Answer: (c)

a) Two and seven

b) Two and fifty

c) seven and fifty

d) Seven and unlimited

Answer: (d)

a) Two and seven

b) Two and fifty

c) seven and fifty

d) Seven and unlimited

Answer: (b)

a) Minimum no. of members is two.

b) Minimum amount of capital to be maintained is Rs. 1,00,000

c) It restricts the transfer of shares

d) Its shares are listed on recognised stock exchange

Answer: (d)

a) A company incorporated in India and having the place of business outside India

b) A company incorporated outside India and having the place of business in India

c) A company incorporated outside India and having the place of business outside India

d) All of the above

Answer: (b)

a) Life Insurance corporation of India

b) Reserve Bank of India

c) State Bank of India

d) ICICI Bank

Answer: (d)

Meaning of the co.

Features of the company

Types of company

Books of accounts to be maintained

Balance sheet format as per schedule VI revised