KDF1D Advanced Corporate Accounting and Accounting ... · Receiving applications for shares: 5% of share value or 25% ... KDF1D-Advanced corporate accounting and accounting standards

KDF1D

Advanced Corporate

Accounting and

Accounting StandardsUnit : 1-5

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KDF1D-Advanced corporate accounting and accounting standards 2

•Advanced problems in share capital

• Debenture transactions including underwriting

• Valuation of goodwill and shares

UNIT-1 (SYLLABUS)

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KDF1D-Advanced corporate accounting and accounting standards

Types of share capital

Issued

Capital

Authorized

Capital

Paid-Up

Capital

Subscribed

Capital

Called-Up

Capital

Un-Called

Capital

Calls in

Arrears

Un-Issued

Capital

Unsubscribed

Capital

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Authorized or Registered Share Capital

Maximum amount of capital, which a company is allowed to raise

during its lifetime.

Issued Capital

The portion of authorized capital, which has been issued to all the

investors including public

Subscribed Capital

The portion of the issued capital, which has been subscribed by all

the investors including the public

Called up Capital

The portion of the subscribed capital that has been called up by the

company for payments is the called up capital

Paid-up Capital

That part of called up capital, which has been paid up by the

subscribers of share capital

Cont ..


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Kinds of Shares

Preference

Shares Equity

Shares

Shares with difference

rights

Cumulative Non-cumulative

Participating Redeemable

Guaranteed

Deferred i.Dividend

ii.Voting rights

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Issue of shares can be classified as :

1. for full consideration --- a. for cash b. Non- cash

2. for consideration receivable as calls :

a. Receiving applications for shares: 5% of share value or 25%

of the issue price is received as application money.

b. Allotment of shares: receiving Min. subscription shares are

allotted.

. Without consideration- bonus shares.

. Rights issue, employee stock schemes, sweat equity.

Under subscription : Applications received less than issue.

Over subscription : Applications received more than issue.

Cont.

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Full allotment : Board of Directors make allotment to Applicants.

Partial allotment : Shares are partially allotted according to ratios.

Pro-rata allotment : Shares may be allotted proportionate to the

applications received excess appl. Money adjusted

towards allotment and calls.

Calls of shares : Call money is collected for the balance amount

after application and allotment money.

Calls-in-Arrears : When shareholder fails to pay the amount due

towards allotment/calls. 5% interest is charged.

Calls-in-Advance :Shareholders pay in advance towards calls not yet

made by the company. 6% interest is paid

Cont..

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Issue of shares

•Issue at Par Value : Shares are issued at the face value

•Issue of Shares at Premium : Shares are issued at a price higher than

their face value. Excess amount is share

premium transferred to Securities

Premium A/c.

•Issue of Shares at Discount : Shares are issued below their face

value. It is capital loss and to be shown

in B/S under Mis.Exp.

•Forfeiture of shares : A shareholder ceases to be member

because of default in payment of

allotment/call money.

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•Reissue of forfeited shares : They become property of the

company and can be reissued at

par or at discount or at premium.

They are fully or partly reissued.

•Issue of Bonus shares : Shares are issued to the existing

shareholders in settlement of the

bonus are ‘Bonus shares’-

process is Capitalisation of profits.

•Buy –back of shares : Repurchase of shares by the

company of its own shares .

•For Journal Entries follow the given link below.

•https://youtu.be/O4ajUPoOi-Y

Cont..

https://youtu.be/O4ajUPoOi-Y



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Meaning - It is a contract entered into by the company with persons

or institutions for undertaking shares or debentures to subscribe for public. Underwriters

Underwriting of shares

• They guarantee subscription for a company ‘s shares and debentures. He takes financial risks.Underwriters

• An underwriter may appoint one or more sub-underwriters to under take work under them.Sub-underwriters

• A broker brings his customers and the company together for brokerageBrokers

• Managers are appointed to issue and fees is paid.

Managers to the issue

• For shares it should not exceed 5% and for debentures 2.5% of the issue price.

Underwriting commission

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o Pure underwriting - Public subscribes for entire issue.

a. Complete underwriting- Whole issue is underwritten.

b. Partial underwriting -Only a part of the issue is underwritten.

oFirm underwriting - Underwriter’s liability is partly definite and

partly contingent.

o Marked applications - Applications bearing the Marking or stamp of

the underwriter.

oUnmarked applications - Applications issued by the company to the

public directly.

oFirm underwriting applications- Underwriters in addition to the shares

underwritten take up firm’s shares.

Types of Underwriting


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Debentures -- It includes debenture stock, bonds and any other

securities of a Company, whether constituting a

charge on the assets of a Company or not. It is

‘creditor ship securities’ issued by the companies.

Classification of Debentures on the basis of

Security Permanence Priority Convertibility Recording

Debentures

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1. Issue of debentures for cash.

2. Issue of debentures for consideration other than cash.

3.Issue of debentures as Collateral Security.

4. Issue may be at ‘par’ or at ‘discount’ or at ‘premium’.

5. Redemption of debentures may be repayable at ‘par’ or at

‘discount’ or at ‘premium’.

https://www.youtube.com/watch?v=uTNC0Wk5YMk

Issue of Debentures

https://www.youtube.com/watch?v=uTNC0Wk5YMk

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Goodwill is the 'good name' or 'reputation' earned by a firm as it

trades.

To express the intangible but quantifiable "prudent value" of an

ongoing business beyond its assets.

The difference between the purchase price and the sum of the fair

value of the net assets is by definition the value of the "goodwill" of the

purchased company.

It has hopefully have a positive impact on the future turnover and

profits of the business.

Valuation of Goodwill and Shares

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Methods of valuation of Goodwill

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Average Profit Method Average Profit = Total Profits/ No. of Years Goodwill = Average Profit x No. of Years Purchased

Methods of valuation of Goodwill

Super Profit Method Super Profit = Actual Average Profit – Normal Profit Normal Profit = Average Capital Employed x Normal Rate of ReturnGoodwill = Super Profit x No. of Years Purchased

Capitalisaton methodCapitalised value of the business= Expected average net profit x 100

Normal rate of return

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Valuation of Goodwill

Annuity methodQ = 1-(1+ r/n)

r\100Goodwill = Average annual super profit x Annuity rate.

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Need for valuation of

shares

Purchase / Sale Raising loans Reconstruction

Amalgamation/absorption Assessment

Conversion of shares

When Nationalisation

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CPZ3A/ CPG3A/ CPW3A/ CPC3A - Corporate Accounting 56/65

Methods of Valuation of

Shares

For formula view:

https://www.youtube.com/watch?v=89upaxHAMzo

https://youtu.be/uSt5wCOksM4

https://www.youtube.com/watch?v=89upaxHAMzo

https://youtu.be/uSt5wCOksM4

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KDF1D-Advanced corporate accounting and accounting standards Slide number / Total slides

UNIT II

• Acquisition

• Amalgamation

• Absorption and reconstruction (internal and external) schemes

• Statements for liquidation of companies

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AMALGAMATIONMEANING:-

When two or more existing companies combine together to form a

new company is known as Amalgamation .

For e.g. If a new co XY Ltd. Is formed to take over the business of two

existing companies, X Ltd. and Y Ltd. ,it is a case of amalgamation

https://youtu.be/LMfx-Y7LjU4





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KDF1D-Advanced corporate accounting and accounting standards22

ABSORPTION

MEANING:-

Term absorption is used when one or more existing

company goes into liquidation and some existing company

takes over its business.

Foe e.g. if the business of existing co X Ltd. Is taken over

by another co. Y Ltd. ,it is a case of absorption

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RECOSTRUCTION OF

COMPANIES

MEANING:-

Term is used when one existing company goes into liquidation

and a new co. is formed to take over its business.

Foe e.g. if a new company X (New) Ltd. Is formed to take

over the business of an existing co. X Ltd. Then it is a case of

External reconstruction

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Types of Amalgamation

• Amalgamation in the nature of merger

• Amalgamation in the nature of purchase

Amalgamation in the nature of merger includes:-

1. Transfer of all assets and liabilities

2. Same equity shareholders holding 90%

3. Purchase consideration in equity shares

4. Same business

5. Recording of Assets and liabilities at book value

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Methods of Accounting for Amalgamation

in the nature of merger

POOLING OF INTEREST METHOD:- It includes:-

Recording of assets and liabilities

Recording of Reserves( whether capital or revenue or arising on

revaluation)

Recording of balance of profit & loss A/c

Difference between the purchase consideration and the amount of

share capital of the transferor Co.

Uniform set of Accounting policies

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Amalgamation in the nature of

purchase

It is an amalgamation which does not satisfy anyone or more

of the condition specified for amalgamation in the nature of

merger.

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CALCULATION OF PURCHASE

CONSIDERATION

• https://youtu.be/yoY4Ypf6S9g

https://youtu.be/yoY4Ypf6S9g

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Liquidation or winding up is a process by which a company is

dissolved.

The process of winding-up of a company is completed by

selling all its assets and paying all creditors in preferential

orders. For this purpose, a liquidator is appointed by the court to

complete the liquidation process.

The duties of the liquidator are to realize the assets, discharge

the liabilities and distribute the surplus, if any to the shareholders

Meaning of Liquidation

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Percentage On Assets Realized

Here, assets realized means the amount collected if Percentage

On Amount Distributed To Equity Shareholders

For the calculation of this commission, firstly the amount available for

equity shareholders should be ascertained. For finding out the amount

available for equity share holders, the following equation can be used:

Amount available = Total receipt - Total Payment ( up to the payment

made to preference shareholders)

If the amount available is sufficient for the payment of equity share

capital amount:

Commission = Equity share capital amount X Commission rate/100

Cont..

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If the amount available is sufficient for the payment of equity share

capital amount:

Commission = Equity share capital amount X Commission rate/100

If the amount available is not sufficient:

Commission = Amount available X Commission rate/100+

Commission raterom the realization of fixed assets, current assets and

other assets, other than fictitious assets. The cash and bank

balance should not be included in total assets for the calculation of

remuneration. But in the question, if the cash and bank balance are

given in the list of assets, then cash and bank balance should be

included in the total assets for the calculation of remuneration

Cont..

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15/60KDF1D-Advanced corporate accounting and accounting standards

31

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UNIT-III(SYLLABUS)

• Consolidated final statement of Holding companies and subsidiary

companies.

• inter-company holdings.

• owings -treatment of dividends


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A Holding company is one which controls one or more

other companies by means of:

a) Holding majority shares or

b) Controlling the composition of Board of directors

c) Controlling a holding company with subsidiary

Holding company

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Sec.4(4) of the Companies Act says

A company shall be deemed to be the holding company of

another, if, but only if, that other is its subsidiary

https://youtu.be/8POAFKkZ0W8

Subsidiary Company

https://youtu.be/8POAFKkZ0W8

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KDF1D-Advanced corporate accounting and accounting standards35

The consolidated profit & loss a/c of the holding

Company and it’s subsidiaries are prepared to show the

operating activities of the Companies.

The items appearing in the P&L a/c of both individual

companies are aggregated in the consolidated P&L a/c.

Consolidation of P&L A/c

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Cont..

While consolidating, the following adjustments has to be made:

profit and loss account in columnar form. Amounts relating to inter

company transactions are entered in the adjustment column and are

subtracted.

All inter company operating transaction such as purchase and sale

of goods, interest on loans among the companies are eliminated

All inter company profits are adjusted.

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Cont..

Dividends received by the holding company from the

subsidiary company should be eliminated.

Interest accrued and outstanding on debenture of the

subsidiary company held but the holding company should be

accounted by both and then eliminated

The balance in holding company columns will represent the

total profit or loss made by the company as a whole

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It is where the balance sheet of the holding company and the

subsidiary company is combined.

Few points to be kept on mind when consolidating:

Share of holding company and share of minority(outside

shareholders)

Date of balance sheet of the holding company and that of the various

other subsidiary companies must be same.

Inter company owing

Consolidation of Balance Sheet

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Minority interest is the share of the outsider in the following:

Share in share capital of subsidiary.

Share in reserves

Share in accumulated loss should be deducted.

Proportionate share of profit or loss on revaluation of assets.

Minority Interest

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The holding and the subsidiary company may have a number of inter

company transactions. Some are:

Loan advanced by the holding company to the subsidiary company or

vice versa.

Sale or purchase of goods on credit by the holding company from the

subsidiary company or vice versa.

Debentures issued by one company may be held by the other.

Inter Company Transactions

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UNIT-4

• Final statements of banking companies.

• Insurance companies Accounting for price level changes.

• Social responsibility accounting.

• Human resources Accounting

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Section 5 of banking regulation act defines banking as

―the accepting, for the purpose of lending or investment, of

deposit of money from the public repayable on demand or

otherwise and with drawable by cheque, draft, order or

otherwise.

DEFINITION

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Accounting System

• The accounting system of a banking company is different from that

of a trading or manufacturing company. A bank has a large number

of customers whose acc are to be maintained in such a way so that

these should be kept upto date.

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Features Of Banking Acc System

• Entries in the personal ledgers are made directly from vouchers.

• From such entries in personal acc each day summary sheets in total are prepared.

• The general ledger’s trial balance is extracted and agreed every day.

• A trial balance of detailed personal ledger is prepared periodically and get agreed with general ledger.

• Two vouchers are prepared for every transaction not involving cash-debit and credit voucher.


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Principal Books Of Accounts Are:

• Cash book:

This book gives the summary of the receiving cashier’s counter cash

book and paying cashier’s cash book.

• General ledger:

This ledger contains control acc for subsidiary ledger listed above

and acc of expenses and assets not covered by the subsidiary

ledger.

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Notes And Instruction For Compilation

• The formats of balance sheet and profit or loss account cover all items

likely to appear in these statement.

• The words ‘current year’ and ‘previous year’ used in the formats are only

to indicate the order of presentation and may not appear in account.

• Figures should be rounded off to nearest thousand.

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BANKING REGULATION ACT, 1949

THE FINAL ACCOUNTS OF BANK ARE IN VERTICAL FORMAT

THE FINAL ACCOUNTS CONSIST OF :-

a) PROFIT and LOSS ACCOUNT

b)PROFIT and LOSS APPROPRIATION ACCOUNT

c) BALANCE SHEET

THERE ARE 16 SCHEDULES IN THE FINAL ACCOUNTS OF BANKS.

https://youtu.be/Si87q8hVrgc

https://youtu.be/Si87q8hVrgc

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Balance Sheet

PARTICULARS SCHEDULE NO.

Equity and Liabilities

Capital 1

Reserves and surplus 2

Deposits 3

Borrowings 4

Other liabilities 5

Total

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Assets

Cash in hand and with RBI 6

Balance with other banks and money at

Call and short notice 7

Investments 8

Advances 9

Fixed assets 10

Other assets 11

Total

CONTINGENT LIABILITIES 12

Cont….

PARTICULARS SCHEDULE NO.


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PROFIT AND LOSS ACCOUNT

INCOMES:-

Interest earned 13

Other incomes 14

TOTAL(A) EXPENDITURE:-

Interest expanded 15

Operating expenses 16

Provision and contingencies

TOTAL (B)

PROFIT (A-B)

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TYPES OF INSURANCE

LIFE INSURANCE

GENERAL INSURANCE

Preparation of Final Accounts of Life Insurance:

The preparation of final accounts must be made in accordance

with the provisions of the Insurance Act, 1938, together with its

prescribed forms.

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FORMS of final accounts prescribed by

the Insurance Act, 1938, are:

(i) FORM A: Form of Balance Sheet—both for Life and General

Insurance.

(ii) FORM B: Form of Profit and Loss Account—both for Life

and General Insurance.

(iii) FORM C: Form of Profit and Loss Appropriation—both for Life and

General Insurance.

(iv) FORM D: Form of Revenue Account—for Life Insurance only.

(v) FORM F: Form of Revenue Account—for General Insurance only.

(vi) FORM I: Valuation Balance Sheet.

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Life Insurance Revenue Account

(a)Premium (Schedule 1)

It includes:

(i) Premiums;

(ii) Re-insurance ceded;

(iii) Re-insurance accepted.

(b) Income from Investment:

These include:

(i) Interest Dividends; Rent;

(ii) Profit on sale/redemption of investments;

(iii) Loss on sale/redemption of investments;

(iv) Transfer/Gain on revaluations, etc.

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Cont….

( c) Commission (Schedule 2)

Commission is paid on premium paid by the policyholders on first

year, or on renewal or on single premium. The life insurance companies

pay premium to their agents. In case of re-insurance, commission is

paid to other companies.

(d) Operating Expenses (Schedule 3)

Operating expenses include office and administration, selling and

distributions expenses and comes under the head Schedule 3. These

expenses include: Rents, Rates and Taxes, Training Expenses,

Depreciation, Repairs, Auditor Fees etc.

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Cont…

(e) Benefits paid (Net) (Schedule 4)

It includes:

(i) Annuities;

(ii) Surrenders; and

(iii) Claims.

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Profit and Loss Account

The incomes or expenses which are not related to any

particular fund are recorded in this account (including tax payable

to Government).

It is practically the Profit and Loss Account of a business as a

whole. It highlights the amount of profit paid to the shareholders

and the amount that is transferred to any particular fund.

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Balance Sheet

As per IRDA Regulation, a Balance Sheet is divided into two parts:

(a) Sources of Fund; and

(b) Application of Funds.

Sources of Fund

The first one under this head is the Shareholders’ Fund. Under the head,

various classification of capital is to be shown separately (viz, Authorized

Capital, Issued Capital, etc.).

Application of Funds

It must be remembered that Shareholders’ Fund and Policyholders

Fund are to be shown separately

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UNIT-V

• Basic postulates of accounting theory

• Generally accepted accounting principles

• Practices recommended by the ICAI

• Mandatory Accounting Standards (AS) issued by the ICAI

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Documents

KDF1D Advanced Corporate Accounting and Accounting ... · Receiving applications for shares: 5% of share value or 25% ... KDF1D-Advanced corporate accounting and accounting standards