COMPANY ACCOUNTS

INTRODUCTION
 Is an association of number of people formed for some
common object
 Registered under the Company Act
 Artificial person with Perpetual succession and
Common Seal
Types of Company
 Private Company
• Public Company
• Distinction between Private and Public Company
S/No Basis Private Public
Company Company
1 Number of Minimum- 2 Minimum – 7
Members Maximum - 200 Maximum – no
limit
2 Invitation to the It cannot invite It can invite the
Public the public to public to
subscribe shares subscribe shares
Issue of Shares
 Types of Shares
 Preference Shares.
 Equity Shares/ Ordinary Shares/Common Stock,
Preference Shares
 The shares which get preferential right in respect of .
 Right of Dividend
 Repayment of Capital on Winding up of the
Company
Equity Shares
 The shares which do not get preferential right in
respect of .
 Right of Dividend
 Repayment of Capital on Winding up of the
Company
Terms used in Accounting for
Share Capital
 Prospectus: An invitation to public for subscription
of shares or debenture
 Share Capital: Capital raised by issue of shares
 Authorised Capital: Also known as nominal or
registered capital-It is the maximum capital a company
can issue. It is stated in MOA
 Issue Capital: Part of authorized capital which is
offered to public for subscription. It can not exceed the
authorised capital
 Called up Capital: It is the amount of nominal value
of shares that has been called up by the company for
public subscription.
 Paid up Capital: It is the part of called up capital that
the members of the company or shareholders have
paid
 Reserve Capital: It is the portion of uncalled share
capital which can be called only in case of winding up
 Capital Reserve: It is the capital profit not available
for distribution as dividend.
Accounting for Issue of Equity
Shares
 PROCEDURES FOR ISSUE OF SHARES
 For Consideration other than Cash
 For Cash
Consideration other than Cash
 Issue to Promotors of Company in lieu of the Services
Provided by them
 Dr Goodwill xxx
 Cr Share Capital xxx
In case of Purchases of Asset
 Dr Asset xxx
 Cr Vendor/ Creditor xxx

 Dr Vendor / Creditor xxx

 Cr Share Capital xxx
Example
 TK company issued capital of TZS 50,000,000 as
follows:
 25% of it was issued to the best employees as part of
the promotion criteria due to their good services
 75% was issues for the purpose of acquiring a new
machine from BM supplier.
Solution
 Recording shares issue for promotion
 Dr Goodwill TZS 12,500,000
 Share Capital TZS 12,500,000
 Recording Shares issue for acquisition of Fixed Asset
 Dr Machine TZS 37,500,000
 Cr BM Supplier TZS 37,500,000

 Dr BM Supplier TZS 37,500,000

 Cr Share Capital TZS 37,500,000
Issue of Shares for Cash
Two category
1) Lamp sum Payment
2) Instalment Payment
Lamp sum Payment
The company may receive the share money in one
instalment along with application money
1) On Receipt of Application Money
Dr Bank A/C
Cr Application & Allotment A/c
1) On transferring the Application Money to share
capital
Dr Application & Allotment A/c
Cr Share Capital
Example
 Soweto Co. Ltd has an authorized capital of
TZS 25,000,000 in TZS 1,000 shares. Of these
4,000 shares were issued and fully paid in a
single installment
Solution
 On Receipt of Application Money

Dr Bank A/C 44000 x 1000 4000,000

Cr Application & Allotment A/c 4,000,000

 On Transferring of Application Money

Dr Appl & Allotment A/c 4,000,000

Cr Share Capital 4,000,000
Share Money Received in two or More
Instalments
➢ On Receipt of Application Money
Dr Bank A/C
Cr Application & Allotment A/c
On Allotment of Shares
➢ Refund Application Money for Over-subscriptions
Dr Application & Allotment A/c
Cr Bank A/c
Allotment of Shares (Amount of Appl + Allotment)
Dr Application & Allotment A/c
Cr Share Capital A/c
On Receipt of Allotment Money
Dr Bank
Cr Application and Allotment A/c
Calls on Shares
➢ When Call is made
Dr First / Final Call A/c
Cr Share Capital A/c
On Receipt of Call Money
Dr Bank
Cr First/ Final Call A/c
Example
 The Homeland company Ltd was registered with a capital
of 150,000 ordinary shares of TZS 100 each. On 1st Jan
2013 50, 000 Ordinary Shares had been issued and were
full paid. All the remaining authorised shares were then
offered for subscription on the following terms of payment
➢ On application shs 20 due on 30th Jan 2013
➢ On allotment shs 50 due on 1st March 2013
➢ On first call shs 20 due on 15th July 2013
➢ On second call shs 10 due on 20th Nov 2013
 Applications were received for 150,000 shares. Allotment
were made in full, excess applications were refused and
refunded.
Solution-Fully Paid Shares
 On Receipt of Application Money

Dr Bank A/C 450000 x 100 5,000,000

Cr Application & Allotment A/c 5,000,000

 Allotment of Shares

Dr Appl & Allot A/c 50,000x100 5,000,000

Cr Share Capital 5,000,000
Part Paid Shares
 On Receipt of Application Money

Dr Bank A/C 4150000 x 20 3,000,000

Cr Application & Allotment A/c 3,000,000

On Allotment
 Refund of Excess Application Money

Dr Appl&Allot 450000 x 20 1,000,000

Cr Bank A/c 1,000,000

 Allotment of Shares

Dr Appl & Allotment A/c 7,000,000

Cr Share Capital 7,000,000
 On Receipt of Allotment Money

Dr Bank A/C 4100000 x 50 5,000,000

Cr Application & Allotment A/c 5,000,000

On Calls
 When 1st Call is Made

Dr First Call 4100000 x 20 2,000,000

Cr Share Capital 2,000,000

 On Receipt of First Call Money

Dr Bank A/c 2,000,000

Cr First Call 2,000,000
Final Call
 When Second Call is Made

Dr Second Call 4100000 x 10 1,000,000

Cr Share Capital 1,000,000

 On Receipt of Second Call Money

Dr Bank A/c 1,000,000

Cr Second Call 1,000,000
Issue of Shares at a Premium
 This is when shares is issued above normal/Par value
 For example a company issue its shares of TZS 100 each
at TZS 120
 Normally Recording of Share premium is done on
allotment stage
 Share capital has to be recorded at Par Value.
Uses of Share Premium
1. In a scheme for reduction of capital
2. For issue of bonus shares
3. For writing off preliminary Expenses of the
company.
4. For writing off the expenses of, or commission
paid or discount allowed on any issue of shares of
debentures of the company and
Accounting Treatment
 Dr Application & Allotment.
 Cr Share Capital (With nominal value of Appl&Allot)
 Cr Share Premium (With Premium Amount)
Issue of Shares at a Discount
 This is when shares is issued below normal/Par value
 For example a company issue its shares of TZS 100 each
at TZS 90
 The Issue of shares at discount is the loss to the
company
 Companies Ordinance prohibits issue of shares at
a discount except under strict conditions
stipulated by section 40
Condition for Issue Shares at Discount
(i) No Company may issue shares at discount unless:
(a)at least one year has elapsed from the date the Company
was entitled to commence business and
(b)The shares being issued at a discount must be of a class
already issued.
(i) The issue at a discount must be authorized by a resolution
passed in a general meeting of the Company and this
resolution must specify the maximum rate of discount.
(ii)The issue at discount must be sanctioned by court and
shares must be issued at a discount within one month of
receiving such court sanction.
Accounting Treatment
 Dr Application & Allotment.
 Dr Share Discount (With Discount Amount)
 Cr Share Capital (With nominal value of Appl & Allot)
Example- Issue of Share at Premium
 Refer Previous example of Homeland company
 Assume the company has issued the remaining
authorized shares on the following terms of Payment
➢ On application shs 20 due on 30th Jan 2013
➢ On allotment shs 60 due on 1st March 2013
➢ On first call shs 20 due on 15th July 2013
➢ On second call shs 10 due on 20th Nov 2013
On Allotment
 Recording Allotment of Shares

Dr Appl&Allot 4100000 x 80 8,000,000

Cr Share Capital 100000x70 7,000,000

Cr Share Premium 100000x10 1,000,000

Example- Issue of Share at Discount
 Now Assume Homeland company has issued the
remaining authorized shares as follows
➢ On application shs 20 due on 30th Jan 2013
➢ On allotment shs 45 due on 1st March 2013
➢ On first call shs 20 due on 15th July 2013
➢ On second call shs 10 due on 20th Nov 2013
On Allotment
 Recording Allotment of Shares

Dr Appl&Allot 4100000 x 65 6,500,000

Dr Share Capital 100000x5 500,000

Cr Share Capital 100000x70 7,000,000

Calls in Arrears and Advance
 Calls in Arrears: At a particular stage some
shareholders may fail to pay their shares when the call
was made due
 Call in Advance: Is an advance payment made by
shareholder for any call not yet requested
 Calls in arrears are shown in the statement of
Financial Position as share capital even though
they are similar to debtors’ awaiting for collection
by the company
 Call in advance is shown as a liability.
Example
 Now Assume the first and second call money on 500
shares from the Homeland company was received with
the allotment money. Money due from allotment to final
call was received in full except from the following:
i. Musa a holder of 400 shares failed to pay for
allotment and both calls
ii. Sam, a holder of 300 shares failed to pay for both
calls
Cash Receipt on Allotment
Recording of Cash Receipt
Dr Bank [100,000-400]*60+500*[20+10] 5,991,000
Cr Call in Advance 500x30 15,000
Cr Appl & Allot 99,600x60 5,976,000

Recording of Call in Arrears

Dr Call in Arrears 400*60 24,000

Cr Appl & Allot 24,000
First Call
Recording of Cash Receipt

Dr Bank [100,000-500-700]*20 1,976,000

Cr First Call 1,976,000

Recording of Call in Arrears

Dr Call in Arrears 700*20 14,000
Cr First Call 14,000
Transferring of Call in Advance
Dr Call in Advance 500*20 10,000
Cr First Call 10,000
Second Call
Recording of Cash Receipt

Dr Bank [100,000-500-700]*10 988,000

Cr Second Call 988,000

Recording of Call in Arrears

Dr Call in Arrears 700*10 7,000
Cr Second Call 7,000
Transferring of Call in Advance
Dr Call in Advance 500*10 5,000
Cr Second Call 5,000
Forfeiture and Reissue of Shares
 FORFEITURE shares is the cancellation of shares
on which a shareholder has failed to pay the calls
requested from him/her .
 Forfeiture of shares require the following
➢ A notice to be served to the shareholder requiring
payment within fourteen days and threatening forfeiture
in the event of non compliance
➢ Forfeiture thereafter by a resolution of the directors to the
effect
➢ Forfeiture is permitted only for nonpayment of amounts
payable in respect of shares including premium payable
thereon
Accounting Treatment on Forfeiture of Shares
 Cancellation of Share Capital.
 Dr Share Capital (with all amount from
Application to Forfeiture stage)
 Cr Forfeiture of Share Account
 Cancellation of Share Premium or Discount
 Dr Share Premium
 Cr Forfeiture of Share A/c
 0r
 Dr Forfeiture of Share A/c
 Cr Share Discount
Cancellation of Call in Arrears
 Dr Forfeiture of Share A/c
 Cr Call in Arrears (For those shares which have
been forfeited)
Reissue of Shares
 The FORFEITED shares can be re-issue to another
person at a price below par value
 This is virtually equal to issue share at a discount but it
does not require the formalities of court sanction
 Because those are the shares which had been issued
earlier and they have recorded gain on the forfeiture
 Hence the gain on forfeiture is used to absorb the
discount on re-issue.
 There will no instalment payment of Re-issued shares. All
shares are required to be paid at a single instalment
Accounting Treatment on Re-issue of Shares
 Reinstate of Share Capital.
 Dr Forfeiture of Shares A/c (At Par Value)
 Cr Share Capital A/c (At Par Value)
 On Receipt of Cash
 Dr Bank A/c
 Cr Forfeiture of Share A/c
 Recording of Share Premium on Re-issue
 Dr Forfeiture of Share A/c
 Cr Share Premium on Re-issue
Example
 Refer Homeland Company example
 Assume:
 On November 1st 2013: The director decided to forfeit all shares which were
in arrears for both calls.
 On 5th November, 2013 half (1/2) of the forfeited shares were re-issued to
Amanda at TZS 80 each as fully paid up.
Forfeiture of Shares
Cancellation of Share Capital

Dr Share Capital 700x(20+50+20) 63,000

Cr Share forfeiture A/c 63,000

Cancellation of Share Premium

Dr Share Premium 700*10 7,000
Cr Share forfeiture A/c 7,000
Written off Call in Arrears
Dr Share forfeiture 400*(60)+700(20) 38,000
Cr Call in Arrears 38,000
Note
 Forfeiture of Shares has occurred before second, Thus
number of Share in Issue on second will be less of forfeited
Shares
 100,000 – 700 = 99,300
Share Reissue
Reinstate Share Capital

Dr Share forfeiture 350x(100) 35,000

Cr Share Capital 35,000

On Receipt of Cash
Dr Bank 350*80 28,000
Cr Share forfeiture A/c 28,000
Share Reissue Premium (w1)
Dr Share forfeiture 9,000
Cr Share Reissue Premium 9,000
Working- Reissue Premium

Cash Received on Reissue 350x80 28,000

Add Gain on Forfeiture [400*20+300*80]*1/2 16,000

Sub Total 44,000

Less Par Value of Share Reissue (35,000)

Share Reissue Premium 9,000

Issue of Shares under Pro-rata basis
 Where the number of shares exceeds the number offered
for issue, the directors of the company may decide to allot
the shares proportionately.
 For instance, in case 30,000 shares are applied for when the
offer is only for 20,000 shares the directors may decide to
allot 2 shares for every 3 applied for
 The excess application money on those shares issued under
prorate basis will not be refunded,
 It will be retained with the company and adjusted against
what becomes due at the point of allotment
Calculation of Excess Cash
Pro-rata Basis

Share Paid up / (Prorata shares- Share Issue) Appl Price

Call in Arrears x Share Issue x
on Allotment
Example
 Refer the example of Homeland company Ltd
 Assume that out of 150,000 application received, the
company decided to reject and refund 30,000 applications.
Issue shares on prorate basis for remaining applications.
Cash/Call in Arrears on Allotment

Allotment Cash [100,000-400]x60 5,976,000

Less Excess Cash on App [99,600]*[1.2-1]/1 *20 (398,400)

Cash to be Received on Allotment 5,577,600

Call in Arrears
Call in Arrears 400*60 24,000
Less Excess Cash on App 400*[1.2-1]/1*20 (1600)

Call in Arrears to be recorded 22,400

LEDGER ACCOUNTS
ILLUSTRATION
 The Homeland company Ltd was registered with a capital
of 150,000 ordinary shares of TZS 100 each. On 1st Jan
2013 50, 000 Ordinary Shares had been issued and were
full paid. All the remaining authorised shares were then
offered for subscription on the following terms of payment
➢ On application shs 20 due on 30th Jan 2013
➢ On allotment shs 60 due on 1st March 2013
➢ On first call shs 20 due on 15th July 2013
➢ On second call shs 10 due on 20th Nov 2013
 Applications were received for 150,000 shares. Allotment
were made on pro-rata basis for 120,000 applications, The
remaining applications were refused and refunded.
 The first and second call money on 500 shares was
received with the allotment money. Money due from
allotment to final call was received in full except from the
following:
i. Musa a holder of 400 shares failed to pay for allotment
and both calls
ii. Sam, a holder of 300 shares failed to pay for both calls

 On November 1st 2013: The director decided to forfeit all
shares which were in arrears for both calls.
 On 5th November, 2013 half (1/2) of the forfeited shares
were re-issued to Amanda at TZS 80 each as fully paid up.
 Required:
a) Prepare Ledger Accounts to reflect the above
transactions
b) Prepare a statement of Financial Position as at 31
December 2013

 BANK
Appl & Allot 5,000,000
Appl & Allot 3,000,000Appl & Allot 600,000
Appl & Allot 5,577,600
Call in Advance 15,000
First Call 1,976,000
Second Call 988,000
Share Forfeited 28,000Bal b/c 15,984,600
16,584,600 16,584,600
 SHARE CAPITAL

Appl & Allot 5,000,000

Share Forfeiture 63,000Appl & Allot 7,000,000

First Call 2,000,000

Second Call 993,000
Share Forfeited
Re-issue 35,000

Bal c/d 14,965,000

15,028,000 15,028,000
 APPLICATION & ALLOTMENT
Share Capital 5,000,000Bank 5,000,000
Bank 600,000Bank 3,000,000
Share Capital &
Prem 8,000,000Bank 5,577,600
Call in Arrears 22,400

13,600,000 13,600,000
 SHARE PREMIUM
Share Forfeiture 7,000Appl & Allot 1,000,000
Share forfeited
Re-issue 9,000

Bal c/d 1,002,000

1,009,000 1,009,000
 CALL IN ARREARS

Appl & Allot 22,400Share forfeiture 36,400

First Call 14,000

Bal c/ 0
36,400 36,400
 CALL IN ADVANCE
First Call 10,000Bank 15,000
Second Call 5,000

15,000 15,000
 FIRST CALL
Share Capital 2,000,000Bank 1,976,000
Call in Arrears 14,000
Call in Advance 10,000

2,000,000 2,000,000
 SECOND CALL A/C
Share Capital 993,000Bank 988,000
Call in Advance 5,000

993,000 993,000
 SHARE FORFEITURE A/C
Call in Arrears 36,400Share Capital 63,000
Share Capital 35,000Share Premium 7,000
Share Premium on
Reissue 9,000Bank 28,000

Bal c/d 17,600

98,000 98,000
 HOMELAND CO LTD
STATEMENT OF FINANCIAL POSITION
AS AT 31ST DEC 2013
ASSETS
Cash 15,984,600
Total Assets 15,984,600

OWNERS EQUITY AND LIABILITIES

Share Capital 14,965,000
Share Premium 1,002,000
Share forfeiture 17,600
Total Equity 15,984,600