Nbfc

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

25 June 2013 SIR/MADAM,

I WOULD LIKE TO KNOW
1. WHERE THE SHARE APPLIED REFLECTED IN NEW SCHEDULE VI OF BALANCE SHEET
2. WHETHER PROVISION FOR STANDARD ASSETS AS REQUIRED UNDER NBFC GUIDELINES i.e .25% SHOULD BE CREATED ON SHARE APPLIED OR NOT
IF NOT KINDLY ALSO EXPLAIN THE REASON WHY SHARE APPLIES CANNOT BE CONSIDERED.

Querist : Anonymous

Querist : Anonymous (Querist)

25 June 2013 SIR/MADAM, I WOULD LIKE TO KNOW 1. WHERE THE SHARE APPLIED REFLECTED IN NEW SCHEDULE VI OF BALANCE SHEET 2. WHETHER PROVISION FOR STANDARD ASSETS AS REQUIRED UNDER NBFC GUIDELINES i.e .25% SHOULD BE CREATED ON SHARE APPLIED OR NOT IF NOT KINDLY ALSO EXPLAIN THE REASON WHY SHARE APPLIES CANNOT BE CONSIDERED.

Read more at: https://www.caclubindia.com/experts/modify_message.asp?entry_id=648454

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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03 August 2024 ### 1. **Where the Share Applied Reflects in the New Schedule VI of Balance Sheet**

Under the new Schedule VI of the Companies Act, 1956 (which was later updated to Schedule III under the Companies Act, 2013), the treatment of "Share Applied" can be reflected in different places based on the nature of the transaction and the phase of the share application process:

- **If Shares are Applied but Not Allotted Yet:**
- **Current Assets:** Share applications pending allotment can be shown under "Current Assets" as "Share Application Money Pending Allotment" in the balance sheet. This reflects the amount received for shares that have been applied for but not yet allotted.

- **If Shares are Allotted and Capital is Raised:**
- **Equity Share Capital:** Once shares are allotted, the amount received should be transferred to "Equity Share Capital" and "Share Premium" (if applicable) in the equity section of the balance sheet.

In summary, if shares are applied but not yet allotted, the amount should be reflected under "Share Application Money Pending Allotment" in the balance sheet. Once the shares are allotted, the amount should be reclassified under "Equity Share Capital."

### 2. **Provision for Standard Assets on Share Applied**

The provision for standard assets is required under the NBFC (Non-Banking Financial Company) guidelines issued by the Reserve Bank of India (RBI). Specifically:

- **Provision for Standard Assets:** NBFCs are required to make a provision of 0.25% on standard assets. This provision is meant to cover potential losses on the assets that are classified as standard.

- **Share Application Money:** Share application money, whether pending allotment or received for shares, does not fall under the category of assets that would require such provisioning. This is because:

- **Not an Asset:** Share application money is not considered an asset but rather a liability until the shares are allotted. It represents money received from potential shareholders, and it does not generate income or incur risks similar to standard loans or investments.

- **Provisioning Guidelines:** The RBI’s provisioning requirements are applicable to assets that bear credit risk, such as loans and advances. Since share application money is not a loan or advance and does not have inherent credit risk or earning potential, it does not fall under the category requiring provisioning.

### **Conclusion:**

1. **Share Application Money:** Should be reflected as "Share Application Money Pending Allotment" in the balance sheet under Current Liabilities until the shares are allotted. After allotment, it should be moved to "Equity Share Capital."

2. **Provision for Standard Assets:** Not applicable on "Share Application Money" because it does not fall under the asset categories that require provisioning per RBI guidelines.

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