25 July 2025
Great question about long-pending Share Application Money (SAM) in the books of a Private Limited Company.
Here’s a detailed answer referencing Companies Act, 2013 and accounting treatment:
1. What is Share Application Money (SAM)? It is the money received from applicants for shares but shares are not yet allotted.
SAM is a liability until allotment; once shares are allotted, it gets adjusted into share capital.
2. What to do if SAM is pending for many years? Under Companies Act, 2013: Section 39: Share application money must be utilized either for allotment or refunded.
The Act does not allow SAM to remain indefinitely without allotment or refund.
Prolonged retention of SAM without allotment may lead to compliance issues.
Company should either:
Allot shares and transfer SAM to share capital within a reasonable time.
Refund the SAM to applicants if shares are not allotted.
Practical approach: If SAM is pending for years, the company should take immediate action to either allot shares or refund money.
Keep documentary evidence for the action taken (Board resolution, refund letters, etc.).
3. Accounting treatment: SAM is recorded as current liability or other liabilities until allotment.
After allotment, SAM moves to Share Capital under equity.
If refund is done, reduce liability accordingly.
4. Effects on Balance Sheet: Situation Balance Sheet Treatment SAM pending without allotment Show as liability under "Share Application Money" SAM allotted Transfer amount to "Share Capital" (Equity) SAM refunded Reduce liability; refund cash/bank
5. Auditor’s perspective: Auditor will check the reasonableness and aging of SAM.
Long pending SAM without allotment or refund may lead to:
Qualification or remarks in the audit report on going concern or compliance.
Schedule III of Companies Act, 2013 – Presentation of balance sheet
Accounting Standard (AS) 4 – Contingencies and events occurring after balance sheet date (for audit perspective)
7. Summary: Issue Action Required SAM pending for many years Allot shares or refund money ASAP No action Possible audit qualification and compliance risk Accounting Show as liability until allotment/refund
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