Share application money

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This query is : Resolved

ARTHI (Querist)

16 September 2014 Dear Experts,

A Private Limited Company has Authorised Capital of Rs.1 Lakh.

Company has been continuing for many years Share Application Money of Rs.1 Lakh in the Balance Sheet.

In view of CA 2013, I have the following query(s):

What has to be done for the Share Application Money, which has been pending and reflecting in the Balance Sheet for many years?

Please reply…………………. with any URL / relevant Section for me to understand in detail.

What are the effects to be done in the Company’s Balance Sheet as well as in a realistic manner?

Please reply………………….

Should there be any qualification/remarks by the Auditor, in case, the Company still continue with the Share Application Money?

Please reply………………….

Thanks a lot to all in advance for doing the needful.

ARTHI

ARTHI (Querist)

19 September 2014 Dear Experts / Friends,

Can someone please do the needful..............

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

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.

Suggestion for management action to clear SAM.

6. Relevant Sections / References:
Section 39 – Application money on shares

Section 52 – Issue of share certificates

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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