share application money

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CA Amit Jaiswal (Querist)
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09 August 2010 Sir,
can you please tell me the presentation of share application money in the balance sheet of a company.
I think it should be presented under the head unsecured loans, but some people argue that it should be presented under Share Capital.
Please guide.........

CA Sanat Pyne

CA Sanat Pyne (Expert)
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09 August 2010 share application money pending allotment is of the nature of a current liability and should, therefore, be disclosed as such. Share application money pending allotment should hence be disclosed as a current liability and not as a part of share capital.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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09 August 2010 Until shares are allotted you can not show this under share capital. This is actually a current liability. You can also show it liability side in separate heading " Share Application Money"

CA Amit Jaiswal

CA Amit Jaiswal (Querist)
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09 August 2010 will it be wrong to present it under unsecured loans, as the amount is quite large.

Ram Avtar Singh

Ram Avtar Singh (Expert)
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09 August 2010 Yes, its shown in libility side seperet "Share Appliaction Money"

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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09 August 2010 Yes it will be wrong to present it under unsecured loan. You either show it under current liabilities or show a separate head on liability side as "Share Application Money."

CA Sanat Pyne

CA Sanat Pyne (Expert)
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09 August 2010 NO .

The correct accounting treatment in respect of share application money is analysed as below: · Section 211 of the Companies Act, 1956 provides that the balance sheet of a company shall give a true and fair view of the state of affairs of the company and shall be in the form (either horizontal or vertical) as set out in Part I of Schedule VI. · The broad heads under "Liabilities" therein are (i) Share Capital, (ii) Reserves and Surplus, (iii) Secured Loans, (iv) Unsecured Loans and (v) Current Liabilities and Provisions. The item of 'share application money' does not appear in the subheads under any of these heads. · Any subscription received by a company against issue of share capital can be regarded as "subscribed share capital" only when the share capital is actually subscribed and allotted as well. Until the allotment is made, any subscription cannot be included in the amount of subscribed share capital. [ICAI Compendium of Opinions, Vol. XII, pp. 121 to 123]. Share application money, therefore, cannot be treated as 'Share Capital". · Share application money only in respect of invalid or revoked applications and excess application money received due to over-subscripttion, however, may be treated as "Current Liabilities". The instant case does not satisfy any of the above, hence cannot be treated as "Current Liabilities" Share application money, therefore, can neither be categorized as "Share Capital' nor "Current Liabilities". · The ICAI Compendium of Opinions, [Vol. XV, (1996 Edn.) pp. 34 to 36], opines that the "share application money pending allotment" should be shown in the balance-sheet under a separate heading between "Share Capital" and "Reserves and Surplus". · Share application money is also not an instrument, much less an Equity linked instrument.

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CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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09 August 2010 AGREED WITH PYNE JI.
PRESENTATION IN BALACE SHEET AS BELOW

SOURCES OF FUNDS
A) SHAREHOLDER FUNDS
- SHARE CAPITAL xxxx
- SHARE APPLICATION MONEY PENDING ALLOTMENT XX
- RESERVES & SURPLUS. XXXX

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