Share Application Money

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 sub-heads under any of these heads. · Any subscripttion 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 subscripttion 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.

thanks a lot for giving such a complete and analytical answer. Regards Venkat

Thank you, very much sir. Regards Deepan.E

my pleasure

/files_display.asp?files_id=4441 See this guidance note in word format

Thank you Mr. Dashrath for giving a valule information regarding Share Application. I would also like to know about some more information about Share Application Money. Generally small and medium size companies are taking money as Share Application Money even directors themselves. My question is How long can the company keep the money show as Share Application Money in balance sheet without alloting shares. Can the money withdraw the share application money before allotment of shares? What is the Law with respect to the above matters Kindly enlighten m

Its gr8 Thx a lot for such a precious info.

if co. is not a listed co, and not falling under certain capital limit, it can park its application money for a infinite time. otherwise it should pay whithin 6 months. regards, Dashrath

Generally allotment of shares and share application money in the case of unlisted companies and private companies will be governed by their private placement documents. If there are no terms in the document, then general law of contract will be applicable. The allotment has to be made before the share application money is utilised. If the money is utilised, then it will tantamount to acceptance of the share application and therefore the applicant will have the right to file a civil suit for allotment. To keep the money unallotted for an unduly long time will be risky. Income tax authorities have issued notices in respect of some companies which keep application money unallotted for a long time, probing whether they are unexplained credit etc.

Dear Sir,

Can a company without giving share application money back due to lack of funds can give the shares of the Compny which the Compnay has as investment in lieu of refund of Share Application money.

Pls clarify.

Regards

Prashant Jain

Dear Sir,

In a company there is lying Rs.80 lacs as share application money and its authorised share capital is Rs.10 lacs as on 01.04.2004.The company was not not in operation during this year, and all the money were used for Capital assets and which were under construction. After that there was some family problems in the directors family and the activities of the company were totally stopped for 2 years.During these years no Company Audit has been done.The directors further has infused Rs.50 lacs in the year 2006-07 and 2007-08. The company audit is stil not done.

Q1. Can company increase their Authorise capital from the year 1.04.2004?

Q2. Can company transfer the money lying in Share application money to Paid up share capital after increasing authoirse share capital?

Q3. What are the legal penalties in this case can be imposed on the company?

Please provide your  valueable opinion on this.

My ques is , there is a company pvt ltd; has parked share application money for continuous 3 years and it started operations 3 yrs back only nd the company is on way of starting new plant and is going for trem loan for the same. will the lender financing the loan after analysing thebalance sheet of sister concerns will point out this concern of converting the share application money to share capital?

nswering the question raised by Mr. Paary ( guest):

1) The increase in authorised capital can be only prospective.

2) After increasing the Authorised share capital prospectively, shares can be allotted and amount transferred to sharecapital account.

3) No legal penalties in the above procedure, if no claim is raised by the applicants

The above answers the querry of Ms.Rupina (guest)

A Listed company  ( In india) has paid  say USD 100 ( For Example)  to thire  subsidary company (In USA)  . Subsidary co has alloted the share of USD 5.  Holding  company has shown USD 5 as investment under subgruping of Investment in susidry comany.

My  question is that as per schedule Vi where the USD 95 (100-5) has to be presented in Balance sheet . is it correct if we show it as share application money paid (Allotment pending ) under the group of Investment?

I need this information , urgently pls.

 

From Mihir Tatran