Share application money can not be treated as paid up capital.

Dear Friends, To show any amount as "share application money ' there should be an "issued share capital " earlier to it. In a company where complete authorised capital issued ,subscribed and completely paid before receipt of any money we can not show it as share application money, in such  case first authorised capital is to be raised till that time such excess money can be shown as advance/loan after raising authorised capital convert the advance/loan into share application money/ paid up share capital.

Dear Sir,

Thaks for such an elaborated answer.

Regards

Ravi Nasa

Please tell me what should be accounting treatment for paid up capital for which the amount due from one subscriber is yet to be recieved by the company

What I mean is the paid up capital is shown as fully paid up ,but the company has not yet received money from one of the subscribers to the memorandum

Regards

Ekta

This is debt due from the subscribers of MOA.

Thanks for the reply

 Can we show it under the head advance recoverable in cash or kind

While calculating networth of a company i.e share capital + reserves, share application money is to be included or not?

Will networth of a company include share application money.

Sec. 269SS of the Income Tax Act, 1961 prohibits acceptance of loan or deposit exceeding Rs.20000 otherwise than by a crossed cheque or bank draft. The Jharkhand High Court  in the case of Bhalotia Engineering Pvt Ltd Vs CIT observed that share application money partkaes the characterstics of deposit and accordingly provisons of Sec.269SS are applicable to share applicatiom money accepted in cash.

Howwever the decision looks erroneous as money given towards share application money cannot be considered or described as deposit or loan, which esentially are expected to be returned in cash and normally do not form part of consideration for plant and property. If it is not so, deposit of money as advance for plant & property would also attract the provisions of 269SS which this section never contemplated.

However in view of the HC companies shall be on guard in accepting share applilcation money in cash exceedng Rs.20000. 

Where to show share application pending allotment in Abstract to Balance Sheet?

Dear All,

Further to the above discussion I would like to ask if a Private company's Authorized capital is say 100 shares of Rs.10 each out of which it has issued 95 shares of Rs.10 each.

Now company receives share application money for Rs.5000/- and net worth of the private company which has received the share application is say Rs.15/-. Now in the above circumstances we see that company can issue upto 5 shares but it has received application money more than what it is worth for. Will not the same be treated as Interest Free Loan.

Thanking you

Dear Mr. Dhiraj

There is no restriction in Companies Act, to take share application money from any one more than authorized share capital of the company. Let see the following example:

1.     Authorised Share Capital as on 30.06.2010  is Rs. 3,00,000.

2.     Paid up capital as on 30.06.2010  is Rs. 2,50,000.

3.     You received share application money of Rs. 2,50,000 on 15.09.2010.

In the above situation you can follow the following procedure:

1.     Call AGM to Increase Authorised Share Capital from Rs. 3,00,000 to Rs. 5,00,000 or more on or after 15.09.2010

2.     Call a Board meeting to allot shares against share application money.

There is no restriction to allot shares against share application money within the time limit, except in case of FDI.

Regards