Unit 1: Share capital, debentures & final accounts

• Premium (Section 52): credited to Securities Premium A/c; may be used only to issue fully paid bonus shares, write off preliminary expenses, write off expenses/commission/discount on issue of securities, provide premium on redemption of preference shares or debentures, and buy back shares.
• Discount (Section 53): issue at a discount is void, except sweat equity shares (Section 54) and shares issued to creditors under a debt restructuring scheme.
• Over-subscription: reject some applications (refund), allot pro rata — excess application money adjusted towards allotment (and calls), any further excess refunded.
• Calls-in-arrears (shown as a deduction from called-up capital) and calls-in-advance (shown as a liability; interest at up to 10% p.a. under Table F).

• Discount on re-issue cannot exceed the amount forfeited on those shares.
• If shares originally issued at premium are forfeited after premium was received, premium is not debited on forfeiture; if premium was not received, Securities Premium A/c is debited.

• Rights issue (Section 62(1)(a)): offer to existing equity shareholders in proportion to holdings; renounceable; entry like a normal issue.

• Bonus shares (Section 63): fully paid shares issued free out of free reserves, securities premium or capital redemption reserve (not revaluation reserve); must be authorised by articles; cannot be in lieu of dividend. Entry: Reserves A/c Dr. To Bonus to Shareholders A/c; Bonus to Shareholders A/c Dr. To Share Capital A/c.
• Buy-back (Section 68): out of free reserves, securities premium or proceeds of a different issue; limit 25% of paid-up capital and free reserves (board approval up to 10%); post-buy-back debt-equity ratio ≤ 2:1; when bought out of free reserves, transfer nominal value to Capital Redemption Reserve (Section 69); bought-back shares extinguished within 7 days.

Redemption of preference shares (Section 55)

• Only fully paid shares; out of profits available for dividend or proceeds of a fresh issue made for the purpose.
• When redeemed out of profits, an amount equal to the nominal value is transferred to Capital Redemption Reserve (CRR); CRR can be used only for fully paid bonus shares.
• Premium on redemption provided out of profits or securities premium.

Issue and redemption of debentures

• Debentures may be issued at par, premium or discount and redeemed at par or premium: e.g., issued at a discount, redeemable at premium — Loss on Issue of Debentures A/c is debited and written off over the life.
• Issued as collateral security: either no entry (note only) or Debentures Suspense A/c.
• Interest on debentures: a charge against profits, after deducting TDS.
• Methods of redemption: lump sum at maturity, instalments (by draw of lots), purchase in the open market (own debentures — profit to capital reserve), conversion into shares.
• Debenture Redemption Reserve (DRR): under Rule 18(7), DRR is required only for certain companies (e.g., unlisted companies — 10% of outstanding debentures); listed companies, NBFCs and HFCs are exempt; 15% of debentures maturing in the year must be invested in specified securities by 30 April.

• Notes to accounts give details — share capital (authorised, issued, subscribed, calls-in-arrears), reserves and surplus, long-term borrowings.
• Managerial remuneration (Section 197): total to directors and managers of a public company not to exceed 11% of net profits (computed under Section 198); higher with special resolution.
• Dividend: proposed dividend is disclosed in notes (not provided) until declared at the AGM (AS-4 / Ind AS 10).