3.2 Query: Whether share applications rejected should be considered as a part of ubscribed share capital.
1. A public sector company, incorporated under Companies Act, 1956, in the recent past, made two rights share issues. Out of the subscriptions received against these issues, there were a few applications which could not be accepted on account of various defects. Accordingly, such applications were rejected. However, in the balance sheet as at 31.3.88, Subscribed Capital shown was inclusive of the subscribed amount which was rejected. Subsequently, balance sheets as at 31.3.89 and 31.3.90 also indicated subscribed capital which included the rejected subscribed amount. All these annual accounts were duly audited by the company auditors as well as by the Government auditors. The company, therefore, prepared its balance sheet as at 31.3.91 on the aforesaid basis which was duly signed by the company’s auditors. However, during the audit by the C & AG, a point was raised to the effect that the subscribed capital should be reckoned after taking out from it that portion which represents the rejected amount. While no formal comment as such has been put by the C & AG, a note is included in the review of the accounts, which is reproduced below:
“There is a difference of Rs. 46,600/- between the Subscribed Capital and Paid-up Capital which arose on account of erroneously including the share application money for 330 shares and refund of 136 shares.”
2. In this connection, it may be noted that out of the difference of Rs. 46,600 indicated in the Note, Rs. 33,000 (representing share application money for 330 shares) are shown in the balance sheet against “Share Application Money” under “Shareholder’s Funds”. So far as the further difference of Rs. 13,600 is concerned, it may be noted that this amount represents subscription received against applications for 136 shares of Rs. 100 each. As these applications were rejected, the company had refunded the amount long back. However, as the company did receive the subscription, it was included in the Subscribed Capital, and shown as such in the balance sheet for the last three years (Emphasis supplied by the company).
3. The querist has sought the opinion of the Committee on the following issues:
(a) Since the last three balance sheets have shown a particular figure as the subscribed capital, will it be in order to show a lesser subscribed capital in future years?
(b) In view of the fact that the company did receive subscription in respect of shares which were later rejected, will it be contravening any provisions/principles if the Subscribed Capital is reckoned at a figure which is inclusive of the said subscribed amount though it was refunded subsequently?
Opinion March 31, 1992
1. The Committee notes that the term ‘subscribed share capital’ has not been defined in the Companies Act, 1956. The Committee, however, notes para 15.17 of the Guidance Note on Terms Used in Financial Statements issued by the Accounting Standards Board of the Institute of Chartered Accountants of India, which defines subscribed share capital as follows:
“That portion of the issued share capital which has actually been subscribed and alloted. This includes any bonus shares allotted by the corporate enterprise.”
2. Thus, the Committee is of the view that any subscription received by a company against issue of share capital can be termed 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.
3. On the basis of above, the Committee is of the following opinion in respect of issues raised in para 3 of the query:
(a) The company should show the subscribed share capital in the balance sheet, after reducing the amount in respect of shares not allotted. An appropriate note may be given explaining the reasons for showing lesser amount of subscribed share capital.
(b) The disclosure of subscribed capital inclusive of the amount of rejected share applications would not be in accordance with Part I of Schedule VI. _________________________ |