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Corporate Accounting notes for b.com 3rd sem - B Com PDF Download
Corporate Accounting Final Exam preparation
Short Questions :
1). Profit & Loss appropriation A/c.
Defination - The main intention of preparing aprofit and loss appropriation account is to show the distribution of profits among the partners. It is debited with interest on capital and remuneration to partners and credited with the net profits b/d from the profit and loss accountand interest on drawings.
2). Proposed Dividend.
Defination - proposed to be distributed among the shareholders of the company during a financial year which will be paid in the next financial year .
In cash flow you deal with two types of it , previous year’s proposed dividend and current year’s proposed dividend.
While you calculate “Net Profit before tax and extra ordinary items” in the working notes ADD Current year’s proposed dividend to the Net Profit. Since we want the effect of only operating activities we add back this item so as to remove its effect on the Net Profit.
When you come to Cash flow from Financing Activities , SUBTRACT Previous year’s Proposed Dividend because it will be paid in the current financial year and being a financing activity resulting in cash outflow we deduct it before calculating Cash flow from / used in Financing activities.
3). Unclaimed Dividend :
Defination - Unclaimed dividend are those dividend which have been paid by the company but they are not taken or claimed by the shareholder, the reason for dividend being not claimed may be ignorance or shareholder may have shifted to other place and therefore missed the dividend cheque. Unclaimed dividends are shown under current liability and provisions in the balance sheet of the company, since shareholder can claim these dividends any time.
4). Interim Dividend :
Defination - An interim dividend is a dividend payment made before a company's annual general meeting and the release of final financial statements. This declared dividend usually accompanies the company's interim financial statements. The interim dividend is issued more frequently in the United Kingdom where dividends are often paid semi-annually. The interim dividend is typically the smaller of the two payments made to shareholders.
5). Preliminary expenses :
Defination - Before incorporation and commencement of business, company and the promoters of the company may incurred so many types of expenses like statuary fees and company logo designing, in some cases rent for the office premises during the time of incorporation not after incorporation etc... These are all comes under preliminary expenses .in simple words preliminary expenses are the expenses that spent by the promoters before the incorporation of company.
Accounting for preliminary Expenses. Normally preliminary expense are treated as intangible asset and shown on the asset side of the balance sheet under the head Miscellaneous asset. The preliminary expenses are amortized or written off in five years for the purpose of Income Tax in India.
6). Contingent Liability :
Defination - A contingent liability is a potential liability that may occur depending on the outcome of an uncertain future event. A contingent liability is recorded in the accounting records if the contingency is probable and the amount of the liability can be reasonably estimated. If both conditions are not met, the liability may be disclosed in a footnote on the financial statements or not reported at all.
7). Prorata Allotment :
Defination - If the promoters of a company are reputed for their successful promotional successes, the applications are received for more than shares offered under prospectus (over-subscription). They may allot full shares to some of applicants refuse allotment to others, accord partial allotment to someone. This way of allotting shares shows favour to someone and disfavour to others.
Accounting treatment of pro-rata allotment:
In case of pro-rata allotment excess application money received is transferred to share allotment and while receiving allotment money excess application money received is adjusted towards allotment account.
Question for Corporate Accounting notes for b.com 3rd sem
Try yourself:
What is the purpose of preparing a profit and loss appropriation account?View Solution
8). Kinds of company :
Defination -
Kinds of Companies
The various Kinds of companies that can be formed under the Companies Act, 2013 are:
Royal Chartered Company – These are companies formed under the Royal Charter of a company or by a special order of king or queen. Eg. East India Company formed by the Royal Charter of Great Britain. Such a company derives its nature on the basis of the charter under which they are formed.
Statutory Company – It is incorporated by a special Act passed either by the Central or State legislature. Companies intended to carry on some business of national importance are formed this way to provide a service to its citizens. Eg. RBI formed under RBI Act 1934.
Registered Companies – A company registered under the companies Act 2013 or any other existing Act. It is governed by the companies Act 2013.
Company limited by shares – It is a company in which the liability of the members (shareholders) limited i.e. they are only liable for the unpaid value of shares held by the member. The unpaid amount can be called upon any time during the life time or winding up of the company. If the shares of a member are fully paid up then his liability will be nil.
Company limited by Guarantee – In such a company the Liability of shareholders is limited up to the amount guaranteed or invested by the shareholder towards the assets of the company in the event of its being wound up. The amount guaranteed can be only demanded at the time of its wound up, hence it is a reserve capital. Such companies are generally formed to promote art, science, commerce, sports etc. and are not for profit making.
Unlimited companies – A company having no limit on the liability of its Shareholders is an unlimited company. Thus the liability may extend to the personal property of the Shareholders in case the company is not able to satisfy its claims at the time of winding up. This liability of members is like a partnership where they have to contribute according to the ratio of amount invested in the company.
Holding and Subsidiary company –Where one company controls the management of another company, the former is called the holding company and the later over which the control is exercised is termed as a subsidiary company.
1). A company shall deemed to be a holding company of another, if that other is a subsidiary.
2).A company shall be deemed to be subsidiary of another company if the other company –
3). Controls the composition of its Board of Directors.
4). Holds more than half of nominal value of equity share capital.
5). It is a subsidiary of another company which is another company’s subsidiary.
6). If it holds more than 50% of the total voting rights of the company.
Private Company – The term “private company” has been defined under section 2(68) of Companies act 2013. A private company means a company, which has a minimum paid up share capital of Rs. 1 lakh and which provides the following restrictions through its Articles of Association and Memorandum –
1). Restricts the transfer of shares by its members
2). Limits the maximum number of members to 50
3). Prohibits any invitation or acceptance of public deposits
4). Prohibits invitation to public for debentures of the company
It enjoys special privileges also –
1). It can be started with only 2 members (minimum members)
2). It is not required to prepare a prospectus and it can start its operations immediately after receiving the certificate of incorporation.
Public company – The term ‘public company’ has been defined under section 2(71)of Companies act 2013. A ‘public company’ means a company which has minimum paid up share capital of Rs. 5 lakh and which is not a private company. It has the following features –
1). It does not restrict transferability of shares
2). At least 7 members are required to form a public company
3). There is no restrictions on the number of members
4). It has atleast 3 directors
5). Its name end with the word “limited”
6). It can accept public deposits and invite public for subscription of its shares and debentures
A private company which is a subsidiary of a public company will also be considered a public company under this Act
Domestic company – A company which is based in India registered under the Companies Act 2013. The head Office and its business operations are conducted within the country. It can either be private or public.
Foreign company – A Foreign company is a company incorporated outside India which establishes its business operations within India under the Companies Act 2013. Within 30 days of its establishment, it has to furnish important documents to the registrar as per Sec 380. They are:
1). A certified copy of the charter of the company
2). Memorandum and Articles of Association of the company
3). Address of the registered office
4). List of directors and secretary
5). Full address of the principle place of business in India
6). Name and address of the authorised person to do business on behalf of the company in India.
One Man Company – Where one man holds practically the whole of the share capital of a company and takes a few more dummy members simply to meet the statutory requirements of the minimum number of persons such a company is one man company. A one man company can be incorporated under sec 2(62) of the Companies Act, 2013. In such a company the principle shareholder is the virtual owner running the business with limited liability and other members may have even one share.
Companies not for profit – These companies must obtain a license from the central government before they are registered. They are limited liability but are not required to use the word Limited or private with their names.
They are formed promoting art, science, commerce, sports etc. Profits are applied towards its objective and cannot be distributed among its members.
1). It enjoys various exemptions on registration.
2). It does not pay stamp duty for registration of Memorandum and Articles of Association.
3). It can be formed without share capital.
4). Government can revoke license any time by giving a notice.
Difference between public company & private company.
Particular
Private limited Company
Public limited Comapny
Numbers of shareholders
Minimum 2 and maximum 200
Minimum 7and maximum No Limit.
Stock/Share Trading
Right to Make Public Offer is prohibited under Act 2013.
Right to Make public Offer is available under companies Act 2013.
Complience
Complience for the core business are Mandatory.
Complience for core Business and SEBI complience are also Mandatory.
Registration Cost
It cost around 12,000/- to 15,000/-
It cost around 35000/- to 40,000/-
Taxation Requirements
Less tax returns filings
More tax returns filings
9). Types of Preference Shares.
Different types of Preference Shares are as follows:
1) Cumulative Preference Share
In case where a company does not declare dividends for a particular year, they are carried to next year. They are treated as arrears.And a preference share is said to be cumulative in a case when the arrears pertaining to dividend are cumulative in nature and such arrears are cleared before any dividend payment to equity shareholders.
2) Non- Cumulative Preference shares:
As the name suggests, it does not accumulate dividends. Dividend skipped by the company are not paid, which means they have the right to avail dividend from the profits earned from that particular year.Notably, dividends are only payable from net profits of each year. So, in case where there are no profits for a particular year, the arrears of dividend cannot be claimed in subsequent years. Preference shares are cumulative in nature unless explicitly described as otherwise.
3) Redeemable Preference shares:
These are shares which can be redeemed or repaid after the fixed period as issued by the company or even before at the option of the company.
.4) Non-redeemable
These shares cannot be redeemed during the life of the company.
5) Convertible Shares
Shares can be converted into equity at the option of the holder after the stated tenure.
6) Non-convertible shares
Shares which cannot be converted to equity are called non convertible shares.
7) Participating shares
Such shares have the right to participate in surplus profits of the company at the time of liquidation after the company had paid to other holders.
8) Non-participating Preference Shares
Preference shares, which have no right to participate in the surplus profits or in any surplus on liquidation of the company, are called non-participating preference shares.
Question for Corporate Accounting notes for b.com 3rd sem
Try yourself:
What type of company is formed under a special Act passed by the Central or State legislature?View Solution
10). Difference Between Share and Stock :
Section 61, Companies Act, 2013, the company can convert its shares which are fully paid up, into stock. A ‘ is the smallest unit into which the company’s capital is divided, representing the ownership of the shareholders in the company. A ‘Stock‘ on the other hand is a collection of shares of a member that are fully paid up. When shares are transformed into stock, the shareholder becomes a stockholder, who possess same right with respect to the dividend, as a shareholder possess.
All the shares are of equal denomination, whereas the denomination of stock differs. When one wants to invest in shares, he/she must be aware of the difference between shares and stock, along with the conditions, when shares are converted into stock.
Particular
Shares
Stock
It is possible for a company to make original issue
Yes
No
Paid- up value
Shares can be partly or fully paid.
Stock can only be fully paid-up.
Definite Number
A share have a definite number known as distinctive number.
A stock doesn't have such number.
Fractional Transfer
Not Possible
Possible.
Nominal value
Yes
No
Denomination
Equal amount
Un-equal amount.
11). Types of Share Capital.
Share capital is the sum of money received by a company by selling its shares to the investors. When a company issues fresh share to the investors and raises fund, it directly increases the value of share capital.
The amount of total share capital cannot be more than the amount of authorized share capital of a company. Increase in market price of shares does not affect the value of share capital because share capital is calculated based on the par value of shares and not on the basis of market price.
Share capital is shown on the balance sheet of a company.
Types of share capital
Share capital can be categorized as authorized share capital, issued share capital, subscribed share capital, called up share capital and paid up share capital.
• Authorized share capital:
Authorized share capital refers to the total capital that a company is authorized to accept from investors by issuing shares. In simple terms, a company cannot raise capital more than its authorized capital.
It represents the capital with which a company is registered that’s why it is also known as ‘registered capital’.
• Issued share capital:
It represents that part of total authorized share capital which has been issued by a company for subscription by investors. Usually, companies do not issue all of their shares for control purpose. Thus, the part which is issued represents the issued share capital.
• Subscribed share capital:
It refers to that part of issued share capital, which has been subscribed by investors. It means when a company issues shares to raise capital, it may or may not receive subscriptions for all of its shares. The part of issued share capital for which subscription has been received is known as subscribed share capital. So subscribed share capital can be equal to subscribed share capital but not more than that.
• Called up share capital:
A company collects the full amount of share price in more than one lot. The part of subscribed share capital which has been asked for payment represents called up share capital.
• Paid up share capital
It represents that part of called up share capital which has been paid by investors.
Paid up capital = Called up capital – Call in arrears.
12). Conditions for issue of Shares at Discount.
Issue of shares at a discount
The companies can issue the shares at a discount subject to the following conditions:
• The issue must be of a class of shares already issued.
• Not less than 1 year has at the date of issue elapsed since the date on which the company became entitled to commence business.
• The issue at a discount is authorized by a resolution passed by the company in the general meeting & sanctioned by the company law board.
• The maximum rate of discount must not exceed 10% or such rate as the company law board may permit.
• shares to be issued at a discount must be issued within two months of the sanction by the company law board or within such extended time as the company law board may allow
13). Uses Of Security's Premium.
Section 52 (2). Of the companies Act. 2013 States that securities premium account may be
Applied by the company -
1). Towards the issue of unissued shares to the members as fully paid bonus shares.
2). In writing of the preliminery expenses.
3). In writing of the expenses of, or commission paid / discount allowed on any
Issue of shares / debentures of the company.
4). Providing premium on redumptiom of redeemable preference shares.
14). Under - Subscription.
Under-Subscription: Sometimes, the applications for shares received are less than the number of shares issued. For instance, a Company issued 10,000 shares to the public and the Company received applications for 8000 shares from the public. This situation is called Under-subscription.
15). Preferred Dividends.
A preferred dividend is a dividend that is accrued and paid on a company's preferred shares. In the event that a company is unable to pay all dividends, claims to preferred dividends take precedence over claims to dividends that are paid on common shares.
16). Source of issue of Bonus shares .
Section 63 provides that a company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of –
(i) Its free reserves;
(ii) The securities premium account; or
(iii) The capital redemption reserve account.
No issue of bonus shares shall be made by capitalizing reserves created by the revaluation of assets. The bonus shares shall not be issued in lieu of dividend.
17). Right Shares :
Right shares are the shares that are issued by a company for its existing shareholders. The existing shareholders have their right to subscribe to these shares unless some special rights reserve them for some other persons.
Right shares can only be issued after two years of the formation of the country or after one year of the first issue of the shares whichever is earlier, as per the Section 81 of Indian Companies Act. The right shares are usually issued in the ratio of the equity shares held by the existing shareholders. The Right shares are normally issued with 15 days’ notice and cannot be opened more than 60 days as per the SEBI guidelines.
The benefits of right shares are listed below
•Greater control on the existing shareholders
•Increase in the value of shares and hence no loss of existing shareholders
•Increases company goodwill and brand perception
•There is no cost involved with the issuance of the shares
•Company has easy access to any capital required at any point of time
•The distribution technique involved with right shares is more scientific
The disadvantages of the right shares include.
•The dilution of the value of the shares due to increased number of shares
•It offers only a temporary solution to any management problem but not a permanent solution to it
Sometimes in the issuance of right shares, companies work with underwriters (financial institutions, major shareholders etc.) who promise that if the existing shareholders do not buy the share offered to them, they will buy them.
18). Bonus Shares.
Meaning of Bonus Shares:
Sometimes a company cannot pay dividend in cash due to shortage of liquid funds—viz. cash—in spite of earning a large amount of profit for a particular period. Under the circumstances, the company issues new shares to the existing shareholders in lieu of paying dividend in cash.
These shares are known as ‘Bonus Shares’. Such bonus shares are to be offered to the existing shareholders in proportion to the shareholdings and dividend rights.
Generally, the company issues bonus shares out of profits and/or reserve to the existing shareholders. Since the profit/reserve is being capitalized, it is also called capitalisation of profit/reserve. As the company cannot receive cash from the shareholders for the purpose of issuing bonus shares, a sum equal to the total value of bonus issue is to be adjusted against profit/reserve and transferred to Equity Share Capital Account.
Advantages of Issuing Bonus Shares:
A. From the company’s viewpoint:
(a) By issuing bonus shares, shareholders are to be satisfied when the company cannot pay dividend in cash due to shortage of liquid funds, i.e., profit can be distributed without distributing the liquid resources, viz. cash.
(b) By issuing bonus shares, shareholders are to be satisfied, particularly when the company does not prefer to pay dividend in cash for the purpose of either its expansion or its working capital or any other specific purpose, such as any particular programme of diversification or modernisation.
(c) Sometimes a company is bound to reduce its reserve for the interest of its own. It may so happen that the amount of earning profits exceeds the amount of total paid-up capital of the company which, in other words, encourages the competitors and creates unhealthy relationship between workers and the company.
B. From the shareholder’s viewpoint:
(a) Shareholders need not pay tax on the bonus shares but they are to pay them on the dividend so received in cash.
(b) Shareholders, if they so desire, can convert the shares into cash by disposing off the same at a higher price.
(c) If partly paid shares are converted into fully paid by issuing bonus, the shareholders need not pay a further sum for the purpose. On the other hand, their shares become fully paid-up.
Disadvantages of issuing Bonus Shares:
From the company’s viewpoint:
(a) More dividend would be paid as the number of shares are increased.
(b) Over-capitalisation may appear due to the issues.
(c) If the rate of dividend cannot be maintained market value of shares may go down.
From the shareholder’s point of view:
(a) If the rate of dividend fluctuates, i.e., cannot be maintained, the market value of shares may go down.
(b) If the rate of profit is not increased, the rate of dividend may be decreased.
(c) It encourages speculation which is not desirable.
Conditions for the Issue of Bonus Shares:
The following conditions must be fulfilled before issuing bonus shares:
(i) The issue must be authorised by the Articles of the company;
(ii) The same must be recommended by a resolution of the Board of Directors and this approved by the shareholders in the general meeting; and
(iii) The same also must be permitted by the Controller of Capital Issues (regardless of the amount involved).
19). Buy - back of shares and its sources.
A buyback, also known as a share repurchase, is when a company buys its own outstanding shares to reduce the number of shares available on the open market. Companies buy back shares for a number of reasons, such as to increase the value of remaining shares available by reducing the supply or to prevent other shareholders from taking a controlling stake.
Sources of Buy back shares.
A company can purchase itsown shares from
• Free Reserves : where a company purchases its own shares out of free reserves, then a sum equal to the nominal value of the shares so purchased shall be transferred to the capital Redumption Reserve and details of such transfer shall be disclosed in the balance - sheet.
• Securities Premium Account
• Proceeds of any Shares or other specified securities : A company cannot buyback its shares or other specified securities out of the proceeds of an earlier issues of the same kinds of shares of specified securities.
20). Tyeps of Debentures :
A debenture is a type of debt instrument that is not secured by physical assets or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond to secure capital. Like other types of bonds, debentures are documented in an indenture.
Redemption / Tenure
REDEEMABLE AND IRREDEEMABLE (PERPETUAL) DEBENTURES
Redeemable debentures carry a specific date of redemption on the certificate. The company is legally bound to repay the principal amount to the debenture holders on that date. On the other hand, irredeemable debentures, also known as perpetual debentures, do not carry any date of redemption. This means that there is no specific time of redemption of these debentures. They are redeemed either on the liquidation of the company or when the company chooses to pay them off to reduce their liability by issues a due notice to the debenture holders before hand.
Convertibility
CONVERTIBLE AND NON-CONVERTIBLE DEBENTURES
Convertible debenture holders have an option of converting their holdings into equity shares. The rate of conversion and the period after which the conversion will take effect are declared in the terms and conditions of the agreement of debentures at the time of issue. On the contrary, non-convertible debentures are simple debentures with no such option of getting converted into equity. Their state will always remain of a debt and will not become equity at any point in time.
FULLY AND PARTLY CONVERTIBLE DEBENTURES
Convertible Debentures are further classified into two – Fully and Partly Convertible. Fully convertible debentures are completely converted into equity whereas the partly convertible debentures have two parts. Convertible part is converted into equity as per the agreed rate of exchange based on an agreement. Non-convertible part becomes as good as redeemable debenture which is repaid after the expiry of the agreed period.
Security
SECURED (MORTGAGE) AND UNSECURED (NAKED) DEBENTURES
Debentures are secured in two ways. One when the debenture is secured by the charge on some asset or set of assets which is known as secured or mortgage debenture and another when it is issued solely on the credibility of the issuer is known as the naked or unsecured debenture. A trustee is appointed for holding the secured asset which is quite obvious as the title cannot be assigned to each and every debenture holder.
FIRST MORTGAGED AND SECOND MORTGAGED DEBENTURES
Secured / Mortgaged debentures are further classified into two types – first and second mortgaged debentures. There is no restriction on issuing different types of debentures provided there is clarity on claims of those debenture holders on the profits and assets of the company at the time of liquidation. First mortgaged debentures have the first charge over the assets of the company whereas the second mortgage has the secondary charge which means the realization of the assets will first fulfill the obligation of first mortgage debentures and then will do for second ones.
Transeferability / Registration
REGISTERED UNREGISTERED DEBENTURES (BEARER) DEBENTURE
In the case of registered debentures, the name, address, and other holding details are registered with the issuing company and whenever such debenture is transferred by the holder; it has to be informed to the issuing company for updating in its records. Otherwise, the interest and principal will go the previous holder because the company will pay to the one who is registered. Whereas, the unregistered commonly known as bearer debenture. can be transferred by mere delivery to the new holder. They are considered as good as currency notes due to their easy transferability. The interest and principal are paid to the person who produces the coupons, which are attached to the debenture certificate. and the certificate respectively.
Types of interest rate
FIXED AND FLOATING RATE DEBENTURES
Fixed rate debentures have fixed interest rate over the life of the debentures. Contrarily, the floating rate debentures have the floating rate of interest which is dependent on some benchmark rate say LIBOR etc.
No coupon rate
ZERO COUPON AND SPECIFIC RATE DEBENTURES
Zero coupon debentures do not carry any coupon rate or we can say that there is zero coupon rate. The debenture holder will not get any interest on these types of debentures. Need not get surprised, for compensating against no interest, companies issue them at a discounted price which is very less compared to the face value of it. The implicit interest or benefit is the difference between the issue price and the face value of that debenture. These are also known as ‘Deep Discount Bonds’. All other debentures with a specified rate of interest are specific rate debentures which are just like a normal debenture.
SECURED PREMIUM NOTES / DEBENTURES
These are secured debentures which are redeemed at a premium over the face value of the debentures. They are similar to zero coupon bonds. The only difference is that the discount and premium. Zero coupon bonds are issued at the discount and redeemed at par whereas the secured premium notes are issued at par and redeemed at the premium.
Mode of Redumption
CALLABLE AND PUTTABLE DEBENTURES / BONDS
Callable debentures have an option for the company to buyback and repay to the investors whereas, in the case of puttable debentures, the option lies with the investors. Puttable debenture holders can ask the company to redeem their debenture and ask for principal repayment.
SUBORDINATED DEBENTURE
In these types of debentures, the debenture is given priority after other debts when a company goes into liquidation. They are also known as subordinated loan, subordinated bonds, subordinated debt or junior debt
21). Difference between debentures and debenture Stock.
Debenture - Debentures are financial instruments used by companies to raise debt from the market, it will have the details like tenure, interest to be paid, redemption period, ratings, merchant banker details etc.
Debenture Stock - 'debenture stocks' are such instruments that provides an option for the debenture holders to convert the debenture into equity or stocks by paying the requisite premium at the point in time as mentioned in the debenture, It is also called as 'warrants' if I am correct.
• Debenture need not be fully paid whereas debenture stock must be fully paid.
• Debenture can be transferred wholly whereas debenture stock can be transferred in fraction also.
• Debentures are identified by their district number whereas no such distinct numbers in case of debenture stock.
22). Divisible profit :
Profit or a portion of profit that can be legally distributed as a dividend to the shareholders is known as Divisible Profit.[1] All profit of the company is not divisible and number of factors should be considered while determining divisible profit of the company.
Factors influencing the value of Divisible profit
Following are some factors that influence the value of divisible profit.
• Transfer to and Creation of reserve
• Creation of Dividend Equilization Reserve
• Working Capital Requirement of the company
• Dividend on Preference Share
• Past Dividend Payout History
23). Capital Profit :
Capital profit is money brought into the company primarily through internal measures. It is profit that is not earned in the regular course of the business.
Capital profit includes items such as income from the sale of a fixed asset (property owned by the business and used in its trade), income from the sale of premium shares of stock and money brought into the business by investments or borrowed from partners, investors or financial institutions.
24). Dividend Tax :
Dividend Received from an Indian Company
Dividend received from an Indian company is exempt from tax. Since the company declaring such dividend already deducts dividend distribution tax before paying you.
However, as per Budget 2016, in the case of a resident individual/HUF/Firm, the dividend shall be chargeable to tax at the rate of 10%, if the aggregate amount of dividend received from a domestic company during the year exceeds Rs 10,00,000 (Section 115BBDA).It is to be noted that tax shall be chargeable on dividend income to the extent it is in excess of Rs 10 lakhs in aggregate received from Indian companies.
Dividend Received from Foreign Company
Dividend received from a foreign company is taxable. It will be charged to tax under the head “income from other sources.”
Dividend received from a foreign company will be included in the total income of the taxpayer and will be charged to tax at the rates applicable to the taxpayer. For instance, if the taxpayer comes in the 20% tax slab rate, then such dividend will also be taxable at 20% along with cess.
25). Types of reserve :
• Revenue Reserve - thoes reserves which are created out of profits available for distribution by way of dividend. These may be classified as :
• General Reserve - Reserve which is not created for any specific purpose. E.g. General Reserve ,
Contingency Reserve.
• Specific reserve - Reserve which is created for specific purposes. E.g. Dividend Equalisation Reserve, denbenture Redumption Reserve.
26). Sources of Dividend :
Dividend can be paid out of following sources:
• Out of current year’s profit. Out of past year’s profit lying in profit & loss account. I
• Out of past year profit earned and transferred to reserves.
• Out of money provided by central government or state government for payment of dividend.
Lets understand the various provisions discussed under the Companies Act, 2013
27). Stock Reserve :
Stock Reserve (SR) or buffer stock is a stock quantity which is based on the normal average expected consumption during the lead-time to replenish depleted stock .
Defination - This comes into books in case goods are sent to branches or consignees at a price higher than the cost price. For example goods costing Rs.100 are invoiced (proforma invoie) to our branch at Rs.125 and this stock remains unsold at the time of closing of books. Now we need to bring our stock to its cost price for showing it in the balance sheet. This means we need to remove the unrealized profit of Rs.25 from the stock. The journal entry for this is as given below:
Branch A/c or Consignment A/c Dr. 25
To Stock Reserve 25
This entry effectively brings the value of closing stock to its cost price.
At the beginning of the next accounting period this entry will be reversed.
FAQs on Corporate Accounting notes for b.com 3rd sem - B Com
| 1. What is corporate accounting and why is it important? |  |
Corporate accounting refers to the process of recording, analyzing, and reporting financial transactions and statements of a company. It helps in providing accurate financial information to stakeholders such as investors, creditors, and management. Corporate accounting is important as it helps in assessing the financial health of a company, making informed business decisions, and ensuring compliance with legal and regulatory requirements.
| 2. What are the key responsibilities of a corporate accountant? | |
A corporate accountant is responsible for various tasks, including:
- Recording financial transactions: They maintain accurate records of all financial transactions, including sales, purchases, and expenses.
- Preparation of financial statements: They prepare financial statements, such as the balance sheet, income statement, and cash flow statement, which provide an overview of the company's financial performance.
- Budgeting and forecasting: They assist in creating budgets and financial forecasts, which help in planning and monitoring the company's financial goals.
- Financial analysis: They analyze financial data to identify trends, assess the company's financial performance, and provide recommendations for improvement.
- Compliance with regulations: They ensure compliance with accounting standards, tax laws, and other financial regulations.
| 3. What is the difference between financial accounting and corporate accounting? | |
Financial accounting and corporate accounting are closely related but have some differences. Financial accounting focuses on preparing and presenting financial statements for external stakeholders, such as investors and creditors. It follows generally accepted accounting principles (GAAP) and aims to provide an accurate and reliable view of a company's financial position.
On the other hand, corporate accounting focuses on the internal financial management of a company. It involves tasks such as budgeting, financial analysis, and decision-making. Corporate accounting provides valuable financial information to the company's management for strategic planning, performance evaluation, and decision-making purposes.
| 4. How does corporate accounting help in decision-making? | |
Corporate accounting plays a crucial role in decision-making by providing relevant and accurate financial information. It helps in:
- Assessing financial performance: Corporate accounting provides financial statements and analysis that help management evaluate the company's profitability, liquidity, and solvency. This information guides decision-making related to cost-cutting, expansion, or investment in new ventures.
- Budgeting and forecasting: Corporate accounting assists in creating budgets and financial forecasts, which help in planning and setting financial goals. These budgets and forecasts serve as a basis for decision-making regarding resource allocation, investment decisions, and risk management.
- Evaluating investment opportunities: Corporate accounting helps in evaluating potential investment opportunities by analyzing their financial viability, expected returns, and risks. This information helps management make informed decisions on whether to pursue or reject investment opportunities.
| 5. What are the ethical considerations in corporate accounting? | |
Ethical considerations in corporate accounting are important to maintain transparency, trust, and integrity in financial reporting. Some key ethical considerations include:
- Truthfulness and accuracy: Corporate accountants should ensure that financial information is recorded accurately and truthfully. Manipulating or misrepresenting financial data is unethical and can lead to legal consequences.
- Confidentiality: Corporate accountants have access to sensitive financial information. They should maintain confidentiality and not disclose or misuse this information for personal gain or harm the company.
- Objectivity and independence: Accountants should maintain objectivity and independence in their work. They should not be influenced by personal biases or external pressures that may compromise their professional judgment.
- Compliance with laws and regulations: Accountants should adhere to accounting standards, tax laws, and other financial regulations. They should not engage in fraudulent activities or unethical practices to manipulate financial results.
- Professional competence: Accountants should continually update their skills and knowledge to ensure they can perform their duties competently and ethically.
By considering these ethical considerations, corporate accountants can uphold the integrity of financial reporting and contribute to the overall trustworthiness of the company's financial information.
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