🏢 CORPORATE ACCOUNTING – SUMMARY NOTES
🧠 1. Meaning & Definition
Corporate Accounting deals with accounting for companies (corporate bodies) — including issue of shares and debentures, preparation of final accounts, amalgamation, absorption, and liquidation.
Definition:
“Corporate Accounting is the branch of accounting that deals with the accounting for incorporated companies as per the provisions of the Companies Act.”
🎯 2. Objectives of Corporate Accounting
- To maintain systematic records of company transactions.
- To ascertain profit or loss of the company.
- To show the financial position through balance sheet.
- To ensure compliance with the Companies Act.
- To provide information to shareholders and stakeholders.
🧾 3. Features of a Company
- Separate Legal Entity
- Perpetual Succession
- Limited Liability
- Transferability of Shares
- Artificial Person
- Common Seal
📚 4. Types of Companies
| Type | Meaning |
|---|---|
| Private Company | Restricts transfer of shares, limited members (max 200). |
| Public Company | Shares freely transferable, can invite public for capital. |
| Government Company | ≥51% capital held by Govt. |
| Foreign Company | Incorporated outside India but has business in India. |
💰 5. Share Capital
Types of Share Capital
| Type | Meaning |
|---|---|
| Authorized Capital | Maximum capital company can raise. |
| Issued Capital | Portion of authorized capital offered to public. |
| Subscribed Capital | Part of issued capital subscribed by public. |
| Called-up Capital | Amount demanded by company. |
| Paid-up Capital | Amount actually received. |
Types of Shares
| Type | Features |
|---|---|
| Equity Shares | Ordinary shares with voting rights. |
| Preference Shares | Priority for dividend and repayment of capital. |
🧮 6. Issue of Shares
At Par:
Issued at face value.
At Premium:
Issued at price > face value.
→ Premium transferred to Securities Premium Account.
Uses of Securities Premium:
- Issue of bonus shares
- Write off preliminary expenses
- Redemption of preference shares/debentures
At Discount:
(Generally prohibited under Companies Act except sweat equity)
Journal Entries for Issue of Shares
1. On Application:
Bank A/c ...........Dr
To Share Application A/c
2. On Allotment:
Share Application A/c .......Dr
To Share Capital A/c
To Securities Premium A/c (if any)
3. On Receipt of Allotment:
Bank A/c ...........Dr
To Share Allotment A/c
🚫 7. Forfeiture and Reissue of Shares
Forfeiture:
When shareholder fails to pay due amount.
Share Capital A/c ........Dr
To Share Forfeiture A/c
To Calls in Arrear A/c
Reissue of Forfeited Shares:
Bank A/c ............Dr
Share Forfeiture A/c ..Dr
To Share Capital A/c
Profit on reissue → Transferred to Capital Reserve.
💳 8. Debentures
A debenture is a written acknowledgment of debt issued by a company under its seal, promising repayment with interest.
Types:
- Secured / Unsecured
- Redeemable / Irredeemable
- Convertible / Non-convertible
Issue of Debentures:
- At Par
- At Premium
- At Discount
Journal Entry (At Par):
Bank A/c ............Dr
To Debenture A/c
📈 9. Redemption of Preference Shares / Debentures
- Redeemed out of profits or fresh issue of shares.
- Transfer equal amount to Capital Redemption Reserve (CRR) if redeemed out of profits.
Entry:
Profit & Loss A/c .........Dr
To Capital Redemption Reserve A/c
📊 10. Final Accounts of Companies
Components:
- Statement of Profit and Loss
- Balance Sheet
- Notes to Accounts
- Cash Flow Statement (for listed companies)
Profit & Loss Statement Format
| Particulars | Amount |
|---|---|
| Revenue from Operations | xxx |
| Other Income | xxx |
| Less: Expenses | xxx |
| Profit before Tax | xxx |
| Less: Tax | xxx |
| Net Profit after Tax | xxx |
💹 11. Managerial Remuneration
Maximum 11% of Net Profit (as per Companies Act).
Calculation of Net Profit:
As per Sec. 198 of Companies Act, certain incomes/expenses are adjusted.
🧾 12. Dividends
| Type | Description |
|---|---|
| Interim Dividend | Declared during the year. |
| Final Dividend | Declared at AGM. |
Journal Entries:
Profit & Loss A/c .........Dr
To Proposed Dividend A/c
Proposed Dividend A/c .....Dr
To Bank A/c
📈 13. Bonus Shares
Issued to existing shareholders free of cost from reserves.
Entry:
Reserves A/c .............Dr
To Bonus to Shareholders A/c
Bonus to Shareholders A/c ....Dr
To Share Capital A/c
💱 14. Amalgamation, Absorption, and Reconstruction
Amalgamation:
Two or more companies merge to form a new one.
(A + B → C)
Absorption:
One company takes over another.
(A + B → A)
Internal Reconstruction:
Reorganization of capital structure without liquidation.
🧮 15. Purchase Consideration (PC)
Amount paid by purchasing company to shareholders of vendor company.
Methods:
- Lump Sum Method
- Net Assets Method:
PC=Assets taken over−Liabilities taken overPC=Assets taken over−Liabilities taken over - Net Payment Method:
PC=Share + Cash + Debenture ConsiderationPC=Share + Cash + Debenture Consideration
🏦 16. Accounting Treatment for Amalgamation (AS-14)
Types:
- Amalgamation in the Nature of Merger
- Amalgamation in the Nature of Purchase
Main Accounts Involved:
- Realization A/c
- Purchase Consideration A/c
- Equity Shareholders A/c
📘 17. Liquidation of Company
Process of winding up and distributing assets among creditors and shareholders.
Main Accounts:
- Liquidator’s A/c
- Liquidation Expenses A/c
- Realisation A/c
- Shareholders A/c
💹 18. Valuation of Goodwill
| Method | Formula |
|---|---|
| Average Profit Method | Average Profit × No. of Years’ Purchase |
| Super Profit Method | Super Profit × No. of Years’ Purchase |
| Capitalization Method | Goodwill=Capitalized Value−Net AssetsGoodwill=Capitalized Value−Net Assets |
🧮 19. Valuation of Shares
| Method | Formula |
|---|---|
| Net Assets Method | Net AssetsNo. of SharesNo. of SharesNet Assets |
| Earnings Method | Expected DividendRate of ReturnRate of ReturnExpected Dividend |
| Fair Value Method | Average of above two methods |
📊 20. Cash Flow Statement (AS-3)
Shows inflow and outflow of cash during an accounting period.
Classification:
- Operating Activities
- Investing Activities
- Financing Activities
Net Cash Flow=Inflows−OutflowsNet Cash Flow=Inflows−Outflows
🧾 21. Issue of Rights Shares
Issued to existing shareholders in proportion to their holdings.
Entry:
Bank A/c ............Dr
To Share Capital A/c
💼 22. Buy-back of Shares
A company repurchases its own shares from shareholders (as per Sec. 68 of Companies Act).
Sources:
- Free reserves
- Securities premium
- Fresh issue of shares
📑 23. Reserves and Surplus
| Type | Purpose |
|---|---|
| General Reserve | For strengthening financial position |
| Capital Reserve | From capital profits (e.g., sale of asset) |
| Revenue Reserve | From revenue profits (e.g., retained earnings) |
⚖️ 24. Difference Between Partnership and Company Accounting
| Basis | Partnership | Company |
|---|---|---|
| Governing Law | Partnership Act, 1932 | Companies Act, 2013 |
| Capital | Partners | Shareholders |
| Profit Sharing | As per agreement | Dividend declared |
| Legal Entity | Not separate | Separate entity |
🧩 25. Important Accounting Standards for Companies
| AS No. | Title |
|---|---|
| AS-3 | Cash Flow Statements |
| AS-10 | Fixed Assets |
| AS-14 | Amalgamation |
| AS-16 | Borrowing Costs |
| AS-20 | Earnings Per Share (EPS) |