INTRODUCTION

By understanding the critical concept of the meaning of Company, we can be

able to understand the certain roles guide for the preparation of Company
Accounts.
Company is a body corporate as an aggregation of person of individuals
having a distinct legal personality created by or under Companies and Allied
Matters Acts (C.A.M.A) of 1990 or enabling statute of Government in this
framework we are going to strictly considered Accounts prepared by the
Companies for internal use.
LAW APPLICABLE IN COMPANIES ACCOUNT
We need to put in mine that, there are different types of companies. Namely:
1. LIMITED COMPANY: There are two types of limited companies.
Company limited by shares and Company limited by guarantee.
2. UNLIMITED COMPANY: They are Company in which the liability of the
members extends beyond the amount remaining unpaid on the shares
allotted.
3. PRIVATE COMPANY: This is the Company with the following
restrictions:
a) Rights to transfer of shares.
b) Number of members limited to 50.
c) The public cannot subscribe it shares.
4. PUBLIC LIMITED COMPANY: This is a limited company other than a
private limited company; it does not have the above restrictions.
Therefore, from here we are going to consider the items which only
appear in the financial statement of a company and how they are deal
or how to deal with.
A. DIRECTORS FEE / RENUMERATION AND CREDITORS FEE: These
expenses should be deducted before arriving at the profit before tax.
B. SHARE CAPITAL: However there are different types of capital shares
in company, we are going take one after the other and how deal in
company account.

I.

AUTHORIZED SHARE CAPITAL: Is the amount of capital

stipulated in the memorandum of association which the company

II.

has been authorized to raise.

ISSUED CAPITAL: This is the portion of the authorized capital

III.

which has been issued to subscribers.

CALLED UP CAPITAL: This is the portion of the issued capital on
which the directors have called upon the shareholders to pay the

IV.

installment due.
PAID UP CAPITAL: This is the portion of called up capital which
has been paid up by the shareholders.
Therefore, in preparing companies account have net book value

of capital the above types should be at back of mine.

C. TAXATION: Unlike other business forms, companies are chargeable to
tax in their own name the taxation provision or current years profit is
deducted from the profit before tax and shown in the published
balance sheet, this balance sheet is normally heading a creditor,
amounts falling due within one year.
D. APPROPRIATION ACCOUNT: This is the account where the profit
after tax is shared (i.e appropriated). Items normally found in this
account include; transfer to reverse, interim dividend paid and
proposed dividend.
E. RESERVES: Reserve are amounts set aside out of profits earned by the
company which are not intended to meet any liability, contingency,
commitment or diminution in the value of assets
Known to exist at the balance sheet date. Reserves may be voluntarily
created by the directors as in the case of sinking fund reserves and
general reserves or statutory required as in the case of banks reserves.
It is also important to understand that reserve constitute part of the
shareholders funds may be capital reserve such as share premium,
capital redemption, reserves etc are not distributed reserves to
members. Reserve such as retained profit, debenture, premium etc are
reserve capable for distribution to members.
F. DEBENTURES: A Debenture is a written acknowledgement of a debt
owed by a company normally containing provisions/ classes on

payment of interest and repayment of capital, debenture should be

disclosed in the published balance sheet heading as creditors,
amounts falling due after more than one year unless they are due for
payment within 12 month time. The heading should be creditors
amounts falling due one year
G. PROPOSED DIVIDEND: This is the amount of dividend which has
been declared by the companys directors and approved at the annual
general meeting by members, this amounts shall be charged in the
appropriation account and shown in the published balance sheet under
creditors amounts falling due written one year.
In conclusion, these are elements or items that are required under normal
low of any companies are to be charged as given.

Accounts opening by companies

1. Final account; this is types of account is for internal use and there is no much different
from those of other business organizations except for the appearance of the peculiar items
that we mentioned.
2. Appropriation account; this is the account where profits after taxed is shared otherwise
called dividend is shared.
3. Accounts for issue of shares; when shares is issued there are accounts that need to be
open such as
I.
Application account
II.
Allotment account
III.
Forfeited shares account
IV. Premium account
Application account its the account that record the payment made by shareholders in
installments. Mathematically we are going to consider a question, however it should be
understood that there is no much diff between application and allotment
Accounting entry;
Application monies received

DR; Bank account

CR; Application account

It should however understand that when shares are issues it may be over-subscribed or undersubscribe. When its over-subscribed that is where forfeited account is usually to be opened.
4. Redemption of redeemable preference shares account and debentures
I.
Redemption preference share account
II.
Redemption debentures share account
There are some shares normally preference share that are capable of redeemed that is refund to
the redeemable shareholders of the sum due to them in accordance
With the terms which the shares were issued. Therefore when its due for payment redemption
account most be opened.
There are diff types of debentures shares secure, unsecured, etc any of which company issues
therefore must be an account for that.

Capital PM Ltd, has an authorized capital of sh. 10,000,000/= divided into 20,000 ordinary
shares of 500/= each. These were issued and payment was to be made as follows.
Shs Per share
Payable application

100

On allotment (including premium)

200

First call

200

Second call

100

Applicable were received for 36,000 shares. It was decided to refund the monies on 6000 shares
and to allot the remaining shares on the basis of two for every three applied for. The excess
application munities were to be applied on allotment.
The call were made and paid for one member holding 100 shares who paid neither of cells and
another member who did not pay the 2nd call on 25 shares. These shares were then forfeited.
After consideration by the directors all the forfeited shares were re-issued to one Kasirye at a
price of 400/= per share.

Required.
a) The ledger accounts to record the above transactions.
b) A balance sheet extract of the company on completion of the above transactions.
FM CAPITAL LTD.
Issued dhare20,000 ordinary shared of 500 /= each
On application

100 /= per share

On Allotment (premium)

200/= per share

On first cell

200/= per share

Application received

36000 shares

Rejected

6000 shares

Allotted application /=

30,000/= 20,000/= shares

Forfeited

25 shares on 2nd call

New re-issue price

400 per share.

LEDGERS ACCOUNTS.
Application allotment
Bank (refund)
Share capital
Share premium

600,000
4,000,000
2,000,000
6,600,000

Bank
Bank

3,600,000
3,000,000
6,600,00

Bank account

Application allotment
Application and Allot
1st share call
2nd share call
Forfeited shared (re-issue)

3,600,000
3,000,000
3,980,000
1,987,500
50,000
12,617,500

Application and allotment (refund)

Balance c/d

600,000
12,017,500

12,617,500

Share capital account

Forfeited shares
Balance c/d

62,500
10,000,000

Application and allotment

1st share call
2nd share call
Kasirye Re-issue

10,062,500

4,000,000
4,000,000
2,000,000
62,500
10,062,500

Share premium account.

Balance c/d

2,017,500

Application and Allotment

Profit in re-use

2,017,500

2,000,000
17,500
2,017,500

1st share call account

Share capital

4,000,000

Bank
1st share in arrears

4,000,000

3,980,000
20,000
4,000,000

1st share call in arrears.

1st share call account
2nd share call account

20,000
12,500
13,500

Forfeited shares

13,500
13,500

2nd share call account

Share capital

2,000,000

Bank
Call in arrears

2,000,000

1,987,500
12,500
2,000,000

Forfeited shares account.

Share call in arrears
Share capital
Profit on re-issue
( share premium)

32,500
62,500

Share capital
Bank

17,500
112,500

112,500
CAPITAL FM

BALANCE SHEET EXTRACT.

Assets
Bank
Total assets
Equity liabilities
Share premium
Owners equity

12,017,500
12,017,500
10,000,000
2,017,500
12,0175,500

WORKINGS

1. Application money received.

No.of application x application money per share
= 36,000 x 100 = 3,600,000
2. Share premium (600-500=100)
No.of shares issued x share premium per share
20,000x100 = 2,000,000

62,500
50,000

3. Money refunded.
No.of shares refunded x application money per share
6000x100= 600,000

4. Nominal share capital

No.of shares issues x application x allotment money per share
= (20,000 x 200)
= 4,000,000
5. Allotment money
No of share issued x allotment money per share
Less excess no.of shares x application money x application money
= (20,000x200) (10,000x100)
= 4,000,000 1,000,000 = 3,000,000
6. Money due 1st share call.
No.of shares issued x 1st call money per share.
= 20,000 x 200 = 4,000,000
7. Amount in arrears on 1st call.
No. of share not paid for x 1st call money
Pershare = 100x 2000 = 20,000/=

8. Amount due on 2nd call

No.of share issued x 2nd call money per share.
20,000 x 100 = 2,000,00

20,000x100=2,000,000
9. Money received on call
No.of shares issued-unpaid shares x 1st shares call money
= (20,000-100) x 200
= 19,900 x 200 = 3,980,000
10. Money received on 2nd call
No.of shares issued forfeited shared shs x 2nd call money per share
=(20,000-125) x 100 = 19,875x100 =1,987500 A/c
11. Amount in arrears on 2nd call
No.of share forfeited x 2nd call money per share
125x100=12,500

12. Money received on re-issue

No.of re-issue price per share
125x400= 50,000
13. Nominal value of forfeited shares
Forfeited share x nominal price per sharers
125x500= 62,500
14. Profit on re-issue
Amount expected

50,000

Less: 1st call arrears 20,000

2nd call awareness 12,500

32,500
17,200 or forfeit shs or share pre A/C

REFERENCES:

ROBERT O.I (FCA); Financial Accounting Made Simple 3 rd edition

ROI Publishers, 7, Goloba Street, Isolo, Lagos State, Nigeria.
www. My-accounting-tutor.com