Share capital:
There are two types of shares
a. Equity shares / ordinary shares
b. % preferences shares.
Differences between equity& % preferences shares:
1. AS A REGARDS PAYMENT OF DIVIDEND:
Where company (pvt. Or public) earns profit (net profits after tax), company transfers parts of its profits to reserve and balance profits are distributed to the shareholder in the form of dividend.
Hence, Existence of profits is must for payment of dividend.
Difference: dividend is first to be given to the preferences share holders at fixed rate and then dividend is to be given to the equity share holders at the fluctuating rate depending upon the balance profits left.
2. As regards to repayment of capital on liquidation (dissolution) of the company:
a. All real assets areas sold off at its existing markets value’s
b. All outsiders liabilities are paid off first at its existing agreed values
c. Balance amount left is for shareholder.
Difference: first payment is made to preference shareholders at amount equals to % preference capital (generally) and then balance amount (whether less or more than equity share capital) is distributed amongst the equity shareholders.
Hence, preferences shareholder have preference (priority ) in payment of dividend and repayment of capital on liquidation (closure ) of the company.
3. As regards to “issues of bonus shares.”
Out of accumulated reserves bonus (free) shares can be given only to the existing equity shares holders. Preferences shareholder are not entitled to bonus shares etc.
There are two types of “share capital”.
1. Equity share capital.
2. %preferences share capital.
Under each “share capital”.
Share capital xxx
(-) calls in appears - xx
xxx
(+) share forfeited A/c xx xxx
2. Reserves & surplus:
Surplus = profits& loss a/c balance
Reserves and undistributed profits:
Reserves are created for two purposes:
a. To meet some unforeseen / unexpected loss that might arise in the future.
b. For the purposes of expansion of the business.
E.g. (various Reserves funds)
General reserve Securities Premium
Contingency reserve Capital Redemption Reserve
Reserves fund Capital Reserve
Workmen’s compensation fund Profits prior to incorporation
Workmen’s accident fund Sinking fund or
Insurance fund (Debenture redemption fund etc.)
Dividend equalization reserve Export profit reserve
Investment fluctuation fund Foreign project reserve
Investment allowances reserves Development rebate reserve
Staff benefit funds – These are classified as “provisions”
Workmen’s Profits sharing Funds
Provident Fund
Pension Fund
Gratuity Fund
Staff Benevolent Fund (Staff Welfare Fund)
There are two types of shares
a. Equity shares / ordinary shares
b. % preferences shares.
Differences between equity& % preferences shares:
1. AS A REGARDS PAYMENT OF DIVIDEND:
Where company (pvt. Or public) earns profit (net profits after tax), company transfers parts of its profits to reserve and balance profits are distributed to the shareholder in the form of dividend.
Hence, Existence of profits is must for payment of dividend.
Difference: dividend is first to be given to the preferences share holders at fixed rate and then dividend is to be given to the equity share holders at the fluctuating rate depending upon the balance profits left.
2. As regards to repayment of capital on liquidation (dissolution) of the company:
a. All real assets areas sold off at its existing markets value’s
b. All outsiders liabilities are paid off first at its existing agreed values
c. Balance amount left is for shareholder.
Difference: first payment is made to preference shareholders at amount equals to % preference capital (generally) and then balance amount (whether less or more than equity share capital) is distributed amongst the equity shareholders.
Hence, preferences shareholder have preference (priority ) in payment of dividend and repayment of capital on liquidation (closure ) of the company.
3. As regards to “issues of bonus shares.”
Out of accumulated reserves bonus (free) shares can be given only to the existing equity shares holders. Preferences shareholder are not entitled to bonus shares etc.
There are two types of “share capital”.
1. Equity share capital.
2. %preferences share capital.
Under each “share capital”.
Share capital xxx
(-) calls in appears - xx
xxx
(+) share forfeited A/c xx xxx
2. Reserves & surplus:
Surplus = profits& loss a/c balance
Reserves and undistributed profits:
Reserves are created for two purposes:
a. To meet some unforeseen / unexpected loss that might arise in the future.
b. For the purposes of expansion of the business.
E.g. (various Reserves funds)
General reserve Securities Premium
Contingency reserve Capital Redemption Reserve
Reserves fund Capital Reserve
Workmen’s compensation fund Profits prior to incorporation
Workmen’s accident fund Sinking fund or
Insurance fund (Debenture redemption fund etc.)
Dividend equalization reserve Export profit reserve
Investment fluctuation fund Foreign project reserve
Investment allowances reserves Development rebate reserve
Staff benefit funds – These are classified as “provisions”
Workmen’s Profits sharing Funds
Provident Fund
Pension Fund
Gratuity Fund
Staff Benevolent Fund (Staff Welfare Fund)