An unlisted company accepted share application money on 15 March 20X2 for allotment of shares. The terms with shareholders provide that share application money shall not be refunded. Shares could not be allotted as at the year ending 31 March 20X2. Now the company is finalizing its financial statements as at 1 Sept 20X2 and wants to compute net worth.Whether the company can include share application money pending allotment for computing net worth?
As per Section 2(57) of the Companies Act, 2013, “Net worth” means the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation.”
As per Section 2(64) of the Companies Act, 2013, “Paid-up share capital” or “share capital paid-up”, means such aggregate amount of money credited as paid-up as is equivalent to the amount received as paid-up in respect of shares issued and also includes any amount credited as paid-up in respect of shares of the company, but does not include any other amount received in respect of such shares, by whatever name called.
Accordingly, Share application money is neither covered in paid-up share capital as the money is not credited as paid-up nor covered in reserves as it is not created out of profits and securities premium account. So, share application money pending allotment should not be considered while calculating net worth of the company.
– Accounting Standard 20 (Para 28 of AS 20)
– EAC Opinion query 12 Volume 32
– Opinion finalized on 24 May 2012
– Companies Act, 2013