Audit of Capital and Reserves
Audit of Capital and Reserves
Audit of Capital and Reserves
Contents
Paragraph(s)
1 Issued in January, 2006. Attention of the readers is invited to the fact that prior to the issuance of
this Guidance Note, the aspect of audit of Capital and Reserves was covered by paragraphs 8.1 to
8.18 of the Statement on Auditing Practices. The Statements was withdrawn pursuant to the
issuance of the Guidance Note on Audit of Payment of Dividend in August 2005.
Handbook of Auditing Pronouncements-II
The following is the text of the Guidance Note on Audit of Capital and
Reserves, issued by the Council of the Institute of Chartered Accountants of
India. The Guidance Note should be read in conjunction with the Standards on
Auditing issued by the Institute.
Introduction
1. Capital and reserves constitute the owners’ funds. Capital comprises both
the amounts contributed by the owners and the profits capitalised over a period
of time (by way of issue of bonus shares in case of corporate entities or by way
of crediting the retained earnings to the capital account in case of non-
corporate entities).
2. Capital may consist of various classes of shares with varying voting rights
in case of corporate entities.
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Verification
10. Verification of capital and reserves may be carried out by employing the
following procedures:
(i) examination of records;
(ii) examination of compliance with laws and regulations and terms of issue/
contract, if any; and
(iii) examination of presentation and disclosure.
11. The nature, timing and extent of substantive procedures to be performed
is, however, a matter of professional judgment of the auditor which is based,
inter alia, on the auditor’s evaluation of the effectiveness of the related internal
controls.
Entities Other Than Partnerships and Sole Proprietorships
Examination of Records
Capital
Authorised Capital
12. The authorised capital shown in the balance sheet should be checked
with the Memorandum of Association in case of a company, registered byelaws
in case of a co-operative society, relevant statute or the Government Order in
case of a statutory corporation or other body corporate. The auditor may also
refer the audited balance sheet of the immediately preceding year.
13. The minutes of the general meeting and/ or Board should be examined to
see, if any, change in the capital structure has taken place since the last
balance sheet and whether it is properly authorised. A company, having a
share capital, in terms of the provisions of section 94 of the Companies Act,
1956 may change its share capital as follows:
(i) increase its share capital by such amount as it thinks expedient by issuing
new shares
(ii) consolidate or divide all or any of its share capital into shares of larger
amount than its existing shares
(iii) convert all or any of its fully paid up shares into stock, and reconvert that
stock into fully paid-up shares of any denomination
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(iv) sub-divide its shares, or any of them, into shares of smaller amount than
is fixed by the memorandum
(v) cancel shares which, at the date of passing of the resolution in that
regard, have not been taken or agreed to be taken by any person, and
diminish the amount of its share capital by the amount of the shares so
cancelled
In such cases, the auditor should also examine the copy of the documents filed
with the Registrar of Companies in relevant form along with the specified fee
pursuant to the requirements of section 97 of the Companies Act, 1956. In
addition to the situations envisaged in section 94 of the Companies Act, 1956,
the auditor should also enquire whether the Central Government has, under
Section 81(4) ordered or directed under Section 94A(2) of the Companies Act,
1956, the conversion of debentures or loans into share capital, resulting in an
increase in the authorised capital of the company. The authorised capital may
also undergo a change, as a consequence of a merger or a demerger.
Similarly, in case of statutory corporations, amendments made to the statute
governing the entity or the Government Order in case of other public sector
bodies should be enquired into.
Issued and Subscribed Capital
14. Issued Capital: The following records/documents would ordinarily provide
necessary evidence for issued capital:
(a) The minutes of the general and/ or board meetings for further issue of
shares, e.g., under section 81 of the Companies Act, 1956;
(b) Offer documents, if any, filed with the Securities and Exchange Board of
India (SEBI)/Registrar of Companies (ROCs) and Reserve Bank of India
(RBI) in respect of permission in case of ADR/GDR issue.
(c) Return of allotment filed with the Registrar of Companies.
15. Subscribed Capital: Shares subscribed in response to the issue of capital
can be verified by reviewing the applications received for the subscription of
shares. The subscribed capital is the capital for which the application money is
received. The subscribed share capital cannot exceed the issued capital.
Paid up capital
16. Periodical reconciliation of outstanding shares held in demat and physical
form as on book closure/ record date should also be done.
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17. The auditor should review the minutes books of Board of Directors and
the members and also any amendments made to the statutory register to
ascertain whether any changes have taken place in the capital of the entity, for
example –
A. Increase in capital due to:
(i) Fresh issue of shares/ADR/GDR.
(ii) Allotment of shares pursuant to merger/amalgamation or acquisition
of property or services.
(iii) Part/full conversion of loans or debentures
(iv) Allotment of shares pursuant to exercise of option either by the
promoters or the employees or other option holders.
(v) Allotment of Bonus shares
(vi) Rights issue
B. Decrease in capital due to:
(i) Forfeiture
(ii) Buy-back of shares
(iii) Redemption of redeemable preference shares
(iv) Reduction of capital
(v) Surrender of shares as in the case of Co-operative societies
(vi) De-merger
18. A list of members, together with shares held by them and the amounts
paid-up thereon, should be available with the company/entity as at the balance
sheet date and the aggregate of these should agree, with the details of capital
shown in the balance sheet. A copy of the annual return for the previous year
filed under the Companies Act, 1956 or any other statue or a list of members
prepared for issuing dividend warrants may also be examined. If the auditor
chooses to verify the list of members as per the annual return or list of
members prepared for issuing dividend warrants, he should also check the
reconciliation with the amount as at the balance sheet date, with the changes
occurred during the period from the date of balance sheet and record date/
book closure date. Where the registration work is carried out by independent
specialised agencies, a certificate, containing the list of members, the number
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of shares held, including those in the demat form and physical form and
amount paid up on these shares and calls in arrears, if any, should be obtained
and reconciliation of the particulars with the amount credited as paid up in the
share capital account of the General Ledger be checked on a test basis.
19. If a change in the capital has taken place during the year under audit,
inquiries should be made to ascertain that it is properly authorised in the
manner prescribed by the Articles and appropriate resolutions have been
passed with requisite majority.
20. The auditor should enquire whether the Central Government has passed
any order under Section 108 or Section 250 of the Companies Act, 1956
freezing the voting rights of any shareholders. It may be noted that there are
provisions in the Banking Regulation Act, 1949 limiting the voting rights of a
person. Similarly, the Co-operative Societies Act, 1912 provides for issue of
two types of shares, one having voting rights and other not having voting
rights. The Companies Act, 1956 also provides for issue of shares with non
voting rights. These matters have a bearing while examining the validity of the
resolutions passed by the members of the entity. The auditor should,
therefore, also check that the classes of shares have been appropriately
disclosed.
Subscription in Cash and Kind
21. The law requires a distinction to be made between shares subscribed for
in cash and shares subscribed for consideration other than in cash. Shares
subscribed for in cash should include only the following kinds of subscription: -
(a) where the subscription amount is received either in cash or by cheque;
(b) where the amount is adjusted against a bona fide debt payable in money
at once by the company.
There might be situations where a company has taken a loan under a
stipulation that in case of default in repayment of the loan, the loan would get
converted into shares. In such a situation, on a default in repayment of the
loan by the company, if the loan gets converted into shares in the company,
such shares would be considered as having been allotted for cash. Where
shares are allotted against credit balance in a person’s account, inquiry should
be made as to how the credit balance in that account has arisen, whether it
was for a valid consideration and whether the amount was due for payment at
the time of issue.
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22. The Department of Company Affairs2 has clarified through its circular No.
8/32(75) 77-CL-V dated 13th March, 1978, that a genuine debt adjusted
against the amount receivable towards share capital can be treated as amount
paid in cash. The extracts from the advice received from an eminent Counsel
in this regard are given as Appendix A to this Guidance Note.
23. Where the subscription for share capital is paid into a bank account in a
foreign country, it should be verified that the amount deposited in the foreign
currency is in accordance with the terms of issue and such an amount as, if
remitted into India on the day on which the deposit is made in the foreign
country, would have realised in Indian rupees a sum equal to the amount
credited as paid up and premium, if any, on the shares. The auditor should
verify that the guidelines issued by SEBI for inviting, collecting and recording of
foreign capital have been complied with by the company. The foreign
exchange fluctuations, if any, should be accounted for in the balance with bank
in accordance with the provisions of Accounting Standard 11, The Effects of
Changes in Foreign Exchange Rates.
24. Issue of Shares for Consideration Other than Cash: Shares may also be
issued for a consideration other than cash, e.g., for supply of machinery or
technical know-how. The auditor should examine the underlying agreement in
respect of the same and verify whether the agreement has been properly
approved. The auditor should treat the shares issued for consideration other
than cash separate from those issued against cash in his audit approach. He
needs to verify that the consideration for which shares are issued, viz., supply
of machinery or technical know-how is prima facie fully received.
25. Further, as per the provisions of section 75 of the Companies Act, 1956,
whenever company having a share capital makes any allotment of its shares,
the company has to comply with the following conditions:
i. It has to file with the Registrar of Companies, a return of the allotment,
stating the number and nominal amount of shares comprised in the
allotment, the names, addresses and occupations of the allottees, and the
amount if any, paid or due and payable on the shares.
ii. In case of shares allotted for other than cash, it has to produce before the
Registrar, inter alia, a contract in writing, constituting the title of the
allottee to the allotment together with any contract of sale, or a contract
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3 Book Building Process: Listed companies can also issue shares through Book Building Process.
Book Building is a process wherein the issuer of securities asks investors to bid for his securities at
different prices. These bids are within an indicative price-band, decided by the issuer. Here,
investors bid for different quantity of shares, at different prices. Considering these bids, the issuer
determines a cutoff price, which is the price at which the securities are allotted. SEBI has issued
guidelines on issue of shares through Book Building Process. The auditor has to verify whether the
company has complied with all the guidelines issued by SEBI in this regard and also that the basis
of determination of the floor price and the final price by the company is consistent with the
provisions in that regard.
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be accounted at the time of receipt, with proper disclosure in the balance sheet
for deviating from the accrual principle. The schedule of calls in arrears should
show separately the amounts, if any, due from the directors. Similarly, the
auditor should also examine the payment of interest on calls received in
advance, if any, made by the company. He should verify whether any such
payment of interest on calls received in advance is permitted by the articles of
association of the company. He should also examine the Board resolution in
this regard.
28. In case shares are issued at discount, the auditor has to verify the
compliance of Section 79 of the Companies Act, 1956.
29. Generally, employees are offered shares at a price lesser than the market
rate. Sections 79 and 79A of the Companies Act, 1956 and SEBI (Employee
Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines,
1999 (ESOS and ESPS), Employee Stock Option Scheme for Public Sector
Enterprises and others statues governing the entity have to be complied with.
Transactions relating to options are to be accounted as required by the said
scheme or the Accounting Standards and provisions of any relevant statute, if
any, in force, on treatment of discount etc., on ESOS/ESPS.
30. Issue of Sweat Equity: Section 79A of the Companies Act, 1956 deals
with the issue of sweat equity by the company to its employees and directors,
at a discount or for consideration other than cash for providing know-how or
making available rights in the nature of intellectual property rights or value
additions, by whatever name called. SEBI has also issued SEBI (Issue of
Sweat Equity) Regulations, 2002 for issue of the sweat equity by the listed
companies. The issue of sweat equity by unlisted companies is governed by
Unlisted Companies (Issue of Sweat Equity Shares) Rules, 20034.. The auditor
must verify that if the company has issued any sweat equity, whether the
provisions of Section 79A of the Companies Act, 1956 and the Rules
applicable to the company, depending whether listed or not, have been
complied with.
31. Companies are now allowed to buy-back their own shares. Sections 77A
and 77B of the Companies Act, 1956 lay down the conditions and procedures
for buy-back of the shares of a company. In case of private limited and unlisted
companies, the Private Limited Company and Unlisted Public Limited
4Issued by the Ministry of Company Affairs vide Notification number GSR 923E dated 4th
December, 2003.
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ensure that such sums are accounted for separately. In case of buy back,
reissue or redemption of preference shares and reduction of capital by
payment of money, the auditor should examine whether these have been
properly accounted and duly reconciled with payments made for the same.
42. Proviso to section 383A of the Companies Act, 1956 requires certain
companies to obtain a certificate of compliance with the provisions of the
Companies Act, 1956 from a practicing company secretary. The auditor of
such companies may review the same.
Reserves
43. Reserves should be distinguished from provisions. For this purpose,
reference may be made to the definitions of the expressions, “provision” and
“reserve”, etc., in the Guidance Note on Terms Used in Financial Statements
issued by the Institute. The definition of the term “reserve” as given in the said
Guidance Note is explained in paragraph 3. It is important to remember that
any amount provided in excess of the requirements is in the nature of reserve
and should be shown as such.
44. It is also necessary to make a distinction between capital reserves and
revenue reserves in the accounts. A Revenue Reserve is ordinarily available
for distribution as dividend.
45. Reserves may also contain amount received from the Government. These
grants may be in the nature of promoters’ contribution or related to any specific
fixed asset. The auditor should verify that the principles of Accounting
Standard 12, ‘Accounting for Government Grants’ for recognition, presentation,
refund, if required, and disclosure of the grant have been appropriately
complied with.
46. A reserve account is styled as Reserve Fund only when such reserves
are represented by specifically earmarked assets or investments.
47. In case of amalgamations and mergers, reserves of the amalgamated
/merged company have to be treated as prescribed in Accounting Standard 14,
‘Accounting for Amalgamations’ issued by the Institute. However, the auditor,
especially in cases of amalgamations/ mergers, may come across a situation
where the relevant Court/ Tribunal has made an order sanctioning an
accounting treatment different from that prescribed by an Accounting Standard.
In such a situation, the attention of the members is drawn to the announcement
of the Council of the Institute in this respect. The Council has recommended
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that the following disclosures be made in the financial statements for the year
in which different treatment has been given:
(i) A description of the accounting treatment made alongwith the reason that
the same has been adopted because of the Court/ Tribunal order.
(ii) Description of the difference between the accounting treatment
prescribed in the Accounting Standard and that followed by the Company.
(iii) The final impact, if any, arising due to such a difference.
Capital Reserves
Capital Redemption Reserve
48. In terms of the provisions of sections 77A and 80 of the Companies Act,
1956, if the company redeems the preferential share capital or buys back its
own shares, using the retained earnings, the amount equivalent to the nominal
value of the shares redeemed/bought back have to be transferred to the capital
redemption reserve, and such reserve can be utilised only for issue of bonus
shares to the members of the company.
Securities Premium Account
49. Any premium realised on issue of securities should be transferred to
Securities Premium Account and utilised only for the purposes laid down in
section 78 of the Companies Act, 1956.
Government Grants
50. Grants, contributions and subsidies received from Government
specifically for acquisition of assets have to be treated and disclosed in the
financial statements as laid down in Accounting Standard 12, issued by the
Institute.
Revaluation Reserve
51. Reserves arising out of revaluation of fixed assets are to be transferred to
the Revaluation Reserve account. The treatment and utilisation of these
reserves is governed by the “Guidance Note on Treatment of Reserve Created
on Revaluation of Fixed Assets” and “Guidance Note on Availability of
Revaluation Reserve for Issue of Bonus Shares” issued by the Institute.
Statutory Reserves
52. Section 17 of the Banking Regulation Act, 1949 and certain provisions in
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the Co-operative Societies Act, 1912 provide for creation and utilisation of
certain specific reserves. Laws governing other entities may contain similar
provisions as to the creation and utilisation of such reserves. The regulators
may also direct the entities to create some specific reserves, for example, the
Reserve Bank of India has directed all banking companies to create and
transfer certain amount of profits earned on trading of investments to
Investment Fluctuation Reserve and has also stipulated the purpose for which
such reserve can be utilised. The auditor should familiarise himself with such
regulatory directions with respect to creation and utilization of such specific
reserve and verify compliance therewith.
Revenue Reserves
53. A revenue reserve is a reserve, which is available for distribution as
dividend. The auditor should examine the legal provisions governing the entity
with regard to transfer of certain percentage of profits to reserves, for example,
the requirements of section 205 (2A) of the Companies Act, 1956, the Reserve
Bank of India Directions in case of Non Banking Financial Companies, etc.
54. Certain other statutes may require transfer of profits to reserves. For
example, the Income-tax Act, 1961 may require creation of certain reserves
and provide for rules for utilisation of such reserves to claim certain fiscal
benefits. The auditor should examine the need for transfer of profits to
reserves and utilisation of such transfers.
Examination of Compliance with Laws and Regulations
55. Standard on Auditing (SA) 250, Consideration of Laws and Regulations in
an Audit of Financial Statements requires that “when planning and performing
audit procedures and in evaluating and reporting the results thereof, the
auditor should recognise that non compliance by the entity with laws and
regulations may materially affect the financial statements.” The auditor should
therefore acquire sufficient knowledge of the legal and regulatory framework
within which the client operates. This assumes added importance in cases of
audit of capital and reserves of companies since the matters relating to the
share capital and reserves are governed by the provisions of the Companies
Act, 1956, especially the provisions contained in sections 69 to 116, section
177C, section 205(2A) of the said Act. For example, sections 69 to 116 of the
Companies Act, 1956 regulate the matters relating to issue and allotment of
shares, section 205 (2A) and section 177C of the Companies Act, 1956 contain
provisions relating to creation and utilisation of certain reserves and section
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187C deals with the situation where the beneficial owner of the shares of the
company is different from the person whose name is appearing in the
shareholders’ register of the company. Guidelines issued by the Securities and
Exchange Board of India from time to time also contain the matters relating to
the issue and allotment of shares in case of public offer and substantial
acquisition of shares in case of existing listed companies. Moreover, the
Articles of Association of the entity may also have provisions relating to share
capital and reserves. The Companies Act, 1956 requires compliance with the
Articles of Association in so far as they are not contradictory to the provisions
of the Act. Hence, it is very important to verify the compliance with the laws
and regulations governing the entity.
56. The State Co-operative Societies Acts may have conditions as to
minimum paid up capital and also minimum number of members for co-
operative societies and with regard to creation and utilisation of various
reserves. Statutes governing the entity may contain similar provisions with
regard to the number of members and minimum amount of capital. The auditor
should be familiar with the laws governing the entity. The auditor has to
carefully examine the compliance of such legal requirements.
57. The auditor has to examine the compliance with the various rules and
regulations, for example:
(a) Government Order, if any, the Memorandum and the Articles of
Association of the company or the Rules and Regulations governing the
entity.
(b) Terms of issue attached or subsequently approved in case of conversion
of loans or convertible preference shares.
(c) Issue of Foreign Currency Convertible Bonds and Ordinary Shares
(Through Depository Receipt Mechanism) Scheme, 1993 and Guidelines
on Euro Issues.
(d) Rules and Regulations relating to issue and buy back of ADR/GDR.
(e) Chapter XIII of SEBI (Disclosure and Investor Protection) Guidelines 2000
in case of preferential issue.
(f) Unlisted Public Companies (Preferential Allotment) Rules, 2003.
(g) Unlisted Companies (Issue of Sweat Equity Shares) Rules, 2003.
(h) Any other Rules and Regulations prescribed by Government/ SEBI from
time to time.
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61. It may be possible that one or more partners contributes the capital in
kind rather than in cash. For example, the premises required for the business
may be provided by a partner as his capital contribution. If such contributions
are in kind at the time of admission of the partners, the value of such assets is
generally mentioned in the Partnership Deed. If the value is not mentioned in
the Partnership Deed, the auditor may request for a declaration of the value in
writing by all the partners. He should also obtain necessary audit evidence for
supporting the valuation.
62. The partnership deed may also provide for fixed capital contribution and
timing of contribution by each partner. The auditor should examine whether the
capital contributed by each of the partners is in accordance with the
Partnership Deed and the capital is maintained at the level mentioned in the
Partnership Deed throughout the period of audit.
63. If the Partnership Deed places any restrictions on the drawings of the
partners, the auditor should examine whether the drawings have been within
the permissible limit.
64. The auditor has to verify the correctness of the interest, if any, credited or
debited to the partners’ capital or drawings account.
65. Generally, remuneration, interest on capital, interest on drawings, profits
or losses are adjusted in the capital accounts or the drawing accounts of the
partners, and Reserve accounts are not maintained in case of partnership
accounts. However, if fiscal or any other law require any reserve has to be
created for claiming any benefit, a reserve with appropriate title may be
created out of the profits of the firm. The rules for utilisation of the reserve may
be provided in the relevant laws. In such event, the auditor should examine
the compliance with the same. Sometimes, the partners may decide to create
and utilise certain reserves due the exigencies of the business, in which case
the auditor has to verify the compliance of the decision of the partners. In case
the entity has not complied with the prescribed reserve utilization
requirements, he should consider the effect of the same on his audit report in
terms of the principles laid down in the SA 250, Consideration of Laws and
Regulations in an Audit of Financial Statements.
66. Special Reserves, created to meet the requirements of any law, may be
credited to the Partners’ Capital Accounts on fulfillment of such statutory
requirements or the terms of creation of such reserves.
67. Government grants and subsidies received shall have to be accounted for
in accordance with Accounting Standard 12.
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68. Where either investments or drawings have come from Non Resident
Indians or foreign sources involving foreign currency, the auditor has to verify
the compliance of RBI regulations as well as the provisions of the Foreign
Exchange Management Act, 1999 in this regard.
69. All transactions in the partners’ capital account and drawings account
have to be vouched for their correctness.
70. The auditor has to verify that the distribution of profit/loss is as per the
terms of Partnership Deed. It may be noted that if any minor is admitted to the
benefits of partnership, no loss should be apportioned to the share of minor.
71. If a partner dies/retires during the year, the partnership entity may
prepare accounts up to the date of such death/retirement to ascertain the claim
of heirs/retiring partner. In such event, the auditor has to verify the
apportionment of the profit/loss for both the periods.
Special Considerations Applicable to a Sole Proprietary
Entity
72. The audit of capital account of the sole proprietor poses considerable
problems, as the capital account is generally maintained as a current account.
Generally, the entries in the capital account are many, when compared with
other forms of entities. The capital introduced by the proprietor in the entity
may be in cash or in kind. The introduction of capital can take place at number
of times, depending upon the need for the working capital in the entity.
Similarly, the drawings are made for various personal expenses.
73. It may also be possible that the personal expenses of the proprietor are
booked in the accounts of the business without appropriately reflecting them in
those accounts.
74. Generally, internal control procedures are inadequate or absent in many
sole proprietary entities. Hence, the auditor should be careful while examining
the accounts of such entity. Though the auditor needs to obtain the same level
of assurance in order to express an unqualified opinion on the financial
statements of both small and large entities, however, many internal controls
which would be relevant to large entities are not practical in the small business.
For example, in small businesses, accounting procedures may be performed
by a few persons who may have both operating and custodial responsibilities,
and therefore segregation of duties may be missing or severely limited.
Inadequate segregation of duties may, in some cases, be offset by a strong
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Documentation
80. The auditor should maintain adequate working papers documenting
significant aspects of audit such as:
(a) the nature, timing, extent and results of the audit procedures performed to
comply with Standards on Auditing and applicable legal and regulatory
requirements;
(b) the audit evidence obtained;
(c) the conclusions reached on significant matters ; and
(d) in relation to audit procedures designed to address identified risks of
material misstatement, conclusions that are not otherwise readily
determinable from the procedures performed or audit evidence obtained.
However, it may be noted that the extent of documentation is a matter of
professional judgment since it is neither necessary nor practical that every
observation, consideration or conclusion is documented by the auditor in his
working papers.
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APPENDIX A
EXTRACTS FROM COUNSEL’S OPINION REFERRED TO
IN PARA 22 –“SUBSCRIPTION IN CASH AND KIND”
“The ratio of Spargo’s case is that if there is on the one side a bona-fide debt
payable in money at once by the company (hereinafter called “debt”), and on
the other side a bona-fide liability to pay money on allotment of shares, so that
if bank notes are handed from one side of the table to other in payment of
calls, they may legitimately be handed back in payment of the debt. The law
does not make it necessary that the formality should be gone through of the
money being handed over be taken back again, and if the two demands are set
off against each other the shares have been paid for in cash. This is still good
law and on facts similar to those of Spargo’s case it would be right for a
company to show in its accounts the shares as having been allotted for cash.
It is the necessary implication of Section 227(1A)(f) that shares may be
correctly stated to have been allotted for cash even though cash may not have
been actually received in respect of such allotment …….. If the Auditors find
that the case is covered by the ratio of the decision in Spargo’s case, no
comment would be required from the Auditors and the statement in the
Balance Sheet and other accounts that the shares were allotted for cash must
be accepted as correct, regular and not misleading, although no cash had
been actually received by the company………..
The function of Section 75(1) is merely to impose an obligation on the
company to file a Return of the Allotments with the Registrar. Now, the
expression “share allotted for cash” is an ambiguous expression. It may mean
shares allotted for cash actually received by the Company, or it may mean
shares allotted for cash not actually received but adjusted against a debt. In
order that this ambiguity may be removed and the Registrar may know the
precise factual position, Section 75(1)(a) requires that in the Return of
Allotments to be filed with the Registrar shares should not be shown as having
been allotted for cash if cash has not been actually received. This, however,
does not prevent the company from stating in the Return that shares not shown
in the Return as having been allotted for cash were in fact allowed against
adjustment of a debt, and consequently such shares would be shown in the
company’s accounts as having been allotted for cash.”
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