CORPORATE ACCOUNTING (B.

COM)
Module I
Debenture
Debenture simply refers to instrument of acknowledgment of debt,
issued by a company under its common seal.
Redemption of Debentures
It means repayment of debentures to the debenture holders. It is the
discharging of liability on account of debentures.
Sources of redemption of debentures
 Out of fresh issue of debentures
 By utilisation of part of capital
 Accumulated profits.
 By conversion of shares into debentures
 By sale of fixed assets
 By purchase of own debentures
Methods of redemption of debentures:
1. Redemption by lump sum payment.
2. Redemption by annual instalment payment.
3. Redemption by sinking fund method.
4. Redemption by insurance policy method.
5. Redemption by purchase of own debentures in open market.
6. Redemption by conversion into new shares or debentures.
1. Redemption by lump sum payment.
Under this method, entire amount of debenture is redeemed at the
end of the specified period as per the terms of the issue.
2. Redemption by annual instalment payment.
When redemption of debentures is made by annual instalments,
then it is called redemption of debentures by annual instalment. This
method is also called lottery method.
3. Redemption by sinking fund method.
Under this method of redemption, every year a part of profit is set
aside and sinking fund is created. The sinking fund is created in
outside securities.
4. Redemption by insurance policy method.
Under insurance policy method, an insurance policy is purchased by
paying annual premium. Such policy will mature on the date when
the redemption become redeemable.
5. Redemption by purchase of own debentures in open market.
A company can buy its own debentures if it is authorised by its
articles. When a company purchases its own debentures, it will
constitute redemptions of debentures.
6. Redemption by conversion into new shares or debentures.
This is another method of redeeming debentures. Redemption by
conversion means redeeming the debentures by converting them
into new debentures or shares within a specified period at the option
of the debenture holders.
Sinking fund
A sinking fund is a fund containing money set aside or saved to pay
Off a debt or bond.
Divisible profit
It is a part of profit which is legally distributed as dividend to the
Shareholders.
Debenture Redemption Reserve (DRR)
If the company is unable to redeem its debentures by issuing new
shares to raise necessary funds, the company should create DRR
accounts for redeeming the debentures.
Ex-interest quotation
If the purchase price excludes the interest for the expired period, it is
called ex-interest price or quotation.
Cum-interest quotation
If the purchase price includes the interest for the period from the
previous date of interest to the date of purchase, it is called cum-
interest price or quotation.
Preference shares
Preference shares are those shares which carry preferential right
with respect to payment of dividend and repayment of capital.
Redemption of preference shares
It means repayment of preference shares to preference
shareholders.
Provision/ Conditions for redeeming preference shares
 The redeemable preference share must be fully paid up.
 There must be a provision in the article regarding redemption.
 Amount of capital reserve cannot be used for redemption.
 Proceeds from fresh issue of debentures cannot used for
redemption.
 Notice of redemption sent to the registrar within 30 days from
date of redemption.
Methods or Sources of redemption of preference shares
1. Redemption out of fresh issue.
2. Redemption out of profit.
3. Redemption out of fresh issue of shares and profit.
1. Redemption out of fresh issue
A company issue new shares and the proceeds from such issues are
used for redemption of preference shares.
2. Redemption out of profit
Redeemable preference shares can be redeemed out of profits,
which is divisible profits. Divisible profit means profit available for
dividend.
3. Redemption out of fresh issue of shares and profit.
This is the most practical method of redemption. Under this method
a company can redeem the preference shares partly from the fresh
issue of shares and partly out of revenue profit.
Capital Redemption Reserve (CRR)
It is a type of reserve maintained by a company limited by shares and
this reserve deals with shares which are redeemable.
Bonus shares
Bonus shares are those shares which are issued by a company free of
cost to the existing shareholders of a company.
Advantages of Bonus shares
 To the shareholders
1. Shareholders get additional shares for free
2. Not required to pay income tax on bonus shares
3. Shareholders will get increased dividend in future
4. When market price of shares increase shareholders earn profit.
 To the company
1. It does not affect working capital of the company.
2. The cost of issue of bonus shares are less.
3. It increases goodwill of the company.
4. No tax payment related to bonus shares.
Disadvantages of Bonus shares
 To the share holders
1. It encourages speculation.
2. Market value of shares sometimes fall
3. Sometimes dividend per shares reduced.
4. EPS will fall.
 To the company
1. It encourages undesirable speculation.
2. It reduces accumulated profits earned in past years.
3. Company's reputation may suffer.
4. Some expenses like stamp duty, printing etc. will incurred.
SEBI guidelines for issue of bonus shares
 Reserves created by revaluation of fixed assets are not capitalized
 Company has not defaulted in payment of interest or principle of
fixed deposits.
 Approval of board of directors is must.
 The bonus shares shall not be issued in lieu of dividend.
 Once bonus issue announced, it cannot be withdrawn.
Circumstances of issue of bonus shares
1. Accumulated large reserve
2. Company not in a position to give cash bonus
3. When value of fixed asset exceeds the amount of capital
4. Big difference between market and paid up value of shares
5. Avoid the problem of demanding more wages by employees
Conditions for issue of bonus shares
 It should be authorized by articles.
 Approval of Board of directors.
 Company should have sufficient profit and reserves.
 It must follow SEBI guidelines.
Sources of bonus shares
Revenue reserve/Profit Capital Reserve/profit
Credit balance in P&L A/c. Profit on sale of fixed asset.
General Reserve. Profit prior to incorporation.
Dividend equalisation reserve. Security premium reserve.
Capital redemption reserve.
Stock split
Stock split is the process of reducing the face value of shares of a
company by dividing one share into two or more parts.
Difference between Bonus shares and Stock Split
Bonus share Stock split
Value of share does not change Face value of share reduced
Bonus issue reduced reserves Reserves remain as before
Benefited to existing shareholders Benefited to existing and
potential investors
A part of reserve is capitalized There is no capitalization
Right shares/ Right issue
When a company offer additional shares to the existing shareholders
for a reduced price is called right issue.
Advantages of right issue
1. Issue cost is lower.
2. It improves the image of the company.
3. Issue made at the directions of directors.
4. Existing shareholders get additional shares.
Value of right
It is a gain an existing shareholders makes while exercising his rights.
Distinction between Bonus Shares and Right Shares
Bonus shares Right shares
It is issued to existing members It is issued against payment.
free of cost.
These are always fully paid. These may be fully or partly paid
There is no requirement of Right is subject to minimum
minimum subscription. subscription.
 Bonus issue must be authorised For the right issue, specific
by the Articles. provision in the Articles is not
required.
Bonus issue increases share Right issue increases share
capital but reduces accumulated capital with simultaneous
profits without any increase in increase in cash (no effect on
cash. accumulated profits).
It is regulated by Section 63 of It is regulated by Section 62 of
the Companies Act, 2013. the Companies Act, 2013.
Buy back of shares
Buy back simply means buying of own shares. It is a process of capital
restructuring.
Objectives/ Advantages of buy back
1. To improve returns on capital.
2. To increase the EPS.
3. To increase the market price of the shares.
4. To prevent hostile takeover bids.
5. To achieve optimum capital structure.
6. To improve the financial health of the company.
7. To change capital structure.
8. It will improve the company's image.
9. It is a reward for investors.
10. It helps to utilize liquid assets.
Dangers of buy back
1. It is tool for insider trading.
2. It is used for manipulation of share prices.
3. It weakens the position of minority shareholders.
Conditions of buy back
 It should be authorized by article
 A company should pass a special resolution in general meeting
authorising the buy back.
 The debt equity ratio is not more than 2:1
 It must be completed within 12 months.
 The securities buy back should be physically destroyed within 7
days.
 Money borrowed cannot be utilized for buy back.
Sources of buy back shares
1. Free reserve
a. Surplus
b. General reserve
c. Dividend equalisation reserve
2. Security premium reserve A/c
Book building
It was introduced by SEBI with a view to strengthen the capital
market and to safeguard the interest of the investors. It means
selling securities to investors at an acceptable price with the help of
intermediaries.
Advantages of book building
1. Cost of issue is less.
2. Easy collection of fund.
3. It provide real price to investors.
4. Minimum chances of under subscription.
5. Minimum chances of over subscription.
Limitations of book building
1. It is useful to big companies only.
2. It is not work always efficiently.
3. It is suitable for mega issues only.

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 CORPORATE ACCOUNTING (B.COM)
Module II (Banking companies)
Non-Banking Assets (NBA)
Non-banking assets are those financial assets acquired by the banks
to settle their debts.
Dividend
Dividend is a part of profit which is distributed to shareholders by a
company.
Statutory Liquidity Ratio (SLR)
Every scheduled commercial bank is required to maintain at least 25
percentage of the demand and time liabilities in the forms of liquid
assets such as cash or gold which is called SLR.
Cash Reserve Ratio (CRR)
Banks are required to maintain with the RBI a cash reserve of at least
3% of the total of its demand and time liabilities, it is called CRR.
Slip system
Slip system is a method of instant posting of books of accounts on
double entry system.
Advantages of slip system
1. No need for subsidiary books.
2. Save time and labour.
3. It makes accounts reliable.
4. It helpful in auditing.
5. It reduces the possibility of fraud and error.
6. It helps proper distribution of works.
7. It helps in internal check.
Disadvantages of slip system
1. Labour, time and money are wasted.
2. It causes inconvenience for illiterate customers.
3. There is a chance for manipulation of amounts.
4. Difficult to keep slips safely.
Contingent liabilities
A contingent liability is a liability that may occur depending on the
outcome of an uncertain future event.
Money at call and short notice
It means short term advance made by bank to bill brokers, stock
brokers and other banks.
Rebate on bills discounted
It means the unearned amount or discount received for those bills
which mature after the date of closing the final accounts.
Non-Performing Assets (NPA)
NPA is a classification for loans or advances that are in default or in
arrears.
Standard Assets
Standard assets are those assets which do not carry more than
normal credit risk attached to the business.
Substandard Assets
Substandard assets are those assets these have been classified as
NPA for a period not exceeding 12 months.
Doubtful Assets
Doubtful assets are those assets which have remained NPA for a
period exceeding 12 months.
Loss Assets
Loss assets are those assets have lost its value but not written off.
Capital Adequacy Ratio (CAR)
It is a measure of a bank’s capital to its risk. The main idea of CAR is
to strengthening the capital base of the banks.
 CORPORATE ACCOUNTING (B.COM)
Module III (Accounts of life insurance)
Insurance
Insurance is a protection against on the happening of an unexpected
event.
Types of insurance
1. Life insurance
2. General insurance
a) Fire insurance
b) Marine insurance
c) Motor accident insurance
d) Burglary insurance
e) Workmen compensation insurance
Life Insurance
Life insurance is a type of contract that pays out a sum of money
either on the death of the insured or a specified period.
Types of life policies
1. Whole life policy
This is the ordinary policy, the sum assured become payable to the
beneficiary only on the death of the insured.
2. Endowment policy
In this type of policy the sum assured becomes payable on the
attainment of a specified age or on the death whichever is earlier.
3. Annuity policy
In this type of policy the amount of the policy paid in the form of
annuities.
4. With profit policy
In this type of policy the policy holder or his nominee will get a share
in the profit of the company in the form of bonus.
5. Without profit policy
Under this policy, insured gets only a fixed sum of money. He not get
shares in the profit.
6. Joint life policy
It is a type of policy, possible to taken upon the joint lives of two or
more persons.
7. Money back policy
Here the assured amount is paid to the insured not once but
periodically in instalments.
Double insurance
When the same subject matter is insured with two or more insurers
is called double insurance.
Re-insurance
Reinsurance simply means insurance for insurance company. It
means an insurance company purchase another insurance company.
Paid up value
It is the amount paid by the insurer in case of discontinuation of the
payment of premium.
Surrender value
The amount which insured gets from the insurer on surrendering the
policy is called surrender value.
Premium
Premium is the consideration which the insured has to pay to the
insurance companies for the protection given to him.
Annuity
Annuity is the annual payment made by the insurance company to
the insured out of the lump sum received in the beginning.
Cash bonus
It is the bonus paid in cash to policy holders immediately on its
declaration.
Reversionary bonus
It is the bonus declared every year as a percentage. It is a sum added
to an amount of insurance policy payable. It is payable on death of
the life assured or maturity of the policy.
Life fund (Life assurance fund/Life insurance fund)
It is a fund maintained by Life Insurance Company. It represent the
excess of revenue income over revenue expenditure.
Valuation balance sheet
It is a type of balance sheet prepared by the life insurance company
to evaluate surplus or deficiency.
Final accounts of life insurance companies
1. Revenue account
2. Profit and loss account
3. Balance sheet
Procedure for ascertaining profit or loss of insurance company
Profit or loss account is prepared to calculate the overall profit of the
life insurance business.
Procedure
In order to ascertain the profit or loss of the insurance company, the
net liability is to be compared with life assurance fund on a particular
date. This calculation is done by actuaries. This comparison is done in
a separate statement called valuation balance sheet.
If the amount of life assurance is more than net liability, that is
profit. If the amount is less than net liability, that is loss.
 CORPORATE ACCOUNTING (B.COM)

Module IV (Consolidated financial statements)

Consolidated financial statements
It refers to combined or aggregated financial statements of a parent
company and subsidiary company. It is also called group financial
statements.
Parent Company
It is a company that has one or more subsidiaries. It control one or
more entities. It is also known as holding company.
Subsidiary Company
A subsidiary is a company whose majority of equity shares are held
by another company.
Group Company
Parent company and subsidiary company are collectively called
group Company.
Pre-Acquisition Profit
Pre-acquisition profit is the profit of the subsidiary company before it
is acquired.
Pre-Acquisition loss
Accumulated losses of the subsidiary company up to the date of
acquisition of shares by the holding company is called pre-acquisition
loss.
Non-Controlling Interest (NCI)
NCI refers to the proportionate shares of interest or net assets that
belongs to investors from outside the group.
Negative Goodwill
It means bargain purchase. It occurs when a company purchases an
asset at less than the net fair market value.