- This topic has 10 replies, 2 voices, and was last updated 10 years ago by
.
- Posts
What exactly is the difference between share capital and share application money. How would the latter be audited?
There used to be, many many years ago (“Once upon a time, many years ago, in a land far far away …..”) a topic called “accounting for share issues and within that there were some pretty magical accounts involved!
The Application and Allotment Account
The First Call Account
The Second and Final Call Account
The Forfeited Shares Account
The Forfeited Shares Reissued Account
Oh! Those were the days – let me wallow a while in nostalgia
It doesn’t happen so much these days but, traditionally, when shares were issued, the amount payable would be spread over two or three payment dates: an amount payable when you applied for shares, then an amount payable on “first call” followed by the final amount payable on “second and final call”
So share application money relates to the amount that is payable when you initially apply for the shares.
The aggregate of the (say) three amounts to be paid was equal to the nominal value of the shares to be issued PLUS the share premium.
So, over the period of payment, eventually you finished up with Dr Cash and Cr Share Capital and Cr Share Premium
Is that OK?
How would you audit it? Well, I’ve told you what it is so now you should be capable of auditing it. Apply a degree of common sense and see if you can’t think of, say, five procedures to audit Share Application Money
If you struggle, then post again but let me know which ones you have thought of so then all I need to do is add to them 🙂
If share application money is the amount payable, how exactly is the amount recorded in the books, is the debit entry a receivables account?
No! This is application money RECEIVED
The debit entry is therefore to Cash Account (or bank!)
You’re welcome – but I’m still waiting your 5 procedures for auditing Share Application Money!
Sorry for the late reply, I would say:
1. Obtain contracts or supporting receipts showing the amount contributed by the prospective shareholders and verify it to the total shown in the ledger
2. Inquire from management why balance of share application money has been increasing year to year
3. Investigate if the ratio of share application money to the paid up capital is >1.
4. Inquire whether there was any refund of the money and Obtain supporting documentation for any refund of the money and verify if the movement was reflected in the financials.
Your point number 2 tells me that you don’t understand the concept!
Share application money is only received when the company makes a public invitation for the public to acquire shares. It’s not like an expense that will occur each and every year! So there’s no point in comparing year on year Share Application Money Account
Point number 3 is also doubtful!
But that means you have two that are valid!
That would be nearly enough 🙂
I actually got the idea from this website
- You must be logged in to reply to this topic.