Company Accounts
Principles of Accounting — Grade 12 | Unit 1 | NEB Nepal
Table Of Contents
- 1 Introduction
- 2 1. Company: A Brief Overview
- 3 2. Share Capital
- 4 3. Issue of Shares
- 4.1 3.1 Provisions Related to Share Issue Under Nepal Companies Act, 2063 BS
- 4.2 3.2 Methods of Share Issue
- 4.3 3.3 Methods of Payment for Shares
- 4.4 3.4 Accounting Entries for Issue of Shares (Instalment Basis)
- 4.5 3.5 Minimum Subscription and Under/Over Subscription
- 4.6 3.6 Issue of Shares for Consideration Other Than Cash
- 5 4. Forfeiture and Reissue of Shares
- 6 5. Debentures
- 7 6. Worked Comprehensive Example
- 8 7. Company Accounts in the Nepali Context
- 9 Conclusion
Introduction
A company is the most important form of business organization in the modern economy — capable of raising large amounts of capital from thousands of investors, operating continuously regardless of changes in ownership, and limiting shareholders’ personal liability to the amount invested. The accounting for companies is correspondingly more complex than for sole traders or partnerships — involving specific legal requirements under Nepal’s Companies Act, 2063 BS, specialized financial instruments (shares and debentures), and accounting treatments unique to the corporate form.
Unit 1 of NEB Grade 12 Principles of Accounting covers company accounts in depth — the nature of share capital, the accounting for share issues under various conditions, forfeiture and reissue of shares, and the accounting for debentures (both issue and redemption). These are the most numerically demanding topics in the Grade 12 course and among the most frequently examined in NEB board papers.
1. Company: A Brief Overview
1.1 Meaning of a Company
According to Lord Justice Lindley, “A company is an association of many persons who contribute money or money’s worth to a common stock and employ it in some trade or business, and who share the profit or loss arising therefrom.”
According to the Companies Act, 2063 BS of Nepal, “A company is a corporate body formed under this Act, having a separate legal existence from its members, with perpetual succession and limited or unlimited liability of its members.”
A company raises capital by issuing shares (equity) and debentures (debt) — the two principal financial instruments through which companies access long-term finance.
Share capital is the money raised by a company through the issue of shares to investors (shareholders).
According to J.R. Batliboi, “Share capital is the capital raised by a company by issuing shares — it represents the ownership interest of shareholders in the company.”
Types of share capital:
i. Authorized Capital (Registered Capital / Nominal Capital): The maximum amount of share capital that a company is authorized to issue as stated in its Memorandum of Association and registered with the Office of the Company Registrar (OCR). This is the ceiling — the company cannot issue shares beyond this amount without amending its Memorandum.
ii. Issued Capital: The portion of authorized capital that has actually been offered (issued) to the public or investors. Issued capital ≤ Authorized capital.
iii. Subscribed Capital: The portion of issued capital that investors have actually applied for and been allotted. In a fully subscribed issue, subscribed capital = issued capital.
iv. Called-Up Capital: The portion of subscribed capital that the company has actually called (demanded) from shareholders to be paid. If shares are issued in instalments, only the called amounts are demanded.
v. Paid-Up Capital: The portion of called-up capital that shareholders have actually paid. If all shareholders have paid their calls: Paid-up capital = Called-up capital. If some calls remain unpaid: Paid-up capital = Called-up capital − Calls in arrears.
vi. Uncalled Capital: The portion of subscribed capital not yet called — the company may call this in future as needed.
vii. Reserve Capital: A portion of uncalled capital that a company resolves, by special resolution, to call only in the event of winding up — it provides an additional security buffer for creditors.
Relationship between types of share capital: Authorized ≥ Issued ≥ Subscribed ≥ Called-up ≥ Paid-up
According to the Companies Act, 2063 BS of Nepal, “A share is a unit of ownership interest in a company — it represents the shareholder’s proportionate claim on the company’s assets and earnings.”
According to R.N. Carter, “A share is one of the equal parts into which the capital of a company is divided — each share represents a proportionate ownership in the company and entitles its holder to a proportionate share of dividends and assets.”
Features of shares:
i. Part ownership: Each share represents a fractional ownership interest in the company.
ii. Transferability: Shares of a public company can be freely transferred in the secondary market (Nepal Stock Exchange — NEPSE). This liquidity makes shares attractive to investors.
iii. Limited liability: Shareholders’ liability is limited to the unpaid amount (if any) on their shares — personal assets are protected.
iv. Dividend entitlement: Shareholders are entitled to receive dividends when declared by the company from its profits.
v. Voting rights: Ordinary shareholders have the right to vote at general meetings — influencing major company decisions.
Types of Shares:
According to the Companies Act, 2063 BS, “Ordinary shares are shares that do not carry any preferential rights — they receive dividends only after preference shareholders have been paid, and rank last in the distribution of assets on winding up.”
Features of ordinary shares:
- Receive dividends only after preference shareholders — variable dividend depending on profit
- Carry voting rights at general meetings
- Rank last for repayment of capital on winding up
- Bear the full risk and reward of company ownership
- In Nepal, also called “कित्ता शेयर” (kitta share) or “साधारण शेयर”
According to J.R. Batliboi, “Preference shares are shares which carry preferential rights over ordinary shares as to the payment of dividend and the return of capital on winding up.”
Features of preference shares:
- Receive a fixed rate of dividend before ordinary shareholders
- Rank ahead of ordinary shares for return of capital on winding up
- Generally do not carry voting rights (unless dividend is in arrears)
- In Nepal, preference shares must be authorized in the company’s Memorandum and Articles
Types of preference shares:
i. Cumulative vs. Non-Cumulative:
- Cumulative: Unpaid dividends accumulate and must be paid before any ordinary dividend — arrears carry forward
- Non-cumulative: Unpaid dividends are lost — they do not accumulate
ii. Participating vs. Non-Participating:
- Participating: After receiving fixed preference dividend, also shares in surplus profits with ordinary shareholders
- Non-participating: Entitled only to the fixed rate dividend
iii. Redeemable vs. Irredeemable:
- Redeemable: Company can repurchase (redeem) them after a specified period
- Irredeemable: Cannot be redeemed during the company’s life — only on winding up
iv. Convertible vs. Non-Convertible:
- Convertible: Can be converted into ordinary shares at a specified time and ratio
- Non-convertible: Remain as preference shares throughout their life
| Basis | Ordinary Shares | Preference Shares |
|---|---|---|
| Dividend | Variable — depends on profit | Fixed rate — priority claim |
| Priority in dividend | After preference | Before ordinary |
| Priority on winding up | Last (residual claim) | Before ordinary shareholders |
| Voting rights | Full voting rights | Generally no voting rights |
| Risk | Higher risk — residual claimant | Lower risk — priority claim |
| Return | Potentially higher — unlimited upside | Limited — fixed rate |
| Accumulation | No accumulation | Cumulative (if cumulative type) |
| Nepal Companies Act | Ordinary shareholders | As specified in Memorandum |
The Companies Act, 2063 BS and the Securities Act, 2063 BS (for public companies) govern the issue of shares in Nepal. Key provisions include:
i. Prospectus requirement: Public companies offering shares to the public must issue a prospectus approved by the Securities Board of Nepal (SEBON) and the OCR — disclosing all material information.
ii. Minimum subscription: According to the Companies Act, a public company cannot proceed to allotment unless a minimum amount (the minimum subscription) has been subscribed. If minimum subscription is not received within 120 days of the prospectus, the company must refund all application money.
iii. Application money: Applicants pay application money with their share application — typically a specified amount per share.
iv. Allotment: After subscription closes, the company allots shares to applicants. For oversubscribed issues, allotment may be pro-rata or by ballot.
v. Share certificates: After allotment and payment, the company issues share certificates as evidence of ownership — within 45 days of allotment under the Companies Act.
vi. Transfer: Shares of a public company are freely transferable. Transfers must be registered with the company.
i. Issue at Par: Shares issued at their nominal (face) value. If the face value is Rs. 100, shares are issued at Rs. 100. Most common in Nepal — NEPSE-listed shares have a face value of Rs. 100.
ii. Issue at Premium: Shares issued above their nominal value — for companies with strong reputation and profitability. Premium = Issue Price − Face Value. The premium is credited to Securities Premium Account (Capital Reserve — cannot be distributed as dividend, used for specific purposes under the Companies Act).
iii. Issue at Discount: Shares issued below their nominal value — rare and restricted under most company laws. Under Nepal’s Companies Act, 2063 BS, shares may be issued at a discount under specific conditions with shareholder approval and NCO/SEBON permission.
Lump Sum (One Instalment) Basis: The entire price of the share is collected in one payment at the time of application. Simple accounting — suitable for smaller share issues.
Instalment Basis: The share price is collected in stages:
- Application money: Paid when applying for shares
- Allotment money: Paid when shares are allotted (typically 1–4 weeks after closing)
- Call money: Collected in one or more calls after allotment (First Call, Second Call, Final Call)
Stage 1 — Application
When application money is received:
Bank A/c Dr. [Application money × No. of shares applied]
To Share Application A/c Cr.
Stage 2 — Allotment
When shares are allotted and allotment money is due:
Share Application A/c Dr. [Transfer application money of accepted applicants]
To Share Capital A/c Cr. [Nominal value of shares allotted]
To Securities Premium A/c Cr. [If issued at premium]
To Discount on Issue A/c Dr. [If issued at discount — debit this account]
Share Allotment A/c Dr. [Allotment money due]
To Share Capital A/c Cr.
To Securities Premium A/c Cr. [If premium due at allotment]
When allotment money is received:
Bank A/c Dr.
To Share Allotment A/c Cr.
Excess application money (from rejected applicants or oversubscription) is refunded:
Share Application A/c Dr.
To Bank A/c Cr.
Stage 3 — Calls
When a call is made:
Share First Call A/c Dr.
To Share Capital A/c Cr.
To Securities Premium A/c Cr. [If premium due on call]
When call money is received:
Bank A/c Dr.
To Share First Call A/c Cr.
Calls in Arrears: If a shareholder fails to pay a call:
Calls in Arrears A/c Dr.
To Share First Call A/c Cr.
Calls in Advance: If a shareholder pays a call before it is due:
Bank A/c Dr.
To Calls in Advance A/c Cr.
3.5 Minimum Subscription and Under/Over Subscription
Minimum Subscription: The minimum number of shares that must be subscribed before the company can proceed to allotment. Under Nepal’s Companies Act, if minimum subscription is not reached:
- All application money must be refunded within 30 days
- The issue fails and no shares are allotted
Under Subscription: When shares applied for are less than shares offered. The company allots all shares applied for (if minimum subscription is met) and adjusts accounting accordingly.
Over Subscription: When shares applied for exceed shares offered.
Three methods of dealing with over subscription:
i. Full rejection: Excess applicants are fully rejected and their money refunded. Only the exact number applied for are allotted.
ii. Pro-rata allotment: All applicants receive shares in proportion to their application. Excess money is adjusted against allotment money or refunded.
iii. Mixed allotment: Some applicants receive full allotment; others receive partial (pro-rata) allotment; others are fully rejected — based on criteria such as size of application.
Accounting for pro-rata allotment (most common in NEB exams):
Example: 1,00,000 shares of Rs. 100 each offered. Applications received for 1,50,000 shares. Pro-rata allotment — for every 3 shares applied, 2 are allotted.
Excess application money (for unallotted shares) is adjusted against allotment money due:
Share Application A/c Dr. [Total application money received]
To Share Capital A/c Cr. [Application per share × shares allotted]
To Share Allotment A/c Cr. [Excess application adjusted against allotment]
To Bank A/c Cr. [Application money refunded to rejected applicants]
Sometimes shares are issued not for cash but in exchange for:
- Purchase of assets (land, building, machinery)
- Services rendered (promoters’ fees, underwriting commission)
- Taking over another business
Asset A/c (or Expense A/c) Dr. [Value of consideration]
To Share Capital A/c Cr. [Nominal value]
To Securities Premium A/c Cr. [If premium]
According to J.R. Batliboi, “Forfeiture of shares is the cancellation of a member’s shares by the company for non-payment of any calls due on those shares — it is a penalty for failing to meet payment obligations.”
According to R.N. Carter, “When a shareholder fails to pay calls on shares, the company may, after giving due notice, forfeit those shares — the shareholder loses all amounts already paid and all rights as a shareholder.”
Conditions for forfeiture (Nepal Companies Act):
- The company must first send a formal notice giving at least 14 days to pay
- If payment is not made within the notice period, the Board of Directors may pass a resolution forfeiting the shares
- The forfeited shares are cancelled from the share register
Accounting entries for forfeiture:
When shares are forfeited:
Share Capital A/c Dr. [Called-up amount per forfeited share × no. of shares]
To Share Allotment A/c Cr. [Allotment money unpaid, if any]
To Share First Call A/c Cr. [Call money unpaid, if any]
To Forfeited Shares A/c Cr. [Amount already received from shareholder]
Or if Securities Premium was credited at allotment (and allotment money not paid):
Share Capital A/c Dr.
Securities Premium A/c Dr. [Premium amount, if not received and now reversed]
To Share Allotment A/c Cr.
To Forfeited Shares A/c Cr.
After forfeiture, the company may reissue the forfeited shares to new buyers — at any price, provided the total received (original amount paid by forfeited shareholder + reissue price) is not less than the nominal value.
According to the Companies Act, reissued shares must not result in the company receiving less than the nominal (face) value in total.
Maximum discount on reissue: The maximum discount allowed on reissue = Amount received from the original (forfeited) shareholder per share.
Accounting entries for reissue:
Bank A/c Dr. [Reissue price × shares reissued]
Forfeited Shares A/c Dr. [Discount allowed = Face value − Reissue price]
To Share Capital A/c Cr. [Nominal value of reissued shares]
Transfer of surplus to Capital Reserve:
After reissue, any balance remaining in the Forfeited Shares Account is a capital profit — transferred to Capital Reserve (it cannot be distributed as dividend):
Forfeited Shares A/c Dr.
To Capital Reserve A/c Cr.
Worked Example:
100 shares of Rs. 100 each, issued at Rs. 10 premium. Payable: Application Rs. 30; Allotment Rs. 40 (incl. Rs. 10 premium); First Call Rs. 30; Final Call Rs. 30 (total Rs. 130 per share).
A shareholder holding 50 shares failed to pay the First Call of Rs. 30 per share. Shares forfeited. Later reissued at Rs. 65 per share as fully paid.
Forfeiture entry:
Share Capital A/c Dr. 5,000 (50 × Rs. 100)
Securities Premium Dr. 500 (50 × Rs. 10 — if allotment money unpaid; here allotment paid so premium already received)
Assume allotment was paid but First Call Rs. 30 was not paid:
Share Capital A/c Dr. 5,000
To Share First Call A/c Cr. 1,500 (50 × Rs. 30 unpaid)
To Forfeited Shares A/c Cr. 3,500 (50 × Rs. 70 received — application Rs. 30 + allotment Rs. 40)
Reissue entry (at Rs. 65 per share, fully paid):
Bank A/c Dr. 3,250 (50 × Rs. 65)
Forfeited Shares A/c Dr. 1,750 (50 × Rs. 35 discount = Rs. 100 − Rs. 65)
To Share Capital A/c Cr. 5,000 (50 × Rs. 100)
Transfer to Capital Reserve:
Forfeited Shares A/c Dr. 1,750 (3,500 − 1,750)
To Capital Reserve A/c Cr. 1,750
5. Debentures
5.1 Meaning, Features, and Importance
According to the Companies Act, 2063 BS of Nepal, “A debenture is a document issued by a company acknowledging a debt — it commits the company to repay the principal amount on a specified date and to pay interest at a specified rate until repayment.”
According to J.R. Batliboi, “A debenture is an instrument issued by a company acknowledging a loan and creating a charge on the company’s assets — it is a form of long-term borrowing.”
According to Topham, “A debenture is a document which either creates a debt or acknowledges it, and any document which fulfils either of these conditions is a debenture.”
Features of debentures:
- Represent borrowed capital (debt) — debenture holders are creditors, not owners
- Carry a fixed rate of interest — payable regardless of profit or loss
- Have a defined repayment date (for redeemable debentures)
- May be secured (charged on specific assets) or unsecured (naked/simple)
- Interest is a charge against profit — deductible for income tax purposes
- Debenture holders do not have voting rights at general meetings
Importance of debentures:
- Enable companies to raise long-term debt finance without diluting equity ownership
- Cheaper cost of capital than equity (interest is tax-deductible; dividends are not)
- Attractive to risk-averse investors who prefer fixed income over variable dividends
- Create financial leverage — can increase return on equity if borrowed funds earn more than their cost
5.2 Types of Debentures
i. Based on Security:
- Secured (Mortgage) Debentures: Secured by a charge on specific company assets (fixed charge) or a floating charge on all assets. If the company defaults, secured debenture holders can sell the charged assets to recover their money.
- Unsecured (Naked/Simple) Debentures: No specific asset charged — debenture holders are unsecured creditors.
ii. Based on Transferability:
- Bearer Debentures: Transferable by mere delivery — like a cheque or currency note. The holder is entitled to interest and repayment without registration.
- Registered Debentures: Transferable only through registration — the company maintains a register of debenture holders.
iii. Based on Redeemability:
- Redeemable Debentures: Repayable by the company on or before a specified date.
- Irredeemable (Perpetual) Debentures: No fixed repayment date — repayable only on winding up. Rare in modern practice.
iv. Based on Convertibility:
- Convertible Debentures: Can be converted into equity shares at a specified time and ratio — attractive to investors who want the security of debt initially with potential equity upside.
- Non-Convertible Debentures: Cannot be converted into shares — must be repaid as debt.
| Basis | Shares | Debentures |
|---|---|---|
| Nature | Ownership capital (equity) | Borrowed capital (debt) |
| Holder status | Owner (shareholder) | Creditor (lender) |
| Income | Dividend (variable; from profit) | Interest (fixed; from revenue) |
| Tax treatment | Dividend not tax-deductible | Interest is tax-deductible |
| Voting rights | Ordinary shareholders vote | No voting rights |
| Priority on winding up | After creditors (last) | Before shareholders |
| Risk | Higher risk | Lower risk |
| Security | No charge on assets | May be secured on assets |
| Return if company profitable | Potentially unlimited | Fixed — capped at coupon rate |
5.4 Issue of Debentures
i. Issue at Par: Debenture issued at its nominal (face) value. Rs. 1,000 debenture issued for Rs. 1,000.
ii. Issue at Premium: Debenture issued above nominal value — rare, as debentures are normally redeemable. Premium credited to Securities Premium Account.
iii. Issue at Discount: Debenture issued below nominal value. The discount is a financial cost — treated as an expense amortized over the life of the debenture.
Issue of debentures for cash — accounting entries:
Bank A/c Dr. [Cash received]
Discount on Issue of Debentures A/c Dr. [If issued at discount]
To Debentures A/c Cr. [Nominal value]
To Securities Premium A/c Cr. [If issued at premium]
Annual interest payment:
Debenture Interest A/c Dr.
To Bank A/c / Debenture Interest Payable A/c Cr.
At year end, transfer to P&L:
Profit and Loss A/c Dr.
To Debenture Interest A/c Cr.
Issue for consideration other than cash (e.g., to vendor as payment for assets purchased):
Asset A/c Dr.
To Debentures A/c Cr.
To Capital Reserve A/c Cr. [If assets received > debenture nominal value]
Issue as collateral security: When debentures are given to a bank as security for a loan — not an actual issue of debt; the bank holds them only as security. Two methods of accounting:
Method 1 (No entry until actual liability arises): No journal entry until default — debentures just noted in accounts.
Method 2 (Entry passed):
Debenture Suspense A/c Dr.
To Debentures A/c Cr.
When the loan is repaid and debentures returned:
Debentures A/c Dr.
To Debenture Suspense A/c Cr.
5.5 Redemption of Debentures
Redemption is the repayment of debenture principal — either at maturity or earlier.
Methods of redemption:
i. Lump Sum (Payment in Full at Maturity): All debentures are redeemed simultaneously at their face value (or at a premium if specified in the debenture terms) on the redemption date.
Accounting entry at redemption:
If redeemed at par:
Debentures A/c Dr. [Nominal value of debentures redeemed]
To Bank A/c Cr.
If redeemed at premium:
Debentures A/c Dr. [Nominal value]
Premium on Redemption A/c Dr. [Premium amount]
To Bank A/c Cr. [Total payment]
The premium on redemption is charged to the Profit and Loss Account or written off against Securities Premium.
Debenture Redemption Reserve (DRR): Under Nepal’s Companies Act and best practice, companies creating a Sinking Fund or Debenture Redemption Reserve before the redemption date — setting aside funds annually from profits to ensure cash is available at redemption.
Profit and Loss Appropriation A/c Dr.
To Debenture Redemption Reserve A/c Cr.
When debentures are actually redeemed, the DRR is transferred to General Reserve (it has served its purpose):
Debenture Redemption Reserve A/c Dr.
To General Reserve A/c Cr.
ii. Conversion into Shares: Convertible debentures are redeemed by issuing new equity shares (or preference shares) to debenture holders instead of cash repayment.
Debentures A/c Dr. [Nominal value of debentures converted]
To Share Capital A/c Cr. [Nominal value of new shares issued]
To Securities Premium A/c Cr. [If new shares issued at premium]
6. Worked Comprehensive Example
Problem: ABC Ltd., a public company registered in Kathmandu, issues 1,00,000 ordinary shares of Rs. 100 each at Rs. 120 per share (i.e., at a premium of Rs. 20). The shares are payable as follows:
- On Application: Rs. 30 per share
- On Allotment: Rs. 50 per share (including Rs. 20 premium)
- On First and Final Call: Rs. 40 per share
Applications are received for 1,50,000 shares. Pro-rata allotment is made to all applicants. Excess application money is adjusted against allotment.
A shareholder who was allotted 600 shares (applied for 900) failed to pay the First and Final Call. Shares are forfeited. 400 of these forfeited shares are later reissued at Rs. 75 per share, fully paid.
Required: Journal entries for all transactions.
Working (pro-rata ratio): Applied 1,50,000 : Allotted 1,00,000 = 3:2 ratio For every 3 applied → 2 allotted
Application money per allotted share already received = 900 × Rs. 30 = Rs. 27,000 received from shareholder. Amount due on application for 600 allotted shares = 600 × Rs. 30 = Rs. 18,000. Excess on application = Rs. 27,000 − Rs. 18,000 = Rs. 9,000 → adjusted against allotment.
Allotment money from shareholder: Due = 600 × Rs. 50 = Rs. 30,000. Less excess on application = Rs. 9,000. Net due = Rs. 21,000 (assume paid).
First and Final Call: 600 × Rs. 40 = Rs. 24,000 (NOT paid → forfeiture).
Journal Entries:
| # | Dr. | Cr. | Amount |
|---|---|---|---|
| 1 | Bank A/c Dr. | Share Application A/c | 1,50,000 × Rs. 30 = Rs. 45,00,000 |
| 2 | Share Application A/c Dr. | Share Capital A/c | 1,00,000 × Rs. 30 = Rs. 30,00,000 |
| Share Allotment A/c (excess adjusted) | [Excess from 50,000 unallotted shares’ applications] | ||
| Bank A/c (refund to excess over pro-rata) | |||
| 3 | Share Allotment A/c Dr. | Share Capital A/c + Securities Premium | 1,00,000 × Rs. 50 = Rs. 50,00,000 |
| 4 | Bank A/c Dr. | Share Allotment A/c | (Allotment money net of excess) |
| 5 | Share First & Final Call A/c Dr. | Share Capital A/c | 1,00,000 × Rs. 40 = Rs. 40,00,000 |
| 6 | Bank A/c Dr. | Share First & Final Call A/c | 99,400 × Rs. 40 (excluding defaulter) |
| Calls in Arrears A/c Dr. | Share First & Final Call A/c | 600 × Rs. 40 = Rs. 24,000 |
Forfeiture (600 shares — Application Rs. 30 + Allotment Rs. 50 received; Call Rs. 40 unpaid):
Share Capital A/c Dr. 60,000 (600 × Rs. 100)
Securities Premium A/c Dr. 12,000 (600 × Rs. 20 — received but reversed on forfeiture? No — premium was received, so NOT reversed)
Since allotment was paid (including premium of Rs. 20), premium received is NOT reversed:
Share Capital A/c Dr. 60,000 (600 × Rs. 100 nominal)
To Calls in Arrears A/c Cr. 24,000 (Rs. 40 × 600 unpaid)
To Forfeited Shares A/c Cr. 36,000 (Rs. 60 × 600 received — application Rs. 30 + allotment Rs. 30 nominal)
Note: Rs. 20 premium received is separately in Securities Premium and stays there.
Reissue of 400 shares at Rs. 75:
Bank A/c Dr. 30,000 (400 × Rs. 75)
Forfeited Shares A/c Dr. 10,000 (400 × Rs. 25 discount = Rs. 100 − Rs. 75)
To Share Capital A/c Cr. 40,000 (400 × Rs. 100)
Transfer to Capital Reserve: Forfeited Shares balance: Rs. 36,000 × (400/600) = Rs. 24,000 for reissued shares. Less: Discount on reissue = Rs. 10,000. Surplus = Rs. 24,000 − Rs. 10,000 = Rs. 14,000 → Capital Reserve.
Forfeited Shares A/c Dr. 14,000
To Capital Reserve A/c Cr. 14,000
7. Company Accounts in the Nepali Context
i. NEPSE and share trading: Nepal Stock Exchange (NEPSE) is the only stock exchange in Nepal — where ordinary shares of listed companies are traded. All listed company shares have a face value of Rs. 100. The market price (current trading price) varies from the face value.
ii. Nepal Company Act provisions: Nepal’s Companies Act, 2063 BS (and its amendments) governs all aspects of share issue, transfer, and redemption — including prospectus requirements under the Securities Act and SEBON regulations.
iii. FPO vs. IPO: Nepali companies raising capital for the first time issue an IPO (Initial Public Offering); companies already listed that want to raise additional capital through the public issue of shares issue an FPO (Further Public Offering). Both require SEBON approval and a prospectus.
iv. Banking sector shares: Nepal’s banking sector — commercial banks, development banks, finance companies — is the most widely held share category in Nepal. Many Nepali households own shares in at least one bank. Banking shares have been among the most actively traded on NEPSE.
v. Bonus shares: Instead of cash dividends, many Nepali companies distribute bonus shares — issuing new shares to existing shareholders free of charge from reserves. This is common among Nepal’s profitable banks and hydropower companies.
vi. Rights shares: Existing shareholders have the right to subscribe to newly issued shares at a preferential price — protecting their proportionate ownership. Rights issues are common in Nepal’s banking sector as banks seek to increase paid-up capital to meet NRB’s minimum capital requirements.
Conclusion
Company accounts represent the most sophisticated level of financial accounting — reflecting the legal complexity of the corporate form, the diversity of financial instruments available to companies (shares, debentures), and the detailed regulatory framework governing corporate finance in Nepal.
As J.R. Batliboi observed, “The accounting for company shares and debentures must be precise and complete — investors and creditors rely on this information to make decisions, and any inaccuracy or incompleteness undermines the confidence that capital markets require to function.”
For NEB Grade 12 students in Nepal, mastering company accounts is both an examination requirement and a practical skill — as investors in Nepal’s growing equity market, as employees of corporate entities, or as future financial professionals, the ability to understand and prepare company financial records is an essential competency for the modern Nepali economy.
Prepared for NEB Grade 12 Principles of Accounting — Unit 1: Company Accounts Aligned with the National Curriculum Framework 2076, Curriculum Development Centre, Sanothimi, Bhaktapur
