Corporate accounting

Ans1: Book building is a systematic process of generating, capturing, and recording investor
demand for shares during an initial public offering (IPO), or other securities during their issuance
process, in order to support efficient price discovery.[1] Usually, the issuer appoints a
major investment bankto act as a major securities underwriter or bookrunner.
Book Building is an alternative method of making a public issue in which applications are accepted
from large buyers such as financial institutions, corporations or high net-worth individual, almost on
firm allotment basis, instead of asking them to apply in public offer.

Book building process[edit]

When a company wants to raise money it plans on offering its stock to the public. This typically takes
place through either an IPO or an FPO (follow-on public offers). The book building process helps
determine the value of the security. Once a company determines it wants to have an IPO, it will then
contact a book runner or a lead manager. The book runner will determine the price range at which it
is willing to sell the stock. The book runner will then send out the draft prospectus to potential
investors. Generally, the issue stays open for five days. At the end of the five days, the book runner
determines the demand of the stock for its given price range. Once the cost of the stock has been
determined, then the issuing company can decide how to divide its stock at the determined price to
its bidders.

Ans2: Share forfeiture is the process by which the directors of a company cancel the power
of shareholder if he does not pay his call money when the company demands for it. Company will
give 14 days' notice; after 14 days if shareholder does not pay then company will forfeit his shares
and cut off his name from the register of shareholder. Company will not pay his received funds from
shareholder. In order to do a share forfeiture theArticles of Association of the company should
contain provision for that.
Suppose Mr. A buys 100 shares of a company but for the time being the company asks him to pay
only 50% amount. The company makes a deal with Mr. A that whenever needed the rest of the
money will be asked for. Now some months later when the company asks for the remaining 50%
amount, Mr. A says that he is incapable of paying. The company gives him some more time to pay
but he still can't pay. So the company seizes his shares and he no longer remains a shareholder of
the company! He even loses the 50% amount that he had paid. This seizure of shares is called
share forfeiture. But as explained above, share forfeiture rules have to be mentioned in the
company's Articles of Association compulsorily.
forfeiture of share issued at par:
Share capital A/C Dr. (a)
To share forfeiture A/C (b)
To share allotment A/C
(c)
To share calls A/C
(d)
note: (a) = No. of forfeited shares Amount called per share
(b) = Amount already paid by the shareholders on the shares
(c) = Arrear on the allotment
(d) = Arrear on the calls
For example:- The directors of Dhungana Ltd. company forfeit 500 shares of Rs. 100 each for nonpayment of Rs. 20 on first call and Rs. 30 on final call. the application and allotment money were
paid. Required: entry for forfeiture of shares.

Share
To
To
To

capital A/C
Dr. (500100)
Share forfeiture A/C (50050)
Share first call A/C (50020)
Share final call A/C (50030)

50,000
25,000
10,000
15,000

Ans4
Concept And Types Of Reconstruction
When a company is suffering loss for several past years and suffering from financial difficulties, it
may go for reconstruction. In other words, when a company's balance sheet shows huge
accumulated losses, heavy fictitious and intangible assets or is in financial difficulties or is to over
capitalized,
Reconstruction

and

then
may

1.

the

process
be

of

reconstruction

internal

External

and

is

restored.
external.

reconstruction

When a company is suffering losses for the past several years and facing financial crisis, the
company can sell its business to another newly formed company. Actually, the new company is
formed to take over the assets and liabilities of the old company. This process is called external
reconstruction. In other words, external reconstruction refers to the sale of the business of existing
company to another company formed for the purposed. In external reconstruction, one company is
liquidated and another new company is formed. The liquidated company is called "Vendor Company"
and the new company is called "Purchasing Company". Shareholders of vendor company become
the

2.

hareholders

of

Internal

purchasing

company.

Reconstruction

Internal reconstruction refers to the internal re-organization of the financial structure of a company. It
is also termed as re-organization which permits the existing company to be continued. Generally,
share capital is reduced to write off the past accumulated losses of the company. The accounting
procedure of internal reconstruction is distinct from that of amalgamation, absorption and external
reconstruction.

Ans5: (A) Non-performing asset (NPA) is defined as a credit facility in respect of which the interest
and/or installment of Bond finance principal has remained past due for a specified period of time.
NPA is used by financial institutions that refer to loans that are in jeopardy of default. Once the
borrower has failed to make interest or principle payments for 90 days the loan is considered to be a
non-performing asset. Non-performing assets are problematic for financial institutions since they
depend on interest payments for income. Troublesome pressure from the economy can lead to a
sharp increase in non-performing loans and often results in massive write-downs.
With a view to moving towards international best practices and to ensure greater transparency, it ha
been decided to adopt the 90 days overdue norm for identification of NPA, from the year ending
March 31, 2004. Accordingly, with effect from March 31, 2004, a non-performing asset (NPA)is a
loan or an advance where;

Interest and/or installment of principal remain overdue for a period of more than 91 days in
respect of a term loan,

The account remains out of order for a period of more than 90 days, in respect of
an Overdraft/Cash Credit (OD/CC),

The bill remains overdue for a period of more than 90 days in the case of bills purchased and
discounted,

Interest and/or installment of principal remains overdue for two harvest seasons but for a
period not exceeding two half years in the case of an advance granted for agricultural purposes,
and

Any amount to be received remains overdue for a period of more than 90 days in respect of
other accounts.

Non submission of Stock Statements for 3 Continuous Quarters in case of Cash Credit
Facility.

No active transactions in the account (Cash Credit/Over Draft/EPC/PCFC) for more than
91days

sify non-performing assets further into the following three categories based on the period for which
the asset has remained non-performing and the realisability of the dues:
1. Sub-standard assets: a sub standard asset is one which has been classified as NPA for a
period not exceeding 12 months.
2. Doubtful Assets: a doubtful asset is one which has remained NPA for a period exceeding 12
months.
3. Loss assets: where loss has been identified by the bank, internal or external auditor or
central bank inspectors. But the amount has not been written off, wholly or partly.
Sub-standard asset is the asset in which bank have to maintain 15% of its reserves. All those assets
which are considered as non-performing for period of more than 12 months are called as Doubtful
Assets. All those assets which cannot be recovered are called as Loss Assets.

(B) Double-entry bookkeeping, in accounting, is a system of bookkeeping so named because

every entry to an account requires a corresponding and opposite entry to a different account. For
instance, recording earnings of $100 would require making two entries: a debit entry of $100 to an
account called "Cash" and a credit entry to an account called "Income."
The earliest known written description of double-entry accounting comes from Franciscan friar Luca
Pacioli.[1] In deciding which account has to be debited and which account has to be credited,
thegolden rules of accounting are used. This is also accomplished using the accounting
equation: Equity= Assets Liabilities. The accounting equation serves as an error detection tool. If at
any point the sum of debits for all accounts does not equal the corresponding sum of credits for all
accounts, an error has occurred. It follows that the sum of debits and the sum of the credits must be
equal in value.
Double-entry bookkeeping is not a guarantee that no errors have been madefor example, the
wrong ledger account may have been debited or credited, or the entries completely reversed.
In the double-entry accounting system, two accounting entries are required to record each financial
transaction. These entries may occur in asset, liability, income, expense, or capital accounts.

Recording of a debit amount to one or more accounts and an equal credit amount to one or more
accounts results in total debits being equal to total credits for all accounts in the general ledger. If the
accounting entries are recorded without error, the aggregate balance of all accounts having positive
balances will be equal to the aggregate balance of all accounts having negative balances.
Accounting entries that debit and credit related accounts typically include the same date and
identifying code in both accounts, so that in case of error, each debit and credit can be traced back
to a journal and transaction source document, thus preserving an audit trail. The rules for formulating
accounting entries are known as "Golden Rules of Accounting".

(C)

DEFINITION of 'Contingent Liability'

A potential obligation that may be incurred depending on the outcome of a future event. A
contingent liability is one where the outcome of an existing situation is uncertain, and this
uncertainty will be resolved by a future event. A contingent liability is recorded in the books
of accounts only if the contingency is probable and the amount of the liability can be
estimated.
Outstanding lawsuits and product warranties are common examples of contingent liabilities.
For example, a company may be facing a lawsuit from a rival firm for patent infringement. If
the company's legal department thinks that the rival firm has a strong case, and the
company estimates that the damages payable if the rival firm wins the case are $2 million, it
would book a contingent liability of this amount on its balance sheet. If, on the other hand,

the company's legal department is of the opinion that the lawsuit is frivolous and very
unlikely to be won by the rival company, no contingent liability would be necessary.