CS Executive · Corporate Accounting and Financial Management
Related Aspects of Company Accounts for CS Executive
Related Aspects of Company Accounts covers six Paper 4 topics: buy-back, redemption of preference shares, debentures, pre-incorporation profit, bonus and rights issues, and valuation of goodwill and shares. You solve them by applying the legal condition first, then passing journal entries and showing workings for the reserves used.
What this chapter covers
This chapter sits in Paper 4, Part I (Corporate Accounting, 60 marks). It takes the share capital you already know and shows what happens when a company changes it: it buys back shares, redeems preference shares or debentures, issues bonus or rights shares, or values its shares for a deal.
Most topics mix law with numbers. Sections 52, 55, 68 and 70 of the Companies Act, 2013 decide which reserves you may use, what conditions apply and what transfers are compulsory. The accounting is then a set of journal entries, a ledger or a revised balance sheet extract.
The chapter links to the rest of the paper. Company Law in Paper 2 covers share capital and buy-back procedure. Financial Management in Part II uses share valuation ideas. Capital Market in Paper 5 revisits buy-back under SEBI rules. Learn the law once and use it in several papers.
Paper 4 is a written paper, and this chapter gives you structured questions where method earns marks even if one figure goes wrong. Examiners like to test a legal condition and an entry together, such as the 25% buy-back limit or the Capital Redemption Reserve transfer. If you know the conditions and the standard entries, you can score steadily. The chapter is also compact, so effort here pays back quickly compared with longer topics.
Related Aspects of Company Accounts: topics in the order to study them
- 1Redemption of Preference SharesIt teaches the core ideas of Capital Redemption Reserve, fresh issue proceeds and premium on redemption that later topics reuse.
- 2Accounting for Buy-back of SecuritiesIt builds on the same reserve logic and adds the section 68 conditions and the section 70 prohibitions.
- 3Accounting for Bonus Shares and Right IssueIt shows how securities premium and reserves can be capitalised, which links back to sections 52 and 55(4).
- 4Issue and Redemption of DebenturesYou can now apply issue, discount, premium and redemption entries, with a clear difference from share capital.
- 5Profit or Loss Prior to IncorporationIt is a separate, calculation-based topic using time and sales ratios, so study it as a standalone block.
- 6Valuation of Goodwill and SharesIt is formula-driven and easiest once you are comfortable with reserves, capital and profit figures from the earlier topics.
How to prepare Related Aspects of Company Accounts
Treat this chapter as law first, entries second, practice third. Short, repeated sessions suit phone study and a working schedule.
- Read the text of sections 52, 55, 68 and 70 and write each condition in your own words on one page.
- For each topic, memorise the standard journal entries in order, then write them from memory without notes.
- Learn the sources of funds for each event: what may be used for redemption, buy-back, premium and bonus shares.
- Solve at least three full questions per topic on paper, with working notes for the amount transferred to reserves.
- For pre-incorporation profit, practise the sequence: ascertain gross profit ratio, split by time or sales, then allocate expenses.
- For valuation, write each method's formula once, then solve one question per method.
- Finish with a timed mixed set, and write the conclusion line in each answer, such as which condition is satisfied or breached.
Common mistakes in Related Aspects of Company Accounts
Using securities premium to fund the Capital Redemption Reserve transfer.
Fix: Remember the two uses separately: premium on redemption may come from securities premium, but the CRR transfer comes from profits.
Transferring the wrong amount to Capital Redemption Reserve.
Fix: Transfer nominal value of shares redeemed less nominal value of the fresh issue, and never include premium.
Skipping the buy-back limits and just journalising.
Fix: Test the 25% limit, the 2:1 debt ratio and the fully paid condition first, and write a conclusion on whether the buy-back is permitted.
Confusing free reserves with all reserves.
Fix: Use only reserves available for dividend, and note that the Act treats securities premium as free reserves for section 68.
Applying the wrong ratio in pre-incorporation profit.
Fix: Use the time ratio for fixed-time expenses and the sales ratio for sales-linked items, and show the basis for each.
Writing answers with no legal reference.
Fix: State the provision, apply the facts, and conclude, citing the section number where it matters.
Last-day revision: Related Aspects of Company Accounts
- Preference shares: no irredeemable shares; redemption within twenty years, subject to the articles and prescribed conditions (infrastructure projects can exceed this).
- Only fully paid preference shares can be redeemed.
- Redemption is out of distributable profits or the proceeds of a fresh issue made for the purpose.
- If redeemed out of profits, transfer the nominal value of the shares redeemed to Capital Redemption Reserve.
- Capital Redemption Reserve can be used to issue fully paid bonus shares.
- Securities premium can be used for bonus shares, preliminary expenses, issue expenses and premium on redemption, and for buy-back.
- Buy-back sources: free reserves, securities premium, or proceeds of an issue of shares or securities, but not an earlier issue of the same kind.
- Buy-back needs authority in the articles and a special resolution; the Board alone can approve if it is 10% or less of paid-up equity capital and free reserves.
- Buy-back limit: 25% or less of paid-up capital plus free reserves; for equity shares, 25% of paid-up equity capital in that year; post-buy-back debt not more than twice paid-up capital plus free reserves.
- Complete the buy-back within one year, destroy the securities within seven days, and wait one year between offers; no further issue of the same kind for six months, except exceptions.
- Declaration of solvency is signed by at least two directors, and the return is filed within thirty days of completion.
- Section 70 bars buy-back through subsidiaries or investment companies, and where there is an unremedied default, until three years after the default has ceased.
Related Aspects of Company Accounts practice questions
- Which statement about issuing bonus shares is correct under the Companies Act, 2013?
- Under the Companies Act, 2013, which of the following reserves cannot be capitalised for issuing fully paid-up bonus shares?
- Under the Companies Act, 2013, within how many days of the last date of completion of a buy-back must a company extinguish and physically de…
- Under the Companies Act, 2013, which of the following preference shares of a company limited by shares can be redeemed?
- Kaveri Ltd redeems 2,000 preference shares of Rs 100 each, fully paid, at par. It makes a fresh issue of 1,200 equity shares of Rs 100 each …
- Under Section 71 as reproduced, a company fails to redeem its debentures on maturity. Which remedy is available to debenture-holders?
- Under the Companies Act, 2013, which of the following sources CANNOT be capitalised for issuing fully paid-up bonus shares?
- Under Section 71 as reproduced, a debenture trustee concludes that the company's assets are insufficient or likely to become insufficient to…
Related Aspects of Company Accounts in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Related Aspects of Company Accounts: frequently asked questions
Is Related Aspects of Company Accounts a theory or a numerical chapter?
It is both. Sections 52, 55, 68 and 70 set conditions you must state, and you then pass entries or compute amounts. Expect questions that need a legal conclusion together with figures.
Which topic should I start with?
Start with Redemption of Preference Shares. Capital Redemption Reserve and the use of securities premium come up there first, and the buy-back topic builds directly on them.
How much of the buy-back law do I need to remember?
Learn the sources of funds, the approval route, the 25% and 10% thresholds, the debt ratio, the time limits and the section 70 prohibitions. These are the points examiners test most.
Can I skip Valuation of Goodwill and Shares if I am short of time?
It is risky to skip it. It is formula-based and quick to revise, so a few focused hours can make it a dependable scoring area.