28 September 2007
when a company 's networth is eroded by losses,the auditor needs to qualify and report to shareholders . secondly sick units under BIFR, RESORT TO THIS UNDER AN ORDER FROM BIFR .BIFR BEING A COURT, IT IS OK, OTHERWISE TO REDUCE THE LIABILTY UNDER SHARE CAPITAL YOU NEED COURT PERMISSION. ANY BODY MAY ADD UP PAID UP SHARE CAPITAL AND FREE RESERVES AND REDUCE P&L DEBIT BALANCE AND MISCELLANEOUS EXPENDITURE IN THE ASSET SIDE AND SEE IF NETWORTH IS POSITIVE OR NEGATIVE. IF NEGATIVE ,THE ABOVE IMPLICATIONS ARISE. R.V.RAO
28 September 2007
extinguishing or cancelling of liability is same. REDUCTION IS BRINGING DOWN PAID UP VALUE. A RS. 10 PAID UP SHARE MAY BE BROUGHT DOWN TO RS. 1 AS DONE BY COURT /BIFR ORDER.THE LIABILITY OF RS. 9 IS CANCELLED OR EXTINGUISHED. PAID UP VALUE IS REDUCED FROM 10 AND BROUGHT DOWN TO 1. EFFECT IS SAME . IF SHARE CAPITAL IS RS. 100. IT SHOULD BE REPRESENTED BY TANGIBLE AND VALUABLE ASSETS ON ASSET SIDE.OTHERWISE CAPITAL IS LOST OR ERODED. FOR EXAMPLE IF OUT OF RS. 100 PAID UP CAPITAL ( PLUS FREE RESERVES TOGETHER CALLED NETWORTH) YOU HAVE TO REDUCE ACCUMULATED LOSSES AND MISC. EXP. TO THE EXTENT NOT WRITTEN OFF.THEN IF YOU GET A NEGATIVE CAPITAL OR NEGATIVE NETWORTH .YOU CAN THEN SAY CAPITAL IS LOST AND IS NOT REPRESENTED BY AVAILABLE ASSETS.BUT WHERE DID IT GO? IT IS SIMPLY ERODED BY LOSSES. R.V.RAO
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