interest on application money

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pranjal (Querist)
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10 January 2011 what is the provision in co act regarding interest on application money? how long money cold be pending for allotment?
is application money classified under current liabilities?

Jayashree S Iyer

Jayashree S Iyer (Expert)
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11 January 2011 Application money pending allotment is a current liability.

There is no provision in the Companies Act with regard to interest on application money.

However share application must be accepted or rejected within a reasonable time.

Share application money kept pending for long time has been treated by ROC as deposit in some cases and booked cases against the company for violating provisions of Companies (Acceptance of Deposits) Rules

udit sharma

udit sharma (Expert)
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11 January 2011 Continuing further any share application money pending allotment for more than 7 years has to be transferred to Investor Education and Protection Fund.

God Bless

CS Udit Sharma

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CA Sanat Pyne

CA Sanat Pyne (Expert)
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11 January 2011 The correct accounting treatment in respect of share application money is analysed as below: · Section 211 of the Companies Act, 1956 provides that the balance sheet of a company shall give a true and fair view of the state of affairs of the company and shall be in the form (either horizontal or vertical) as set out in Part I of Schedule VI. · The broad heads under "Liabilities" therein are (i) Share Capital, (ii) Reserves and Surplus, (iii) Secured Loans, (iv) Unsecured Loans and (v) Current Liabilities and Provisions. The item of 'share application money' does not appear in the subheads under any of these heads. · Any subscription received by a company against issue of share capital can be regarded as "subscribed share capital" only when the share capital is actually subscribed and allotted as well. Until the allotment is made, any subscription cannot be included in the amount of subscribed share capital. [ICAI Compendium of Opinions, Vol. XII, pp. 121 to 123]. Share application money, therefore, cannot be treated as 'Share Capital". · Share application money only in respect of invalid or revoked applications and excess application money received due to over-subscripttion, however, may be treated as "Current Liabilities". The instant case does not satisfy any of the above, hence cannot be treated as "Current Liabilities" Share application money, therefore, can neither be categorized as "Share Capital' nor "Current Liabilities". · The ICAI Compendium of Opinions, [Vol. XV, (1996 Edn.) pp. 34 to 36], opines that the "share application money pending allotment" should be shown in the balance-sheet under a separate heading between "Share Capital" and "Reserves and Surplus". · Share application money is also not an instrument, much less an Equity linked instrument.

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Jayashree S Iyer

Jayashree S Iyer (Expert)
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11 January 2011 Thanks Sanat. Right it's not a current liability.