Will we include share application money in Equity for the calculation of net worth of the co.
6 Replies
Ratan Deep Saxena
(Asstt Manager (Accounts & Finance))
(2998 Points)
Replied 14 October 2009
Net worth statements includes no. of shares with value hold by the director/managing director of a company. Share application money does not constitute share holding by a particular director, hence not included.
regards,
ratan
Amol Gopal Kabra (CA,CS,DISA)
(Practicing CA)
(8539 Points)
Replied 17 October 2009
| Originally posted by :Ratan Deep Saxena | ||
| " | Net worth statements includes no. of shares with value hold by the director/managing director of a company. Share application money does not constitute share holding by a particular director, hence not included. regards, ratan |
" |
Mr. Ratan Deep Saxena,
first of all be clear on the point that the share are not necessarily held by the Directors or the Managing Director. The concept of Ownership and Management is altogether different in joint stock companies, i.e. to say companies under Companies Act, 1956.
A person can be a director even not holding a single share, if the Articles of Association so provide.
SO the capital of the company is not necessarily in the hands of the management.
Coming to the query, the share application money has to be taken into consideration while calculating networth of the company. The networth of a company can be calculated in following two ways.
A. Share Capital + Reserves and Surplus + Share application money - Ficititious Assets
OR
B. Total Assets - Ficititious Assets - Outside Liabilities (i.e. to say Secured Loans, Unsecured Loans, Current Liabilities and Provisions, Deferred Tax Liabilities)
In any case, the share application money shall form part of the net worth.
Regards,
CA Amol G. Kabra
Manoj Gupta
(Corporate Finance Professional)
(124 Points)
Replied 20 July 2011
hi, this is Manoj Gupta. owner www.camanojgupta.com
Share application money means a fraction of money received out of share price of company and pending for allotment. It should not be included while calculating Net Worth. But in India being the companies are owned by family people and not by professionals hence whatever money is contributed belongs to owners (promoters) hence it may be included in Net Worth.
But few banks take it as part of net worth and other doesn’t. Hence it is a mix bag. Treat it as per requirement.
CA Abhijeet N. Bobade
(MANAGER)
(269 Points)
Replied 29 August 2011
In business, Net worth (sometimes "net assets") is the
total assets minus total liabilities of an individual or a
company. For a company, this is called shareholders' equity
and may be referred to as book value. Net worth is stated
for a particular point in time.
In personal finance, net worth is also used to refer to an
individual's net financial position; similarly, it also
uses the value of all assets minus the value of all
liabilities (debt).
Net worth in business is generally based on the value of
all assets and liabilities at the carrying value, that is,
the value as expressed on the financial statements. To the
extent that items on the balance sheet do not express their
true ("market") value, the net worth will also be
inaccurate.
Net worth in this formulation is not an expression of the
market value of the firm: the firm may be worth more (or
less) if sold as a going concern.
Regards,
CA Abhijeet Bobade
Rishab Heda
(Article Assistant)
(24 Points)
Replied 25 September 2013
As per sec 2(57) of Companies Act 2013, “net worth” means the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account, after deducting the
aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation.
Paid up share capital does not include share application money, therefore it should not be included in the calculation of net worth.
Regards,
Rishab Heda
vishwas bansal
(Manager - Finance & Accountants)
(26 Points)
Replied 14 September 2016
Is NET WORTH inlcude Foreign currency translation reserves.
in our company we had made investment in foreign company, At the end of every quarter we calculate foreign currency diffrence and transfer it to Foreign Currency Translation Reserve (FCTR) and correspnding effect in Investment.
That FCTR is shown under reserve and surplus.
As per the definition of of Net worth as per section 2(57) it includes all reserve created out of profits......
in my case we had not created it out of profit.
so my query is should i include it in net worth or not.
Thanks in advance
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