Cost of Capital^57
from the shareholders by passing a resolution in the annual general meeting to modify
the authorised capital figure in the 'Memorandum and Articles of Association' of the
company. This change is then notified to the 'Registrar of Companies' (Government)
and then incorporated in the balance sheet.
No formal entry is required for authorised share capital in the books of accounts. Can
you explain why? This is because of the reason that there is no transaction of the
authorised share capital.
The second part talks about 'Issued, Subscribed and Paid-up Capital'. Issued Share
Capital is that portion of the authorised capital that has been actually offered for
subscription. Subscribed share capital is that portion of issued share capital, which has
actually been subscribed and allotted. Paid-up share capital is that part of the subscribed
capital for which consideration in cash or otherwise has been received. Therefore,
subscribed share capital can be less than or equal to the issued share capital. Similarly
paid-up share capital can be less than or equal to subscribed share capital. All these
types of share capital also include the bonus shares that have been allotted by the
organisation.
There is another term 'called-up share capital' which you may find in some of the
balance sheets. It refers to that part of the subscribed capital, which shareholders have
been required or demanded to pay but have not paid as yet. This comes in the case
where the company has issued partly paid up shares and some shareholders have not
paid the entire amount to make the shares fully paid up.
As you can see in the figure 5.4, Cosco has an 'Issued and Subscribed' share capital of
41,60,000 shares of Rs 10/- each amounting to Rs 41,610,000. The figure was the same
last year meaning that the company has not issued any new shares in the last one year.
In brackets it also says that the figure includes 19,20,000 equity shares allotted as fully
paid up bonus shares by capitalisation of Rs 192 lacs from General Reserve. This
means that Rs 192 lacs have been transferred from general reserves to the share
capital. As both of them belong to the shareholders, it is merely a book entry and does
not represent a flow of cash.
As Cosco India Ltd is a listed company, this means that the company would
have issued shares to the public. The issue of new shares can be in five different ways:
- It can sell shares directly to the public.
- It can sell shares directly to selected investors.
- It can sell shares only to its existing shareholders.
- It can issue shares without any consideration to existing shareholders.
- It can issue shares as exchange for assets from other entities.