Verify Memorandum of Association and Register of Members: In case of first audit the auditor should check the Memorandum of Association, list of share holders and register of members for verification of share capital. 2.
Authorised Share Capital
It is the maximum amount of the capital for which shares can be issued by the Company to shareholders. The Authorised capital is mentioned in the Memorandum of Association of the Company under the heading of “Capital Clause”. It is even decided prior to incorporation of the Company.
Ordinary Shares are also known as common stock and equity shares.
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Subscription Account.
| Credit | Bank | Amount returned to subscribers. |
| Credit | Share Capital Account | Nominal value of shares issued. |
| Credit | Share Premium Account | Amount in excess of nominal value of the shares issued. |
Share capital means capital raised by the company by issue of shares. This issue of share capital should be audited to verify the compliance of requirements and provisions of Companies Act.
(i) The auditor should examine the Prospectus, the Articles and the Minutes of the Directors to see whether the issue of shares at a premium is duly authorized or not. He should confirm the rate of premium. (ii) The receipt of the premium is vouched with the entries in the Cash Book and the supporting documents.
Is verification a part of valuation?
Verification proves the existence, ownership and title of assets. Valuation certifies the correct value of asset. Vouching is done after original entry in the books of accounts. Verification and valuation are done at the end of the financial year.
The unpaid amount for each share class must be shown on the statement of capital, which should be completed and submitted to Companies House each time there is an allotment of shares or upon incorporation or other changes to the value of a company’s issued share capital.
The requirement to have an authorised share capital is abolished from 1.10. 2009 when the Companies Act 2006 finally came into full effect. Any company registered from that date will have no restriction on the number of shares it can issue, unless a limit is set in the company’s articles.
A private limited liability company is required to have a minimum issued share capital of NGN100,000 with all of its share capital allotted to its subscribers at incorporation It is however worth noting that the minimum issued share capital for Nigerian companies with foreign participation is NGN10 million.
A company’s share capital is the money it raises from selling common or preferred stock. Authorized share capital is the maximum amount a company has been approved to raise in a public offering. A company may opt for a new offer of stock in order to increase the share capital on its balance sheet.
Issuance of shares having no par value is recorded by debiting cash and crediting common stock or prefered stock. However if board of directors of the company assigns a value to shares orally, such value is called stated value and the journal entries will be similar to par value stock.
An increase in liabilities or shareholders’ equity is a credit to the account, notated as “CR.” A decrease in liabilities is a debit, notated as “DR.”
Share Application or share allotment or Share capital A/c all are personal accounts as they represent money from the shareholders and when money is due, these are to be debited because of the rule “Debit the receiver”.
There are two methods of accounting for treasury stock transactions, namely: (1) par or stated value method and (2) cost method.
Share capital is of two types namely, equity share capital and preference share capital.