Application money should be at least ______ of the face value of share.
55%
Understanding Share Application Money and Face Value
When a company wants to raise money from the public, it issues shares. People interested in buying these shares need to apply for them. Along with the application, they usually need to pay a certain amount of money upfront. This initial payment is known as application money.
The total value of a share is typically collected in installments: application, allotment, and call money (first call, second call, etc.). The face value, also known as par value or nominal value, is the value of a share as stated in the company's memorandum of association. It's a fixed value per share and is often a small amount like &\#x20B9;1, &\#x20B9;10, or &\#x20B9;100.
Minimum Application Money Requirement
Regulations specify a minimum amount that must be collected as application money to ensure that only serious applicants apply and that the company receives a substantial amount upfront for its initial expenses related to the share issue. This minimum is often set as a percentage of the face value of the share.
Based on the requirement mentioned in the question, the application money should be at least a certain percentage of the face value of the share. This minimum percentage is important for the company to proceed with the share allotment process.
Calculating Minimum Application Money
If the minimum application money required is a percentage of the face value, the calculation is straightforward:
\(\text{Minimum Application Money} = \text{Minimum Percentage} \times \text{Face Value}\)
For example, if the face value of a share is &\#x20B9;10 and the minimum application money is required to be 55% of the face value, the minimum amount to be paid with the application would be:
\(\text{Minimum Application Money} = 55\% \times \&\#x20B9;10\)
\(\text{Minimum Application Money} = \frac{55}{100} \times \&\#x20B9;10\)
\(\text{Minimum Application Money} = 0.55 \times \&\#x20B9;10\)
\(\text{Minimum Application Money} = \&\#x20B9;5.50\)
This means that for a share with a &\#x20B9;10 face value, an applicant must pay at least &\#x20B9;5.50 when submitting their application.
Analyzing the Options
The question asks for the minimum percentage of the face value that should be collected as application money.
- Option 1: 10\%
- Option 2: 15\%
- Option 3: 55\%
- Option 4: 20\%
According to the information provided, the application money should be at least 55\% of the face value of the share.
Conclusion on Minimum Share Application Money
Based on the requirement specified, the application money for shares must be at least 55\% of the face value of the share. This ensures a significant initial contribution from applicants towards the share's value.
Revision Table: Key Terms for Share Issue
| Term | Description |
|---|---|
| Face Value | The nominal or par value of a share as stated in the company's memorandum. |
| Issue Price | The price at which the company offers its shares to the public. This can be at face value, at a premium (above face value), or at a discount (below face value, though rare for initial public offers). |
| Application Money | The amount paid by an applicant when applying for shares. |
| Allotment Money | The amount payable by an applicant upon being allotted shares. |
| Call Money | Any subsequent amounts demanded by the company from shareholders after allotment, up to the issue price or face value (if issued at par). |
Additional Information on Share Application Rules
Understanding the different components of the share price and the stages of collection is crucial in company accounting and finance. The rules regarding minimum application money are designed to protect both the company and the investors. A reasonable minimum ensures that the company has sufficient funds to cover the expenses of the issue and that applicants are genuinely interested.
Regulations governing the minimum application money can vary depending on the country and the type of security being issued (e.g., public issue vs. private placement). It's important to refer to the specific rules applicable at the time of the issue, such as those laid down by regulatory bodies like SEBI (Securities and Exchange Board of India) in India or relevant company laws.
The minimum percentage linked to face value sets a baseline, but companies often collect more, especially if the shares are issued at a premium (issue price > face value). In such cases, application money is often a significant portion of the issue price, not just the face value.
Important Questions from Accounting for Share Capital
Nawab, Shanaya, and Hritik are partners sharing profits and losses in the ratio of 5 : 3 : 2. The partnership deed provides for charging interest on drawings @10% p.a. The drawings of Nawab, Shanaya, and Hritik were ₹20,000, ₹15,000, and ₹10,000, respectively. After final accounts have been prepared, it was discovered that interest on drawings had not been charged. The adjusting entry will be:
Mr. Kunal withdrew ₹10,000 per month at the end of each month from a firm for his personal use during the year ending March 31, 2022. What will be the interest on drawings if charged @8% p.a.?
What are the accounting aspects that are involved at the time of retirement or death of a partner?
(A) Ascertainment of profit or loss up to the date of retirement or death of partner.
(B) Realisation of assets and liabilities that are shown in the books of Accounts only.
(C) Adjustment of capital.
(D) Calculation of new profit sharing ratio and gaining ratio.
(E) Treatment of Goodwill
Choose the correct answer from the options given below:
On retirement of a partner, the retiring partner’s capital account will be credited with:
Which of the following are shown in Revaluation A/c?
(A) Unrecorded Asset
(B) Workmen Compensation Reserve
(C) Decrease in fixed Asset
(D) Increase in Inventory
(E) Drawings of partner
Choose the correct answer from the options given below:
