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Accounting for Share Capital 55 Working Notes : 1. Excess Application Money Categories of No. of Shares No. of Share Ratio of Allotment Applied Alloted Allotment i 38,000 38,000 100% ii 2,40,000 1,60,000 2/3 iii 8,000 2,000 1/4 2,86,000 2,00,000 Therefore, refund of application money = (3,17,000 – 2,86,000) × Rs. 2.50 = Rs. 77,500 Application money received = Rs. 7,15,000 (2,86,000 shares @ Rs. 2.50) Application money due : = Rs. 5,00,000 (2,00,000 shares @ Rs. 2.50) Excess application money Rs. 2,15,000 2. Amount of Calls in Advance As two allotees, each holding 4,000 shares, paid the full amount on allotment, amount of calls-in-advance is thus : 8,000 shares × (Rs. 2.50 + Rs. 2.50) = Rs. 40,000 Buy-back of Shares : When a company purchase its own shares, it is called ‘Buy-back of Shares’. Section 68 of The Companies Act, 2013 provides that the company can buy their own shares from either of the following sources : (a) Existing equity shareholders on a proportionate basis (b) Open Market (c) Odd-lot shareholders (d) Employees of the company The company can buy back its own shares either from the free reserves, securities premium or from the proceeds of any shares or other specified securities. In case shares are bought back out of free reserves, the company must transfer a sum equal to the nominal value of shares bought back to ‘Capital Redemption Reserve Account’. The following procedures have been laid down for buy back of shares : (a) The Articles of the Association must authorise the company for the buy back of shares. (b) A special resolution must be passed in the companies’ Annual General Body meeting. (c) The amount of buy back of shares in any financial year should not exceed 25% of the paid-up capital and free reserves. (d) The debt-equity ratio should not be more than a ratio of 2:1 after the buy back. (e) All the shares of buy back should be fully paid-up. (f) The buy-back of the shares should be completed within 12 months from the date of passing the special resolution. (g) The company should file a solvency declaration with the Registrar and SEBI which must be signed by at least two directors of the company. Reprint 2026-27