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Act, 2013. As Per The Secretarial Standards Issued by Institute of Company
Act, 2013. As Per The Secretarial Standards Issued by Institute of Company
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http://promarketwizards.com/what-is-face-value-book-value-and-market-value/
We often come across some terminologies such as Face Value, Book Value
and Market Value. For a second we should understand that what does these
terms mean?
FACE VALUE:
Face value of shares or nominal value, is the value shown on the face of
security and the share is actually listed in the stock market. Face value is also
known as par value which is the legal capital of each share of stock held by an
individual. Face value is the original cost of the shares as listed on the
certificate.
Face value is not calculated; rather it reflects the face value in the form of
shares depending upon the capital that a company wishes to raise from
market. For example, when a company goes public, it can have a face value
of Rs 10. And it may trade at a market price of Rs 500.
Market value per share = total value of the company in the market / total
number of shares issued by the company
WHY MARKET VALUE IS IMPORTANT?
Market value is mostly referred by the market analysts and investors when
they mention the value of a company. Since the market price of shares
changes throughout the day, the market cap of a company also changes
accordingly. It is a basic parameter which is widely used in calculations such
as market cap with respect to sales. Market cap is used commonly while
comparing similar companies because share prices are affected more by
corporate actions like bonus, stock split, etc.
BOOK VALUE:
Book value, in literal terms, means the value of the share in the company’s
books. It depicts the amount per share the shareholders can get if the
company is liquidated and its assets are sold off to pay the liabilities. Thus,
book value is calculated using the following two formulas:
Book value per share = total assets – total liabilities / total number of shares
issued by the company
Or
CONCLUSION:
By now, the meaning of face value, market value, and book value should be
crystal clear to you. All these three terms are different in each term and one
should not get confused among them while studying any company in details.
In a nutshell, Market value per share is the current value at which the stock is
trading in the market. Face value is the value of a company which is listed in
its books and share certificate. And finally, the book value of a company is the
total value of the company’s assets that shareholders will receive in case the
company gets liquidated.
https://ncert.nic.in/ncerts/l/leac201.pdf
20000 shares of Rs. 100 shares each = Share cpital Rs. 2000000
10000 shares of rs. 100 each =issued capital = rs. 10,00,000
10000 shares of rs. 100 each = unissued capital = rs. 10,00,000
Paid up capital 9000 shares paid and 1000 shares not paid
Paid up capital = 9000 shares x 100 = 9,00,000
Un paid capital = calls in arrears = 1000 shares x 100 = rs 1,00,000
First call = Rs. 50 (9000 shares paid rs.50 = Rs. 450000 paid up capital, 1000 shares not paid rs.50 = Rs.
50000 is calls in arrears)
Second call= Rs. 50
• Subscribed Capital: It is that part of the issued capital which has been actually
subscribed by the public. When the shares offered for public subscription
are subscribed fully by the public the issued capital and subscribed capital
would be the same. It may be noted that ultimately, the subscribed capital
and issued capital are the same because if the number of share, subscribed
is less than what is offered, the company allot only the number of shares for
which subscription has been received. In case it is higher than what is offered,
the allotment will be equal to the offer. In other words, the fact of over
subscription is not reflected in the books.
• Called up Capital: It is that part of the subscribed capital which has
been called up on the shares. The company may decide to call the entire
amount or part of the face value of the shares. For example, if the face
value (also called nominal value) of a share allotted is Rs. 10 and the
company has called up only Rs. 7 per share, in that scenario, the called
up capital is Rs. 7 per share. The remaining Rs. 3 may be collected from
its shareholders as and when needed.
• Paid up Capital: It is that portion of the called up capital which has been
actually received from the shareholders. When the shareholders have
paid all the call amount, the called up capital is the same to the paid up
capital. If any of the shareholders has not paid amount on calls, such an
amount may be called as ‘calls in arrears’. Therefore, paid up capital is
equal to the called-up capital minus call in arrears.
• Uncalled Capital: That portion of the subscribed capital which has not
yet been called up. As stated earlier, the company may collect this amount
any time when it needs further funds.
• Reserve Capital: A company may reserve a portion of its uncalled capital
to be called only in the event of winding up of the company. Such uncalled
amount is called ‘Reserve Capital’ of the company. It is available only for the
creditors on winding up of the company.
Authorised Share Capital
Issued Capital Unissued Capital
Subscribed Capital
Subscribed and Fully Paid up Subscribed but not Fully Paid up
Exhibit. 1.1 : Categories of Share Capital
Let us take the following example and show how the share capital will be
shown in the balance sheet. Sunrise Company Ltd., New Delhi, has registered
its capital as Rs. 40,00,000, divided into 4,00,000 shares of Rs. 10 each. The
company offered to the public for subscription of 2,00,000 shares of Rs. 10
each, as Rs. 2 on application, Rs.3 on allotment, Rs.3 on first call and the balance
on final call. The company received applications for 2,50,000 shares. The
company finalised the allotment on 2,00,000 shares and rejected applications
for 50,000 shares. The company did not make the final call. The company received
all the amount except on 2,000 shares where call money has not been received.
The above amounts will be shown in the Notes to Accounts of the balance sheet
of Sunrise Company Ltd. as follows:
Notes to Accounts
Share Capital (Rs.)
Authorised or Registered or Nominal Capital:
4,00,000 Shares of Rs. 10 each 40,00,000
Issued Capital
2,00,000 Shares of Rs. 10 each 20,00,000
Subscribed Capital
Subscribed but not fully paid up
2,00,000 Shares of Rs. 10 each, Rs. 8 called up 16,00,000
Less : Calls in Arrears (Rs.6,000 = 2000 shares x Rs. 3 on first call not received ) 15,94,000
1.4 Nature and Classes of Shares
Shares, refer to the units into which the total share capital of a company is
divided. Thus, a share is a fractional part of the share capital and forms the
basis of ownership interest in a company. The persons who contribute money
through shares are called shareholders.
The amount of authorised capital, together with the number of shares in
which it is divided, is stated in the Memorandum of Association but the classes
of shares in which the company’s capital is to be divided, along with their
respective rights and obligations, are prescribed by the Articles of Association of
the company. As per Section 86 of The Companies Act, a company can issue
two types of shares (1) preference shares, and (2) equity shares (also called
ordinary shares).