Pakistan Rupee VS Indian Rupee

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DIVIDEND DISTRIBUTION TAX -SECTION 115O

DIVIDEND DISTRIBUTION TAX• The domestic company has to pay dividend distribution tax on any amount declared, distributed or paid by such company by
way of dividend.• The rate of dividend distribution tax is 15% (plus applicable surcharge and cess)• Dividend received from domestic company is not taxable in hands of shareholders.• Deemed divided received under section 2(22)(e) from an Indian company or any dividend received from a foreign company is
taxable in hands of shareholders. Dividend Distribution Tax is hence, not applicable on Deemed Dividend• Surcharge for Dividend payments from 1.4.2015 is 12%. Education cess for is 3%.Amendment in S.115­O w.e.f Assessment Year 2015­16Subsection 1B is introduced w.e.f Assessment year 2015‐16 wherein, the Rate of Dividend Distribution Tax shall be Grossed up on the
Amount of Dividend Declared. The dividend declared minus the DDT is now termed as Net Distributable Profits.
The computation of Dividend Distribution Tax shall be as below –

Particulars	Calculation
Net Distributable Profit	100
Add: Dividend Distribution Tax	17.64706
Distributed Profit	117.64706

Question1. What is the formula for grossing up the DDT?
2. What is the Rate of DDT including Surcharge and Education Cess?
3. What is the DDT if the Net Distributable Profit [after DDT]is Rs.1,00,000/‐Answer1. The formula for grossing up the DDT isNet Distributable Profit of 100 divided by 0.85 = 117.64706 [Distributable Profit]2. The Rate of DDT including Surcharge and Education Cess is 20.35765%
Calculation as below‐

Dividend Distribution Tax [As computed under Question 1]	17.64706
Add: Surcharge @12%	2.11765
19.76471
Add: Education Cess @ 3%	0.59294
DDT including Surcharge and Education Cess	20.35765

3. The Dividend Distribution Tax on Distributable profit of Rs.1,00,000 is Rs. 20,357/‐The essence behind this computation–A company will have cash profit to be distributed to the tune of Rs.1,20,357/‐ Such a company, pays DDT of 20,357/‐ and the
Net distributable profit of Rs.1,00,000 is paid to the shareholders as dividend

DIFFERENCE BETWEEN SHARE AND STOCK

Key Differences Between Share and Stock

The principal points of difference between share and stock are as follows:

1.       A share is that smallest part of the share capital of the company which highlights the ownership of the shareholder. On the other hand, the bundle of shares of a member in a company, are collectively known as stock.

2.      The share is always originally issued while the original issue of Stock is not possible.

3.      A share has a definite number known as a distinctive number which distinguishes it from other shares, but a stock does not have such number.

4.      Shares can be partly paid or fully paid. Conversely, Stock is always fully paid.

5.      Shares can never be transferred in the fraction. As opposed to stock, can be transferred in the fraction.

6.      Shares have nominal value, but the stock does not have any nominal value.

Difference Between Members and Shareholders

When we talk about a company, the terms shareholders and members are commonly used as synonyms, as one can become a member of the company, except by way of holding shares. In this way, a member is a shareholder and a shareholder is a member. The statement is true but not completely, as it is subject to certain exceptions, i.e. a person can become the holder of shares through transfer, but is not a member, until the transfer is entered in the register of members.

In the same way, the transferor of shares lacks shareholding but continues as a member, until entries are made in the company’s books regarding the transfer. Likewise, there are a few more points of difference between member and shareholder which are elaborated in the article in a detailed manner.

Content: Member Vs Shareholder

1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion

Comparison Chart

BASIS FOR COMPARISON	MEMBER	SHAREHOLDER
Meaning	A person whose name is entered in the register of members of a company, is the registered member of the company.	The person who owns the shares of a company is known as shareholder.
Defined in	Section 2 (27)	Not defined
Share Warrant	The holder of a share warrant is not a member.	The holder of a share warrant is a shareholder.
Company	Every company must have a minimum number of members.	The company limited by shares can have shareholders.
Memorandum	The person who signs the memorandum of association with the company becomes a member.	After signing the memorandum, a person can be a shareholder only when the shares are allotted to him.

Definition of Member

A person whose name is entered in the register of members of a company becomes a member of that company. The register includes every single detail about the member like name, address, occupation, date of becoming a member, etc. It also includes every person who holds company’s shares and whose name is entered as the beneficial owners in depository records.

The liabilities of members are limited to the amount of shares held by them in the case of a company having share capital while in the case of a company limited by guarantee the liability of members is limited to the amount of guarantee given by them. But, in the case of an unlimited company the members have to contribute from his personal assets to pay the debts.

The members cannot take part in the management of the company, i.e. the management of the company is looked after by the Board of Directors. Although the right to appoint and remove the directors is in the hands of members.

How to become the member of a company

• If a person subscribes the memorandum of association of a company, he becomes a member by signing it.
• If a person becomes the beneficial owner of shares whose name is registered in the record of the depository, then also he becomes a member.
• If a person gets shares by way of transfer and the transfer is recorded by the company, along with the entry of the name of the transferee in the register of members.
• If a person gets shares by way of transmission and the transmission is recorded by the company along with the entry of the name in the register of members.
• If a person agrees to take the qualification shares of the company and pay for it then also he becomes a member of the company.

Definition of Shareholder

An individual who owns the share of a public or a private company is known as a ‘Shareholder.’ A subscriber of shares is not regarded as the shareholder until the shares are actually allotted to him.

The shareholders are the owners of the company, i.e. to the extent of the share capital held by them. The legal representative of the deceased member, is a shareholder, not the member, until and unless his name is recorded in the register of members of the company. Hence, it can be said that every shareholder is a member but every member, is not a shareholder.

The following are the rights of a shareholder:

• Right to transfer or sell their shares.
• Right to get the dividend.
• Right to attend the general meeting and vote.
• Right to take copies of Memorandum and Articles of Association.
• Right to receive the copy of the statutory report.

Key Differences Between Members and Shareholders

The following are the differences between members and shareholders:

1. A member is a person who subscribed the memorandum of the company. A shareholder is a person who owns the shares of the company.
2. The term member is defined under section 2 (27) of the Indian Companies Act, 1956. Conversely, the term shareholder is not defined in the Indian Companies Act, 1956.
3. The bearer of a share warrant is not a member, but the bearer of a share warrant can be a shareholder.
4. All shareholders whose name are entered in the register of members are the members. On the other hand, all members may not be the shareholders.
5. In the case of a public company, there must be a minimum of 7 members. There is no such cap on the maximum number of members. Similarly, a private company can have a minimum of 2 and maximum of 50 members. As opposed to shareholders, there is no minimum or maximum limit, in the case of a public company.

Conclusion

Members and Shareholders both are important persons of any company, whether it is public or a private limited company. We explained many differences between them, which makes it clear that how these two terms differentiate each other. However, a member can be a shareholder and in the same way, a  shareholder can also be a member subject to certain conditions has to be fulfilled for the same.

INTERVIEW QUESTIONS

A Pays to B on behalf of C Journalise in all three Books

Note:A’s Creditor is C

         A Pay’s to B by writing cheque in B’s name for discharging the liability of C

         B is liable to pay to C

A’s Books	B’s Books	C’s Books
B a/c dr	Bank a/c dr	B a/c dr
To Bank	To C	To A

RUNNING BILLS

Concept of Running Bills and accounting submitted by contractors

Description	RA-1	RA-2
Bill Value	100	150
Bill Certified	80	120
Retention	10%	10%

Note : Liability to be accounted for RA- 1 is 80 and for RA-2 is Rs120

            Bill RA-2 is cumulative so Bill to be accounted is 120-80=40

            Retention % to be applied on Bill Certified

Entry for RA-1

Dr Expense   80

Cr  Liability          72

Cr Retention         8

Entry for RA-2

Dr Expense 40

Cr Liability        36

Cr Retention      4

RATIOS

Ratios Analysis

What is Ratio Analysis?

Establishes numerical realtionship between two variables of Financial statements

To Judge the historical performance and current Financial position.

classification

Liquidity Ratios

Capital Structure or Leverage Ratios

Activity Ratios

Profitability Ratios


LIQUIDITY RATIOS

Liquidity or short Term solvency means the ability to pay short term liabilities.

Inability to pay short term liabilities consistently will hamper the company's credit Rating.

covers

Current Ratio

Liquid Ratio/Acid Test Ratioo/Near Money Ratio/Quick Ratio

Cash Ratio/Super Quick Ratio/Absolute Cash Ratio

Current Ratio

Current Assets/Current Liabilities

Ideally 2:1 (As per Chore Commitee 1.33)

Quick Ratio/Liquid Ratio/Acid Test Ratio/Near Money Ratio

Quick Assets/Quick Liabilities

Ideally should be 1:1

Cash Ratio/Super Quick Ratio/Absolute Cash Ratio

Cash+Marketable securities/Current Liabilities


Capital Structure Ratios or Leverage Ratios

Measures the Longterm stability and structure of the Firm.
Particularly important for long term providers of Finance

Covers
.Debt Equity Ratio
.Debt Service Coverage Ratio
.Interest Coverage Ratio
.Preference Dividend Coverage Ratio
.Eqauity Dividend Coverage Ratio
.Capital Gearing Ratio
.Fixed Assets to Long Term Fund Ratio
.Propriterary Ratio
.Book Value per share
.Degree of Operating Leverage
.Degree of Financial Leverage
.Degree of Combined Leverage

Debt Equity Ratio
Debt/Equity

Ideally should be 1:2
Debt gives tax advantage

Debt Service coverage Ratio
Earnings avalable for debt service

Net Profit+Non cash Items(Depreciation)+Non operating expenses+interest on debt/Instalment(Principal Component)+interest

Note; Numerator is called Cash accruals or cash profit

Interest Coverage Ratio

EBIT(Earnings before Interest and Tax)/Interest

Preference Dividend Coverage Ratio

PAT(Profit after Tax)/Preference Dividend

Indicates a MOS(Measure of Safety) to Preference shareholders (PSH)

Equity Dividend Coverage Ratio

PAT(Profir after Tax)-Preference Dividend//Equity Dividends

Capital Gearing Ratio

Preference Share Capital+Debenture+Long Term Loans/Equity sharecapital+Reserves&surplus-accumulated losses
Alternatively
Fixed Income bearing Securities//Non FFixed Income Bearing Securities

Fixed Assets to Long Term Fund Ratio
Fixed Assets/Long Term Funds

Should not be less than 1
If it is more than 1it indicates that Short Term Funds has been used  to finance fised assets.

Proprietory Ratio

Proprietary Funds/Total Assets

PF=Share Capital +Reserves &surplus-Fictitious Assets
TA=Total Assets-Fictitious Assets
Measures Long Term Solvency Position

High Indicates over Investment in Fixed asset which adversely affects Working capital

Book Value per share

Net Assets available to ESH/No of Equity Shares

Operating Leverage(DOL)

Contribution/EBIT
or

% Change in EBIT/% Change in Sales

Financial Leverage (DFL)
EBIT/EBT
or
% Change in EPS/%Change in EBIT

Combined Leverage (DCL)
DOL*DFL
Contribution/EBT

ACTIVITY RATIOS/TURNOVER RATIOS
.Also known as performance ratio
.indicates frequency with respect to asset

Covers
.Capital Turnover Ratio
. Fixed Assets Turnover Ratios
.Stock Turnover Ratio
.Stock Velocity
.Debtors Turnover Ratio
.Debtors Velocity
.Creditors Turnover Ratios
.Creditors Velocity

Capital Turnover Ratio

Sales//Capital Employed

Indicates Firms ability of generating sales per rupee of Long Term Investment

Capital Employed =LTFA(Long Term Funds approach

Fixed Assets Turnover Ratio

Sales/Fixed Assers

Higher the better(but not very high

Stock Turnover Ratio (STR)
Cost of goods sold/Average Inventory

Stock Velocity

365/12
-------
STR

Debtors Turnover Ratios (DTR)

Credit sales/Average Debtors

Debtors Velocity

365/12
------
DTR

Also Known as Debt Collection Period

Creditors Turnover Ratios(CTR)

Credit Purchases/Average Creditors

Creditors Velocity

365/12
-------
CTR

Also Known as Creditors Payment Period.

PROFITABILITY RATIOS
These Ratios measures the profitability or the operational efficiency of the firm.


Covers
.Gross Profit Ratio
.Operating Profit Ratio
.Net Profit Ratio
.ROE
.ROCE
.ROI
.EPS
.DPS
.PE RATIO
.Dividend Yield

Gross Profit Ratio
Gross Profit/Sales*100

Gross Profit=Sales-Cost of Goods Sold

Operating Profit Ratio
Operating Profit/sales*100

OP=EBIT

Net Profit Ratio

Net Profit/Sales*100
NP=PAT

Return on Equity(ROE)
PAT-Preference Dividend/ESC+R&S-Fictitious assets

Return on Capital  Employed (ROCE)
Return/Capital employed*100

Return=Net Profit+Interest+Tax Provision-Interest/dividend on Non Trade Investments

Capital Employed=LTFA(Long Term Funds Approach)

Return on Investment (ROI)

EBIT/Capital employed *100

Capital Employed =LTFA

EBIT=Return

Earnings per share

PAT-Pref Dividend/No of Euity shares
covered by AS-20

Dividend Per share

EPS//D/P ratio

D/p Ratio=DPS/EPS

Price Earnings Ratio(PE Ratio)
MPS/EPS

MPS=PE*EPS

Dividend Yield (Always expressed as a percentage)

DPS/MPS*100

LIMITATIONS

.Ignores Price level changes
.Difference in accounting policy
.WWindow dressing

Case Studty -1

From the following information prepare a summarised balance sheet  as at 31.3.1990

.Stock Velocity 6

.Fixed Assets Turnover 4
.Capital Turnover Rato 2

.Gross Profit 20%
.Debt collection period 2 months
.Creditors Payment Period 73 days

.The Gross Profit was Rs 60000/=

.Closing stock was Rs 5000/= in excess of opening stock

.All Workings should form part of your answer.