What is authorised share capital?What is paid up share capital?What is contingent liability?

Please give examples

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  • Apr 21st, 2007

The capital which is mentioned in the capital clause of the memorandum of assoiciation is called as authorised capital.

For example if the capital requirement of the business in the long run is Rs. 10,00,000 and current requirement is only Rs. 50,000. 
The amount of Rs. 10,00,000 is called as authorised capital. To collect Rs. 50,000, if you issued shares, that Rs. 50,000 is called as issued capital. If the shareholders subcribed only for Rs. 40,000, this Rs. 40,000 is called as subcribed capital. If you call only Rs. 25,000 for your current requirement, then this 25,000 is called as called up capital .

Say for example one share holder has not paid his share, you received only Rs. 24,000. This Rs. 24,000 is called as paid up capital.  Dividends are paid only on paid up capital.

The liability may or may not arrise in the future is called as contingent liability. If you discount a bill in the bank, the bill may honour or dishonour on the due date. in the mean time this is considered as contingent liability. it is shown as foot note to the balance sheet.

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