issue – The company is a registered non-banking financial company and is engaged in the business of lending for purchase of equipments. The company has received share application money and to allot further equity shares, the shareholders of the company have approved increase in authorized share capital. The company has incurred an expenditure toward stamp duty and registration fees paid to the registrar of companies for increase in authorized share capital. The Expert Advisory Committee (EAC)  considered the issue whether the expenditure incurred on increase in authorized capital can be treated as share issue expenses and can be recognized as an asset till the time shares are issued.

Opinion of EAC of ICAI – The EAC is of the view that increase in authorized share capital is an independent process which does not necessarily lead to issue of shares and the amount spent does not give rise to any resource controlled by the enterprise. In fact, such expenses are only permitting the company to enhance the limit for the paid-up capital of the company which does not ensure any flow of funds to the company. Hence, the EAC opined that expenditure incurred cannot be considered as share issue expenses and should be treated as expense to be charged off in the statement of profit and loss.