CHAPTER ONE

FORMATION OF COMMERCIAL COMPANIES: GENERAL ASPECTS

1.1LEGAL ASPECTS

1.1.1 A Company

According to Article 4.1 of the uniform act of OHADA, "a company is define as an
association of two or more persons who agree through a contract to contribute capital and
to carry out some activities with the aim to share the benefits which may result or to gain
from the economy”

In article 5, a company could equally be formed by a single person called unique

shareholder through a written act. This act is only a unilateral engagement and not a
contract or deed.

From the first definition, three fundamental elements can be highlighted thus:

A.The contribution of capital by the partners or shareholders:

We distinguish between accounting analysis and fiscal analysis of contributions as

follows:

Accounting Analysis of contributions: It. gives privilege to the nature of contributions

as follows:

Contributions in cash: This is the contribution of cash in hand, by bank or Giro

bank, by the partners or shareholders.

Contributions in kind: This is the contribution of tangible or intangible,

movable or immovable assets other than money.

Contribution in industry: Here, the partner or shareholder puts in his technical

know-how, services or experience in the form of work. This type of
 contribution is difficult to evaluate and therefore does not constitute part of the
capital. It is even forbidden in public limited companies thus:

Fiscal Analysis of contributions: On the fiscal plan, contributions are analysed

infunction of the mode of remuneration thus •we distinguish; i- Pure and Simple

Contribution: This contribution is remunerated only by the allotment of shares to the

shareholder or partner.

Costly Contribution: This contribution is assimilated to sales of the items

contributed. The contributing shareholder or partner does not receive shares.
Instead, he receives either cash, a right of claims on the company or when the
company takes over liabilities to be paid.

Mixed Contributions: Here, part of the contribution is as pure and simple

contribution and part as costly contribution

Fiscally the share capital is

Share Capital = Sum of Pure and Simple Contributions

B.The Participation of Partners or Shareholders in the sharing of Profit or Loss

This is an essential element and the criteria to share the benefits are decided in the
statute by the shareholders or partners. The attribution of all the benefit to a single
shareholder or partner and the exemption of one shareholder or partner from the loss
are strictly forbidden.

C.The intention to collaborate

The intention to collaborate to the success of the company is known as

"Affectiosocietatis". This means that, some of the shareholders may take part in t
headministration of the company but all of them have to participate in the designation of
the administrators and in taking important decisions.

1.1.2 Formation Rules

The law fixes a certain number of rules for the formation of a company in order to protect
 rd
the interest of the third (3 ) parties and the partners or shareholders themselves. These include:

a.A Contract: It is a written agreement done by a notary and usually called "a statute".
It should be registered and must precise among other things:
 The amount of capital and the number of shares,
 The nature of activity to be carried out,
 The modalities for the distribution of benefits etc.

b. Publicity: It is done in an official gazette. This is to inform the various fiscal

andsocial insurance administrations, the court in charge of commercial affairs and the
general public about the company being formed.

c. A copy of the articles of Association is to be deposited at the court of First Instance to

declare the existence of the company

d. The existence of the company is declared at the fiscal and social administrations of
taxation, NSIF and Inspectorate of Labour etc.

e. The company should equally be registered in the register of commerce.

1.1.3 Fiscal Rules

In Cameroon, some taxes are paid at the formation of a company among which
are the following:

A. Registration Duties

The general Tax Code has rendered the act of registration of the formation of a company
compulsory. This has to be done between 15 to 30 days from the date of her creation if it
is done before a notary and between one to three months in other cases.

Registration duties represent the taxes to be paid according to the fiscal distinction of
contributions thus:

i. Digressive Tax: This tax is calculated in application of the digressive rates on the
Pure and Simple contributions or in other words on the share capital according to

the following scale:

 Scale of Capital Rate Ceiling

0 - 750,000,000 2% 750,000
750,000,000 - 1,500,000,000 1.5% 1,500,000
1,500,000,000- 3,000,000,000 1% 3,000,000
3,000,000,000 - 5,000,000,000 0.5% 5,000,000
Above 5,000,000,000 0.25% 2,500,000

NB: The tax is digressive or regressive because of the fact that the rates vary from 2%
down to 0.25%
Application 1.1

A company was formed on 3/01/2014 with a capital of 4,600,000,000F. In tabular form,

calculate the digressive or regressive tax to be paid.

Solution

Calculation of the Digressive tax

Scale Rate Amount Calculated Amount Paid

0 to 750 000 000 2% 15 000 000 750 000

750 000 000 to 1 500 000 000 1.5% 11 250 000 1 500 000
1 500 000 000 to 3 000 000 000 1% 15 000 0003 000 000
3 000 000 000 to 4 600 000 000 0.5% 8 000 000 5 000 000
Total Digressive Rights 10 250 000

ii. Transfer of Ownership Tax or Proportional Tax:

This tax is assessed on costly contributions and costly contributions have the character of
sales on the items contributed to the company. The rates applied are in function of the
items brought as costly contributions. These rates are as follows:
 15% on Constructed Urban immovable tangible fixed assets e.g. Land and
buildings,

10% on Non-Constructed Urban immovable tangible fixed assets e.g. Land and
buildings,

10% on Constructed Rural immovable tangible fixed assets e.g. Land and
buildings,

5% on Non- Constructed Rural immovable tangible fixed assets e.g. Land and
buildings on Goodwill,

15% on Goodwill

5% on equipment,

2% on Shares, Social Parts and Debentures,

2% on Stocks,

2% on Customers,

For the calculation of proportional tax on mixed contributions, the statement of

contributions should specify assets brought as pure and simple contributions and those
brought as costly contributions. This is to enable the tax to be calculated in favour of the
company. In the absence of such precisions, the fiscal administration can choose the
elements of assets with high rates.

EXHIBIT 1.2
For the creation of CEM Company on the 1st October 2014, the following contributions
were realized

Partner A: Contributed the sum of 7,000,000F in Cash and 10 000 000F by

Cheque,

Partner B: Contributed a piece of Land evaluated at 9 000 000F, Stock of

5,000,000F and Customers' debt taken over at 4,000,000F,
 Partner C: contributed the following elements: Office Equipment 3,000,000,
Construction in Douala 20,000,000F Stock of goods 6,000,000F, Suppliers' debts
4,000,000F and Suppliers' bills payable 2,000,000F.

Partner D: Contributed in Knowledge in Management and is considered as a

partner.

Work Required:

1. Analyse the different contributions on the fiscal and accounting point of view,

2. Calculate the Social Capital on the fiscal and accounting point of view,

3. Calculate the registration duties payable by CEM considering

a. The option in favour of the company,

b. The option in disfavour of the company,

c. The fiscal administration considers each element of assets as mixed.

iii. Payment: Generally, payment is done in a single instalment at the presentation ofthe
formation certificate. But when the debtor presents a bank guarantee, the right s
can be paid as follows: 1/3 at the deposit of the registration certificate (act) and
the rest in 2 semesters of 1/3 each.

1.1.4 Formation Expenses

Formation expenses include all the expenses incurred during the creation formalities of a
commercial company. The expenses may include: Registration duties, honorary to notary
or lawyer, honorary to auditors who evaluate contributions in kind and publicity
expenses.

1.1.5 Accounting Analysis Of The Formation Of Commercial Companies

i. Accounts used: The OHADA accounting system has provided specific

accountsfor the recording of the formation of commercial companies thus:

a. Capital accounts: Account 10 (Capital), which is sub-divided as follows:

101: Share Capital:

101 1- Subscribed uncalled up capital,

1012- Subscribed, called up and unpaid up capital,

1 013- Subscribed, called up and paid up non-redeemed capital,

1014- Subscribed, called up and paid up redeemed capital,

109:Shareholders subscribed uncalled up capital

b.Third (3rd) party accounts: Sub-accounts of account 46 include:

461:Shareholders (partners) operations on capital;

4611- Shareholders contributions in kind;

4612-Shareholders contributions in cash;

4613-Shareholders unpaid called up subscribed capital;

4615-Shareholders unpaid called up capital;

4616-Shareholders anticipated payments;

4617-Defaulting shareholders;

4618-Shareholders other contributions;

467- Shareholders outstanding on called up capital;

NB: The terms shareholders and partners are used indifferently in the sub-division of
account 461 (shareholders’ operations on capital). The same holds for account 109
(Shareholders subscribed uncalled up capital).

c. Other accounts:

For the payment of contributions, fixed assets, stocks, third (3 rd) parties and cash
accounts are used. For the formation expenses, the following accounts are used:
 627- Advertising, Publicity, Publishing and public relations;

632- Intermediary and consultancy remunerations;

64. - Rates and taxes;

i. Accounting Entries on the Formation of Companies

The accounting entries on the formation of companies are made in two stages as follows:

a.The promise of contribution or engagement to contribute: It renders the partners

or shareholders’ debtors to the company. The recording is as follows:

Dr.461Shareholders' transactions on capital

Cr.101Share capital

b.Realization or payment of contributions: The payment of the promise ofcontribution or

engagement to contribute by the shareholders or partners is recorded as follows:

2.. Fixed assets account contributed xxx

3... Stock account contributed xxx
4.. Third party account contributed xxx
5.. Financial account contributed xxx
4… Liability account taken over xxx
461 Shareholders'transactions on capital xxx
Realizationof contributions xxx

Also, the formation of a company usually brings about some expenses such as registration duty,
publicity expenses etc. During their engagement, the expenses recorded in the accounts of expenses by
nature either be integrally absorbed in one period, Or are spread over several years (3 to 5 years).

C. In the second case, the accounting recordings will be as follows

 Dr. Acc 6
 Dr. Acc 4454
 Cr. Acc 5
 CHAPTER TWOFORMATION OF COMMERCIAL COMPANIES:
PARTICULARASPECTS

There are three main types of commercial companies and the aspects considered are
particular to each of the companies as follows:

2.1PARTNERSHIP

In this type of company, the relationship between the partners is "intuitu personae" i.e.
the physical person of the partner is needed to know themselves. The capital is divided
into social parts of the same nominal value which represents the rights of the partners and
which are not freely negotiable. The uniform act does not indicate the minimum nominal
value.
We can further distinguish between:

a) Ordinary or General Partnership: This is a type of partnership where all the

partners have the qualities of a trader and unlimited liabilities.

b) Limited Partnership: Under this type, there are two groups of partners. The
ordinary partners (see (a) above) and limited or sleeping or dormant partners who
contribute to the capital but do not take part in the running of the partnership.
Their liability toward social debts and losses of the partnership is limited to their
contribution. (Art 293 of the uniform act.)

Advantages

 The Partnership has no minimum capital,

 The conditions on the realization of contributions in cash are determined in the
status,
 Contribution in industry is allowed but is not considered in the social capital,
 It is simple and less expensive to form,
 Fiscal deficits are immediately covered from the partners' revenue,
 There is no legal procedure for the evaluation of contribution in kind.

Disadvantages

 The ordinary partners have unlimited liability

 There is no free negotiation of social parts by individual partners,
  There is limited means of financing.

2.1.1 Accounting Analysis

Individual partner's contribution accounts are created according to the nature of contributions or
group and collective partners' contribution accounts in the case of many partners.

Case One: Case of integral realization or payment of contributions at the

creationApplication 2.1
On the 1/04/2014, ABA & Co. partnership was created with the following contributions:
ABA contributed a piece of land worth 12,000,000F
BANGA made a bank transfer of 7,000,000F to the partnership's bank account opened
at SGBC bank.
CHA brought stock of goods evaluated at 7,500,000F; Customers' claims 1,000,000F
and suppliers' debts 2,500,000F
DAD Y contributed his expertise in computer management and financial management.
Formation expenses were paid on the 10/04/2014 by cheque

• Honorary to notary (VAT included) 477,000F

• Publicity expenses (VAT included) 131,175F
• Registration duty 550,000F
• Stamp duty 40,000F

Work Required:

1. Present the fiscal and accounting analysis of the contributions of the partners,

2. Calculate the share capital and the number of shares attributed to each partner knowing
that the nominal value per social part is 4,000F

3. Record the formation of the partnership in the classical journal,

4. Present the simplified opening balance sheet.

Case Two: Case of partial payment of contributions at the creation:

Partial payment of contributions in cash can take two forms in a partnership as follows:
a) The Capital is not entirely called up: In this case, the following accounts are used
to record the uncalled up capital; Account 109 (Shareholders' subscribed uncalled
up capital) is debited and account 101 1 (Subscribed uncalled up capital) is
credited.

b) The capital is entirely called up: In this case, we debit account 4614 (Shareholders'
unpaid called up capital) and credit account 1012 (Subscribed, called up and
unpaid up capital).

Application 2.2

On the 1/07/2014, ATANGA & BAYA decided to create ATANGA &Bros partnership
with a capital of 4,000,000F divided into social parts of 5,000F nominal value. ATANGA
engaged to contribute the following elements: Furniture and equipment, 800,000F, Stock
of goods 1,500,000F and BAYA promised to contribute 1,700,000F in cash. The statute

previewed that the capital is entirely called up but contributions in kind and 3/4 of
contributions in cash were paid up at the subscription on 1/07/2014 while the rest was to
be paid on 2/08/2014. All the partners executed as previewed and formation expenses
were paid in cash on the 10/07/2014 and included: Registration duty 80,000F, Stamp duty
35,000F; Honorary to notary (VAT included) 119,250F; Publicity expenses (VAT
included) 59,625F. The expenses were absorbed in one period.

Work Required:
1. Record the formation of this partnership in the classical journal.

2. Consider that the contributions in cash were called up at 3/4 and the rest later; record
the creation of the partnership in the classical journal.

2.2PRIVATE LIMITED COMPANY

This type of company is constituted at "intuitu personae" but the liabilities of the
shareholders are limited to their contributions in the company. It can be constituted byone or
more physical or moral persons or by both. Its name must be preceded or followed by the
word "limited Liability Company or the initials LLC. The rights of the shareholders are
represented by social titles called shares.
2.2.1 Characteristics
 The minimum capital of a limited liability company is1,000,000F
Its capital must be fully subscribed and paid-up at the creation,
The capital must be divided into shares of a minimum nominal value of 5,000F,
 Contribution in industry is strictly forbidden,
 Its administration is assured by a manager who may be a shareholder or an employee,
 When the value of contribution in kind is more than 5,000,000F, it must be evaluated by an
auditor.

2.2.2 Advantages
 The liability of shareholders is limited to their capital contribution,
 The formation or creation of the company is simple,
 The company is a separate entity from the management.

2.2.3 Disadvantages
 Its creation is fiscally expensive in certain cases,
 The transfer of shares is at the agreement of all the shareholders,
 There is limited financing.

EXHIBIT 2.3

FONCHA and MUNA constituted a Private Limited Company with a capital of 4,800,000F on
the 1/07/2012 (Foncha 800 social parts of 5,000F and Muna 160 social parts of
5,000F).Foncha contributed Stock of goods evaluated at 2,000,000F, Equipment taken over at
1,400,000F, Office Furniture taken over at 800,000F and a Credit at SGBC bank of 320,000F.
Muna contributed 800,000F paid into SGBC bank.
Work Required:

Record the contributions above in the journal of the new company knowing that the following
constitution expenses were paid by cheque;

a) Registration duties to be determined,

b) Publicity Expenses 150,000F excluding tax,

c) Honorary 600,000F excluding tax,

d) VAT at the Normal rate

2.3PUBLIC LIMITED COMPANY:

In this type of company, the main consideration is on the capital contributed since the
contributors called shareholders might not even know themselves. Their rights are represented
by freely negotiable titles called shares and their liabilities to the social debts of the company
are limited to their contributions.

2.3.1 Characteristics:

a. A Public Limited Company can be formed by a unique shareholder or by more than one
shareholder,

b. It must have a minimum share capital of 10,000,000F It is 100,000,000F when the

general public is called upon to contribute,

c. The share capital is divided into shares with a minimum nominal value of 10,000F
each.

d. The Share capital must be entirely subscribed before the statute is signed and before the
constitutive general assembly is held,

e. The shares contributed in cash must remain nominative until they are integrally
paid-up.

f. 'The shares contributed in kind must be integrally paid-up immediately,

g. The shares contributed in cash can be partially paid-up and the legal minimum is
 1/4 at the time of creation. The balance must be paid-up within three (3) years.

h. The share capital must be integrally paid-up before the company can proceed to an
increase of capital.

i. It is administered either by a board of directors or a general manager.

2.3.2 Advantages:

a. The liability of shareholders is limited to their capital contribution,

b. The shareholders can freely negotiate and transfer shares without the consent of
others,

c. There is greater possibility of raising much finances.

2.3.3 Disadvantages:

a. Its creation is fiscally expensively,

b. The indication of a minimum capital hinders the growth of small enterprises,

c. There are heavy legal formalities to be fulfilled.

2.3.4 Accounting Analysis:

Collective shareholders' accounts are opened for contribution in kind and contribution in cash.
The recordings will vary' according to whether the contributions are paid integrally or partially.
The following cases are studied:

 
1st Case; Contributions in Cash are paid up in fractions (partially),

2nd Case; Contributions in Cash are integrally paid at the subscription,
 rd
3 Case; Contributions in cash are paid-up with anticipated payments,

 4th Case; Contributions in Cash are paid-up late,
 th 
5 Case; Some shareholders are defaulting,

CASH CONTRIBUTIONS PAID-UP IN FRACTIONS

In this case, the accounting procedure is as follows:

 a) Subscription and promise of contributions of capital;

Do
4611 Shareholderscontributionin Kind xxx
4612 Shareholderscontributionin Cash xxx
1011 Subscribed uncalled up capital xxx
1012 Subscribed called up and unpaid capital xxx
Being Promise of contributions

b)Acknowledgement of contributions in cash

Do
109 Shareholderssubscribed uncalled up capital xxx

4613 Shareholderssubscribed; calledup unpaid capital xxx

4611 Shareholderscontributionin Cash xxx
4612 Shareholderscontributionin Cash xxx
Being Acknowledgementof contributions in cash

c) Capital called up Capital

1011 Do
xxx
Subscribed Uncalled up capital Subscribed called
up, unpaid capital
1012 Being Capital called up xxx

d)Realisation of the Contribution

Do
2 Fixed Assets xxx
3 Stocks Accounts Xxx
4 Third party accounts Xxx
5 Treasury accounts Xxx
461 Shareholders operation on account Xxx
 4 Other third party accounts xxx
Being realisations of contributions

e) Regularisation of the capital account

Do
1012 Subscribed called up and unpaid capital xxx
1013 Subscribed called up, paid up and non redeemed capital xxx
Being realisation of the capital account

THE APPEAL OR CALL UP OF THE OTHER FRACTIONS OF CAPTIAL

a) Appeal of the fraction decided by the general assembly

Do
1011 Subscribed uncalled up capital xxx
1012 Subscribed called up and unpaid capital xxx
Being Appeal or call for capital

b) Exigibility of the fraction called up

467 Shareholders’ outstanding on the called-upcapital xxx
109 Shareholders subscribed uncalledup capital xxx
Being Exigibility of the fraction of capital

c) Realisation (payment)of the fraction

Do
5… Financial Account xxx
467 Shareholders’ outstanding on the called-up xxx
Being capital Realisation (payment)of the fraction

d) Regularisation of the capital account

Do
1012 Subscribed called up and unpaidcapital xxx
1013 Subscribed called up and paid up and non-redeemed capital xxx

Being Regularisation of the capital account

Remark:
Account 109 (Shareholders subscribed uncalled up capital) will be progressively
 balanced up during the calls of fractional capital. If not completely balanced up, it is
recorded in the liability side of the balance sheet preceded by a negative ( -) sign.
When the capital is fully realized (paid-up), account 1013 (Subscribed, called up and paid-
up non-redeemed capital is transferred to account 101 (share capital).

CASE ONE: CONTRIBUTIONS IN CASH ARE INTEGRALLY PAID UP ATTHE

CREATION

EXHIBIT 2.4:

A Public limited company is created with a share capital of 30,000,000F divided into shares of
10,000F nominal value each. The contributions are done as follows:

Administrative and commercial building.………..….………10,000,000F

Goodwill………………………………………………………1,000,000F

Transport equipment ………………………………….………4,000.000F

Stock of goods..............................................................................3,000,000F

The remaining capital is contributed in cash and integrally paid-up at the time the shares are
subscribed. This amount is deposited with a public notary. The company is formed onthe 5 th

January and on the 15th January; the public notary transferred the funds into the company's
bank account having deducted expenses whose composition is as follows: Registration duty (to
be determined); Publicity 200,000F tax excluded and honorary 600,000F tax excluded.

Work Required: Record the formation of the PLC in the journal.

CASE TWO: CONTRIBUTIONS IN CASH ARE PAID-UP IN FRACTIONS:

EXHIBIT 2.5:

A Public Limited Company (PLC) is created on the 1/01 with a capital of 45,000,000F
divided into 4,500 shares of 10,000F each. The contributions in kind included:

Building and construction land……………………………………6,000,000F

 Industrial and commercial equipment……………………………..7,000,000F

Office equipment and furniture……………………………………3,000,000F

Stock of goods..................................................................................9,000,000F

Customers………………………………………………………….4,000,000

The remaining amount of capital is subscribed in cash and paid-up at the legal minimum at the
th
subscription. The company is definitely created on the 5 Jan and on the same daythe notary paid
the amount received into the company's account at SGBC bank. The constitution expenses paid by
bank cheque were Registration expenses of 2% of the share capital, Honorary to notary 800,000F
before tax and Publicity expenses of 300,000 FCFA before tax.

Work Require:Record the formation entries in the journal and present the opening balance sheet

CASE THREE: CONTRIBUTIONS IN CASH ARE PAID-UP

WITH ANTICIPATED PAYMENTS;

In this case, the amount of anticipated payment is recorded in the credit of account 4616
(shareholders anticipated payment). This permits the debt to be followed up to its
extinction by debiting account 4616 in subsequent fractions called up thus:
EXHIBIT 2.6:
On the 3/06/2012, a public limited company was created with a capital of 50,000,000F
made of 5,000 shares of 10,000F each as follows:
Contribution in kind consisted of:
Commercial building………………..………………………..16,000,000F
Stock of raw materials…………………………………………3,000,000F
Suppliers' debt....………………………………………………4,000,000F
Cash contributions realized at the legal minimum. However, 600 shares were integrally paid-up.
The funds received were deposited at the bank on the same day. The formation expenses amounted
to 1,700,000F tax excluded and include: registration duty of 830,000F and Honorary to notary of
870,000F. The company decided to spread the expenses over 5 years.
 Task:
a. Determine the number of shares contributed in kind and in cash
b. Showing all justifying calculations, record the formation entries in the journal as well
as the depreciation of expenses on the 31/12/2014.
c. On the 4/05/2015, the 2nd quarter of the cash contribution was called- up and paid up
normally on 31/05/2015. Record the entries in the journal.
Solution
 Sundry calculation
Capital 50 000 000
Contribution in kind
Commercial Building 16 000 000
Raw material 3 000 000
Total 19 000 000
Less Supplier 4 000 000
Net 15 000 000
Contributions in cash 50 000 000 – 15 000 000 = 35 000 000
a) Determination of the number of shares in kind and
cash NV = 10 000
Number of kind shares
 Number of Cash shares

Called up capital 15000 000 + (1/4 x 8 750 000) = 23 750 000

Uncalled up capital 50 000 000 – 23 750 000 = 26 250 000
Anticipation¾ x 10 000 x 600 = 4 500 000

EXHIBIT 2.7

Consider Application 2.6 above and suppose that there were no anticipated
payments. On the call of the 2nd quarter on the 4/05/2015, shareholder ABA, a
holder of 200 shares could not pay on the 31/05/2015. On the 28/06/2015, he paid
the balance due and the company levied a delay interest on him calculated at the
rate of 18% per annum and also various expenses for an amount of 15,000F
Work Required: Record the entries on the appeal and realization of the 2 nd
quarter of capital.

CASE FIVE: A SHAREHOLDER IS DEFAULTING

A shareholder is said to be defaulting when he is unable to pay a fraction of the
contribution called up at the time limit and after some period of follow up and reminder of
his obligations. The company will redraw his shares and can later sell them to another
shareholder. In this case account 4617 is opened to record the sum due as well as the
follow up of the operation as thus;
EXHIBIT 2.8:
Consider the case of shareholder ABA above and suppose that despite the warning
addressed to him on the 4/06/2012, he could not still pay. He was declared
defaulting and his shares were sold on the 30/06/2012 at 4,500F each to
shareholder BETA. Thecompany charged sundry expenses of 25000F on him and
lateness interest of 24,000F. The balance of his account was calculated and paid
through a bank transfer on t he same day and his account was closed.
Work Required:
nd
1. Record the entries on the appeal and realization of the 2 quarter as well
as the defaulting of shareholder ABA.
2. Calculate the defaulting shareholder's result and analyse it.
EXHIBIT 2.9:
 All contributions in kind have to be realized at the creation of the company even if the
contributions in cash completing the share capital have to be realized by fractions.
Also, talking about contributions in kind, it must be précised that:
o The appearance of cash and bank items among the elements of assets and liabilities
presented as contributions in kind have to be treated as such. That is as
contributions in kind.
o The assets and liabilities elements contributed have to be recorded at their actual
value. Concerning the customers' item in particular, if the actual value defers
from the book value, it is taken over at the actual value but recorded at the book
value. The difference between the two values is considered as depreciation of
customers' account recorded in the credit of account 49… thus:
A PLC whose capital is fixed at 200,000,000F (10,000F nominal value); was
subscribed as follows: 1/5 in cash and the remainder in kind. The contributions in
cash were called up and paid-up according to the law at the subscription except
shareholder Udo who paid-up the nominal value of his 150 shares. The
contributions in kind represented the situation of assets and liabilities of Dinga
presented at the date of creation as follows:
Assets Amount Liabilities Amount
Patent Rights 20 000 000 Capital 150 000 000
Construction Land 60 000 000 Reserves 30 000 000
Administration and commercial 90 000 000 Long term Borrowers 20 000 000
Building
Stocks of goods 16 000 000 Suppliers 15 000 000
Customers 25 000 000
Bank 4 000 000
Total 215 000 000 Total 215 000 000
From the auditor's report; the followings were noted:
o Goodwill not figuring in the balance sheet,
o An over value on Construction land for 15,000,000F,
o A supplementary depreciation of building for 30,000,000F,
 o A provision for depreciation of stock of goods for 2,000,000F
o A provision of 40% on customers for non-recovery risk.
The formation expenses were: honorary and sundry expenses of 300,00 0F excluding
tax and registration duty of 1,530,000F
Work Required:
1. Record all the entries on the formation knowing that the funds received were
deposited at the bank where 50F excluding tax was retained per share as
commission. The other formation expenses were paid two days later through a
bank transfer.
2. At the inventory of 31/12/2013, the company decided to capitalize the
formation expenses and to depreciate them for 4 years. Present the
corresponding recordings.
3. On the 1/03/2014, the board of directors decided to call up the 2 nd and 3rd
quarters of contributions in cash simultaneously. The shareholders had one
month to realize their contributions. On 1/04/2014, all the payments were done
except Mr. Zebaze whose payment included the 4th quarter of his 80 shares
held and Mr. Banda who only paid the sum due 20 days after the time limit on
his 50 shares held. The company levied a delayed interest on him at the rate of
12% per annum and sundry expenses of 8000F. Record all the necessary
entries on this operation.
4. On the 1/10/2014, the fourth quarter was called up. All the shareholders
executed their rights within the time limit except Mr. Dankam, subscriber of
70 shares. His shares were finally sold for 8,500F each with selling expenses
of IOO F per share. A lateness interest of 12% per annum on 33 days was
charged to him and his account was closed on the same day by the issue of a
bank transfer for his balance. Record all the entries on the 4th quarter and
analyse the result of the defaulting shareholder
CONSOLIDATION EXERCISES

Exercise 1:
A PLC was created on the 1/07/2014 with a capital of 60,000,000F divided into2,400
shares of 25,000F each. Mr. Smith, one of the promoters of the company contributed
the balance sheet of his enterprise presented as follows:
 SMITH’S ENTERPRISE'S BALANCE SHEET
Assets Amount Liabilities Amount
Construction land 10,000,000 Share capital 10,000,000
Transport equipment 5,000,000 Legal reserve 3,000,000
Stock of goods 6,000,000 L.T debts 7,000,000
Customers 4,000,000 Suppliers 5,000,000
Total 25,000,000 Total 25,000,000
The remaining capital was to be contributed in cash and paid-up at the legal
minimum on subscription. The payments were made in the company's bank
account at BICEC. Registration fee of 2,000,000F was paid by cheque.
On the 1/10/2014, the board of directors decided to call up the 2nd quarter,
shareholders month to honour their engagements. On the 1/11/2014, all the
shareholders have paid-up their shares and Mr. TEGA, holder of 580 shares have
integrally paid-up his shares.
On 2/01/2015, the board of directors called up the 3rd quarter with
shareholders given a time limit of one month to pay up their shares. On the
2/02/2013 all the shareholders have paid-up their shares except Mr. KENAH,
holder of 200 shares. A summon was issued to him on the 3/02/2014 to no avail.
On the 2/03/2015 his shares were sold to Mr. BELONG at 18,000F each as

realization of the 3rd quarter. The defaulting shareholder was charged a lateness
interest and sundry fee of 62,000F. The balance of his account was paid on the
30/03/2014 by cheque.
The appeal of the 4thquarter was done on the 1/05/2015and all the shares
were duly paid-up on the 31/05/2015
Work Required:
1. Record all entries of formation, appeals and realization of the capital in the
journal (25mks)
2. Present the company’s balance sheet on the 3 1/12/2014 (5mks).