In the complex universe of financial accounting, an accurate reflection of the financial position of a company is critical to decision-makers. Out of the several aspects of corporate finance, share capital, tax accounting, and asset revaluation form the cornerstone of financial reporting as well as strategic decision-making. This blog discusses these three key aspects in depth, enumerating their significance, treatments in accounting, and their implication for stakeholders.

Understanding Share Capital

What is Share Capital?

Share capital refers to the capital that a company raises by offering its shares to the public. It is a key component of shareholders' equity in the balance sheet and reflects the ownership interest of the shareholders in a corporation.

There are normally two types of share capital:

Authorised Share Capital: The sum of money a company is allowed by its board of directors to raise through the issue of shares, as indicated in its corporate charter.

Issued Share Capital: That portion of the authorised capital which has been sold and purchased by shareholders.

Types of Shares

1. Ordinary Shares (Common Stock):
2. Grant voting rights
3. Shareholders are entitled to dividends as a percentage of the company's profits
4. Preference Shares:
5. Fixed dividends
6. No or limited voting rights
7. Preferential rights in respect of the equity shares in case of liquidation

Accounting for Share Capital

Accounting treatment for shares when they are issued is:

1. Debit: Bank (for cash received)
2. Credit: Share Capital Account (par value)
3. Credit: Share Premium Account (if any amount is in excess of par value)

For example, assume 10,000 shares issued at ₹15 per share with a par value of ₹10:

1. ₹1,00,000 is credited to Share Capital
2. ₹50,000 is credited to Share Premium

Tax Accounting: An Overview

Significance of Tax Accounting

Calculating tax payments and filing tax returns is part of tax accounting. It minimises legally required tax payments and permits tax compliance with local tax rules. Tax accounting is governed by regulations established by tax authorities, whereas financial accounting is structured by general accounting principles.

Major Areas of Tax Accounting

1. Deferred Tax Assets and Liabilities

Deferred Tax Asset (DTA): When a company pays more tax than it has recorded in its accounts.

Deferred Tax Liability (DTL): When a company pays less tax than it has recorded, due to timing differences between accounting income and taxable income.

2. Temporary vs. Permanent Differences

Temporary Differences give rise to DTA or DTL that reverse after some period of time.

Permanent Differences never reverse, e.g., fines or penalties that are not deductible for tax.

Tax Accounting Entries

For example, if accounting depreciation expense is ₹50,000 but tax depreciation expense is ₹70,000, the firm would have a DTA since taxable income is smaller.

1. Journal Entry:
2. Debit: Deferred Tax Asset
3. Credit: Income Tax Expense

This makes tax expense reported in financial statements reflect the true economic reality.

Asset Revaluation in Accounting

What is Asset Revaluation

Asset revaluation is the process of valuing an asset on the books to its present market value. It is applied to fixed assets such as land, buildings, and equipment, especially where market values are fluctuating considerably over time.

Reasons for Asset Revaluation

1. Reflect the fair market value
2. Prepare for mergers or acquisitions
3. Comply with accounting standards (e.g., AASB 116, IFRS)
4. Improve borrowing capacity by expanding the asset base

Revaluation Process and Journal Entries

When an asset is revalued upwards:

1. Journal Entry
2. Debit: Asset Account (e.g., Land or Building)
3. Credit: Revaluation Surplus (equity)
4. When an asset is revalued downwards and there is no previous revaluation surplus:
5. Journal Entry:
6. Debit: Revaluation Loss (Income Statement)
7. Credit: Asset Account

When there was a previous upward revaluation, the downward revaluation reduces the surplus first before it affects profit.

Implications of Revaluation

1. Affects depreciation expense (based on new value)
2. Impacts financial ratios (e.g., Return on Assets)
3. It can affect investor attitude and market value

Interdependence Between Share Capital, Tax, and Asset Revaluation

Share Capital and Taxation

Equity raising by shares does not directly affect taxable income, but:

Dividends distributed are not tax-deductible for the company

Shareholders may be taxed on dividends (Dividend Distribution Tax or private income tax)

Besides, the issue at a premium increases the capital base, strengthening equity ratios without incurring any tax.

Tax and Asset Revaluation

Revaluation will have a deferred tax impact. When revaluation increases asset value, the taxable amount in future (due to depreciation or sale) is also increased.

Deferred Tax Liability Example:

Asset revalued upward by ₹100,000

Tax rate = 30%

DTL = ₹30,000 (showing future tax payable)

Share Capital and Asset Revaluation

Even though not related directly, both contribute towards making the balance sheet stronger:

Higher share capital makes the company financially stable

Revalued assets increase the asset base and equity

Together, they can add confidence to investors and borrowing ability.

Accounting Issues with These Factors

Share Capital

Difficulty of rights relating to different classes of shares

Companies Act and stock exchange regulations compliance

Tax Accounting

1. Ongoing changes in tax laws
2. Temporary v. permanent differences separation
3. Tax risk management and accuracy assurance

Asset Revaluation

1. Objectively establishing fair market value
2. Higher valuations may be costly
3. Manipulation or overstatement risk

Best Accounting and Financial Manager Practices

1. Offer a share capital structure transparency and issue
2. Stay current with tax legislation and accounting principles
3. Value assets on a regular basis and record assumptions

Make use of professionals for fair value estimates and tax planning

Be audit-ready through good documentation and disclosures

Conclusion

Share capital, taxation accounting, and revaluation of assets are essential pillars of financial reporting and management. They are all significant in the representation of a firm's financial status, regulatory compliance, and sound decision-making. Even though all of these subjects are distinct, they are all connected in determining a firm's balance sheet and influencing strategic choices such as investment, finance, and growth.

To ensure financial integrity and please shareholders, businesses must adopt comprehensive accounting methods that blend equity structure, tax obligations, and accurate asset reflection. As financial spheres keep changing, thorough learning and adjustment in such spheres are the keys to long-term business success.

References

1. Australian Accounting Standards Board (AASB). (2024). AASB 116 – Property, Plant and Equipment.
2. Australian Taxation Office (ATO). (2025). Income Tax Assessment Guidelines.
3. International Financial Reporting Standards (IFRS). (2023). IAS 12 – Income Taxes and IAS 16 – Property, Plant and Equipment.
4. Gibson, C. H. (2019). Financial Reporting & Analysis. Cengage Learning.
5. Horngren, C., Sundem, G., & Elliott, J. (2016). Introduction to Financial Accounting. Pearson.