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Meaning and Definition of "Effective Capital" as per Schedule V of the Companies Act 2013

Meaning of EFFECTIVE CAPITAL is provided in the Explanation I in the Section IV of Part II of the Schedule V of the Companies Act, 2013, which is as follows.

Effective capital means the aggregate of the paid-up share capital (excluding share application money or advances against shares); amount, if any, for the time being standing to the credit of share premium account; reserves and surplus (excluding revaluation reserve); long-term loans and deposits repayable after one year (excluding working capital loans, over drafts, interest due on loans unless funded, bank guarantee, etc., and other short-term arrangements) as reduced by the aggregate of any investments (except in case of investment by an investment company whose principal business is acquisition of shares, stock, debentures or other securities), accumulated losses and preliminary expenses not written off.

Effective Capital - Calculation table



Sl. No.
Particulars
Amount (Rs.)
1.
Paid-up share capital
(excluding share application money or advances against shares)
1000
2.
Share premium account
10
3.
Reserves and surplus
(excluding revaluation reserve)
50
4.
Long-term loans and deposits repayable after one year
(excluding working capital loans, over drafts, interest due on loans unless funded, bank guarantee, etc., and other short-term arrangements)
30
A
Sub-total (1+2+3+4)
1090



5.
Investments
(except in case of investment by an investment company whose principal business is acquisition of shares, stock, debentures or other securities)
70
6.
Accumulated losses
0
7.
Preliminary expenses not written off
20
B
Sub-total (5+6+7)
90




Effective Capital
(A-B)
1000

Figures mentioned are assumed for an example.
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