Private company -advance received from promoter towards share capital

Jayachandran (Querist) 18 December 2015 This query is : Resolved
My company is a fully owned State Government Undertaking wherein 70% of Share Capital is held bythe State Government and balance 30% by two State Government owned PSUS. The status of the company is 'private' and it cannot invite share capital from the public. Authorised Share Capital- Rs.20 Crore, Issued- Rs.18 Crore.

The company had received an amount of Rs.40 Crore from the State Government by way of budget allocation during 2014-15 as additional share capital. Pending steps to raise the authorised capital of the company to Rs.60 Crore, the above sum of Rs.40 Crore is shown as 'advance share capital' in the balance sheet for 2014-15. The auditor opines that the amount of Rs.40 Crore is application money and should be classified under 'current liabilities' in the balance sheet as per Schedule 3 of Companies Act 2013. Is the auditor's view correct considering the private status of our company and there being no liability to refund the share capital advance received from State Government otherwise than by way of shares which is held up due to the delay in raising authorised share capital to Rs.60 Crores?

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Guest (Expert) 21 December 2015
Obviously it has to be treated as advance. Till legally valid transactions are completed and amount capitalized.

Advocate. Arunagiri (Expert) 21 December 2015
You have not mentioned about the MOU between the investor and company?

If the money is received for the purpose of issuing shares, till the allotment of shares it has to be treated as Application Money.It is not a current liability.