Capital can be contributed either by bringing in an asset or taking over a liability.
Capital being a non-current liability, the asset brought in or the liability taken over towards contribution of capital should be of a current nature so as to form a cross transaction bringing about a change in working capital.
| Recording | Dr. Cash/Bank/Current (Asset/Liability) a/c
Cr. Capital a/c | Current
Non-Current |
|---|
If the asset brought in is a non current Asset, or if the liability taken over is a non-current Liability, the transaction would not amount to a cross transaction and as such there would be no change in working capital on account of this transaction.
| Recording | Dr. Machinery/Debentures (Asset/Liability) a/c
Cr. Capital a/c | Non-Current
Non-Current |
|---|
