SHARE CAPITAL

Ms. Anjali Prava Mishra

Asst. Prof in Finance
BIITM
 CONTENT

Unit-V. Accounting for Share Capital &

Debentures
Understanding Company Accounts Issue,
forfeiture and reissue of shares and debentures,
understanding company final accounts and
schedules.
 SHARE CAPITAL
CAPITAL is the amount of money put into the business or
the money invested by the owners and when the capital
is divided into different units of equal denominations,
then, each unit is called a SHARE.

Share capital of a company refers to that amount that a

company can raise by Issue of shares.

Share means a share in the share capital of a company

and includes stock (fully paid share).
CLASSIFICATION OF SHARE CAPITAL

Authorized Share Capital

Issued Share Capital
Subscribed Share Capital
Called-up Share Capital
Paid-up Share Capital
Reserve Share Capital
TWO SIMILAR YET DIFFERENT TERMS

BASIS RESERVE CAPITAL CAPITAL RESERVE

Meaning It is that part of uncalled capital It is that part of the reserves which is not free
which cannot be called-up except for distribution as dividend.
in the event of winding up.
Creation It is created out of uncalled capital. It is created out of capital profits.

Mandatory/ It is not mandatory to create It is mandatory to create capital reserve, in

Optional Reserve capital. case of capital profits earned by the company.
Usage Reserve capital can be used only at Capital reserve can be used anytime during
the time of winding up. the life of the company.

Writing of It cannot be used for writing off It can be used to write off capital losses.
Capital losses capital losses.
Disclosure It is not disclosed in the company’s It is disclosed in the company’s balance sheet
balance sheet. under the head “reserves and surplus” on the
liabilities side.
 CATEGORIES OF SHARES
AUTHORISED SHARE CAPITAL

ISSUED CAPITAL UNISSUED CAPITAL

SUBSCRIBED CAPITAL UNSUBSCRIBED CAPITAL

CALLED-UP CAPITAL UNCALLED CAPITAL

PAID –UP CALLS IN UNRESERVED RESERVED

CAPITAL ARREAR CAPITAL CAPITAL
 TYPES OF SHARES

SHARES

PREFERENCE EQUITY DEFERRED

CUMULATIVE NONCUMULATIVE

PARTICIPATING/ CONVERTIBLE/ REDEEMABLE/

NON-PARTICIPATING NON-CONVERTIBLE IRREDEEMABLE
 Types of preference share
1. On the basis of payment of Dividend
a. Cumulative Preference Share
b. Non- Cumulative Preference Share
2. On the basis of Convertibility
a. Convertible Preference Share
b. Non-Convertible Preference Share
3. On the basis of Redemption
a. Redeemable Preference Share
b. Irredeemable Preference Share
4. On the basis of Participation.
a. Participative Preference Share
b. Non- Participative Preference Share
Sl.No Name of the Terminology Core Concept
Issue price means the price at which shares are
1. Issue Price
issued.
Par Value means the Nominal or Face Value of a
2. Par Value
share.
3. Share Issued at Par When Share are issued at a price equal to face value.
When Share are issued at a price higher than a face
4. Share issued at Premium
value.
When share are issued at a price below than a face
5. Share issued at Discount
value.

6. Over Subscription A no. of shares applied is more than the share offered.

A no. of shares applied is more than the share

7. Under Subscription
offered.
Pro-rata allotment means allotment of les number of
8. Pro-rata Allotment shares to applicants for more number of shares on
proportionate basis.
The amount called up by the company which has not
9. Calls in Arrear yet been received from the share-holder till the last
date.
10.. Calls in Advance Uncalled of amount received in advance
 ISSUE OF SHARES

Step by Step Approach of Solving questions:

Step-1 :
(A) On receipt of application money

Bank A/c …………..Dr. (No. of application received X Due on Application)

To Share Application A/c (*same amount)
(Being ………………………………………………………………………………………….….)

(B) Transfer of Share Application Money to Share Capital A/c

Alternative – 1 (No of application received = No. of application offered)
Share Application A/c*…………..Dr.
To Share Capital A/c (Actual allotted share X Due on Application)
(Being ………………………………………………………………………………………….….)

Continued….Step-1
(B) Transfer of Share Application Money to Share Capital A/c
Alternative – 2 (Excess Application)
Share Application A/c* Dr.
To Share Capital A/c (Actual allotted share X Due on application)
To Bank (No. of rejected application X Due on application)
(Being ………………………………………………………………………………………….….)

(B) Transfer of Share Application Money to Share Capital A/c

Alternative – 3 (Excess application with pro-rata)
Share Application A/c * Dr.
To Share Capital A/c (Actual allotted share X Due on application)
To Share allotment A/c (allotted share X Excessive application money per share)
To Bank (No. of rejected application X Due on application)
(Being ………………………………………………………………………………………….….)

Note : If there is a still surplus after adjusting coming allotment dues, then the
surplus money can be adjusted with call money to the extent of the availability.
Step-2 : ALLOTMENT

(A) Due entry of Share allotment

Alternative-1 – AT PAR
Share Allotment A/c* Dr. (Allotted share X allotment money as per P.S.)
To Share Capital A/c *(same amount )
(Being ………………………………………………………………………………………….….)

Alternative-2 – AT PREMIUM
Share Allotment A/c * Dr. (No. of Allotted share X allotment money including premium per share)
To Share Capital A/c (Allotted share X allotment money as per P.S.)
To Securities Premium A/c (Allotted share X premium per share)
(Being ………………………………………………………………………………………….….)

Note : As per Section -3 of the Companies Act 2013, a company cannot issue the
shares at discount except issue of sweat equity share .

SWEAT EQUITY SHARE : “Sweat Equity Shares” means such equity shares as are
issued by a company to its directors or employees at a discount or for
consideration, other than cash, for providing their know-how etc.
Step-2 :
Alternative-2 AT DISCOUNT
Share Allotment A/c* Dr. (Allotted share X allotment money as per P.S.)
Discount on issue of Share A/c Dr. (Allotted share X Discount per share)
To Share Capital A/c *(same amount )
(Being ………………………………………………………………………………………….….)

(B) On receipt of allotment money

Alternative – 1 : If there is no defaulter at the stage of allotment
Bank A/c * Dr. (no. of share holder paid allotment X P.S. )
To Share Allotment A/c *
(Being ………………………………………………………………………………………….….)

Alternative – 2 : If there is defaulter at the stage of allotment

Bank A/c Dr. (no. of share holder paid allotment X P.S. )
Calls in Arrear A/c Dr. (no. of defaulted Shares X allotment money as per P.S.)
To Share Allotment A/c *(same amount as debited)
(Being ………………………………………………………………………………………….….)
Step-3 : FIRST CALL
(A) Due entry of Share first call
Share first call A/c* Dr. (No. of Allotted share X first call due as per P.S.)
To Share Capital A/c * (same amount)
(Being ………………………………………………………………………………………….….)
(B) Receipt of Share first call
Alternative-1 – If there is no defaulters
Bank A/c* Dr. (no. of share holder paid first call X P.S. )
To Share first call A/c *(same amount )
(Being ………………………………………………………………………………………….….)
Alternative-2 – If there is default in payment of call money
Bank A/c* Dr. (no. of share holder paid first call X P.S. )
Calls in arrear A/c Dr. (no. of defaulted Shares X first call money as per P.S.)
To Share first call A/c *(same amount)
(Being ………………………………………………………………………………………….….)
Alternative – 3 : If some shareholders paid the 2nd call money in advance at the time of
1st call
Bank A/c Dr. (no. of share holder paid first call X P.S. + calls in advance )
To Share 1st call A/c *(same amount as debited)
To Calls in advance A/c (no. of shares paid advance money toward next due money)
(Being ………………………………………………………………………………………….…)
Step-4 : SECOND CALL

(A) Due entry of Share second call

Share second call A/c* Dr. (No. of Allotted share X second call due as per P.S.)
To Share Capital A/c * (same amount)
(Being ………………………………………………………………………………………….….)

(B) Receipt of Share second call

Alternative-1 – If there is no defaulter
Bank A/c* Dr. (no. of share holder paid second call X P.S. )
To Share second call A/c *(same amount )
(Being ………………………………………………………………………………………….….)

Alternative-2 – If there is default in payment of call money

Bank A/c* Dr. (no. of share holder paid 2nd call X P.S. )
Calls in arrear A/c Dr. (no. of defaulted Shares X 2nd call money as per P.S.)
To Share second call A/c *(same amount)
(Being ………………………………………………………………………………………….….)

Alternative-3 – Adjustment of Call in Advance received at the time of 1st call

Bank A/c Dr. (no. of share holder paid 2nd call X P.S. )
Calls in advance A/c Dr. (no. of shares paid advance money toward next due money)
nd
To Share 2 call A/c *(same amount as debited)
(Being ………………………………………………………………………………………….….)
 Step-5 : Forfeiture of Share
Meaning : Forfeiture of Share means cancellation of share.
Share Capital A/c Dr. (No. of share forfeited X amount per share called up)
To Forfeited Share A/c (No. of forfeited share X amount received per share )
To Calls in arrear A/c (No. of forfeited share X un-paid amt. per share)
(Being ………………………………………………………………………………………….….)

Step-6 : Re-issue of forfeited Share

(A) Reissue of forfeited shares
Bank A/c Dr. (no. of shares reissued X re-issue price per share)
Forfeited Share A/c Dr. (with the amount not received at the time re-issue in order to
compensate, if required)
To Share Capital A/c (no. of share reissued X called up amount per share)
(Being ………………………………………………………………………………………….….)

(B) Transfer to Capital Reserves

Forfeited Share A/c Dr. (proportionate remaining balance of forfeited share a/c)
To Capital Reserve A/c (same amount as debited in forfeited share a/c)
(Being ………………………………………………………………………………………….….)
 CASE STUDY - 1

The Guardians Ltd. Issued 30,000 shares of

Rs.10 each, payable Rs.2 on application, Rs.3 on
allotment, Rs.3 on First call and the balance
Rs.2 on Second and Final call. The shares were
fully subscribed and all the amount due was
received.
Pass necessary Journal Entries.
 CASE STUDY-2

A company invited the public to subscribe for 1,00,000 Equity

Shares of Rs.10 each at a premium of Re 1. Per share payable on
allotment, Payments were to be made as follows:

On Application Rs.3; on allotment Rs.3; on first call Rs.3 and on

final call Rs.2.
Applications were received for Rs.1,30,000 shares; application for
20,000 shares were rejected and allotment was made
proportionately to the remaining applicants. Both the calls were
made and all the moneys were received except the final call on
3,000 shares which are forfeited after due notice. Later all these
shares were issued as fully paid at Rs.8.50 per share.
Pass necessary Journal Entries.
 CASE STUDY-2 : SOLUTION
JOURNAL ENTRIES
Rs. Rs.
Bank A/c Dr. 3,90,000
To Equity Share Application A/c 3,90,000
(Being money received for 1,30,000 shares @Rs.3 per share)
Equity Share Application A/c Dr. 3,90,000
To Equity Share Capital A/c 3,00,000
To Bank A/c 60,000
To Share Allotment A/c 30,000
(Application money of 1,00,000 shares transferred to Share Capital A/c and
balance returned to applicants and used for share allotment A/c)
Equity Share Allotment A/c Dr. 3,00,000
To Equity Share Capital A/c . 2,00,000
To Securities Premium Reserve A/c 1,00,000
(Allotment money due on 1,00,000 shares)
Bank A/c Dr. 2,70,000
To Equity Share Allotment A/c 2,70,000
(Receipt of amount due on allotment)
Equity Share First Call A/c Dr. 3,00,000
To Equity Share Capital A/c 3,00,000
(Amount of first call due)

P.T.O
 CASE STUDY-2 : SOLUTION
Rs. Rs.
Bank A/c Dr. 3,00,000
To Equity Share First Call A/c 3,00,000
(Receipt of amount due on first call)
Equity Share Second & Final Call A/c Dr. 2,00,000
To Equity Share Capital A/c 2,00,000
(Amount due on 2nd and Final Call)
Bank A/c Dr. 1,94,000
To Equity Share 2nd & Final Call A/c . 1,94,000
(Receipt of amount due on 2nd & Final Call except on 3,000 shares)
Equity Share Capital A/c Dr. 30,000
To Equity Share 2nd & Final Call A/c 6,000
To Shares Forfeited A/c 24,000
(Forfeited 300 shares for non-payment of 2nd & Final Call)
Bank A/c (3,000 X Rs.8.50) Dr. 25,500
Shares Forfeited A/c (3,000 X Rs.1.50) Dr. 4,500
To Equity Share Capital A/c 30,000
(Reissue of 3,000 shares @ Rs.8.50 per share)
Shares Forfeited A/c (1) Dr. 19,500
To Capital Reserve A/c . 19,500
(Being profit on Shares Forfeited transferred to Capital Reserve A/c)
 CASE STUDY-2 : SOLUTION
JOURNAL ENTRIES
Date Particulars Debit (Rs.) Credit (Rs.)
Bank A/c DR. 60,000
To Share Application A/c 60,000
(Being…………………….)
Share Application A/c DR. 60,000
To Share Capital A/c 60,000
(Being……………………)
Share Allotment A/c DR. 90,000
To Share Capital A/c 90,000
(Being…………………..)
Bank A/c DR. 90,000
To Share Capital A/c 90,000
(Being………………….)
Share First Call A/c DR. 90,000
To Share Capital A/c 90,000
(Being………………….)
Bank A/c DR. 90,000
To Share First Call A/c 90,000
(Being………………….)
Share 2nd Call & Final Call A/c DR. 60,000
To Share Capital A/c 60,000
(Being………………….)
Bank A/c DR. 60,000
To Share 2nd & Final Call A/c 60,000
(Being………………….)
 CASE STUDY - 3
B. Ltd issued a prospectus inviting applications for 20,000
shares of Rs.10 each at a premium of Rs.2 per share
payable as follows:
On Application Rs.2; on Allotment Rs.5 (including
premium), On First Call Rs.3, on Second and Final Call Rs.2.
Applications were received for 30,000 shares and prorata
allotment was made on the applications for 24,000 shares.
It was decided to utilize excess application money towards
the amount due on allotment. Ramesh to whom 400
shares were allotted failed to pay the allotment money.
Calculate the amount due but not received on allotment
from Ramesh and Calculate Allotment Money received
later on.
 CASE STUDY-3 : SOLUTION

1. Total No. of Shares applied by Ramesh = (400 X 24,000 / 20,000)=480

2. Calculation of the amount due but not received on allotment from Ramesh
(Rs.)
A. Application Money received on shares applied (480 X Rs.2) 960
B. Less: Application Money due on shares allotted (400 X Rs.2) 800
C. Excess Application Money [A – B] 160
D. Allotment Money due on shares allotted (400 X Rs.5) 2,000
E. Allotment Money due but not received (Rs.2,000 – Rs.160) 1,840

3. Calculation of Allotment Money received later on

A. Total Allotment Money due (20,000 X Rs.5) 1,00,000
B. Less: Allotment Money Already received on application stage (4,000 X Rs.2) (8,000)
C. Less: Allotment Money not received [as per Note 2] (1,840)
90,160
CASE STUDY-4.
 Particulars Note No. Amount (Rs.)
EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital
I. Authorised Capital
20000 Equity Share @ Rs.10 each 2,00,000
II. Issued Capital
20000 Equity Share @ Rs.10 each 2,00,000
III. Subscribed Capital
Subscribed and Fully paid-up
19200 Equity Share @ Rs.10 each 1,92,000
Subscribed and not Fully paid-up
800 Equity Share @ Rs.10 each 8,000
(-) Calls-in-arrears (800*2) 1,600 6,400
(b) Reserve and Surplus
Securities premium Reserve
Capital Reserve
2. Current Liabilities
Calls-in-Advance
Total: 1,98,400
ASSETS
1. Current Assets
1,98,400
Bank/ Cash and Cash Equivalent
1,98,400
Total: