NOTES TO CHAP-SHARE CAPITAL

CLASS:XII SUBJECT:ACCOUNTANCY
1.Classification of share capital:
i. Authorised Share capital – maximum capital that a company can raise.
ii. Issued share capital – issued by company for subscription.
iii. Subscribed share capital – part of issued share capital that is subscribed by public.
iv. Called up amount – amount of nominal value called up for payment.
v. Paid up amount – amount received by company.
vi. Subscribed and fully paid up-amount issued by a company that is subscribed on which
the company has called
vii. Subscribed but not fully paid up-It is the amount that is subscribed by a company but
not received
2.Types of shares: Share: A share is one of the units into which the capital of the company
is divided. Types:
1.Sec 43 defines Preference Shares as i) that it carries a preferential right to dividend to be
paid either as a fixed amount or fixed rate , before dividend being paid on equity shares; ii)
on winding up , preferential right to repayment of capital before anything paid to equity
shareholders and
2. Equity Share: An equity share is a share which is not a preference share.
3.Issue of shares:
At par: When they are issued at a price equal to the face value.
At premium: When they are issued at a price higher than the face value.
▪ . Securities Premium Reserve [sec.52(2)]– Can be utilized for the following
purposes:
▪ Issuing fully paid bonus shares.
▪ Writing off preliminary expenses.
▪ Writing off expenses such as share issue expenses, commission, discount allowed etc.
▪ Providing for premium payable on redemption of debentures or Preference shares.
▪ In buying back its own shares
4. Minimum subscription: According to Sec. 39(1) it is the amount stated in the prospectus
as the minimum amount that must be subscribed. Generally 90% of issued capital is
minimum subscription. If the minimum amount is not subscribed and the sum payable on
application is not received within 30 days from the date of issue of the prospectus or such
other period as may be specified by SEBI, the amount so received shall be refunded within 15
days from the closure of the issue.
5. Private placement of shares- refers to issue and allotment of shares to a selected group of
persons.
6. Preliminary expenses: expenses incurred for incorporating the company such as
registration fee paid to the Registrar of companies, legal expenses, public issue expenses ,etc.
These expenses may be written off against securities premium reserve as permitted by sec.52
of the companies Act 2013 or to the statement of profit/loss in the year, they are incurred.
7.Issue of shares for consideration other than cash-When the company purchases some
assets or business, instead making the payment to the supplier in the form of cash, it issues its
fully paid shares, such issue of share is called as the issue of shares for consideration other
than cash. Such shares can be issued at par or at premium. This is shown in the Notes to
accounts on share capital under subscribed and fully paid in the Balance Sheet.

8.Differentiate between capital reserve and reserve capital - Reserve capital – a part of
subscribed share capital that a company resolves, by a special resolution, not to call, except in
the event and for the purpose of company being wound up.
9.Capital Reserve – it is a reserve created out of capital profits and is not free for distribution
as dividend.
10.Calls in arrears-(a).if opened then it is debited. This is shown in the Notes to accounts
on share capital to the Balance Sheet as a deduction from the amount of subscribed but not
fully paid up under subscribed share capital.
(b) if not opened then not disclosed in Balance Sheet also.
11.Calls in advance-it is credited. This is shown in the Balance Sheet under the head current
liabilities and sub head other current liabilities.
12.Forfeiture of shares-Cancelling the shares for non payment of calls due. This is shown in
the Notes to accounts on share capital to the Balance Sheet as an addition to the amount of
subscribed capital. For forfeiture of shares, treatment is different when premium is received
and when it is not received.
(a)Forfeiture in case of shares issued at premium originally-
↙ ↘
Premium received premium not received
No entry for securities premium in forfeiture premium is debited because it
was made due but not received
therefore share capital dr.
sec. prem.reserve dr.
To sh.allotment(amt including
prem amt)
(b) at which stage are the shares forfeited has to be considered for forfeiture entry because
share capital will be debited with amount called up only.
(c ) capital reserve will be calculated for only reissued shares
(d)in B/S when shares that are forfeited are not reissued they are shown as forfeited share
i.e. amount forfeited from the shareholder. This is added to subscribed and fully paid up
shares in the notes to accounts of Balance Sheet.

13.Maximum permissible discount on reissue of forfeited shares-it is the amount credited

to the forfeited shares.
This means reissue price cannot be less than the amount unpaid on forfeited shares.
14. Companies Act,2013 does not permit issue of irredeemable preference shares.
15.Sec.53 of the companies Act,2013 prohibits issue of shares at discount except when
sweat equity shares are issued and on re-issue of forfeited shares.
16.securities premium reserve is a capital receipt
17.If the question is silent it is assumed that the amount of the securities premium becomes
due along with the allotment money.
18.If the question is silent or state that excess application money received is to be adjusted
against allotment money due and excess application money is refunded otherwise if the q
specifies, excess amount is adjusted towards calls in advance also (if different categories are
given then calculate excess on calls category wise) and still if excess money is left it is
refunded.
19.If cash book entries are asked, all cash transactions are to be recorded in cash book, non
cash transactions in the journal.
20.Table F of the companies Act,2013 charges interest @10%p.a.on calls in arrears if
companies own articles are not there. And provides interest @12% p.a. on calls in advance.
21 No. of shares to be issued=purchase consideration
Issue price of a share
22.either goodwill or capital reserve is calculated when purchase of another business.
23 (a).1.Incorporation expenses A/c Dr.
To promoters A/c
(Being expenses incurred on incorporation of the companies)
2. promoters A/c Dr
To share capital A/c
( Being shares issued to promoters)
(b) Underwiters:
1.underwiter’s commission A/c Dr
To underwriter’s A/c
(Being underwriter’s commission made due)
2.underwriter’s commission A/c Dr
To share capital A/c
(Being shares issued to underwriters as their commission)

24. When all forfeited shares are not re-issued=

(total amt. forfeited X no.of shares reissued)— (amt.with which forfeited shares A/c was
No.of shares forfeited debited at the time of reissue of such
shares or reissue discount)
25.In pro rata allotment when shares are issued at a premium, excess application money
received is adjusted towards allotment money but it is first adjusted towards the share capital.
Any excess thereon, is adjusted towards the securities premium reserve.
26.ESOP-It is a category of sweat equity. Sweat equity is a wider term than ESOP.It means
options granted by the company to its employees and employee directors to subscribe the
shares at a price lower than the market price.
27.Amount on any call should not exceed 25% of face value
28. At least one month interval must be there between making of two calls.
29.Application money should be at least 5% of face value
30.share application A/c and share allotment A/c are personal accounts in nature
31 A minimum of 14 days notice is given to shareholders to pay amount of any call