Accounting

for
Share Capital
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Revenu ●
Expense
e s

Trading Profit &

A/c Loss A/c

Cash Flow
Balance
Statemen
t
Sheet

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Assets
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Liabilitie R P Rustagi 1
s Shri Ram College of commerce
 Share Capital
• Authorised Share Capital …???
• It may consist of two types :
• Equity Share Capital
• Preference Share Capital

• What is Pref. Share Capital……??????

• Preference Share Capital is that part of Authorised share

capital which has two preferences attached with it ( over
the other share capital) :
• Dividend payment before any dividend can be paid to Equity
shareholders.
• In case of Liquidation, the pref. shares are to be redeemed in
priority over the equity shares.
 ……some other terms
• Share :
– No. of shares
– Face Value or Par Value or Nominal Value
– Authorised Share Capital = No. of shares × FV
– Issue Price, Market Price
• Issue of Shares:
• Types:
• For consideration other than Cash
• Conversion of Debentures/Pref. Shares
• Issue of shares for Cash
• Price consideration at issue :
– IP = FV Issue of share at Par
– IP > FV Issue of share at Premium
– IP < FV Issue of share at Discount
• Response of the Public
– Over-Subscription
– Under- subscription
 …..some other terms
• The Issue Price can be called by the company in one
installment or more than one installments.
• In the latter case, different installments payable by the
shareholders are known as:
• Share Application Money,
• Share Allotment Money
• Share First Call Money,
• Share Final Call Money.
• Other types of Share Capital :
• Issued and Subscribed Share Capital,
• Called up Share Capital,
• Paid up Share Capital.
• Calls in Arrear
• Calls in Advance
 Over-Subscription & Calls in Advance
• In case of over-subscription, an investor applies for a specific number
of shares but he is allotted lesser number of shares(based on pro-rata
allotment or some other basis).
• His Application Money is more than required on the number of shares
allotted to him.
• The excess money paid by the investor, if stated in the Articles and the
Prospectus, can be retained, in full or in part, to be subsequently
adjusted towards the money due on allotment or calls.
• This excess money is kept in a separate A/c called ‘Calls in Advance
A/c’ till the respective money is called by the company. Interest at the
prescribed rate (Table A:6%) may also be paid by the company for this
period.
• ‘Calls in Advance A/C’ is shown between Share Capital And Reserves in
the Balance Sheet till the respective money is called by the company
and this excess money is transferred to that call.
 Issue of Shares at Premium
• In case , the shares are issued at a price more than the par value then the
extra amount received is transferred to a special account called Securities
Premium A/C.
• U/S 78 of the Companies Act, the amount standing to the credit of
Securities Premium Account can be used for the following purposes only:
– Issue of fully paid up bonus shares
– Writing off preliminary expenses
– Writing off discount on issue of shares or debentures
– Writing off premium payable on redemption of shares / debentures
– Writing off issue expenses
– Buy back of shares
• Premium money may be called in one or more installments.
• How Much Premium……??????
• NO LIMIT…………..
 Issue of Shares at Discount
• Issue of shares at discount is a situation when the issue
price of shares is less than the par value.
• Section 79 of the Companies Act governs the issue of
shares at discount which provides:
– Issue must be of a class of shares already issued
– At least one year must have elapsed when the company was
entitled to commence business
– The issue is authorised by a resolution passed at the AGM
– Rate of discount is 10% or less as allowed by the CLB
– Shares must be issued within two months of the CLB
permission
 Calls in Arrear
• Calls in Arrear is a case when the money called by the
company is not paid by the shareholder as and when due.
• This tantamounts to default (breach of contract) by the
shareholder.
• Amount of Calls in Arrear is shown separately in the
balance sheet by deducting from the Called up Capital.
Called up Capital
- Calls in Arrear
=Paid up Capital

• Defaulting shareholder can also subsequently pay the calls.

• Companies Act, 1956 provides that in case the calls in
arrear continues, the company, after passing a resolution at
the BOD, can forfeit the shares.
 Forfeiture of Shares
• Forfeiture of shares is a situation when the shareholder fails to make payment of
allotment money or one or more calls, and consequent to this, the name of the
shareholder is cancelled/deleted from the Register of Members by the company.
• The holder no longer remains the shareholder.
• All monies paid by the shareholder so far are forfeited by the company.
• The money paid so far towards the capital is transferred from Paid up Capital to
Share Forfeiture A/C.
• Money due /defaulted on these shares is cancelled in the forfeiture entry.
• Journal entry for recording the forfeiture is:

Share Capital A/c Dr. (Amt. of capital called up so far)

Security Premium A/c Dr. (Share Premium money due but not received)
To Share Forfeiture A/c (Money already received on capital)
To Share Allotment A/c (Money due and defaulted on allotment
To Share First Call A/c (Money due and defaulted on first call
To Share Final Call A/c (Money due and defaulted on final call)
 Reissue of Forfeited Shares
• The shares once forfeited are eligible to be reissued.
• In case the forfeited shares are reissued, then the discount at
the time of reissue must be less than equal to the amount
forfeited per share on Capital A/c from the old shareholder.
• Amount forfeited from old shareholder but not used as
discount on reissue is treated as capital profit and is transferred
from Share Forfeiture A/C to the Capital Reserve A/C.
• Remember……Any amount received as share premium and
credited to Securities Premium A/c neither be considered in
the forfeiture entry nor it be used at the time of reissue of the
forfeited shares.