Generally ‘capital’ means a particular amount of money used in business for

the purpose of earning revenue. Share capital is that part of the capital of
a company which is represented by the total nominal value of the share
which it has issued. In the context of the company law this term is used in
the following different senses:-
1. Nominal or authorised capital- it means the face value of the shares
which a company is authorised to issue by its memorandum.
2. Issued capital- it is that part of authorised capital which is issued to the
public for a subscription and allotment.
3. Subscribed capital- it is that part of the issued capital which has been
subscribed by the public.
4. Called up capital- it is that part of the subscribed capital which the
directors have called up in order to carry on the business of company.
5. Paid up capital- it is that part of the called up capital which is actually
received in cash by the company.
6. Un called capital- it is that part of the subscribed capital which has
not yet been called up by the directors. The difference between the
subscribed capital and called up capital is represented by the un
called capital.
7. Reserved capital- a limited company may by special resolution
determine that any portion of its share capital which has not been
already called up shall not be capable of being called up, except in
the event and for the purpose of the company being wound up. This
un called portion of the share capital is called reserved capital.

Share
A share is an expression of proprietary relationship between a share
holder and the company. But, a share in the company is a legal entity
distinct from the assets it represents.
The share of a company can be of two classes:-
1. Preference shares- preference shares are those which satisfy the
following two condition;
a) as regards dividends, it must carry a preferential right to a fixed
amount.
b) as regards capital, in the event of winding up, there must be a
preferential right to be rapid for the amount of capital paid up on such
shares.
Preference shares can be subdivided in different classes:
i. Cumulative and non-cumulative preference
ii. Redeemable and non-redeemable preference share
iii. Participating and non-participating preference share

2. Equity share- equity shares are those, which are not preference share.
Every company must have some equity shares. Equity is the risk capital of
a business. Equity shareholders have both higher expected returns and
higher expected risk than preference shares.
 PAR PREMIUM DISCOUNT
1.When application money 1.When application money 1.When application money
received:- received:- received:-
Bank account... Dr. Bank account... Dr. Bank account... Dr.
To share application To equity share To equity share
money equity application money application money

2. When shares are 2. When shares are 2. When shares are

allotted:- allotted:- allotted:-
Equity share application Equity share application Equity share application
money....Dr. money...Dr. money....Dr.
To equity share capital To equity share capital To equity share capital

3.When allotment money 3. When allotment money 3. When allotment money

due:- due:- due:-
Equity share allotment Equity share allotment Equity share allotment
money account....Dr. account...Dr. account...Dr.
To equity share capital To equity share capital (discount on issue of share)
To share premium to equity share capital
 PAR PREMIUM DISCOUNT
4. When allotment 4. When allotment 4. When allotment
money received:- money received:- money received:-
Bank account....Dr. Bank account...Dr. Bank account...Dr.
To equity share To equity share To equity share
allotment allotment allotment

5. When first call money 5. When first call money 5. When first call money
due:- due:- due:-
Equity share first call Equity share first call Equity share first call
money account...Dr. money account...Dr. money account...Dr.
To equity share capital To equity share capital To equity share capital

6. When the first call 6. When the first call 6. When the first call
money received:- money received:- money received:-
Bank account...Dr. Bank account...Dr. Bank account...Dr.
To equity share first call To equity share first call To equity share first call

7. When the second call 7. When the second call 7. When the second call
money due:- money due:- money due:-
Equity share second call Equity share second call Equity share second call
money account....Dr. money account....Dr. money account....Dr.
To equity share capital To equity share capital To equity share capital
 PAR PREMIUM DISCOUNT
8. When the second call 8. When the second call 8. When the second call
money is received:- money is received:- money is received:-
Bank account...Dr. Bank account...Dr. Bank account...Dr.
To equity share second To equity share second To equity share second
call money call money call money

 For rejected application

share application account Dr
to bank account
 For pro-rata allotment
share application account Dr
to share allotment account
The term forfeit actually means taking away of property on
breach of conditions . It is very common that one or more share
holders fail to pay their allotment on due dates . Forfeiture of
share is the action taken by a company to cancel the shares.
• Find the number of shares to be forfeited.
• Find the amount called on each share.
• Calculate the amount of share capital to be cancelled.
• If the shares are issued at discount, the discount amount on
forfeited shares is to be cancelled.
• Find the amount due on each call.
• Find the amount of the share forfeiture which is equal to the
amount paid by the share holder.
Journal entries:-
1. Forfeiture of shares issued at par:
share capital account Dr
to share allotment account
to share first call account
to share final call account
to forfeited shares account
2. Forfeited shares issued at a discount
share capital account Dr
To share allotment account
to share first call account
to share final call account
to forfeited share account
to discount on issue of share account
3.Forfeiture of shares which are issued at premium
In this case , share capital account will be debited with the called
up value of shares forfeited. if the premium on such shares has
not been paid by the share holders , the securities premium
account will be debited to cancel it.

Re- issue of shares

 Find the number of shares to be re- issued.
 Find at what price the shares are to be issued.
 If the shares are issued at a discount, re- issue must be at a
discount.
 If the shares previously issued at premium, it may not be issued
at premium.
 If there is a partial re- issue of shares, calculate the
proportionate amount of share forfeiture amount.
 Adjust the proportionate amount of share forfeiture from the
loss at the time of re- issue of shares.
 If any balance left on proportionate amount share forfeiture
after adjusting the loss on re- issue, transfer to capital reserve
account.

ACCONTING ENTRIES
 Bank account Dr
forfeited share account Dr
to share capital account
 Forfeited share account Dr
to capital reserve account
The issue of debenture
When a company borrows money from investing people, it
issues certificates which is stamped with the official
seal of the company. These certificated are called
‘debenture’.
Debenture is the most common form of loan capital which
is made available by investors on a long term basis. It is
a document containing details of an interest bearing
loan made to a company.
1. SECURITY:
 secured debentures: these debentures is secured by a charge
upon some or all assets of the company. these are of two types,
: fixed charge and floating charge.
 Unsecured debentures: these debentures are not secured by any
charge upon any assets. A company merely promises to pay
interest on due dates and to repay the amount due on maturity
date.

2.CONVERTIBILITY:
 Convertible debentures: these are the debentures which will be
converted into equity shares, after a certain periods of time
from the date of its issue.
 Non-convertible debentures: these are the debentures which
cannot be converted into shares in future .
 Redeemable debentures: these debentures are repayable as
per the term of issue.
 Irredeemable debentures: these debentures are not repayable
during the life time of the company , these are also called
perpetual debentures.
4.NEGOTIABILITY:
 Resisted debentures: these debentures are payable to a to a
registered holder whose name, address and particulars of
holding recorded in the resister of debenture holders.
 Bearer debenture: these debenture are transferable by
delivery. These are negotiable instrument payable to the
bearer. No kind of record is kept by the company in respect
to the holders of such debentures.
 First mortgage: these debentures are payable first out
of the property charged.
 Second mortgage: these debentures are payable after
satisfying first mortgage debenture.

The issuer company shall redeem the debentures as per the offered
document.
Recording the issue of debentures
Just like shares money payable on debentures may be paid either in
full with application or by instalments. Accounting entries will differ
to some extent in either case.
Debenture issued at Par
The debentures which are issued at par are issued at the same price as
their nominal value; that is, if a debenture with a nominal value of
Rs.100 is issued at par, the company receives Rs.100.
The accounting entries would be as follows:
a) When cash is received
Bank account....Dr.
To debenture application account
b) When excess money is refunded
Debentures application account....Dr.
To bank account
c) When the debentures are allotted
Debentures application account....Dr.
To debenture account
Debenture issued at premium
A company issues debenture at a premium when the
market rate of interest is lower than the debenture
interest rate.
The account entries would be as follows:
a) When cash is received
Bank account...Dr.
To debenture application account
b) When excess money is refunded
Debenture application account....Dr.
To bank account
c) When the debentures are allotted
Debenture application account...Dr.
To debenture account
To debenture premium account
d) When debenture premium is transferred
Debenture premium account...Dr.
To capital reserve account
Debenture issued at a discount
The company issues debenture at a discount when the
market rate of interest is higher than the debenture
interest rate.
The accounting entries would be as follows:
a) When cash is received
Bank account...Dr.
To debenture application account
b) When excess money is refunded
Debenture application account....Dr.
To bank account
c) When the debentures are allotted
Debenture application account...Dr.
Discount on issue of debenture account....Dr.
To debenture account
 When debentures are issued at par and redeemable at par
1. Bank account Dr
To debenture application account
2. Debenture application account Dr
to debenture account

 When debentures are issued at discount and redeemable at par

1. bank account Dr
To debenture application account
2. Debenture application account Dr
Discount on issue of debenture account Dr
to debenture account
 bank account Dr
to debenture application account
 Debenture application account Dr
to debenture account
to debenture premium account
WHEN DEBENTURES ARE ISSUED AT
PAR BUT REDEEMABLE AT PREMIUM
bank account Dr
to debenture application account
 Debenture application account Dr
to debenture account
Loss on issue of debenture account Dr
to redemption on debenture account
 Bank account Dr
to debenture application account
 Debentures application account Dr
discount on issue of debenture account Dr
to debenture account
 Loss on issue debenture account Dr
to premium on redemption of debenture account
WHEN DEBENTURES ARE ISSUED AT A
PREMIUM AND REDEEMABLE AT
PREMIUM
 Bank account Dr
to debenture application account
 Debenture application account Dr
to debenture account
to debenture premium account
According to B.G Wickery, it is a fund created by a charge against
or an appropriation of profit and represented by a specific
investment, which is brought into existence for a special purpose ,
such as replacement of an asset at the expiration of its life on the
redemption of debentures
No sinking fund
When no sinking fund is created where the amount of debentures
to be redeemed in small.
The debentures may be redeemed:
1.By payment in a lump sum at the end of a specific period
2 . By payment in annual installments
3.By purchase in the open market