ACCOUNTING

FOR SHARE
CAPITAL
Prasanth Venpakakl
ACCOUNTING FOR SHARE CAPITAL

A company means a company incorporated or

registered under the Companies Act, 2013. A
Company is an artificial person having or seperate
legal entity distinct from its members and has a
common seal used for its signature. A company
usually raises its capital in the form of shares and
debentures.
Features Of A Company

Features Of A
Company

Body Separate Perpetual Transferab

Limited Commo
Corpor Legal Successi ility of
Liability n Seal
ate Entity on Shares
A Shares
Formed Official
It is Liability company of public
on the signature
seperate of can be ltd.
basis of will be
from its sharehol terminat company
a its
members der is ed only can
seperate common
. limited. through transfer,
Law. seal.
law.
 Kinds Of A Company

Kinds Of A Company

Unlimite
Companies Companies d Public Private
Limited by Limited by Compani Company Company
Share Guarantee es
The liability There is It is not a
The liability Company
of its
of its
no limit private which has a
members is on the company,
members minimum
Limited to liability and has paid
the extent Is limited to minimum
the amount of its capital of Up capital of
of the
they Members Rs. 5 lakh Rs. 1 lakh
nominal
value of contribute
shares
Share Capital Of A Company
Authorised Capital: It is authorised to issue by company's memorandum of association.

Issued Capital: Part of the authorized capital which is actually issued to the public for subscription

Subscribed Capital: Part of the issued capital which has been actually subscribed by the public.

Calledup Capital: It is that part of the subscribed capital which has been called up on the shares.

Paid-up Capital: It is that portion of the called up capital which has been actually received from the
shareholders.

Uncalled Capital: That portion of the subscribed capital which has not been called -up.
 Example Question

Gopal Ltd. was registered with an authorised capital of ₹ 50,00,000 divided into
Equity Shares of ₹ 100 each . The company offered for public subscription all the
shares . Public applied for 45,000 shares and allotment was made to all the
applicants. All the calls were made and were duly received except the final call of ₹
20 per share on 500 shares.

Prepare the Balance Sheet of the company showing the different types of share
capital.
Solution
Solution
 Types of Shares

Types of Preferenc Equity

Shares e Shares Shares
Issue of Shares

Issue of Prospectus Receipt of Applications Allotment of Shares

The allotment of
Company recieves
Prospectus is an shareswill start
an application along
invitation to the after fulfilling
with the application
public certain other legal
money
formalities

Letters of allotment
It contains
Deposit the same are sent to those
complete with a scheduled whom the
information about bank shares have been
the company
alloted
 On Application
On opening account in scheduled (Application money on _____ Shares
bank allotted/transferred to Share Capital)

Bank A/c Dr. For Money refunded on rejected

application
To Share Application A/c
Share Application A/c Dr.
(Amount received on application for —
shares @ Rs. ______ per share) To Bank A/c

For Transfer of Application Money (Application money returned on rejected

application for ___shares)
Share Application A/c Dr.
To Share Capital A/c
 On Allotment
For Amount Due on Allotment Rs__per shares adjusted to the amount
due on allotment).
Share Allotment A/c Dr.
For Receipt of Allotment Money
To Share Capital A/c
Bank A/c Dr.
For Adjustment of Excess
Application Money To Share Allotment A/c

Share Application A/c Dr. (Allotment money received on

___Shares @ Rs. — per share
To Share Allotment A/c Combined Account)
(Application Money on __Shares @
On Receipt of Call Money

For Call Amount Due For Receipt of Call

Amount
Share Call A/c Dr.
Bank A/c Dr.
To Share Capital A/c
To Share Call A/c
(Call money due on
___Shares @ Rs. ____ (Call money received)
per share)
 Illustration - 1

X Ltd. invited application for 10,000 shares of the value of

Rs. 10 each. The amount is payable as Rs. 2 on application
and Rs. 5 on allotment and balance on First and Final Call.
The whole of the above issue was applied and cash duly
received. Give Journal entries for the above transaction.
 Solution - 1

Bank A/c Dr. 20,000

To share application A/c 20,000

(Being the application money received on 10,000

shares at Rs. Per share)
 Solution - 1

Share Application A/cv Dr. 20,000

To Share Capital A/c 20,000

(Being the transfer of application money on

10,000 shares to share capital account).
 Solution - 1

Share Allotment A/c Dr. 50,000

To Share Capital A/c 50,000

(Being the amount due on 10,000 shares at Rs. 5 per

Share)
 Solution - 1

Bank A/c Dr. 50,000

To Share Allotment A/c 50,000

(Being the receipt of Rs. 5 on 10,000 Shares)

 Solution - 1

Shares first & final Call A/c Dr. 30,000

To Share Capital A/c 30,000

(Being the amount due on 10,000 Shares at Rs. 3 per

share)
 Solution - 1

Bank A/c Dr. 30,000

To Share first & final all A/c 30,000

(Being the receipt of Rs. 3 on 10,000 shares)

 Calls In Arrears
When the shareholder fails to As per Table A 5% interest is applicable
pay the amount due on allotment on calls in arear.
or on any of the calls, such Bank A/c Dr.
amount is known as ‘Calls-in- To Calls-in-Arrears A/c
Arrears’/‘Unpaid Calls’. To Interest A/c
Calls in Arrears A/c Dr. (Calls-in-arrears received with interest)
To Share First Call Account A/c
To Share Second and Final Call
Account A/c
(Calls in arrears brought into account)
 Illustration - 2

Cronic Limited issued 10,000 equity shares of Rs. 10 each payable

at Rs. 2.50 on application, Rs. 3 on allotment, Rs. 2 on first call,
and the balance of Rs. 2.50 on second and final call. All the shares
were fully subscribed and paid except of a shareholder having 100
shares who could not pay for second and final call. Give journal
entries to record these transactions.
Solution - 2
Solution - 2
 Calls In Advance
The amount received in advance from rate not exceeding 6% should be provided.
shareholders is a liability of the company and 1. For Payment of Interest
should be credited to ‘Call-in-Advance Account. Interest on Calls in Advance A/c Dr.
Bank A/c Dr. To Bank A/c
To Calls-in-Advance A/c (Interest paid on Calls-in-Advance)
(Amount received on call-in-advance) 2. For Interest due
Calls-in-Advance A/c Dr. Interest on Calls-in-Advance A/c Dr.
To Particular Call A/c To Sundry Shareholder’s A/c
(Calls-in-advance adjusted with the call money (Interest paid on Calls-in-Advance)
due)
As per Table A for interest on calls in advance at a
 Illustration - 3
Konica Limited registered with an authorised equity capital of Rs. 2,00,000 divided
into 2,000 shares of Rs. 100 each, issued for subscription of 1,000 shares payable at
Rs. 25 per share on application, Rs. 30 per share on allotment, Rs. 20 per share on first
call and the balance as and when required. Application money on 1,000 shares was
duly received and allotment was made to them. The allotment amount was received in
full, but when the first call was made, one shareholder failed to pay the amount on 100
shares held by him and another shareholder with 50 shares, paid the entire amount on
his shares. The company did not make any other call. Give the necessary journal
entries in the books of the company to record these share capital transactions.
Solution - 3
Solution - 3
Over Subscription
Prasanth Venpakakl
 Over Subscription

When company receives applications for more shares than

the number offered to the public for subscription. In such a
condition,
(1) they can accept some applications in full and totally reject
the others;
(2) they can make a pro-rata allotment to all; and
(3) they can adopt a combination of the above two
alternatives.
Pro-rata Allotment

When the directors opt to make a

proportionate allotment to all applicants (called
‘pro-rata’ allotment), the excess application
money received is normally adjusted towards the
amount due on allotment.
Illustration – 4
Janta Papers Limited invited applications for 1,00,000 equity shares of Rs. 25 each payable
as under:
On Application Rs. 5.00 per share
On Allotment Rs. 7.50 per share
On First Call Rs. 7.50 per share
On Second and Final Call Rs. 5.00 per share
Applications were received for 4,00,000 shares on January 01, 2017 and allotment was made
on February 01, 2017. The directors totally reject applications for 2,00,000 shares, accept full
applications for 80,000 shares and make a pro-rata allotment of the 20,000 shares to
remaining applicants and the excess application money is to be adjusted towards allotment
and calls to be made. Pass the necessary journal entry
Solution – 4
Solution – 4
 Illustration – 5

Software solution India Ltd inviting application for 20,000 equity share of Rs.100
each, payable Rs.40 on application, Rs.30 on allotment and Rs.30 on call. The
company received applications for 32,000 shares.

Application for 2,000 shares were rejected and money returned to Applicants.
Applications for 10,000 shares were accepted in full and applicants for 20,000 share
allotted half of the number of share applied and excess application money adjusted
into allotment. All money received due on allotment and call. Prepare journal and cash
book.
Solution – 5
Solution – 5
 Illustration – 6

Sony Media Ltd.issued 50,000 shares of ₹ 10 each payable ₹ 3 on application , ₹ 4 on allotment

and balance on first and final call . Applications were received for 1,00,000 shares and allotment
was made as follows :

(i) Applicants for 60,000 shares were allotted 30,000 shares,

(ii) Applicants for 40,000 shares were allotted 20,000 shares,

Anupam to whom 1,000 shares were allotted from category (i) failed to pay the allotment money.

Pass journal entries up to allotment

Solution – 6
Solution – 6
 Under Subscription

Under subscription is a situation where

number of shares applied for is less than the
number for which applications have been
invited for subscription.
 Issue Of Shares At A Premium

It is the issue of shares at an amount more than the

nominal or par value of shares. The premium amount
is credited to ‘Securities Premium Account’ and is
shown on the liabilities side of the company’s balance
sheet under the head ‘Reserves and Surpluses’.
 Issue Of Shares At A Premium…………..

1. For Premium Amount called with Money

Application money
Bank A/c Dr.
To Share Application A/c
(Money received on application for — shares
@ Rs. — per share including premium)
Share Application A/c Dr.
To Share Capital A/c
To Securities Premium A/c
(Transfer of application money to share
capital and securities premium account)
2. Premium Amount called with Allotment
Share Allotment A/c Dr.
To Share Capital A/c
To Securities Premium A/c
(Amount due on allotment of shares @ Rs —
per share including premium)
Bank A/c Dr.
To Share Allotment A/c
(Allotment money received including
premium)
 Illustration - 7

Jupiter Company Limited issued 35,000 equity shares of

Rs. 10 each at a premium of Rs.2 payable as follows:
On Application Rs. 3
On Allotment Rs. 5 (including premium)
Balance on First and Final Call
The issue was fully subscribed. All the money was duly
received.
Record journal entries in the books of the Company.
Solution - 7
Solution - 7
Issue Of Shares For
Consideration Other
Than Cash
Prasanth Venpakakl
 Issue Of Shares For Consideration Other Than
Cash

1. Asset A/c Dr. To Share Capital A/c

To Vendor (shares issued at discount)
(Asset purchased) 4. When shares are issued at premium
2. When shares are issued at par Vendors A/C Dr.
Vendors A/C Dr. To Share Capital A/c
To Share Capital A/c To Securities Premium A/c
(Shares issued at par) (shares issued at premium)
3. When shares are issued at Discount
Vendors A/C Dr.
Discount on Issue of Shares A/c Dr.
Illustration - 8

Atlas Co. Ltd. Purchased a machine from HMT Co. for Rs

64,000. It was decided to pay Rs. 10,000 in cash and balance
will be paid by issue of shares of Rs. 10 each, Pass journal
entries shares

1. Issued at par

2. Issued at premium of 20%

Solution - 8

Machinery Account Dr. 64,000

To HMT Ltd. 54,000

To Bank Account 10,000

(being the machine purchased and Rs. 10,000 paid cash and
balance to be paid by issue of shares)
 Solution - 8

(a) When Shares are issued at par

HMT Ltd. (Vendor) a/c Dr 54,000

To Share Capital 54,000

(Being 5,400 shares of Rs, 10 each at pa at HMT

Ltd.)
 Solution - 8

(b) when Shares are issued at premium No of Shares = 54000

10 + 2
HMT Ltd. (vendor) a/c Dr. 54,000
= 4500
To Share Capital Account 45,000

To Share Premium Account 9,000

(being 4,500 shares of issued to vendor at a premium of Rs. 2 per

share)
 Illustration - 9

A company issued 15,000 fully paid up equity shares of Rs. 100 each for
the purchases of the following assets and liabilities from Gupta Bros.

Plant – Rs. 3,50,000; Stock Rs. 4,50,00;

Land and Building Rs. 6,00,000; Sundry Creditors Rs. 1,00,000

Pass necessary Journal entries.

Solution -9

Plant A/c Dr. 3,50,000

Land and Building A/c Dr. 6,00,000
Stock Account a/c Dr. 4,50,000
Good will Account (b/f) Dr. 2,00,000

To Sundry Creditors A/c 1,00,000

To Gupta Bros. 15,00,000
(Being the purchase of Business)
Solution -9

Gupta Bros. a/c Dr. 15,00,000

To Equity Shares Capital Account 15,00,000

(Being issue of 15,000 shares of Rs. 100 each as

payment of business price)
Illustration - 10

Light Lamps Ltd. issued 50,000 shares of ₹ 10 each as fully

paid-up to the promoters for their services to set-up the
company . It also issued 2,000 shares of ₹ 10 each credited as
fully paid-up to the underwriters of shares for their services .
journalise these transactions
Solution - 10
Forfeiture Of
Shares
Prasanth Venpakakl
 Forfeiture Of Shares
Forfeiture of shares is a process where the company
forfeits the shares of a member or shareholder who fails
to pay the call on shares or instalments of the issue
price of his shares within a certain period of time after
they fall due. In other words, when the shareholder fails
to pay the full amount of share which he agreed to pay
in instalments the company can cancel his shares.
 Forfeiture of Shares Issued at Par

Share Capital A/c Dr.

To Share Forfeiture A/c
To Share Allotment A/c
To Share Calls A/c
(shares forfeited for non-payment of allotment money and
calls made)
Forfeiture of Shares Issued at A Premium

Share Capital A/c Dr.

Securities Premium A/c Dr.
To Share Forfeiture A/c
To Share Allotment A/c
To Share Calls A/c (individually)
(shares forfeited for non-payment of allotment money and
calls made)
 Illustration - 11

Honda Limited issued 10,000 equity shares of 100 each payable as

follows: Rs. 20 on application, Rs. 30 on allotment, Rs. 20 on first call
and Rs. 30 on second and final calls 10,000 shares were applied for
and allotted. All money due was received with the exception of both
calls on 300 shares held by Supriya. These shares were forfeited. Give
necessary journal entries.
Solution - 11
Solution - 11
 Illustration - 12

Ashok Limited issued 3,00,000 equity shares of Rs. 10 each at a premium of

Rs. 2 per share, payable as Rs. 3 on application, Rs. 5 on allotment (including
premium) and the balance in two calls of equal amount.

Applications were received for 4,00,000 shares and pro-rata allotment was
made to all the applicants. The excess application money was adjusted towards
allotment. Mukesh who was allotted 800 shares failed to pay both the calls and
his shares were forfeited after the second call. Record necessary journal entries
in the books of Ashok Limited
Solution - 12
Solution - 12
 Illustration – 13

U.P. Sugar Works Ltd. was registered on 1st January, 2019 with an authorised capital of ₹ 15,00,000
divided into 15,000 shares of ₹ 100 each. The company issued on 1st April, 2019, 5,000 shares of ₹
100 each at a premium of ₹ 5 per share payable ₹ 25 per share on application , ₹ 30 (including
premium) on allotment and the balance in two equal installments of ₹ 25 each on 1st July and 1st
October respectively. All the allotments and call moneys were paid when due, except in case of one
shareholder who failed to pay the final call on 100 shares held by him. His shares were forfeited on
1st November after giving him a due notice. Show necessary entries in the books of the company to
record these transactions.
Solution – 13
Solution – 13
Solution – 13
 Re-issue Of Forfeited Shares
Forfeited shares may be reissued as fully paid at a par, premium & discount.
The balance, if any, should be treated as capital profit and transferred to Capital
Reserve Account.
Bank A/c Dr.
Share Forfeiture A/c Dr.
To Share Capital A/c
(Reissue of forfeited shares)
Share Forfeiture A/c Dr.
To Capital Reserve
(Profit on reissue of forfeited shares transferred)
 Illustration - 14
On January 1, 2012, the director of X Ltd. issued for public subscription 50,000 equity shares
of Rs. 10 each at Rs. 12 per share payable as to Rs. 5 on application (including premium), Rs.
4 on allotment and the balance on call in May 01,2002. The lists were closed on February 10,
2012 by which date applications for 70,000 shares were received. Of the cash received Rs.
40,000 was returned and Rs.60,000 was applied to the amount due on allotment, the balance
of which was paid on February 16, 2012.

All the shareholders paid the call due on May 01, 2012 with the exception of an allottee of
500 shares. These shares were forfeited on September 29, 2012 and reissued us fully paid at
Rs. 8 per share on November 01, 2012. The company, as a matter of policy, does not maintain
Solution - 14
Solution - 14
Solution - 14
Illustration - 15

The director of Poly Plastic Limited resolved that 200 equity

shares of Rs.100 each be forfeited for non-payment of the
second and final call of Rs.30 per share. Out of these, 150
shares were re-issued at Rs.60 per share to Mohit. Show the
necessary journal entries .
Solution - 15
 Illustration - 16
Garima Limited issued a prospectus inviting applications for 3,000 shares of Rs. 100 each at
a premium of Rs.20 payable as follows: On Application Rs.20 per share On Allotment Rs.50
per share (Including premium) On First call Rs.20 per share On Second call Rs.30 per share.

Applications were received for 4,000 shares and allotments made on prorate basis to the
applicants of 3,600 shares, the remaining applications being rejected, money received on
application was adjusted on account of sums due on allotment. Renuka whom 360 shares
were allotted failed to pay allotment money and calls money, and her shares were forfeited.
Kanika, the applicant of 200 shares failed to pay the two calls, her shares were also forfeited.
All these shares were sold to Naman as fully paid for Rs.80 per share. Show the journal
entries in the books of the company.
Solution - 16
Solution - 16
Solution - 16
Solution - 16
Solution - 16
Solution - 16