ACCOUNTING SOLUTIONS
SCO: 209, First Floor, Sector-36/D. Chandigarh (M): 0172-4670390-5017149, 9876149390
ISSUE OF SHARE CAPITAL
Share Capital:
Under section 78 of the companies act a company is allowed to issue its shares at a price
more than its face value, which is called issue of shares at premium. It will be received in
cash or kind. The total amount of premium must be credited to an amount called the
“securities premium account”. Premium can be received with application money or with
any respective call money. Securities premium being an income, is shown in balance
sheet on the liabilities side, under the head reserve and surplus.
Journal entries to be passed in the books of accounts are different in different case viz.
(i) Entry for amount of application received
Bank a/c
Dr.
To share application a/c (being total amount received including premium)
(ii) Entry for Allotment of application money
Share application a/c
dr.
To Share capital a/c
To Bank A/c (Amount of money refunded)
To Securities premium a/c (Amount of Premium)
To Share Allotment A/c (Amount of excess shares)
(Being the amount of share application adjusted)
(iii) Entry for the Allotment Money due:
Share allotment a/c
Dr.
Discount on issue of Shares a/c
Dr.(With the amount of discount)
To share capital a/c
To securities premium a/c
(Being the total amount due including premium)
(iv) Entry for Allotment Money received
Bank a/c
dr.
To share allotment a/c
(Being amount received)
(v) Entry for the amount of respective calls due
Respective call a/c
dr.
To share capital a/c
To securities premium a/c
(Being the total amount due including premium)
(vi) Entry for amount received on respective calls
Bank a/c
dr.
To respective call a/c
(Being the amount received)
FORFEITURE OF SHARES
When a shareholder fails to pay the call amount upto the last date of payment the
company is empowered by by its articles to forfeit the shares. forfeitures means the cancellation
of shares. If the shareholder has not paid any call on the day fixed for payment thereof and fails
to pay it even after the attention is drawn to it by the secretary by registered notice, the board of
SCO:209, F.F. Sector-36/D Chandigarh. 0172-4670390-5017149, 9876149390
ACCOUNTING SOLUTIONS
SCO: 209, First Floor, Sector-36/D. Chandigarh (M): 0172-4670390-5017149, 9876149390
directors pass a resolution to the effect that such shares be forfeited. After the forfeitures of
shares, the original shareholder ceases to be a member and his name must be removed from the
register of members.
Shares once forfeited becomes the property of the company and may be sold on such
terms or director thinks fit. Once forfeited shares can be reissued at discount, at par or at
premium.
Share capital a/c
Dr.
(with call-up).
Securities premium a/c Dr. (with amount of Premium not received)
To share allotment a/c
(with amt. Due but not Paid on allotment)
To share call a/c
(with amt. Due but not paid on Call)
To discount on issue a/c
(with amt. Of discount allowed if any)
To shares forfeited a/c
(with amt. Already paid by shareholder)
Re-issue of Shares:
Forfeited of shares means cancellation of shares. if a member having been called upon to pay
any call on his shares fails to pay the calls, the directors may either by adoption of table A or by
an express provision on the articles proceed to forfeit the shares held by such a defaulting
member. The directors of the company have the power to reissue the forfeited shares on such
terms as it thinks fit. The forfeited shares can be reissued at par or at the premium or at a
discount. The journal entries to be passed in the books of accounts is different in different case
viz.
Bank a/c
dr.
Share Forfeiture A/c (with the amount of Discount)
To share capital a/c (Being amount received)
To Security Premium A/c
Entry for transfer of forfeiture amount to Capital Reserve:
Share forfeited a/c
dr.
To capital reserve a/c
(Transferring share forfeited a/c to capital reserve)
Calls In Arrears & Calls In Advance
When the amount of call is due ,but yet its not actually paid by the share holders up to the last
date of payment at this stage that amount is called “calls in arrears” whereas if the same amount
be paid before the due date become due, that will be the case of calls in advance.
There is not any particular or specified rule for the acceptance of calls in arrears whereas a
company can receive calls in advance only if its priory permitted in the articles of association.
The board of directors can charge on the amount of calls in arrears as specified in the articles of
association but if article is silent in this respect the company may charge not more than 5% p.a.
on calls in arrears whereas a company is liable to pay not more than 6% p.a. on calls in advance.
Besides of these above mentioned differences the accounting treatment or the journal entries in
the books of accounts are also different in case of calls in arrears and in calls in advance.
Journal entries in case of calls in arrears :
Calls in arrears a/c
dr.
To relevant call
(Being call money is in arrears)
Bank a/c
dr.
SCO:209, F.F. Sector-36/D Chandigarh. 0172-4670390-5017149, 9876149390
ACCOUNTING SOLUTIONS
SCO: 209, First Floor, Sector-36/D. Chandigarh (M): 0172-4670390-5017149, 9876149390
To call in arrears
(Being amount received)
Shareholders a/c
dr.
To interest on calls in arrears.
(Being interest due)
Bank a/c
dr.
To shareholders a/c.
(Being interest received)
Interest on calls on arrears a/c.
Dr.
To profit and loss a/c
(Being closing the interest on call in arrears)
Journal entries in case of calls in advance :
Bank a/c
dr.
To calls in advance a/c
(Being amount received in advance)
Calls in advance a/c
dr.
To relevant call a/c
(Being transferred to relevant call a/c)
Interest on calls in advance a/c
dr.
To shareholders a/c
(Being interest due on call)
Bank a/c
dr.
To shareholders a/c
(Being interest received)
Interest on calls on arrears a/c
dr.
To profit and loss a/c
(Being closing the interest on call in arrears a/c.
Journal entries in case of calls in advance :
SURRENDER OF SHARES
After the allotment of shares, sometimes a shareholder is not able to pay the further calls
and returns his shares to the company for cancellation. Such voluntary return of shares to the
company by the shareholder himself is called surrender of shares.
Surrender of shares has no separate accounting treatment but it will be like that of
forfeiture of shares. the same journal entries (as passed in case of forfeitures of shares) will be
passed in case of surrender of shares. moreover the surrender shares can be reissued by the
board of directors in the same way as forfeited shares.
Pro-rata allotment
When a company receives application for the large no. Of shares and the no. Exceeds the no. Of
shares issued to the public for subscription. When the shares are over subscribed, its not possible
for the company to satisfy or to allot the shares to all the applicants in full. Some of the
applicants may be rejected in full whereas some may be allotted lesser no. Of shares than
applied. The board of directors may decide to allot the the shares in certain proportion. This
proportion is determined by the ratio which the no. Of shares to be allotted bear to the no. Of
shares applied for. This is called pro rata allotment of shares. when the allotment is made on pro
rata basis, each applicant receives the share in proportion to the shares applied for, say, if the
company receives application for 7,00,000 shares against an issue of 5,00,000 shares, then the
proportion of shares applied to shares allotted is 7:5.
SCO:209, F.F. Sector-36/D Chandigarh. 0172-4670390-5017149, 9876149390
ACCOUNTING SOLUTIONS
SCO: 209, First Floor, Sector-36/D. Chandigarh (M): 0172-4670390-5017149, 9876149390
LEGAL PROVISION REGARDING ISSUE OF SHARES AT PREMIUM :ACCORDING TO THE SECTION 78 OF COMPANIES ACT 1956, THE COMPANY MUST FULFILL THE
FOLLOWING:The amt of premium received is credited to the separate account called the securities premium
account.
Securities premium being an income is shown in the balance sheet on the liabilities side under
the head ‘reserves and surplus:
PURPOSE ON WHICH SECURITIES PREMIUM CAN BE USED :
To issue fully paid bonus shares to shareholders
Preliminary expenses can be written off
To write off the expenses of, or the commission paid or the discount allowed o b the issue of
shares or any debentures of the company.
Premium on the redemption of redeemable preference shares and debentures can be written
off.
EFFECTS OF FORFEITURES
If the shareholder fails to comply with the requirement of the notice, the director may pass a
resolution effecting the forfeiture of the shares when the shares have been forfeited, the
defaulting shareholder ceases to be a member of the company and he all rights or interest in his
shares. where as he remains liable to pay the company all the moneys which at the date of
forfeiture were payable by him to the company in respect of shares.
Maximum rate of interest can be charged by the company on the calls in arrears @ 5% p.a. and
allowed on calls in advance @ 6% p.a.
Transfer to capital reserve will the balance amount of share forfeited account, related to
forfeited shares reissued , remained with the Co. after such reissue.
Balance of share forfeited account related to reissue forfeited shares will be shown. On the
liability side of the balance sheet by adding with the paid up share capital.
Disclosure of items regarding share capital in the Co’s balance sheet.
BALANCE SHEET OF CO. LTD
As on...
Liabilities
SHARE CAPITAL
Authorised capital
shares of Rs. Each
Issued
capital..........shares of
Rs. Each
Subscribed capital
shares of Rs. Each
Called and paid up
capital shares of Rs.
Each Rs. Called up xxx
Less calls in arrears xxx
Add share forfeited xxx
RESERVE AND SURPLUS
Securities premium a/c
Capital reserve a/c
Amount
Assets
Amount
MISCELLENEOUS EXPENDITURE
discount on issue of shares (if any)
a/c
Xxx
Xxx
Xxx
Xxx
Xxx
xxx
xxx
SCO:209, F.F. Sector-36/D Chandigarh. 0172-4670390-5017149, 9876149390