SHARE CAPITAL OF A COMPANY
Share capital refers to the amount that a company can raise or
has raised byissi shares. From accounting point of view, share
capital can be classified as follow
1
Authorised Share Capital
The Authorised Share Capital is stated in the Memorandum of
Association andi maximum share capital that a company can
issue. The authorised share capital i may not be the same as
issued share capital.
The capital of the company is divided into units of small
denomination and is ca 'share'. As per the provisions of Section
85 of the Companies Act, 1956, share ( of a company consists
of two classes of shares: (i) Preference shares; and («] ] shares.
Each share has a nominal value or face value, which may be Re.
1 orRs.! Rs. 5 or Rs. 10 or indeed any amount. Thus, a company
with an authorised i capital of Rs. 10,00,000 may have its
authorised share capital as follows:
Issued Share Capital
Issued Share Capital is a part of authorised share capital that is
issued for subscriptioi by the company. Issued share capital
cannot exceed the company's authorised shai? capital.
3
Subscribed Share Capital
Subscribed Share Capital is a part of issued share capital which
is applie subscription. For example, Nokia Ltd. issued 20,000
equity shares of Rs. 10 each 17,500 equity shares are applied,
the subscribed share capital is Rs. 1,75,01
Called-up Share Capital
calledd-up Share Capital is the amount of nominal value of
share that has been called by the company for payment by the
subscribers towards the shares.
Paid-up Capital
Paid-up Capital is a part of Called-up Capital that the members
of the company have paid. Calls-in-Arrears
Calls-in-Arrears
It is that part of the Called-up Capital that remains unpaid by the
subscribers. Paid-up Share Capital
Calls-In-Advance
A company, if its Articles of Association permit, may receive
the unpaid amount from the shareholders even when the amount
has not been called. The amount so received is known as Callsin-Advance. In the balance sheet it is shown separately as Callsin-Advance as current liability. Reserve Capital
Reserve Capital
It is a part of Subscribed Capital remaining uncalled that a
company resolves, by Special Resolution, not to call except in
the approved circumstancesDistinction between Authorised
Capital and Issued Capital
Accounting Treatment
A company can issue its shares in two ways: I. for cash, and II.
for consideration other than cash.
I
ISSUE OF SHARES FOR CASH
Shares are said to be issued for cash when a company receives
cash against the issued. These shares may be issued at par or at
premium (above the face value] discount (below the face value).
Issue price may be payable either in lump sum with the
application, or in instalments at different stages; it means, partM
application, partly on allotment and balance in one or more
calls.
(
Shares Payable in Lump Sum
When shares are issued at par payable in i instalment, the shares
so payable are said to have been issued in lump sum. now-adays, are issued against payment in lumpsum.
Accounting Entries for Issue of Shares
For Receiving Share Application Money:
Bank A/C Dr
To Share Application A/c
For Allotment of Shares:
Share Application A/c Dr
To Share Capital A/c
For Allotment
Share Allotment A/c Dr
To Share Capital Ac
On receiving Allotment money
Bank Ac Dr
To Share Allotment Ac
On first or any other call
Same entry with one change i.e. instead of Allotment call word
will be written
Illustration
ABD ltd issued 1000 shares of Rs. 10 each. All the shares were
subscribed by public. Rs. 2, Rs.3, and Rs. 3 were called on
application, Allotment and first and final call respectively.
Shares of a company may be issued in any of the following
three ways:
Issue of Shares at Par,
Issue of Shares at a Premium (Section 78), and
Issue of Shares at a Discount (Section 79).
Issue of Shares at premium
Bank Ac Dr
To Share Application A/c
Share Application A/c Dr
To Share capital A/c
To Security PremiumA/c
Share Allotment A/c Dr
To Security Premium A/c
To Share Capital A/c
Bank A/c Dr
To Share Allotment A/c
Issue of share at discount
Share Allotment A/c Dr
Discount on issue of share A/c Dr
To Share capital A/c
OVER-SUBSCRIPTION OF SHARES
Shares are said to be over-subscribed when the number of
shares applied for is more than the number of shares offered for
subscription.
In the case of over-subscription, the company cannot allot
shares to all the applicants i full. To deal with the situation,
three alternatives are available to it:
First Alternative: Some applications are accepted in full and
excess applications are rejected outright and their application
money is refunded. This is known as Rejection of Applications.
Second Alternative: Applicants may be allotted shares in fixed
proportion. This is called Partial or Pro-rata Allotment.
Third Alternative: A combination of the above two alternatives
may be adopted. Applications for 20,000 shares are accepted in
full, applications for 10,000 shares are rejected and the balance
applications are allotted on pro rata basis, i.e., in ratio of 3
shares for every 4 shares applied.
Accounting Entries in Case of Over-Subscription
For Application Money Received
Bank A/c dr
To Share Application
Application Money for Allotted Shares
Share ApplicationA/c
To Share Capital
Excess Application Money Refunding
Share Application A/c
To Bank A/c
Adjustment
Share Application A/c
To Share Allotment A/c
To Calls-in-Advance A/c
Under subscribtion
When less shares are subscribed
Forfeiture of shares
It means cancelling the shares for non-payment of calls due as
action against the defaulting shareholder.
On forfeiture, the shares are cancelled; to that extent the share
capital is reduced. the amount already paid by the shareholder is
not returned to him . it is forfeited.
Share Capital A/c Dr
To forfeited Share A/c
To calls in arrears A/c
AY ltd. Issued 1000 shares of Rs. 10 each. Rs. 2 payable at
application and Rs. 3 payable at allotment. The company received
application money for 2500 shares. 500 applications were
rejected., remaining 2000 applicants were issued shares on pro-rata
basis. 100 share holders did not give money due on allotment
hence their shares were forfeited. Pass journal entries.