JANNAT’S ACCOUNTANCY FOR +2
2
C ORPORATE A CCOUNTING
ISSUE, FORFEITURES & REISSUE OF SHARES
1. INTRODUCTION
Funds provided by the owners into a business are recorded as a capital. Capital of the business depends upon the
form of business organization. Proprietors provide capital in a sole proprietorship business. In case of a
partnership, there is more than one proprietor, called as partners. Partners introduce capital in a partnership
firm. As the maximum number of members in a partnership firm is restricted, therefore only limited capital can
be provided in such form of business. Moreover, the proprietors are unlimited in case of non-corporate business.
2. IMPORTANT DOCUMENTS OF A COMPANY
2.1 MEMORANDUM OF ASSOCIATION:
The memorandum of Association is the fundamental document of a Company. It defines the company’s powers
and provides the frame work within which it has to operate. This document should be signed by at least seven
people in case of public company and by two people in case of Private Ltd Company. It is also known as external
charter of the company.
2.2 ARTICLES OF ASSOCIATION:
The Articles of Association contain a set of rules and regulations of the Company. The articles govern the internal
working of the Company. Among other matters the articles should cover issue of share, their forfeiture and
reissue, election of director’s maintenance of books division of profit, calling of meeting etc. It is also known as
internal charter of the company.
3. CAPITAL OF COMPANY
SHARE
Total capital of the company is divided into a number of small indivisible units of a fixed amount and each such
unit is called a share. The fixed value of a share, printed on the share certificate, is called nominal \face value of a
share. A company can issue its shares above and below its nominal \face value. The liability of holder of shares is
limited to the issue price of shares acquired by them and not to the face value only.
Here issue price means, the price on which such shares is issued to the public at large for subscription.
As per SEBI (Securities Exchange Board of India) guidelines, a company is free to price its issue, if it has three
years tracks record of consistent profitability and in case of a new company, if it is promoted by a company with a
five years tracks record of consisted profitability. As the total capital of the company is divided into shares, the
capital of the company is called ‘Share Capital’.
 AUTHORIZED SHARE CAPITAL:
A company estimates its maximum capital requirements. This amount of capital is mentioned in the ‘capital
clause’ of Memorandum of Association registered with Registrar of Companies. It puts a limit on the amount of
capital, which a company is authorized to raise during its lifetime and is called “Authorized Share Capital”. It is
also known as Nominal, Registered, Maximum Capital.
1 CORPORATE ACCOUNTIN G
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
 ISSUED SHARE CAPITAL:
That portion of authorized capital which is offered to the public at large for subscription is called issue share
capital. A company need not issue its entire authorized share capital for subscription; generally companies issue
some portion of its authorized share capital for subscription. Issued share cannot exceed authorized share capital
but in number of share and not in the value of share.
 UNISSUED SHARE CAPITAL:
Since, a company need not issue its entire authorized share capital for subscription; that portion of authorized
share capital not yet issued to public for subscription is termed as unissued share capital. It is not shown in the
balance sheet of the concerned company.
 SUBSCRIBED SHARE CAPITAL:
It is that part of the issued share capital, which is subscribed by the public i.e., applied by the public and allotted
by the company. It also includes the face value of shares issued other than cash consideration.
Here, share issued other than cash consideration means; share issued for acquiring assets or share issued to
promoter of such company for their harsh services rendered before the incorporation of the such company.
 CALLED-UP SHARE CAPITAL:
That part of subscribed share capital which has been called-up by the company for payment from shareholder.
Companies, generally receives the price of shares in installments.
 UNCALLED-UP SHARE CAPITAL:
That part of subscribed share capital not yet called for payment by the company. It is not shown in the balance
sheet of the company.
 PAID-UP SHARE CAPITAL:
That part of called-up share capital which is actually paid by the shareholder to the company. Sometimes, some
shareholders unable to pay the amount called-up by the company on shares held by such shareholders; such
unpaid amount is known as “Calls-in-Arrears” or “Calls-Unpaid”. To calculate paid-up share capital the amount of
calls-in-arrears must be deducted from Called-up share capital.
In Balance sheet, Called-up share capital and paid-up share capital are shown together.
 RESERVE CAPITAL:
Sometimes a company may reserve its portion of un-called up share capital and to be called only in the event of
winding-up of the company (to pay creditors.).
 CAPITAL RESERVE:
Capital reserves created from capital profit. It is only used for write -off capital loss of the company. Capital
reserves are different from Reserve Capital.
Illustration -1
A company had a registered capital of ` 1, 00,000 div ided into 10,000 equity shares of ` 10 each. It decided to issue
6,000 shares for subscription and receiv ed applications for 7,000 shares. It allotted 6,000 shares and rejected
remaining applications. Up to 31.12.2005, it has demanded or call ed ` 9/share. All shareholders hav e paid the
amount called-up by the company except one shareholder, holding 500 shares that hav e paid only ` 7/ share.
Prepare a balance sheet assuming there are no other details.
2 CORPORATE ACCOUNTIN G
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
Solutions:
Balance Sheet as at December 31, 2005
`
Assets
Share Capital
Fixed Assets
Authorized Share Capital:
Inv estments
10,000 equity share of ` 10 each
1,00,000 Current Assets Loans & Adv ances
Issued Share Capital:
(a) Current Assets
6,000 equity shares of ` 10 each
60,000
Bank
Subscribed Share Capital:
(b) Loans & Adv ances
6,000 equity shares of ` 10 each
60,000
Called-up and Paid-up Capital:
Miscellaneous Expenditures
6,000 shares of ` 10 each
Profit and Loss Account (Dr.)
` 9 called up
54,000
Less: Calls-in-arrears
(1,000)
53,000
(on 500 shares @ ` 2\share)
Reserv es and Surplus
NIL
Secured Loans
NIL
Unsecured Loans
NIL
Current Liabilities and Prov isions
NIL
53,000
Liabilities
`
NIL
NIL
53,000
NIL
NIL
NIL
53,000
It is clear from above illustration that the details of authorized, issued and subscribed capital are given in the
balance sheet but are not counted. It is only the paid-up capital is counted.
4. TYPES OF SHARES
4.1 PREFERENCE SHARE:
According to section 85 of the companies Act, 1956, person’s holdings preference shares, called preference
shareholders, are assured of a preferential dividend at fixed rate during the lifetime of the company. They also
carry a preferential right over other shareholders to be paid-off first in case of winding up of the company. Thus,
they enjoy preferential rights in the matter stated below: Payment of divided at a fixed percentage.
 Repayment of Capital at the event of winding up of the company.
Generally, holders of preferential share do not enjoy the voting rights. Dividend on preferential share is generally
cumulative in natures and need not to be paid each year due to insufficiency of profits available for dividend.
Unless otherwise stated preference shares are cumulative and Non-Participating in nature.
TYPES OF PREFERENTIAL SHARE
DIVIDEND RIGHT
CUMULATIVE SHARE
N ON- CUMULATIVE SHARE
CONVERSION
CONVERTIBLE SHARE
N ON-CONVERTIBLE SHARE
PARTICIPATION IN PROFIT
PARTICIPATING SHARE
N ON-PARTICIPATING SHARE
REDEMPTION
REDEEMABLE
IRREDEEMABLE
4.1.1 CUMULATIVE PREFERENCE SHARE:
A cumulative preference share is one that carries a fixed amount of dividend or fixe d rate of dividend. If any year
due to insufficiency of profits, dividend is not paid to the preference shareholders; in such a situation the amount
of dividend not paid will accumulates unless it is paid in full. Therefore, these types of share are termed as
cumulative preference share. In India, a preference share is always cumulative in nature unless otherwise stated.
In case, the dividend remains in arrears for a period of not less than two years, holders of such shares will be
3 CORPORATE ACCOUNTIN G
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
entitled to take part and vote on every resolution on every matter in the general body meeting of the
shareholders.
4.1.2 NON-CUMULATIVE PREFERENCE SHARE:
A Non-cumulative preference share carries a fixed amount of dividend or fixed rate of dividend. But, in any year if
dividends on these shares are not paid due to any reasons, then the rights to receives dividend for such year
expires. Means, holders of such share are no entitled to receive the arrears of dividend in futures years.
4.1.3 PARTICIPATING PREFERENCE SHARE: This category of preference share confers on the right to participate in the surplus profits, if any, after the equity
shareholder have been paid dividend at a stipulated rate. Similarly, in the event of winding up of the company,
this type of share carries the right to receive a predetermined proportion of surplus as well once the equity
shareholders have been paid-off.
4.1.4 NON-PARTICIPATING PREFERENCE SHARE:
A share on which only a fixed rate of dividend is paid every year, without any accompanying addi tional rights in
profit and in the surplus on winding-up, is called ‘non-participating preference share.’ Unless otherwise specified,
the preference shares are generally non-participating.
4.1.5 REDEEMABLE PREFERENCE SHARE:
These are share that a company may issue on the condition that the company will repay after the fixed period or
even earlier at company’s discretion. The repayment on these shares is called redemption and is governed by
section 80 of companies Act, 1956. In the India, companies can now issue only this category of preference share.
4.1.6 NON-REDEEMABLE PREFERENCE SHARE:
The preference shares, which do not carry with them the arrangement regarding redemption are called nonredeemable preference share. According to section 80(5A), no company limited by share shall issue irredeemable
preference share redeemable after the expiry of 20 years from the date of issue.
4.1.7 CONVERTIBLE PREFERENCE SHARE:
These shares give the right to the holder to get them converted into equity share at their option according to the
term and condition of their issue.
4.1.8 NON-CONVERTIBLE PREFERENCE SHARE:
When the holder of preference share has not been conferred the right to get his holding converted into equity
share, it is called non-convertible preference share unless otherwise stated.
4.1.9 EQUITY SHARE:
Equity share are those share, which are not preference share. It means that they do not enjoy any preferential
right in the matter of payment of dividend or repayment of capital. The rate of dividend on equity share is
recommended by the board of directors and may vary from year to year. Rate of dividend depend upon the
dividend policy and availability of profit after satisfying the rights of preference shareholders. These shares carry
voting rights.
4 CORPORATE ACCOUNTIN G
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
5. ISSUE OF SHARES FOR CASH CONSIDERATION
A public company issues a prospectus inviting general public to subscribe for its shares. On the basis of
prospectus, applications are deposited in a scheduled bank by the interest parties along with the amount due on
application (Application money can’t be less than 5% of the face value of shares). A public company can issue its
equity as well as preference shares. The accounting treatment of issue of both the shares are same the difference
is that in case of issue of preference shares the word ‘equity’ is replaced with the word’…%Preference.
A public limited company cannot make any allotment of shares unless the amount of minimum subscription
stated in the prospectus is not subscribed by the public at large.
5.1 MINIMUM SUBSCRIPTION:
As per the SEBI (Securities Exchange Board of India), company must receive a minimum 90%subscription against
the entire issue before making any allotment. If the company doesn’t receive the minimum subscription of 90% of
the issue, the entire amount receive on application shall be refunded to the applicants within 42 days from the
date of closure of issue.
PROCEDURE OF ISSUE SHARE BY THE PUBLIC COMPANY
Selection of Banker
Issue of Prospectus
Cash received from Applicants
Minimum subscription is Achieved
Minimum subscription is not Achieved
Under Subscription
Oversubscription
Underwriter will-take
Up the shortfall
Proportionate
Allotment
Money Refunded to applicants
Directors Make Allotment
Allotment Money Received
Directors Make Call
Call Money Received
5 CORPORATE ACCOUNTIN G
Issue of Share Certificate
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
After achieving minimum subscription the company allowed to allot its issued share to the respective public: When the issued shares are subscribed in full then it is termed as full subscription.
 When the subscription received for shares is more than the shares issued, and then it is termed as
Oversubscription.
 When the subscription received for shares is less than the shares issued for subscription, then it termed as
under subscription.
6. FULL SUBSCRIPTION
Issue is fully subscribed if the number of share offered for subscription and the number of shares actually
subscribed by the public are same.
6.1 ACCOUNTING TREATMENT
Particulars
When the application
money received
Transfer of share
application money to
share capital
When allotment
money due
When allotment
money received
When first call money
due
When first call money
received
When final call money
due
When Final call money
received
When Second & Final
call due together
When Second & Final
call money received
For Company
For Equity Share
For Preference share
Bank A\c
Dr.
To Equity share Application A\c
(Being equity share application money received
on …. Share @ ….each)
Equity share Application A\c
Dr.
To Equity Share Capital A\c
(Being transfer of equity share application
money to share capital account.
Equity share Allotment A\c
Dr.
To Equity share Capital A\c
(Being equity share allotment money due on ….
Share @ ….each)
Bank A\c
Dr.
To Equity share Allotment A\c
(Being equity share allotment money received
on …. Share @ ….each)
Equity share First call A\c
Dr.
To Equity share Capital A\c
(Being equity share first call money due on ….
Share @ ….each)
Bank A\c
Dr.
To Equity share first call A\c
(Being equity share first call money received on
…. Share @ ….each)
Equity share Final Call A\c
Dr.
To Equity share Capital A\c
(Being equity share second & Final call money
due on …. Share @ ….each)
Bank A\c
Dr.
To Equity share Final call A\c
(Being equity share second & Final call money
due on …. Share @ ….each)
Equity share Second & Final call A\c
Dr.
To Equity share Capital A\c
(Being equity share second & Final call money
due on …. Share @ ….each)
Bank A\c
Dr.
To Equity share Second & Final Call A\c
(Being equity share second & Final call money
due on …. Share @ ….each)
Preliminary Expense A\c
Dr.
Bank A\c
Dr.
To ...% Preference share Application A\c
(Being ...% Pref. share application money
received on …. Share @ ….each)
...% Preference share Application A\c
Dr.
To ...% Preference Share Capital A\c
(Being transfer of ...% Pref. share application
money to share capital account.
...% Preference share Allotment A\c
Dr.
To ...% Preference share Capital A\c
(Being ...% Pref. share allotment money due on
…. Share @ ….each)
Bank A\c
Dr
To ...% Preference share Allotment A\c
(Being ...% Pref. share allotment money
received on …. Share @ ….each)
...% Preference share First call A\c
Dr.
To ...% Preference share Capital A\c
(Being ...% Pref. share first call money due on
…. Share @ ….each)
Bank A\c
Dr.
To ...% Preference share first call A\c
(Being ...% Pref. share first call money received
on …. Share @ ….each)
...% Preference share Final Call A\c
Dr.
To ...% Preference share Capital A\c
(Being ...% Pref. share second & Final call
money due on …. Share @ ….each)
Bank A\c
Dr.
To ...% Preference share Final call A\c
(Being ...% Pref. share second & Final call
money due on …. Share @ ….each)
...% Pref. share Second & Final call A\c
Dr.
To ...% Preference share Capital A\c
(Being ...% Pref. share second & Final call
money due on …. Share @ ….each)
Bank A\c
Dr.
To ...% Pref. share Second & Final Call A\c
(Being ...% Pref. share second & Final call
money due on …. Share @ ….each)
Preliminary Expense A\c
Dr.
6 CORPORATE ACCOUNTIN G
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
Formation,
Preliminary or Share
issue expense
To Bank A\c
(Being formation, preliminary or share issue
expense paid)
To Bank A\c
(Being formation, preliminary or share issue
expense paid)
Illustrations: -2.
Jannat Limited registered with an authorized capital of ` 1, 00,000 div ided into 10,000 shares of ` 10 each. It issued
5,000 to the public for subscription. Payable as follows:On Application
` 3\share
On Allotment
` 4\share
On First call
` 1.5\share
On Final call
` 1.5\ share
Company pays ` 1,000 as share issue expense.
The entire share were subscribed and duly allotted by the company.
You are required to pass necessary journal entries in each of the following case.
Cases (a) when abov e shares are 9%, Preference share
Cases (b) when abov e shares are Equity share
Solutions:If shares are equity shares
Bank A\c
Dr.
To Equity share Application A\c
(Being equity share application m oney
received on …. Share @ ….each)
Equity share Application A\c
Dr.
To Equity Share Capital A\c
(Being transfer of equity share application
m oney to share capital account.
Equity share Allotment A\c
Dr.
To Equity share Capital A\c
(Being equity share allotm ent m oney due
on …. Share @ ….each)
Bank A\c
Dr.
To Equity share Allotment A\c
(Being equity share allotm ent m oney
received on …. Share @ ….each)
Equity share First call A\c
Dr.
To Equity share Capital A\c
(Being equity share first call m oney due on
…. Share @ ….each)
Bank A\c
Dr.
To Equity share first call A\c
(Being equity share first call m oney
received on …. Share @ ….each)
Equity share Final Call A\c
Dr.
To Equity share Capital A\c
(Being equity share second & Final call
m oney due on …. Share @ ….each)
Bank A\c
Dr.
To Equity share Final call A\c
Preliminary Expense A\c
Dr.
To Bank A\c
(Being form ation, expense paid)
If share are 9% , Preference shares
Bank A\c
Dr.
To ...% Preference share Application A\c
(Being ...% Pref. share application m oney
received on …. Share @ ….each)
...% Preference share Application A\c
Dr.
To ...% Preference Share Capital A\c
(Being transfer of ...% Pref. share application
m oney to share capital account.
...% Preference share Allotment A\c
Dr.
To ...% Preference share Capital A\c
(Being ...% Pref. share allotm ent m oney due
on …. Share @ ….each)
Bank A\c
Dr
To ...% Preference share Allotment A\c
(Being ...% Pref. share allotm ent m oney
received on …. Share @ ….each)
...% Preference share First call A\c
Dr.
To ...% Preference share Capital A\c
(Being ...% Pref. share first call m oney due on
…. Share @ ….each)
Bank A\c
Dr.
To ...% Preference share first call A\c
(Being ...% Pref. share first call m oney
received on …. Share @ ….each)
...% Preference share Final Call A\c
Dr.
To ...% Preference share Capital A\c
(Being ...% Pref. Share second & Final call
m oney due on …. Share @ ….each)
Bank A\c
Dr.
To ...% Preference share Final call A\c
Preliminary Expense A\c
Dr.
To Bank A\c
(Being form ation expense paid)
Dr. `
15,000
Cr. `
15,000
15,000
15,000
20,000
20,000
20,000
20,000
7,500
7,500
7,500
7,500
7,500
7,500
7,500
1,000
7,500
1,000
7. UNDER SUBSCRIPTION
It means the number of shares offered for subscription is more than the number of shares subscribed by the
public. In this case, the journal entries as discussed above are passed but with one change i.e., calculation of
application, allotment and for that matter, the call money is based on number of shares actually applied and
allotted. It must be noted that shares can be allotted, in this case, only when the minimum subscription is
received.
7 CORPORATE ACCOUNTIN G
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
Illustrations: 3.
Jannat Limited registered with an authorized capital of ` 1, 00,000 div ided into 10,000 shares of ` 10 each. It issued
5,000 to the public for subscription. Payable as follows:On Application
` 3\share
On Allotment
` 4\share
On First call
` 1.5\share
On Final call
` 1.5\ share
Company pays ` 1,000 as share issue expense.
4,800 shares were subscribed and duly allotted by the company.
You are required to pass necessary journal entries in each of the following case .
Solutions:Date
Journal Entries in the Books of Jannat Ltd.
Particulars
Bank A\c
Dr.
To Equity share Application A\c
(Being equity share application m oney received on 4,800 Share @ ` 3 each)
Equity share Application A\c
Dr.
To Equity Share Capital A\c
(Being transfer of equity share application m oney to share capital account.
Equity share Allotment A\c
Dr.
To Equity share Capital A\c
(Being equity share allotm ent m oney due on 4,800 Share @ ` 4 each)
Bank A\c
Dr.
To Equity share Allotment A\c
(Being equity share allotm ent m oney received on 4,800 Share @ ` 4 each)
Equity share First call A\c
Dr.
To Equity share Capital A\c
(Being equity share first call m oney due on 4,800 Share @ ` 1.5 each)
Bank A\c
Dr.
To Equity share first call A\c
(Being equity share first call m oney received on 4,800 Share @ ` 1.5 each)
Equity share Final Call A\c
Dr.
To Equity share Capital A\c
(Being equity share second & Final call m oney due on 4,800 Share @ ` 1.5each)
Bank A\c
Dr.
To Equity share Final call A\c
(Being equity share second & Final call m oney due on 4,800 Share @ ` 1.5each)
Dr. `
14,400
Cr. `
14,400
14,400
14,400
19,200
19,200
19,200
7,200
19,200
7,200
7,200
7,200
7,200
7,200
7,200
7,200
8. OVER SUBSCRIPTION
In actual practice, issue of shares is either under or over subscribed. If an issue is over- subscribed, some
applicants may be rejected and application money refunded and in respect of others, only a part of the shares
applied for may be allotted and the excess amount received can be utilized towards allotment or call money
which has fallen or will soon fall due for payment.
The entries are as follows:On Refund of application money to applicants to whom shares have not been allotted:
Share Application A\c
To Bank A\c
Dr.
When only a part of shares applied for are allowed:
Share Application A\c
Dr. (with total amount received on application)
To Share Allotment A\c
(Surplus amount adjusted on amount due on allotment)
To Share Call A\c
(Surplus amount adjusted on amount due on Call)
To Bank A\c
(Surplus amount not adjusted are refunded)
Illustrations: 4.
Jannat Limited registered with an authorized capital of ` 1, 00,000 div ided into 10,000 shares of ` 10 each. It issued
5,000 to the public for subscription. Payable as follows:-
8 CORPORATE ACCOUNTIN G
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
On Application
` 3\share
On Allotment
` 4\share
On First call
` 1.5\share
On Final call
` 1.5\ share
6,000 shares were subscribed by the public; company decided to allot only 5,000 shares and 1,000 shares are
refunded to the public.
Company pays ` 1,000 as share issue expense.
You are required to pass necessary journal entries in each of the following case .
Solutions:Date
(Journal Entries in the Books of Jannat Ltd.)
Particulars
Bank A\c
Dr.
To Equity share Application A\c
(Being equity share application m oney received on 5,000 Share @ ` 3 each)
Equity share Application A\c
Dr.
To Equity Share Capital A\c
To Bank A\c
(Being transfer of equity share application m oney to share capital account and
excess m oney on 1,000 share were refunded)
Equity share Allotment A\c
Dr.
To Equity share Capital A\c
(Being equity share allotm ent m oney due on 5,000 Share @ ` 4 each)
Bank A\c
Dr.
To Equity share Allotment A\c
(Being equity share allotm ent m oney received on 5,000 Share @ ` 4 each)
Equity share First call A\c
Dr.
To Equity share Capital A\c
(Being equity share first call m oney due on 5,000 Share @ ` 1.5 each)
Bank A\c
Dr.
To Equity share first call A\c
(Being equity share first call m oney received on 5,000 Share @ ` 1.5 each)
Equity share Final Call A\c
Dr.
To Equity share Capital A\c
(Being equity share second & Final call m oney due on 5,000 Share @ ` 1.5 each)
Bank A\c
Dr.
To Equity share Final call A\c
(Being equity share second & Final call m oney due on 5,000 Share @ ` 1.5 each)
Dr. `
18,000
Cr. `
18,000
18,000
15,000
3,000
20,000
20,000
20,000
20,000
7,500
7,500
7,500
7,500
7,500
7,500
7,500
7,500
9. TERMS OF ISSUE
Share may be issued at a price expressed as follows: At Par: If the amount payable on share is equal to the nominal value of that share.
 At Premium: If the amount payable on share is more than the nominal value of that share.
 AT Discount: If the amount payable on share is less than the nominal value of that share.
The share may be issued at Par, Premium or Discount may be fall payable in lump-sum or in installment.
9.2 ISSUED AT PREMIUM
When a company issues its securities at a price more than the face value, it is said to be an issue at a premium.
Premium is the excess of issue price over face value of the security. It is quite common for the financially strong
and well-managed companies to issue their shares at a premium, i.e. at an amount more than the nominal or par
value of shares. Thus, where a share of the nominal value of ` 100 is issued at ` 105, it is said to have been issued
at a premium of 5%.
When the issue is at a premium, the amount of premium may technically be called at any stage of share capital
transactions. However, premium is generally called with the amount due on allotment, sometimes with the
application of money and rarely with the call money.
9 CORPORATE ACCOUNTIN G
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
When shares are issued at premium, the premium amount is credited to a separate account “Securities Premium
Account” because it is not apart of share capital. Rather, it represents a gain of a capital nature to the company.
Securities Premium shown in the liabilities side of Balance Sheet under the head Reserves & Surplus. Acco rding to
Companies Act, Securities Premium can only be used for the following purpose:
1. To issue fully paid-up Bonus Share
2. To Write-off preliminary expense
3. To write-off the expense of, or commission paid, or discount allowed on any of the securities or debentures
of the company.
4. To pay premium on redemption of preference share or debentures of the company.
When amount due on share are called-up in lump sum then the called-up also include securities premium the
journal entries:Bank A\c
Dr. (Total amount received towards share capital and premium)
To Share capital A\c
(Amount received towards share capital)
To Securities premium A\c
(Amount received towards premium)
(Being due amount on ………..share of `..Each along with Rs… Of premium received)
When amount due on share are called-up in installment the securities premium can be collected in any of the
following:
 On Application Money.
 On Allotment Money
 On Call Money
For this purpose following accounting treatment should be done;WHEN SECURITIES PREMIUM COLLECTED ON APPLICATION MONEY
 Bank A\c
Dr.
To Share Application A\c
(Being Share application money received on…….share of ` …..each, along with securities premium)
 Share Application A\c
Dr.
To Share Capital A\c
To Securities premium A\c
(Being Share application money credited to share capital account and securities premium account)
WHEN SECURITIES PREMIUM COLLECTED ON ALLOTMENT MONEY
 Share Allotment A\c
Dr.
To Share Capital A\c
To Securities premium A\c
(Being Share allotment money and securities premium due on ……….share @ ……..each)
 Bank A\c
Dr.
To Share Allotment A\c
(Being Share allotment money received on…….share of ` …..each, along with securities premium)
WHEN SECURITIES PREMIUM COLLECTED ON ALLOTMENT MONEY
 Share Call A\c
10 CORPORATE ACCOUNTING
Dr.
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
To Share Capital A\c
To Securities premium A\c
(Being Share call money and securities premium due on ……….share @ ……..each)
 Bank A\c
Dr.
To Share Call A\c
(Being Share call money received on…….share of ` …..each, along with securities premium)
Illustrations: 5.
Jannat Ltd. Inv ited applications for 10,000 Equity shares of ` 100 each at a premium of ` 10/share payable as follows:On
On
On
On
Application
Allotment
First Call
Final Call
` 20\share
` 30\share
` 30\share
` 20\share
The entire share were applied for and allotted. Journalize the transactions, assuming all sums due were receiv ed;
and also prepares cash book.
Solutions:
Date
Receipts
To Equity Share Application A\c
To Equity Share Allotment A\c
To Equity Share First Call A\c
To Equity Share Final Call A\c
`
Cash Book
Date
2,00,000
4,00,000
3,00,000
2,00,000
11,00,000
`
Payments
By Balance C\d
Journal Entries in the Books of Jannat Ltd
Particulars
Equity share Application A\c
Dr.
To Equity Share Capital A\c
(Being transfer of equity share application m oney to share capital account)
Equity share Allotment A\c
Dr.
To Equity share Capital A\c
To Securities Premium A\c
(Being equity share allotm ent m oney due on 10,000 Share @ ` 30 each along with
am ount of securities premium of ` 10/share )
Equity share First call A\c
Dr.
To Equity share Capital A\c
(Being equity share first call m oney due on 10,000 Share @ ` 30 each)
Equity share Final Call A\c
Dr.
To Equity share Capital A\c
(Being equity share second & Final call m oney due on 10,000 Share @ ` 20 each)
11,00,000
11,00,000
L.F
Dr. `
2,00,000
Cr. `
2,00,000
4,00,000
3,00,000
1,00,000
3,00,000
3,00,000
2,00,000
2,00,000
Note: - Since cash book is prepared for cash and Bank transaction, so that all those transaction of cash and book
should be recorded through cash book and no need of passing journal entry for the same
10. ISSUED AT DISCOUNT
A company may also issue its securities at premium; Means that, at an amount less than the nominal or par value
of shares. The excess of the nominal value over the issue price represents discount on the issue of shares. For
examples, when a share of the nominal value of ` 100 is issued at ` 98, it is said to have been issued at discount
and the excess amount of nominal value over issue price of such share that is ` 2 is termed as discount on issue of
shares.
But before issuing securities at discount the following provisions of Indian Companies Act must be adhered :1. The issue of shares at a discount is authorized by an ordinary resolution passed by the company at its annual
general meeting and sanctioned by the Company Law Board.
11 CORPORATE ACCOUNTING
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
2. The resolution must specify the maximum rate of discount at which the shares are to be issued but the rate
of discount must not exceed 10% of the nominal value of shares. The rate of discount can be more than 10%
of the board is convinced that a higher rate is called for under special circumstances of the case.
3. At least one year must have elapsed since the company was entitled to commence the business.
4. The shares are of a class, which has already been issued.
5. The shares are issued within two months from the date of receiving sanction for the same from the central
government.
The clear implications of the restriction placed on the issues of shares at a discount are that.
 A new company cannot issue shares at a discount; and
 A new class of shares cannot be issued at a discount.
In case a company issues shares at a discount, its every prospectus concerning the public issue of shares must
clearly state the amount of discount allowed on the issue of shares or of the balance of discount not written off
at the date of prospectus.
Whenever shares are issued at a discount the amount of discount is brought into the books at the time of
allotment by debiting an account called “Discount on the issue of shares Account”. Therefore, the journal entry to
record discount on the issue of shares is as given below:
Bank A\c
Dr. (Total amount received towards share capital and premium)
Discount on Issue of shares
Dr. (Amount of Discount)
To Share capital A\c
(Amount received towards share capital)
(Being due amount on ………..share of `..Each along with Rs… Of premium received)
When amount due on share are called-up in installment the Discount on issue of shares may be given in any of
the following:
 On Application Money
 On Allotment Money
 On Call Money
For this purpose following accounting treatment should be done;WHEN DISCOUNT IS GIVEN ON APPLICATION MONEY
 Bank A\c
Dr.
To Share Application A\c
(Being Share application money received on…….share of ` …..each)
 Share Application A\c
Dr.
Discount on issue of Shares
Dr.
To Share Capital A\c
(Being Share application money credited to share capital account)
WHEN DISCOUNT IS GIVEN ON ALLOTMENT MONEY
 Share Allotment A\c
Discount on issue of Shares
To Share Capital A\c
(Being Share allotment money due)
 Bank A\c
To Share Allotment A\c
(Being Share allotment money received)
12 CORPORATE ACCOUNTING
Dr.
Dr.
Dr.
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
WHEN DISCOUNT IS GIVEN ON ALLOTMENT MONEY
 Share Call A\c
Discount on issue of Shares
To Share Capital A\c
(Being Share call money due)
 Bank A\c
To Share Call A\c
(Being Share call money received)
Dr.
Dr.
Dr.
Illustrations: 6.
Jannat Ltd. Inv ited applications for 10,000 Equity shares of ` 100 each at a discount of ` 10/share payable as follows:On
On
On
On
Application
Allotment
First Call
Final Call
` 20\share
` 30\share
` 30\share
` 20\share
The entire share were applied for and allotted. Journalize the transactions, assuming all sums due were receiv ed;
and also prepares cash book.
Solutions:
Date
Receipts
To Equity Share Application A\c
To Equity Share Allotment A\c
To Equity Share First Call A\c
To Equity Share Final Call A\c
`
Date
2,00,000
2,00,000
3,00,000
2,00,000
9,00,000
`
Payments
By Balance C\d
Journal Entries in the Books of Jannat Ltd
Particulars
Equity share Application A\c
Dr.
To Equity Share Capital A\c
(Being transfer of equity share application m oney to share capital account)
Equity share Allotment A\c
Dr .
Discount on issue of share A\c
Dr.
To Equity share Capital A\c
(Being equity share allotm ent m oney due on 10,000 Share @ ` 30 each along with
am ount of securities premium of ` 10/share )
Equity share First call A\c
Dr.
To Equity share Capital A\c
(Being equity share first call m oney due on 10,000 Share @ ` 30 each)
Equity share Final Call A\c
Dr.
To Equity share Capital A\c
(Being equity share second & Final call m oney due on 10,000 Share @ ` 20 each)
9,00,000
9,00,000
L.F
Dr. `
2,00,000
Cr. `
2,00,000
2,00,000
1,00,000
3,00,000
3,00,000
3,00,000
2,00,000
2,00,000
Note: - Since cash book is prepared for cash and Bank transaction, so that all those transaction of cash and book
should be recorded through cash book and no need of passing journal entry for the same
11. CALLS-IN-ARREARS AND CALLS-IN-ADVANCE
11.1 CALLS IN ARREARS
Sometimes shareholders fail to pay the amount due on allotment or calls. The total unpaid amount on one or
more installments is known as Call-in-Arrears or Unpaid-calls. Such amount represents the uncollected amount of
called-up share capital from the shareholders. This amount is deducted from called-up share capital in order to
arrive at paid-up share capital in the liabilities side of Balance sheet.
13 CORPORATE ACCOUNTING
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
Calls-In-Arrears A\c
Dr. (amount of unpaid-calls)
To Shares Allotment A\c
To Shares Calls A\c
(Being calls-in-arrears occurs on ………..shares@......each)
The articles of Association of the company usually empower the board of director to charge interest on Calls -inArrears at a stipulated rate.
According to Table A of AOA interest @ 5% per annum is to be charged on unpaid calls for the period intervening
between the due dates (where default had made) of the call and the time of actual payments.
 For interest due from shareholders
Shareholder’s A\c
Dr.
To Interest on Calls-in-Arrears A\c
(Being interest receivable on calls in arrears)
 For receipt of interest
Bank A\c
Dr.
To Shareholder’s A\c
(Being interest received on calls-in-arrears)
11.2 CALLS IN ADVANCE
Some shareholders may sometimes pay a part, or whole, of the amount not yet called up, such amount is known
as Calls-In-Advance. According to Table A, Interest at the rate of 6% p.a. is to be paid on such advance call money.
This amount is credited in Calls-In-Advance Account.
Bank A\c
Dr.
To Calls-In-Advance A\c
(Being amount on ……..Share@......each received in advance)
When calls become due, Calls-In-Advance account is adjusted at the time of the call.
Calls-In-Advance A\c
Dr.
To Respective Call A\c {for which advance had been received}
(Being Calls-in-advance adjusted on…………call)
The Balance in Calls-In-Advance Account is shown as a separate item on the liabilities side of balance sheet under
the head “share capital” but is not added to the amount of paid-up capital.
JOURNAL ENTRIES FOR INTEREST ON CALLS-IN-ADVANCE
 When Interest due
Interest on Calls-In-Advance
To Shareholder’s A\c
(Being Interest on calls-in-advance due)
 When Interest is paid
Shareholder’s A\c
To Bank A\c
(Being interest paid on calls-in-advance)
Dr.
Dr.
Illustration:-7.
Jannat Ltd. W ith an authorized share capital of ` 2, 00,000 div ided into shares of ` 100 each, issued for subscription
1,000 shares payable as follows:On Application
25% of Face v alue
On Allotment
30% of Face v alue
On First Call
20% of Face Value (three months after allotment)
And balance amount when required.
14 CORPORATE ACCOUNTING
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
The subscription list closed on January 31, 2010 when application money on 1,000 shares was duly receiv ed and
allotment was made on March 1, 2010.
The allotment amount was receiv ed 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.
You are required to giv e journal entries in the books of the Company to record these share capital transactions
assuming that all amounts due were receiv ed within one month of the date they were called.
Solutions:
Date
Jan. 31
March. 1
March. 1
April. 1
June. 1
July . 1
(Journal Entries in the Books of Jannat Ltd)
Particulars
Bank A\c
Dr.
To Equity share Application A\c
(Being equity share application m oney received on 1,000 Share @ ` 25 each)
Equity share Application A\c
Dr.
To Equity Share Capital A\c
(Being Transfer of application m oney on 1,000)
Equity share Allotment A\c
Dr.
To Equity share Capital A\c
(Being equity share allotm ent m oney due on 1,000 Share @ ` 30 each)
Bank A\c
Dr.
To Equity share Allotment A\c
(Being equity share allotm ent m oney received on 1,000 Share @ ` 30 each
after adjusting)
Equity share First Call A\c
Dr.
To Equity share Capital A\c
(Being equity share Final call m oney due on 1,00,000 Share @ ` 20 each after
adjusting)
Bank A\c
Dr.
Calls-In-Arrears A\c
Dr.
To Equity share First call A\c
To Calls-In-Adv ance
(Being equity share first call m oney received on 900 shares sand calls-inadvance on 50 shares @ ` 25 per shares
Dr. `
25,000
Cr. `
25,000
25,000
25,000
30,000
30,000
30,000
30,000
20,000
20,000
19,250
2,000
20,000
1,250
12. PRO-RATA ALLOTMENT
It is the situation where application money for share received is more than the number of shares offered to the
public by a company. When the shares are oversubscribed, the company cannot satisfy all the applicants. It
means that a decision is to be made on how the shares are going to be allotted. In such a critical situation
following three approaches can be adopted by the company:1. To reject the applicants to the extent of issued share; and application money refunded to concerned
shareholder.
2. To Reject some applicants and issue other in some proportion
3. Company may allot shares to the applicants on pro-rata basis: “Pro-rata allotment” means allotments in
proportion of share applied for”
For examples: a company offers to the public 10,000 shares for subscription. The company receives application
for 12,000 shares. If the shares are to be allotted on pro-rata basis, applicants for 12,000 shares are to be allotted
10,000 shares, i.e., on the 12,000:10,000 or 6:5 ratio. Any applicant who has applied for 6 shares will be allotted 5
shares.
Under pro-rata allotment the excess money received on application will be adjusted against the amount due on
allotment and further calls. Surplus money (if any) will be refunded to concerned applicants.
On the occasion of pro-rata allotment of shares the following table is very useful to determines how the pro -rata
allotment has been made.
Category
No. of
Share
No. of
Share
15 CORPORATE ACCOUNTING
(Table showing adjustment to be made)
Amount
Amount
Amount
Amounts
received
due on
adjusted on
Adjusted
Amount
Adjusted
Amounts
refunded
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
applied
TOTAL
allotted
on
application
Application
A*
N*
N**
J*
allotment
A**
on First
Calls
T*
on Final
Call
’*
S*
J* Equal to the number of shares actually subscribed by the public .
A* Equal to the number of shares actually allotted by the company, usually it does not exceeds number of shares issued
earlier.
N* Equal to actual amount received on shares application (i.e. J* X Amount payable per share on Application)
N** Equal to actual amount received towards shares actually allotted by the company (i.e. A* X Amount payable per
share on Application)
A** Excess amount received on application due to pro-rata allotment adjusted towards Share Allotment A\c.
T* Excess amount received on application due to pro-rata allotment adjusted towards Share First Call A\c.
’* Excess amount received on application due to pro-rata allotment adjusted towards Share Final Call A\c.
S* Excess amount received on application due to pro-rata allotment refunded to respective candidate.
Illustration:-8.
Jannat Ltd. Issued 1, 00,000 equity shares of ` 10 each; payable as follows:
On Application
` 5/shares
On Allotment
` 3/shares
On Final Call
` 2/shares
Application for share were receiv ed for 1, 50,000 share. The direc tors of Jannat Ltd. Decided to allot the share as
follows:
Share Applied
Share Allotted
20,000
10,000
40,000
30,000
50,000
50,000
40,000
10,000
1, 50,000 shares
1, 00,000 shares
The excess amount receiv ed on application will be adjusted on amount due on allotment and further call.
Pass necessary journal entries in the books of Jannat Ltd.
Solutions:
Categ
ory
No. of
Share
applied
No. of
Share
allotted
1.
2.
3.
4.
Total
20,000
40,000
50,000
40,000
1,50,000
10,000
30,000
50,000
10,000
1,00,000
(Table showing adjustment to be made)
Amount
Amount
Excess
Amount
receiv ed on
due on
Money
adjusted
application Application
on
allotment
1,00,000
50,000
50,000
30,000
2,00,000
1,50,000
50,000
50,000
2,50,000
2,50,000
Nil
Nil
2,00,000
50,000
1,50,000
30,000
7,50,000
5,00,000
2,50,000
1,10,000
(Journal Entries in the Books of Jannat Ltd)
Particulars
Bank A\c
Dr.
To Equity share Application A\c
(Being equity share application m oney received on 1,50,000 Share @ ` 5 each)
Equity share Application A\c
Dr.
To Equity Share Capital A\c
To Equity Share Allotment A\c
To Equity Share Final Call A\c
To Bank A\c
(Being transfer of equity share application m oney to share capital account and excess
m oney adjusted on allotm ent and on further call and surplus m oney refunded))
Equity share Allotment A\c
Dr.
To Equity share Capital A\c
(Being equity share allotm ent m oney due on 1,00,000 Share @ ` 3 each)
Bank A\c
Dr.
To Equity share Allotment A\c
16 CORPORATE ACCOUNTING
Amount
Adjusted
on Final
Call
20,000
Nil
Nil
20,000
40,000
Dr. `
7,50,000
Amounts
refunded
Nil
Nil
Nil
1,00,000
1,00,000
Cr. `
7,50,000
7,50,000
5,00,000
1,10,000
40,000
1,00,000
3,00,000
3,00,000
1,90,000
1,90,000
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
(Being equity share allotm ent m oney received on 1,00,000 Share @ ` 3 each after
adjusting)
Equity share Final Call A\c
Dr.
To Equity share Capital A\c
(Being equity share Final call m oney due on 1,00,000 Share @ ` 2 each after adjusting)
Bank A\c
Dr.
To Equity share Final call A\c
(Being equity share Final call m oney due on 1,00,000 Share @ `2 each after adjusting)
2,00,000
1,60,000
2,00,000
1,60,000
At the time of pro-rata allotment shareholder gets lesser shares than he\she applied for, in this regards students
should take care that the said shareholder must pay some excess amount then he actually had to pay. So that the
excess amount must be adjusted against amounts due on Allotments and further calls, some author adjusted the
same via calls in advance account both are identical. You can do whatever you think fit.
13. SHARES ISSUED OTHER THAN CASH CONSIDERATION
Sometimes a company issues its share to which the company purchased some assets and in purchase
Consideration Company issues its securities to the vendor of assets. Such Share may be issued at Par, Premium
and at Discount. And also company issue share to its promoter for their harsh service ren dered before
incorporation of the said company. Both issue of share is termed as “shares issued other than cash
consideration”.
e.g., Purchase of Plant and payment made by Issuing Equity share & Issued to Promoters
Calculation of No. of share to be issued in each of the following Case
(a) When issued at Par
Amount due to vendor
Issued Price(Face Value)
Amount due to vendor
Issued Price(Face Value + Premium)
Amount due to vendor
Issued Price(Face Value - Discount)
(b) When issued at Premium
(c) When issued at Discount
(d) When Assets are Purchased
(e) When Share are issued to Promoters for his
service
Assets A\c
To Share Capital A\c
Goodwill A\c
To Share Capital A\c
Dr.
Dr.
Note: - Within one month of such Allotment, the company must produce a written contract of sale of service to
registrar before making such Allotment.
Illustrations:-9.
Jannat Ltd. Purchased Plant for ` 1, 00,000 from Anurag Traders. 20% amount due to Anurag Traders is paid by
cheque and rest by issuing equity shares of ` 10 each. You are required to show accounting treatment in each of
the following case.
(a) W hen equity shares issued at par
(b) W hen equity shares issued at premium of ` 2.5\shares
(c) W hen equity share issued at discount of ` 2\shares
Solutions:
Journal Entries in the Books of Jannat Ltd.
Particulars
Plant A\c
To Anurag Traders A\c
(Being Plant purchased from Anurag traders for ` 1,00,000 on credit)
Anurag Traders A\c
To Bank A\c
17 CORPORATE ACCOUNTING
Dr.
Dr. `
1,00,000
Cr. `
1,00,000
Dr.
20,000
20,000
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
(Being 20% am ount due to Anurag Traders paid by cheque)
Case (a) when shares issued at Par
No. of Share Issued = Amount due to Vendor/Issue price of each shares = 80,000/10 = 8,000 shares
Anurag Traders A\c
To Equity Shares Capital A\c
(Being amount due to Anurag is paid by issuing 8,000 equity shares of ` 10 each)
Dr.
80,000
80,000
Case (b) when shares issued at Premium
No. of Share Issued = Amount due to Vendor/Issue price of each shares = 80,000/ (10+2.5) = 6,400 shares
Anurag Traders A\c
To Equity Shares Capital A\c
(Being amount due to Anurag is paid by issuing 6,400 equity shares of ` 12.5 each)
Dr.
80,000
80,000
Case (c) when shares issued at Discount
No. of Share Issued = Amount due to Vendor/Issue price of each shares = 80,000/ (10-2) = 10,000 shares
Anurag Traders A\c
To Equity Shares Capital A\c
(Being amount due to Anurag is paid by issuing 10,000 equity shares of ` 8 each)
Dr.
80,000
80,000
Illustrations:-10.
Jannat Ltd was incorporated with an authorized share capital of 1, 00,000 equity shares of ` 10 each. The directors
decided to allot 10,000 shares credited as fully paid to the promoters of their serv ices.
The company also purchased land & Building from Pritam Traders for ` 4, 00,000 payable in fully paid-up shares of the
company. The balances of the shares were issued to the public, which were fully subscribed and paid for.
You are required to pass Journal Entries and to prepare the balance sheet.
Solutions:
Journal Entries in the Books of Jannat Ltd
Particulars
Goodwill A\c
Dr.
To Equity Share Capital A\c
(Being the issue of 10,000 shares of ` 10 each fully paid to the prom oters for their services)
Land & Building A\c
Dr.
To Pritam Traders A\c
(Being the Land & Building purchased from Pritam Traders)
Bank A\c
Dr.
To Equity Shares Capital A\c
(Being the issue of 50,000 shares of ` 10 each)
Dr. `
1,00,000
4,00,000
Cr. `
1,00,000
4,00,000
5,00,000
5,00,000
Balance Sheet of Jannat Ltd
(As at December 31, 2005)
Liabilities
Share Capital:
Authorized Share Capital:
…….. Equity share of ` …. each
Issued Share Capital:
1,00,000 equity shares of ` 10 each
Subscribed, Called-up, Paid-up share
capital:
1,00,000 equity shares of ` 10 each
(50,000 shares issued for other than cash
consideration)
Reserv es and Surplus:
Secured Loans
Unsecured Loans
Current Liabilities and Prov isions
`
……………
10,00,000
10,00,000
`
1,00,000
4,00,000
5,00,000
Miscellaneous Expenditures
Profit and Loss Account (Dr.)
10,00,000
18 CORPORATE ACCOUNTING
Assets
Fixed Assets
Goodwill
Land & Building
Inv estments
Current Assets Loans & Adv ances
(a) Current Assets
Bank
(b) Loans & Adv ances
10,00,000
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
Forfeiture of Share actually means that taking away of share on the break of a condition. Sometime a shareholder
is not paid the amount due on the share which he held, in this case the Directors of Company have empowered
by its Articles of Association to forfeit after giving sufficient notice. Forfeitures of shares are an action taken by
the company to cancel the shares. When share are forfeited, the title of such shareholder is extinguished but the
amount received on such forfeited share will not be refunded to such defaulting shareholder.
BASICS TERMS RELATED TO ACCOUNTING TREATMENT FOR FORFEITURE SHARE:
1. Called-Up amount of forfeited shares: - It is the amount which was actually called-up by the company.
E.g. Pritam a shareholder holding 5,000 share of ` 10 each failed to pay the amount due on first call.
Company has called-up ` 2\shares on application;
the balance when required.
`
2\share on allotment; ` 3\share on first call and
Here, the called-up amount on forfeited share will be ` 7\share.
2. Amount already received on forfeited share: - It is the amount which was actually paid by the shareholder
whose shares were forfeited.
E.g. Pritam a shareholder holding 5,000 share of ` 10 each failed to pay the amount due on first call.
Company has called-up ` 2\shares on application;
the balance when required.
`
2\share on allotment; ` 3\share on first call and
Here, Amount already received on forfeited share will be ` 20,000 (i.e. 5,000 share X ` 4\share)
The forfeited amount on shares not yet reissued, should be shown in the Balance Sheet as an addition to the
share capital.
3. Amount due but not has been received on forfeited share: - It is the amount which is not paid by the
defaulting shareholder.
E.g. Pritam a shareholder holding 5,000 share of
`
Company has called-up ` 2\shares on application;
the balance when required.
10 each failed to pay the amount due on first call.
`
2\share on allotment; ` 3\share on first call and
Here, Amount due but not has been receive on forfeited share will be ` 15,000 (i.e. 5,000 share X ` 3\share)
First of all we know about share can be issued at Par, Premium or Discount. So that the accounting treatment of
forfeiture share according to different situation is as follows:13.1 WHEN ISSUED AT PAR
(When Calls-in-Arrears Account is not maintained)
Share Capital Account
Dr. [With called-up amount of shares forfeited]
To Forfeited Share Account
[Amount received on forfeited share]
To Share Allotment Account* [Amount unpaid on allotment on shares forfeited]
To Share Call Account*
[Amount unpaid on calls on shares forfeited]
(When Calls-in-Arrears Account is maintained)
Share Capital Account
Dr. [With called-up amount of shares forfeited]
To Forfeited Share Account
[Amount received on forfeited share]
To Calls-in-Arrears Account [Amount unpaid on allotment and calls]
19 CORPORATE ACCOUNTING
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
Illustrations: 11.
Jannat Ltd. Forfeited 300 equity shares of ` 10 fully called-up, held by Mr. X for non-payment of final call @ ` 4 each.
Howev er, he paid application money @ ` 2 per share and allotment money @ ` 4\share. These shares were originally
issued at par.
Giv e journal entries for forfeiture of share in each of t he following case.
A. W hen calls-in-arrears account is not maintained
B. W hen calls-in-arrears account is maintained
Solutions:-
A. WHEN CALLS-IN-ARREARS ACCOUNT IS NOT MAINTAINED
(Journal entries in the books of Jannat Ltd)
Particulars
Equity Share Capital A\c
Dr.
To Equity Share Final Call A\c
To Share Forfeitures A\c
(Being the forfeitures of 300 equity shares of ` 10 each fully called-up for non-payment of
final call money @ ` 4 each)
Dr. `
3,000
Cr. `
1,200
1,800
B. WHEN CALLS-IN-ARREARS ACCOUNT IS MAINTAINED
(Journal entries in the books of Jannat Ltd)
Particulars
Equity Share Capital A\c
Dr.
To Calls-in-Arrears A\c
To Share Forfeitures A\c
(Being the forfeitures of 300 equity shares of ` 10 each fully called-up for non-payment of
final call money @ ` 4 each)
Equity Share Capital A\c
Dr.
To Calls-in-Arrears A\c
To Share Forfeitures A\c
(Being the forfeitures of 300 equity shares of ` 10 each fully called-up for non-payment of
final call money @ ` 4 each)
Dr. `
3,000
Cr. `
1,200
1,800
3,000
1,200
1,800
13.2 WHEN ISSUED AT PREMIUM
Share Capital Account
Dr. [With called-up amount of shares forfeited]
Securities Premium Account * Dr. [Amounts of premium not paid]
To Forfeited Share Account
[Amount received on forfeited share]
To Share Allotment Account [Amount unpaid on allotment on shares forfeited]
To Share Call Account
[Amount unpaid on calls on shares forfeited]
If the premium has already received by the company, it cannot be cancelled even if the if the shares are
forfeited in the future
Illustrations: 12.
Jannat Ltd. Forfeited 200 equity shares of ` 10 each fully called-up for non-payment of final call @ ` 3\shares. These
shares were originally issued at a premium of 10%. Application, Allotment and first call money per share @ ` 2, ` 4
(including premium) and ` 2 respectiv ely were receiv ed in time.
Giv e Journal entries in each of the following case.
A. W hen calls-in-arrears account is not maintained
B. W hen calls-in-arrears account is maintained
Solutions:-
A. WHEN CALLS-IN-ARREARS ACCOUNT IS NOT MAINTAINED
20 CORPORATE ACCOUNTING
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
(Journal entries in the books of Jannat Ltd)
Particulars
Equity Share Capital A\c
Dr.
To Equity Share Final Call A\c
To Share Forfeitures A\c
(Being the forfeitures of 200 equity shares of ` 10 each fully called-up for non-payment of
final call money @ ` 3 each)
Dr. `
2,000
Cr. `
600
1,400
B. WHEN CALLS-IN-ARREARS ACCOUNT IS MAINTAINED
(Journal entries in the books of Jannat Ltd)
Particulars
Equity Share Capital A\c
Dr.
To Calls-in-Arrears A\c
To Share Forfeitures A\c
(Being the forfeitures of 200 equity shares of ` 10 each fully called-up for non-payment of
final call money @ ` 3 each)
Dr. `
2,000
Cr. `
600
1,400
Illustrations: 13.
Jannat Ltd. Forfeited 500 equity shares of ` 10 each fully called-up which were issued at a premium of 20%.
Amount payables on shares were:
On Application
` 2\share
On Allotment
` 5\share (including premium)
On First & final Call
` 5\share
Only application money was paid by the shareholders in respect of these shares. Pass necessary journal entries for
the abov e.
Solutions:
(Journal entries in the books of Jannat Ltd)
Particulars
Equity Share Capital A\c
Dr.
Securities Premium A\c
Dr.
To Share Allotment A\c
To Equity Share First & Final Call A\c
To Share Forfeitures A\c
(Being the forfeitures of 500 equity shares of ` 10 each fully called-up, issued at premium of
20%, for non-payment of allotment and call money)
Dr. `
5,000
1,000
Cr. `
2,500
2,500
1,000
13.3 WHEN ISSUED AT DISCOUNT
Share Capital Account
Dr. [With called-up amount of shares forfeited]
To Forfeited Share Account
[Amount received on forfeited share]
To Share Allotment Account [Amount unpaid on allotment on shares forfeited]
To Share Call Account
[Amount unpaid on calls on shares forfeited]
To Discount on Issue of Share A\c [No. of share forfeited X Discount per Share]
When shares are issued at a discount, the Discount on issue of share Account is debited. Therefore, at the time
of forfeitures of shares, Discount on issue of shares will be credited to cancel it.
Illustrations: 14.
Jannat Ltd. Forfeited 200 equity shares of ` 10 each fully called-up for non-payment of final call @ ` 2\shares. These
shares were originally issued at a discount of 10%. Application, Allotment and first call money per share @ ` 2, ` 3 and
` 2 respectively were received in time.
Giv e Journal entries in each of the following case.
A. W hen calls-in-arrears account is not maintained
B. W hen calls-in-arrears account is maintained
Solutions:-
21 CORPORATE ACCOUNTING
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
A. WHEN CALLS-IN-ARREARS ACCOUNT IS NOT MAINTAINED
(Journal entries in the books of Jannat Ltd)
Particulars
Equity Share Capital A\c
Dr.
To Equity Share Final Call A\c
To Share Forfeitures A\c
To Discount on Issue of shares A\c
(Being the forfeitures of 200 equity shares of ` 10 each fully called-up for non-payment of
final call money @ ` 2 each)
Dr. `
2,000
Cr. `
Dr. `
2,000
Cr. `
400
1,400
200
B. WHEN CALLS-IN-ARREARS ACCOUNT IS MAINTAINED
(Journal entries in the books of Jannat Ltd)
Particulars
Equity Share Capital A\c
Dr.
To Calls-in-Arrears A\c
To Share Forfeitures A\c
To Discount on Issue of shares A\c
(Being the forfeitures of 200 equity shares of ` 10 each fully called-up for non-payment of
final call money @ ` 2 each)
400
1,400
200
14. REISSUE OF FORFEITED SHARES
Reissue of forfeited share is not an allotment of share; it is only sale of share. These shares can be re -issued at
any price so long as the total amount received (from the original allottee and the second purchaser) for those
shares is not less than the amount in arrears on those shares.
POINTS TO REMEMBER
 Loss on reissue of forfeited share should not exceed the forfeited amount on forfeited shares.
 If the loss on reissue of forfeited share is less than the amount of forfeited shares, the surplus should be
transferred to Capital Reserve.
 The forfeited amount on shares not yet reissued, should be shown in the Balance Sheet as an addition to the
share capital.
 When only portion of the forfeited share are reissued, then the profit made on reissue of such shares must
be transferred to Capital Reserves.
 When the shares are reissued at a price which is more than the face value of the shares, the excess amount
will be credited to Securities Premium Account.
 When the shares are reissued at a loss, such loss is to be debited to “Forfeited Shares Account”.
 If the reissued amount and forfeited amount (taken together) exceeds the face value of the shares reissued,
it is not necessary to transfer such amount to Securities Premium Account.
 When shares, originally issued at discount, are reissued at a loss to the extent of original discount is debited
to Discount on issue of Shares Account and the balance loss is debited to Forfeited Shares Account.
CALCULATION OF PROFIT ON RE-ISSUE OF FORFEITED SHARES
Students must consider that the credit balance of share forfeited account will not be considered as profit on
reissue of forfeited shares. The credit balance in share forfeited account will not be considered as profit from
reissue of forfeited share until the shares forfeited have been reissued. Suppose 120 shares of a nominal value of
`10 have been forfeited upon which `5\shares was paid-up and transferred to forfeited shares Account.
Afterwards, 50 shares are reissued, ` 6\shares being collected to make them fully paid-up; ` 200 out of shares
forfeited will be credited to Share Capital Account to make up the deficiency on reissued shares, and ` 50 will be
transferred to the Capital Reserves Account being the surplus on reissue of the 50 shares. It would have in the
22 CORPORATE ACCOUNTING
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
forfeited shares account balance equivalent to the amount collected on the remaining 70 forfeited shares which
will be carried forward till these are reissued.
In practical life, share may be forfeited on which varying amounts are un-paid (calls-in-arrears). For instance, if in
the above case 701 shares were forfeited with ` 5 paid-up thereon and 50 shares with ` 7.50 paid-up thereon, the
credit in the forfeited shares account would be ` 725. The amount to be credited to Capital Reserves will depend
on the lot of shares reissued; it will be ` 175 if the shares are those on which ` 7.50 were originally paid.
Illustrations: 16.
Jannat Ltd. Reissued 200 equity shares of ` 10 each@ 7\shares. These shares were originally issued at a discount of
10%. Giv e journal entries.
Solutions:
(Journal entries in the books of Jannat Ltd)
Particulars
Dr. `
Cr. `
Bank A\c
Dr.
1,400
Discount on issue of shares A\c
Dr.
200
Forfeited Shares A\c
Dr.
400
To Equity share Capital A\c
2,000
(Being reissue of 200 equity share @ ` 7 Fully paid-up)
Illustrations: 17.
Pritam who was the holder of 200 preference shares of ` 100 each, on which ` 75\shares has been called up could
not pay his dues on Allotment and First call each at ` 25\shares. The directors of Jannat Ltd. forfeited the abov e
shares and reissued 150 of such shares to Mr. Anurag at ` 65\shares paid-up as ` 75\shares.
Giv e journal entries to record the abov e forfeitures and reissue in the books of the Jannat Ltd.
Solutions:
(Journal entries in the books of Jannat Ltd)
W orking Notes:
Particulars
Dr. `
Cr. `
Preference Share Capital A\c
Dr.
15,000
To preference Share Allotment A\c
5,000
To Preference Share First Call A\c
5,000
To Forfeited Shares A\c
5,000
(Being the forfeitures of 200 pref. shares ` 75 each being called up for non payment of
allotment and first call money)
Bank A\c
Dr.
9,750
Forfeited Shares A\c
Dr.
1,500
To Preference share Capital A\c
(Being reissue of 150 shares at ` 65\shares paid-up as ` 75 shares at ` 65\shares paid-up as `
11,250
75)
Forfeited Shares A\c
Dr.
2,250
To Capital Reserv es A\c
2,250
( Being profit on reissue transferred to Capital Reserv es)
Calculation of amount to be transferred to Capital Reserv es
Forfeited amount per share
= ` 25
Loss on reissue = ( ` 75 - ` 65)
= ` 10
Surplus per share reissued
= ` 15
Transferred to capital Reserv es ` 15 X 150 = ` 2,250 ` 25 X 50 = ` 1,250 should be shown as an addition to share
capital.
Illustrations: 18.
Jannat Ltd issued 3,000 equity shares of ` 10 each payable as ` 3\share on Application, ` 5\shares (including ` 2
Premium) on Allotment and ` 4\share on call. All the shares were subscribed. Money due on all shares was fully
receiv ed excepting Ram, holding 50 shares, failed to pay the Allotment and call money and shyam, holding 100
shares, failed to pay the call money. All those 150 shares were forfeited. Out of those forfeited, 125 shares (including
whole of Ram’s shares) were subsequently reissued to Jadu as fully paid up at a discount of ` 2\shares.
Pass the necessary entries in the Journal of the company to record the forfeitures and reissue of the share. Also
prepare the balance Sheet of the company.
Solutions:
Particulars
23 CORPORATE ACCOUNTING
(Journal entries in the books of Jannat Ltd)
Dr. `
Cr. `
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
Equity Share Capital A\c
Dr.
Securities Premium A\c
Dr.
To Equity Share Allotment A\c
To Equity Share Call A\c
To Forfeited Shares A\c
(Being forfeitures of 150 equity shares for non-payment of allotment and call money on
50 shares and for non-payment of call money on 100 shares)
Bank A\c
Dr.
Forfeited Shares A\c
Dr.
To Equity Share Capital A\c
(Being reissue 125 shares @ ` 8 each)
Forfeited Shares A\c
Dr.
To Capital Reserv es A\c
( Being profit on reissue transferred to Capital Reserv es)
1,500
100
250
600
750
1,000
250
1,250
350
350
Balance Sheet of Jannat Ltd
(As at December 31, 2005)
Liabilities
Share Capital:
Authorized Share Capital:
…….. Equity share of ` …. each
Issued Share Capital:
3,000 equity shares of ` 10 each
Subscribed, Called-up, Paid-up share
capital:
2,975 equity shares of ` 10 each
29,750
Add: Forfeited Shares
150
Reserv es and Surplus:
Securities Premium
Capital Reserv es
Secured Loans
Unsecured Loans
Current Liabilities and Prov isions
`
30,000
Assets
Fixed Assets
Inv estments
Current Assets Loans & Adv ances
(c) Current Assets
Bank
(d) Loans & Adv ances
29,900
Miscellaneous Expenditures
Profit and Loss Account (Dr.)
…………
…
`
….
….
36,150
….
…
5,900
350
….
36,150
36,150
Working Notes:
Calculation of Amount to be transferred to Capital Reserv es
Amount forfeited per share of Ram
` 3 Amount forfeited per share of Shyam ` 6
Less: Loss on reissue per share
` 2 Less: Loss on reissue per share
`2
Surplus
` 1 Surplus
`4
Transferred to Capital Reserv es:
Ram share (50 X ` 1)
` 50
Shyam’s Share (75 X ` 4)
` 300
Total ` 350
Illustrations: 19.
Pritam holds 200 shares of ` 10 each on which he has paid ` 2 as application money. Anurag holds 400 shares of ` 10
each on which he has paid ` 2\share as application money and ` 3\shares as allotment money. Harsh holds 300
shares of ` 10 each and has paid ` 2\shares on application, ` 3\shares on allotment and ` 3 for the first call. They all
fail to pay their arrears on the final call of ` 2\shares and the directors, therefore, forfeited their shares. The shares are
reissued subsequently for ` 12\share fully paid-up.
Journalize the transactions relating to the forfeiture and reissue of shares.
Solutions:
(Journal entries in the books of Jannat Ltd)
Particulars
Share Capital A\c
Dr.
To Share Allotment A\c
To Share first call A\c
To Share Final Call A\c
To Forfeited Shares A\c
(Being forfeiture of 900 shares of ` 10 each for non-payment of allotment, first and final call
money)
Bank A\c
Dr.
24 CORPORATE ACCOUNTING
Dr. `
9,000
Cr. `
600
1,800
1,800
4,800
10,800
G.K Singh
JANNAT’S ACCOUNTANCY FOR +2
To Share Capital A\c
To Securities Premium A\c
(Being the reissue of 9900 shares of ` 10 each @ ` 12)
Forfeited Shares A\c
To Capital Reserv es A\c
( Being profit on reissue transferred to Capital Reserv es)
9,000
1,800
Dr.
4,800
4,800
W orking Notes:
Shareholders
Pritam
Anurag
Harsh
Total
Money
Receiv able
Application
200
400
300
900
Money Receiv ed
Allotment
First Call
400
300
300
700
300
`2
` 1,800
`3
` 2,100
25 CORPORATE ACCOUNTING
`3
` 900
Final Call
`2
-
Money not receiv ed
Allotment
First Call
Final Call
200
200
200
400
400
300
200
600
900
`3
` 600
`3
` 1,800
`2
` 1,800
G.K Singh