Share Capital
Main divisions of share capital
 Nominal or Registered or Authorised
 Issued capital
 Subscribed capital
 Called up capital
 Paid up capital
 Reserve capital
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 arrear xxx
Add Share forfeited xxx
Reserves and surplus
Amount
XXX
XXX
XXX
XXX
Assets
Amount
Types of shares
There are two types of shares:
(i) Equity shares
Equity shares may be with differential rights.
(ii) Preference shares
 Cumulative preference share
 Non cumulative preference shares
 Redeemable preference shares
 Non redeemable preference shares
 Participating preference shares
 Non participating preference shares
Stock
As per section 94(1)(c) of the Companies Act 1956,
when all the shares of a company have been fully
paid up, they may be converted into stock if so
authorised by the Articles of Association.
Stock is another type of unit of capital of a company.
Conversion of shares into stock is made because it is a
convenient method of denoting the capital of a
company.
Difference between shares and stocks
Shares
1. Shares may be fully paid up or
partly paid up.
2. Shares may be issued when a
company is incorporated.
3.
Shares cannot be divided
below the face value of each
share.
4. Shares are serially numbered.
5.
Shares
are
of
equal
denomination.
6. Shares are always registered
and are not transferable by
mere delivery.
Stocks
1. Stocks are always fully paid up.
2. Stocks cannot be issued at
incorporation. Only fully paid
shares can be converted into
stock.
3. Stocks can be issued or
transferred in fractional parts.
Hence a convenient method of
transferring.
4. Stocks are not numbered.
5. Stocks may be divided into
unequal amounts.
6. Stock may be registered or
unregistered.
Unregistered
stock can be transferred by
mere delivery.
Issue of shares
Terms of issue of shares
 Application of shares
 Allotment of shares
 Calls on shares
Shares can be issued either at
1. Par
2. Premium
3. Discount
Journal entries for issue of share
capital
1. On receipt of application money:
Bank A/c Dr.
To share application A/c
(Being the application money on …shares @Rs….per
share)
2. (a) On allotment of shares:
Share application A/c Dr.
To share capital A/c
(Being the application money transferred to share
capital A/c)
2. (b) Those applicants who could not be allotted
any share, their application money will be
returned.
Share application A/c Dr.
To bank A/c
(Being the application money of shares returned)
3. On the allotment of shares, the allotment money
becomes due to the company.
Share allotment A/c Dr.
To share capital A/c
(Being the share allotment money due on …shares @
Rs….per share)
4. On receipt of allotment money.
Bank A/c Dr.
To share allotment A/c
(Being the receipt of allotment money)
5. On making the first call due from shareholders
Share first call A/c Dr.
To share capital A/c
(Being the first call money due on…shares @ Rs…per
share )
6. On receipt of the call money.
Bank A/c Dr.
To share first call A/c
(Being share first call money…shares @Rs…per share
received)
Note: Similar entries will be passed for second, third
and final call if any.
Issue of shares for purchase of assets
(i.e consideration other than cash)
If the shares have been allotted to any person or firm
from whom the company has purchased any asset:
Asset A/c Dr.
To share capital A/c
(Being…shares allotted…in consideration other than
cash for purchase of an asset for the company)
This fact should also be disclosed in the B/S while
showing the issued subscribed and paid up capital.
Issue of shares at premium
A company may issue shares at a premium i.e. at a
value greater than its face value.
Premium so received shall be credited to a separate
account called Securities Premium Account.
Journal entry for issue of shares at
premium
(a) If the premium is paid with application money.
(i)
Bank A/c Dr.
To share application A/c
(Being share application money along with premium
received)
(ii)
Share application A/c Dr.
To share capital A/c
To securities premium A/c
(Share application money transferred to share capital
A/c and securities A/c)
(b) If the securities premium is received along with
the allotment money.
(i)
Share allotment A/c Dr.
To share capital A/c
To securities premium A/c
(Being the allotment money and securities premium
money due on…shares)
(ii)
Bank A/c Dr.
To share allotment A/c
(Being the receipt of allotment alongwith share premium
account)
(c) If securities premium is to be received along with
different calls then it will be credited to Securities
Premium account at the time of passing the due
journal entry.
Purposes for which Securities Premium A/c
may be applied by the company-Sec 78
1.
2.
3.
4.
5.
As
For the issue of fully paid bonus shares to the
members of the company.
For writing off preliminary expenses of the company.
For writing off the expenses of the commission paid
or discount allowed on any issue of shares or
debentures of the company.
For providing premium payable on the redemption of
any redeemable preference shares or debentures of
the company
For purchase of its own shares (buyback )
(Section 77 A)
per Section 78 Securities premium cannot be utilised
for payment of dividend.
Issue of shares at a discount
A company can issue shares at a discount i.e. value less
than the face value subject to the following
conditions:
1. The issue of shares at a discount is authorised by a
resolution passed by the company in general meeting
and sanctioned by the Central Govt.
2. The resolution must specify the maximum rate of
discount which should not exceed 10% of the nominal
value of shares or such higher percentage as the
Central Govt. may permit.
3. One year must have elapsed since the date at which
the company was allowed to commence business.
4. Shares issued at a discount must belong to a class of
shares already issued.
5. Issue must take place within two months after the date of
the sanction by the court or within such extended time
as the court may allow.
6. Every prospectus relating to the issue of shares and
every B/S after the issue of shares contain particulars
of the discount allowed and so much of the discount as
has not been written off.
Thus shares cannot be issued at discount if:
(i) It is a new company ;or
(ii) Shares issued are of a new class even though issued
by an old company.
Journal entry for issue of shares at
discount
Discount allowed at the time of allotment:
Share allotment A/c Dr.
Discount on issue of shares A/c
To share capital A/c
Discount on issue of shares will be shown under
miscellaneous head on the assets side of the B/S till
it is completely written off from P&L A/c.
Over Subscription of shares
When the number of shares applied for exceed the
number of shares issued.
Usually the following procedure is adopted:
 Total rejection of some application.
 Acceptance of some applications in full and
 Allotment to the remaining applicants on a pro rata
basis.
Under subscription of shares
When the number of shares applied for are less
than the number of shares issued.
Calls in Arrears
If any amount has been called by the company, either as
allotment or call money and a shareholder has not
paid that money, such amount not received is known
as calls in arrear.
If the company directors want and there is a provision in
Articles of Association , the company can charge
interest @ 5% for the period for which such amount
remained in arrear from the shareholders.
Journal entries for calls in arrear
(i)
(ii)
(iii)
(iv)
(v)
Calls in arrear A/c Dr.
To Relevant call
(Being call money is in arrears)
Bank A/c Dr.
To calls in arrears
(Being amount received)
Shareholders A/c Dr.
To interest on calls in arrear
(Being interest due)
Bank A/c Dr.
To shareholders A/c
(Being interest received)
Interest on calls in arrear A/c Dr.
To P&L A/c
(Being closing the interest on calls in arrears)
Calls in advance
If any call has been made but while paying that call, some
shareholders has paid the amount of the rest of calls
also, then such amount will be called as calls in advance
and will be credited to a separate account known as
calls in advance account.
Generally interest is paid on such calls according to the
provisions of the Articles of Association but such rate
should not exceed 6% per annum.
Calls in advance are not entitled for any dividend
declared by the company.
Calls in advance account is shown on the liabilities side
of the B/S separately from the paid up capital.
Journal entries for calls in advance
(i)
(ii)
(iii)
(iv)
(v)
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 Dr.
(Being transferred to relevant call A/c
Interest on calls in advance A/c Dr.
To Shareholders A/c
(Being interest due on call )
Shareholders A/c Dr.
To bank A/c
(Being interest paid to shareholders)
P&L A/c Dr.
To interest on calls in advance
(Being transferring in expense in P&L A/c)
Forfeiture of shares
 When a shareholder fails to pay calls, the company, if
empowered by its articles, may forfeit the shares.
 Shares once forfeited become the property of the
company and may be sold on such terms as directors
think fit.
 Forfeiture of shares brings about compulsory
termination of membership and the company takes
away the shares from member by way of penalty for non
payment of allotment and/or call money.
 Though the shares are forfeited, in the event of winding
up of the company, the shareholders whose shares are
forfeited but not reissued, are liable as per provisions
of Section 426 of the Companies Act,1956 for the
unpaid calls, due on the date of forfeiture.
Journal entries for forfeiture
Share capital A/c Dr.
Securities Premium A/c Dr.
To Share allotment A/c
To Unpaid calls A/c
To Discount on issue of shares
To Shares forfeited A/c
Share forfeited account balance will be shown on the
liabilities side of the B/S by way of addition to the
paid up share capital till such time that all forfeited
shares are reissued.
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.
 The
same entries (as are passed incase of
forfeiture of shares) will be passed incase of
surrender of shares.
Distinction between surrender
shares and forfeiture of shares
Surrender of shares
1. It is at the initiative of
the
shareholder
concerned.
2. The
procedure
for
reduction of share capital
as provided in Section
100 of the Companies
Act should be followed.
3. The
shareholder
is
estopped
from
questioning validity in
surrender of shares.
of
Forfeiture of shares
1. It is at the instance of
the company.
2. No such procedure is
followed for forfeiture of
shares.
3.
The shareholder can
challenge the defects in
the notice for forfeiture of
shares.
Reissue of forfeited shares
The forfeited shares can be reissued at par or at
premium or discount. If such shares are issued at
a discount then amount of discount should not
exceed the actual amount received on forfeited
shares plus original discount on reissued shares, if
any.
When reissued at par:
Bank A/c Dr.
To share capital A/c
(Being amount received)
When reissued at premium:
Bank A/c Dr.
To share capital A/c
To Securities Premium A/c
When reissued at discount:
(a) When the shares originally issued at par or premium are
reissued at discount.
Bank A/c Dr.
Share forfeited A/c Dr.
To share capital A/c
(b) When the shares originally issued at discount are reissued at
discount.
Bank A/c Dr.
Discount on issue of shares A/c Dr.
Share forfeited A/c Dr.
To share capital A/c
Capital profit on reissue of shares
Case 1- After reissue of all forfeited shares if there is
(a) No balance in shares forfeited account, then there will
be no capital profit.
(b) Credit balance in shares forfeited account, such profit
should be treated as capital profit and the balance will
be transferred to Capital Reserve A/c.
Shares Forfeited A/c DR.
To Capital Reserve A/c
Capital Reserve will be shown on the liabilities side of the
B/S and can be used for writing off capital losses.
Case 2- When all forfeited shares are not reissued:
The amount relating to that part of Shares Forfeited
Account which has not been reissued should be
shown on the liabilities side of the B/S as Shares
Forfeited A/c.
Thank You