COMPANY
ACCOUNT
Share Capital of a Company
Capital:
Generally “capital” means a particular amount of money used in
business for the purpose of earning revenue.
In the context of the company law, this term is used in the following
senses:
(i) Nominal Capital or Authorized Capital:
It means the nominal value of the shares which a company is
authorized to issue by its memorandum.
Example: P Ltd. Has been incorporated with an Authorized
capital of tk.10,00,000 divided into 1,00,000 shares of tk. 10
each.
(ii) Issued Capital:
It is that part of authorized capital which is issued to the public
for subscription and allotment
Example: 60,000 shares of tk10 each.
(iii) Subscribed Capital:
It is that part of the issued capital which has been subscribed by the
public,
Example : 50,000 shares of tk10 each.
(iv) Called-up Capital
It is that part of the subscribed capital which the directors have called up
in order to carry on the business of the company.
Example: Tk.5 per share has been called-up, i.e 60,000xtk 5=
tk3,00,000
(v) Paid-up Capital
It is that part of called up capital which is actually received in cash by the
company.
Example: Tk.2,90,000(one shareholder 5,ooo shares failed to pay the
call@2/- per share)
(vi) Uncalled Capital
It is that part of subscribed capital which has not been called by the
directors. The difference between the subscribed capital and called up
capital is represented by the uncalled capital.
SHARE
The Act defines a share as a share in the share capital of the company.
Each share in a company is distinguished by its appropriate number.
Shares are classified as movable property, transferable in the manner
specified by the articles.
Under the Companies Act 1956, the shares of a company can be of two
classes only
i)
Preference shares
ii)
Equity shares
Preference shares:
Preference are those which satisfy the following two conditions:1) As regards dividends, it must carry a preferential right
to a fixed amount, and
2) As regards capital, in the event of winding up, there must be a
preferential right to be repaid for the amount of capital paid on
such shares.
Preference share can be subdivided in different classes:
(a) cumulative and non-cumulative preference shares
(b) redeemable and non-redeemable preference shares
Cumulative and Non-cumulative Preference Shares
Cumulative Preference Share:
In case of cumulative preference shares, if the profits of the firm in
any year are not sufficient to pay dividend on such shares, the
deficiency accumulates, to be paid out of the profits of subsequent
years.
Non-cumulative preference share:
In case non-cumulative preference shares, dividend is only payable
out of the net profit of each year and the shares do not have the
privilege of accumulation of the amount unpaid dividends.
It should be noted that if the preference shares are not described in
the articles as being of either kind, they should be treated as being
cumulative.
Redeemable and non redeemable preference
shares:
Redeemable preference shares:
Redeemable preference are those, the capital of which may be
refunded by the company after a specified time.
Non-redeemable preference share :
Non-redeemable preference share are those, the capital of which
cannot be refunded before winding-up.
Equity share
Equity shares are those , which are
not preference share.
THE ISSUE OF SHARES:
Share may be issued at a price which is termed as:
i) at par
ii) at a premium
iii) at a discount
AT PAR:
If the price required to be paid to the company for the share is
equal to the nominal value of that share, is called “ at par”.
Example: tk.10 equity share issued at a price of tk.10.
AT PREMIUM:
If the price required to be paid to the company for the share is
more than the nominal value of that share, is called “ at premium”.
Example: tk.10 equity share issued at a price of tk.12.
AT DISCOUNT:
If the price required to be paid to the company for the share is
less than the nominal value of that share, is called “ at discount”.
Example: tk.10 equity share issued at a price of tk.9.
The procedure of issuing shares consists of the
following steps
i)
Issue of prospectus;
ii)
Receipt by the company of applications for shares;
iii) Allotment of shares to applicants; and
iv) Issue of share certificates.
Share payable by installment
Where a company does not require the immediate use of all the
proceeds from share issue, the request to have share payable by
installments is sensible.
In this case, the following are the various stages in share accounting:
1.
2.
3.
4.
5.
Collection of application money.
Allotment of shares
Receipt of allotment money
Share call
Receipt of share call money.
Issues of shares at par
Accounting Entries
1. On receipt of application money
Bank
Share Application
(Being application money received for …. Shares @
tk… each.)
2.
On allotment of share
(a)
Share Application
Share Capital
(Being application money on ….. Shares @ …. each transferred to
share capital as per Board’s Resolution No…. dated…)
Once allotment is made, the applicants will be treated as
shareholders and they are legally liable to pay all monies due on
shares allotted to them. Dues on account of share allotment and
calls are accounted for on an accrual basis. The entry is:
(b)
Share Allotment
Share Capital
(Being allotment money on ……share @ …. Each as per Board’s
Resolution No… dated…)
3. When share are oversubscribed, some applications may be
rejected by the Board of Directors and application money will
be refunded to the applicants along with a letter of regret.
Share Application
Bank
(Being application money on …..shares@ ….. Refunded as per
Board’s Resolution No… dated…)
4. When shares are oversubscribed, in some cases, the board of
directors may prefer to allot less number of shares than applied
for, the excess application money is adjusted against monies
due on allotment.
Share Application
Share Allotment
Calls-in –Advanced
Bank
[Being excess application money adjusted against allotment and
surplus after adjustment transferred to calls-in-advance ( or
refunded) as per Board’s Resolution No… dated…]
5.
On receipts of allotment money
Bank
Share Allotment
(Being allotment money received on ……shares @ ….. Each.)
6. If some shareholders fail to
Account will show a debit balance.
pay
allotment money, Allotment
Calls-in-Arrear
Share Allotment
(Being allotment money not paid transferred to Calls-in Arrear)
7. Making calls:
Share call
Share Capital
(Being call money due on…. Shares @ …each as per Board’s
Resolution No.. dated..)
8. On receipt of call money
Bank
Share call
(Being call money received on share @ …each)
9. non-payment of call money
Calls-in-Arrear
Share Call
(Being call money on …share @...each transferred to Calls-in
Arrear for non payment)
10. On adjustment of Calls-in-Advance, if any
Calls-in-Advance
Share Call
(Being the adjustment for calls-in-Advance)
Example -1
A limited company issued 10,000 share of tk.100 each
payable as tk.20 on application; tk.30 on allotment;
and tk.50 on final call. The public applied for 9,000
shares, which were allotted. All the monies due on
shares were received except the final call on 400
shares.
Pass necessary journal entries(including cash) and
show the Balance Sheet.
Example : 2
Aftab AutoLtd. made as issue of 30,000 shares of tk.10 each payable as tk.3 on
application; tk.5 on allotment; and tk.2 on call. 93,200 shares were applied for
and owing to this heavy over-subscription, allotment were made as under:
(1) Applicants for 21,500 shares( in respect of applications for 2,000 shares or
more) received 10,200 shares,
(2) Applicants for 50,600 shares (in respect of applications for 1,000 shares or
more but less than 2,000 shares ) received 12,600 shares.
(3) Applicants for 21,100 shares (in respect of applications for less than 1,ooo
shares) received 7,200 shares.
Cash received after satisfying the amount due on application was applied towards
allotment and call money and any balance was then returned. All monies due on
allotment and calls were received.
Pass journal entries.
Workings:
Share
Applied
Share
Allotted
Share
Appl.
money
Received
Share
Appl.
Money
Required
21,500
10,200
64,500
30,600
33,900
33,900
50,600
12,600
1,51,800
37,800
1,14,000
63,000
25,200
25,800
21,100
7,200
63,300
21,600
41,700
36,000
5,700
-
93,200
30,000
2.79,600
90,000
1,89,600
1,32,900
30,900
25,800
Excess
Adjust
with
Allotment
Adjust
with
Call-in
Advance
Return
-
-
Issue of shares at a premium
 Share premium amount cannot be distributed as
dividend in cash
 The annual Balance Sheet must disclose the amount
of share premium as a separate item
 Money in share premium account cannot be treated
as free reserve, as they are in the nature of capital
reserve.
Accounting Entries
(i) When premium is collected along with application money
(a) Bank
share application
(the amount received on application)
(being application money received on ……shares @ tk….. Each including
premium of tk….)
(b) Share Application
Share Capital
Share Premium
(being application money on ….shares @ tk… per share transferred to share
capital Account and Share Premium Account as per Board’s Resolution
No…. dated…)
[ All other entries in respect of allotment and calls are same as shares
issued at par]
(ii) When premium is collected along with allotment money:
(a) Bank
Share Application
(Being application money received on ….shares @ tk. … each.)
(b) Share Application
Share Capital
(Being application money transferred to Share capital account on
…..shares @ tk. …. Each as per Board’s Resolution No… dated …)
© Share Allotment
Share Capital
Share Premium
(Being allotment money due on …shares@ tk…each including
premium @tk…each as per Board’s Resolution No…dated..)
Example:3
The authorized capital of a company is 1,00,000 shares of tk.10
each. On April 10,2001, 50,000 shares are issued for subscription
at a premium of tk.2 per share. The share money is payable as
follows: tk.5(including the premium of tk.2) with application, tk.3
on allotment, tk.2 on first call, and tk.2 on final call. The
subscription list closes on May 11, 2001, and the directors proceed
with allotment on May 18, 2001. The shares are fully subscribed
and the application money (including premium) is received in full.
The allotment money is received by June 30, 2001, except as
regards 500 shares. The first call and the second call money is
received by September 30, 2001 and December 31, 2001,
respectively, barring the final call money on 200 shares which is not
Issue of Shares at a discount
Accounting Entries
The entry for discount is generally made at the time of allotment:
Share Allotment
Discount on issue of shares
Share Capital
(Being allotment money due on shares @tk… each as per
Board’s Resolution No… dated…)
Discount on Issue of Shares appears on the asset side of
Balance Sheet and it is gradually written-off against
Income Summary or Share Premium Account
over a
number of years.
Example: 4
Newcomer Ltd. issued 10,000 shares of tk.10 each at a discount of
10% payable as : On Application tk.2; on Allotment tk.4; and on
Final Call tk.3. All shares offered were subscribed for and money
was duly received. Pass entries in the cash book and journal of the
company and also show the Balance sheet on the company.
CALLS-IN ARREAR
(a)
Calls-in-Arrear
Share Allotment
Share Call
(Being Money not paid on allotment and calls transferred to
Calls-in Arrear.)
(b)Bank
Calls-in-Arrear
(Being money collected from defaulting shareholders)
The balance of “Calls-in-Arrear”, at a year end, is shown in
the Balance Sheet as a deduction from respective Share
Capital. It is shown in the Balance Sheet until the share on
which money unpaid are forfeited.
Interest on calls-in-arrear
(a)For interest due
Shareholder
Interest on Calls-in-Arrear
(Being interest due @.....on calls-in-arrear)
(b) When interest is actually realized
Bank
Shareholder
(Being the receipt of interest on calls-in- arrear)
© For transferring interest to Income Summary
Interest on calls-in-arrear
Income Summary
Calls-in-Advance
(a) Share Application
Calls-in-advance
(being excess Application money transferred to calls-in-arrear)
OR
Bank
Calls-in-Advance
(Being call money received for…….. in advance.)
(b) Calls-in-Advance
Calls
(being the adjustment for Call-in-Advance)
It should be noted that Calls-in-Advance does not form a part of the
Company’s share capital and no dividend is payable on such amount. In the
Balance sheet, it should be shown on the liabilities side as “ Calls-in-Advance”
Interest on Calls-in-Advance
(a)For interest due on Calls-in-Advance
Interest on Calls-in-Advance
Shareholder
(Being interest due on calls-in-advance@....)
(b)For payment of interest
Shareholder
Bank
(Being interest on Calls-in-Advance paid)
© For closing interest on Calls-in-Advance
Income Summary
Interest on Calls-in-Advance
(Being interest on calls-in-advance transferred to Income
Summary)
FORFEITURE OF SHARE
When shares are forfeited, the title of such shareholder is
extinguished but the amount paid to date is not refunded to him.
Accounting Entries:
Share Capital
[No of shares x called up value per share]
Calls-in-Arrear
[Amount due]
Forfeited Shares
[Amount already received]
(Being the forfeited of ……..share for non-payment of due money
as per Board’s Resolution No…..dated….)
It should be noted that if forfeited shares were
issued at a premium, the Share Premium
Account will be debited if the amount of
premium has not been received on such shares.
Re-issue of Forfeited Shares:
Forfeited shares can be re-issued at any price so long as the total
amount received for those shares is not less than the amount in
arrear on those shares. In other words, those shares can be reissued at a discount but such discount should not exceed the
forfeited amount.
Example: 5
Mr. Long who was holder of 200 preference shares of tk.100, on
which tk.75 per share has been called up could not pay his dues
on Allotment and First call each at tk.25 each per share. The
directors forfeited the above shares and reissued 150 of such
shares to Mr. short at tk65 per share paid-up as tk.75 per share.
Give Journal Entries.
A ltd invited applications for 10,000 shares of tk.100 each at a
premium of tk.10 per share. The amount is payable as follows: on
application tk.25, on allotment tk.35 (including premium), on first
call tk.25 and on final call tk.25.
The applications were received for 9,000 shares and these were
accepted in full. All money due were received except the first, and
final call money on 200 shares, which were forfeited. Out of these,
100 shares were subsequently re-issued @ tk.90 per share.
You are required to pass journal entry for recording the above
transactions including cash.
A company issued for public subscription 40,000 equity shares of tk.10 each at a
premium of tk.2 per share payable as under:
On application tk.2 per share.
On allotment tk.5 per share.( including premium)
On 1st call tk.2 per share.
On 2nd call tk.3 per share.
Application were received for 60,000 shares. Allotment was made pro-rata to the
applicants for 48,000 shares, the remaining applications being refused and application
money was paid back. Money overpaid on application was utilized towards sums due
on allotment. A to whom 1,600 shares were allotted failed to pay the allotment, first and
second call money and B to whom 2,000 shares were allotted failed to pay the two
calls.
These were subsequently forfeited after the second call was made. All the forfeited
shares were sold to as fully paid up at tk.8 per shares. Show the journal entries required
to record the above transactions and the opening balance sheet of the company.