Class 12 Accounting for Share Capital

Kinds of share capital, issue at par and at a premium, pro-rata allotment, calls in arrears, forfeiture and reissue of shares, and capital reserve.

Key ideas

Authorised capital is the most a company may issue; issued, subscribed, called-up and paid-up capital are each part of the one before.

Preference shares come first for a fixed dividend and repayment; equity shares vote, take what is left and are repaid last.

Securities premium is not revenue: it may pay for bonus shares or write off preliminary expenses and loss on debentures, never dividends.

On forfeiture, debit Share Capital with the amount called up, credit the unpaid calls, and credit Share Forfeiture with what was paid.

On reissue, the discount (at most the amount forfeited) is debited to Share Forfeiture; the rest on those shares goes to Capital Reserve.

Remember

Due on allotment

shares allotted × (allotment money + premium)

Excess application money (pro rata)

(shares applied for − shares allotted) × application money, adjusted on allotment

Calls in arrears

shares not paid for × call per share; paid-up = called-up − arrears

Credited to Share Forfeiture

shares forfeited × capital paid per share

Capital Reserve on reissue

shares reissued × (forfeited per share − discount per share)

Share capital in the balance sheet

subscribed and fully paid + forfeited shares amount

Worked example

Silverline Ltd issued shares of ₹10 each, payable ₹2 on application, ₹3 on allotment and ₹5 on first and final call. A holder of 1,600 shares paid only the application money, and the shares were forfeited after the call. 900 of them were reissued at ₹9 per share, fully paid. Pass the journal entries for the forfeiture, the reissue and the transfer to Capital Reserve.

Working: forfeited ₹3,200; on reissued shares 900 × (₹2 − ₹1) = ₹900 to Capital Reserve; balance ₹1,400 stays in Share Forfeiture

Answer: (i) Equity Share Capital A/c Dr. ₹16,000
To Equity Share Allotment A/c ₹4,800
To Equity Share First and Final Call A/c ₹8,000
To Share Forfeiture A/c ₹3,200
(ii) Bank A/c Dr. ₹8,100
Share Forfeiture A/c Dr. ₹900
To Equity Share Capital A/c ₹9,000
(iii) Share Forfeiture A/c Dr. ₹900
To Capital Reserve A/c ₹900

Accounting for Share Capital

Key ideas

Remember

Watch out

Worked example