ACCOUNTING FOR SHARE CAPITAL

DEFINITION OF A COMPANY
“Company means a company incorporated under this Act or any previous Company
Law” -Section 2(20) of the Companies Act, 2013

“A company is an artificial person, created by law having separate entity with a

perpetual succession and a common seal” - Prof. Haney

A company/joint stock company is an entity incorporated by a group of persons

through the process of law for undertaking a business. It is an artificial person and is
separate from its members/shareholders. It normally has a share capital divided into
units called shares, the owners of which are known as shareholders. It being a
separate from its shareholders, insolvency or death of a member dies not affect the
continuity of the company.

CHARACTERISTICS OF A COMPANY

1. Incorporation: A company is an artificial person created through the process of

law, i.e., the Companies Act either under the present companies Act, 2013 or under
any previous companies Acts.
2. Separate Legal Entity: A company has a separate legal entity which is distinct
and separate from its members. It can hold and deal with any type of property. It can
enter into contracts and even open a bank account in its own name.
3. Artificial person: - A company is called an artificial person because it comes into
existence through law. It can own property, enter in to contract, conduct business,
sue or be sued for its debts and actions.
4. Perpetual Succession: The Company being an artificial person created by law
continues to exist irrespective of the changes in its membership. A company can be
terminated only through law. The death or insanity or insolvency of any member of
the company in no way affects the existence of the company. Members may come and
go but the company continues.
5. Limited Liability: The liability of the members of the company is limited to the
extent of unpaid amount of the shares held by them. In the case of the companies
limited by guarantee, the liability of its members is limited to the extent of the
guarantee given by them in the event of the company being wound up.
6. Transferability of Shares: The shares of a public limited company are freely
transferable. The permission of the company or the consent of any member of the
company is not necessary for the transfer of shares. But the Articles of the company
can prescribe the manner in which the transfer of shares will be made.
7. Management and ownership: A company is not managed by all the members
but by their elected representatives called Directors. Thus, management and
ownership are separate.
8. Common Seal: The Company being an artificial person cannot sign its name by
itself. Therefore, every company is required to have its own seal which acts as official
signatures of the company. Any document which does not carry the common seal of
the company is not binding on the company.
Classification of companies as per Companies Act, 1956

On the
On the On the On the On the
Basis of On the On the
Basis of Basis of Basis of Basis of
INCOR- Basis of Basis of
LIABI- NO. OF NATIO- OWNER-
PORA- CONTROL NATURE
LITY MEMBERS NALITY SHIP
TION
Com-
STA- Panies
TUTORY Limited HOL-
PRI- INDIAN GOVT. ONE-
Com- By DING
VATE Com- Com- MAN
panies SHARES Com-
Com- panies panies Com-
panies panies panies
REGI- Com-
STERED Panies
Com- Limited
panies By PUB- NON- SUB- UNIN-
GUA- FOREIGN CORPO-
LIC GOVT SIDIARY
RANTEE Com- RATED
CHAR- Com- Com- Com-
panies Com-
TERED UNLI- panies panies panies
MITED panies
Com-
panies Com-
panies

Classification of companies as per Companies Act, 2013

Company Company
Limited Limited Limited
company By By
Guarantee Shares

ONE
PRIVATE PUBLIC
PERSON
COMPANY COMPANY
COMPANY
 TYPES OF COMPANIES

PRIVATE COMPANY:- As per Section 2 (68) of Companies Act, 2013, a private

company is one which by is a Articles of Association
 Restricts the right to transfer its shares;
 Limits the number of its members to 200 (exclusive of past and present
employees)
 Prohibits any invitation to the public to subscribe for any securities i.e, shares
or debentures of the company
 The name of every private company must end with the words `Private
Limited`.

PUBLIC COMPANY:- As per Section 2(71) of Companies Act, 2013, a public company
means a company which is not a private company. As per the Indian Companies Act,
a public company is one which:

 A company that is not a private company

 Has a minimum of 7 members and no limit on maximum members
 Has a minimum paid-up capital of 5 lacs, again there is no maximum limit
 Has no restriction on transfer of shares and is not prohibited from inviting the
public to subscribe to its share capital or public deposits.
 A minimum of 3 directors are required and there is no restriction on the
maximum number of directors
 The liability of each shareholder is limited
 It is a compulsory requirement under the Companies Act, 2013 for all the public
companies to add the word „limited‟ after their name.
 A private company that is a subsidiary of a public company, will be considered a
public company

ONE PERSON COMPANY(OPC):- Companies Act, 2013 introduces a a new type of

entity to the existing list i.e., apart from forming a public or private limited company,
the Act enables the formation of a new entity `One Person Company` (OPC). An OPC
means a private limited company with only one person as its member [Section 2
(62)]. Following rules are applicable on OPC

 Only a natural person who is an Indian citizen and resident in India can be a
member of OPC. The term resident in India means a person who has stayed in
India for a period of not less than 182 days immediately preceding one calendar
year.
 One person can form only one OPC
 Its paid up share capital should not exceed Rs. 50 lakhs
 Its average annual turnover of three years should not exceed Rs. 2 crore
 As per Rule 3(5) of the Companies rules 2014, an OPC cannot be formed for
charitable purposes. In other words, it can be formed for business purpose
only.
 An OPC cannot invert itself into public or private company unless a period of 2
years has expired from the date of its incorporation and conversion is
mandatory when the paid up share capital is increased beyond Rs. 50 lacks or
its average annual turnover during the relevant period exceeds Rs. 2 crore.
Benefits of OPC

 OPC is not required to include Cash Flow Statement in its financial statements
 The provisions relating to calling of AGM, Notice for General Meeting, Quorum
for meetings, Proxies etc., shall not apply to OPC.

NATURE AND CLASSES OF SHARES

Shares refer to the units into which the total share capital of a company is divided.
Thus, a share is a fractional part of the share capital and forms the basis of ownership
interest in a company. The persons who contribute money through shares are called
shareholders. As per The Companies Act, a company can issue two types of shares,
namely (1) preference shares, and (2) equity shares (also called ordinary shares).

PREFERENCE SHARES: - According to Section 43 of The Companies Act, 2013, a

preference share is one, which fulfils the following conditions:
(a) That it carries a preferential right to dividend to be paid either as a fixed amount
payable to preference shareholders or an amount calculated by a fixed rate of the
nominal value of each share before any dividend is paid to the equity shareholders.
(b) That with respect to capital it carries or will carry, on the winding up of the
company, the preferential right to the repayment of capital before anything is paid to
equity shareholders.
However, notwithstanding the above two conditions, a holder of the preference share
may have a right to participate fully or to a limited extent in the surpluses of the
company as specified in the Memorandum or Articles of the company. Thus, the
preference shares can be Participating and Non- participating. Similarly, these shares
can be Cumulative or Non-cumulative, and Redeemable or Irredeemable.

EQUITY SHARES:- According to Section 43 of The Companies Act, 2013, an equity

share is a share which is not a preference share. In other words, shares which do not
enjoy any preferential right in the payment of dividend or repayment of capital are
termed as equity/ordinary shares. The equity shareholders are entitled to share the
distributable profits of the company after satisfying the dividend rights of the
preference share holders. The dividend on equity shares is not fixed and it may vary
from year to year depending upon the amount of profits available for distribution. The
equity share capital may be (i) with voting rights; or (ii) with differential rights as to
voting, dividend or otherwise in accordance with such rules and subject to such
conditions as may be prescribed.

TYPES OF SHARE CAPITAL

1. AUTHORISED SHARE CAPITAL: - It is the amount of share capital that a

company is authorized to raise as per its Memorandum of Association during its
span of life. It may include equity share capital, preference share capital or both.
This is maximum amount of capital authorized to be raised by issue of shares and
which the company cannot issue shares beyond the limit unless the capital clause in
the Memorandum is altered. It is just shown as information to members of the
company. It is also called as NOMINAL CAPITAL/REGISTERED. It is never added to
liabilities of the company.
2. ISSUED SHARE CAPITAL: - It is the part of the authorized share capital which
is actually offered to the public for subscription (equity or preference or both) and it
includes the shares taken by the subscribers to the memorandum of association. The
rest of the authorized capital is called un-issued capital. The un-issued capital can be
issued by the company at any time when it requires additional capital

3. SUBSCRIBED SHARE CAPITAL: - It is that part of issued share capital which

has been subscribed/applied by the applicants. The subscribed capital cannot exceed
issued capital of the company. However, it should not be less that 90% of the issued
capital (as per SEBI guidelines).
Subscribed share capital is either equal or less or more than the issued share capital.
If the public does not subscribe the whole of the capital issued then it is said to be
undersubscribed, the balance of the issued capital not subscribed by the public is
called un-subscribed capital. If the amount of share capital is more than the issued
capital, it is said to be oversubscribed.

It will include the followings:

1. Shares allotted for consideration other than cash, bonus shares and the shares
issued to vendors are shown separately.
2. Calls in arrears is shown as deduction from the paid up capital
3. Amount of share forfeited is shown as addition to paid up capital, however,
profit on re-issue of forfeited shares is transferred to Capital reserve Account.

Subscribed capital can be further classified into (1) Subscribed and fully paid and (2)
Subscribed but not fully paid. As per Revised Schedule VI, these two items should be
separately shown in the Notes Accounts.

SUBSCRIBED AND FULLY PAID: - When entire nominal value of a share is called by
the company and also paid up by the share holder, it is said to be `Subscribed and
fully paid`. Ex:- A Ltd has issued 10,000 equity shares of Rs. 10 each. Full amount
was called and paid by all t he shareholders. In this case Notes to Accounts on Share
Capital shall be shown as under.

Notes to Accounts Rs. Rs.

Share capital
Subscribed and fully paid
10,000 Equity shares of Rs. 10 each 1,00,000

SUBSCRIBED BUT NOIT FULLY PAID:- Shares are said to be `Subscribed but not
fully paid-up` under the following two situations: There may be two situations viz (a)
when company has called up the full amount but some shareholders have not paid the
full amount or (b) When company has not called up the full amount. In both the
cases the capital shall be called subscribed but not fully paid. Following examples will
further illustrate these cases.

Example. 1. B. Ltd has issued 10,000 equity shares of 10 each. Full amount was
called but a shareholder holding 100 shares did not pay Rs. 2 on final call. In this
case Notes to Accounts on Share Capital shall be shown as under.
 Notes to Accounts Rs. Rs.
Share capital
Subscribed and fully paid
9, 900 Equity shares of Rs. 10 each 99,000
Subscribed but not fully paid
100 Equity shares of Rs. 10 each 1,000
Less: Calls in arrears (100 X 2) 200
-------- 800
99,800

Example. 2. C. Ltd has issued 10,000 equity shares of 10 each. Till the dater of
balance sheet, Company has called Rs. 8 only. In this case Notes to Accounts on
Share Capital shall be shown as under

Notes to Accounts Rs. Rs.

Share capital
Subscribed but not fully paid
10,000 Equity shares of Rs. 10 each, Rs. 8 called up 80,000

4. CALLED UP CAPITAL: - It means the amount that the shareholders have been
called upon by the company to pay on the shares subscribed by them. It also
includes the fully or partly paid shares issued to the vendors.

5. PAIDUP CAPITAL: - Paid up capital is the amount of money actually paid by the
subscribers. It also includes the amount of money actually paid by the subscribers.
It also includes the amount of shares issued to vendors for consideration other than
cash. The amount not paid by members becomes calls in arrears.

At some time a few shareholders may fail to pay the call money on the shares.
Such unpaid amount by shareholders against calls is to be shown as a deduction from
called up amount.

6. UNISSUED SHARE CAPITAL: - It is that port5ion of the authorized capital for

which shares have not been invited for subscription.

7. UNCALLED SHARE CAPITAL:- The unpaid portion of the subscribed capital is

called uncalled capital. This represents the difference between the subscribed capital
and the called up amount

8. RESERVED CAPITAL: - It is the part of the uncalled capital which has been
reserved by the company to be called in the event of winding up (sec.418)
Sometimes the company keeps a part of the subscribed capital separately
which can be called only on the winding up of the company. Such capital is called
Reserve Capital
The disclosure of Share Capital in the Balance Sheet is limited to
the following:
Name of the Company ……………………….
Balance Sheet (An Extract) as on………………………….

Figures at the end Figures at the end

Particulars Note of current of previous
No of reporting period of reporting period
1 2 2 4
I. Equity and Liabilities
1. Share holders‟ funds
(a) Share Capital 1 XXX XXX

Notes to accounts:

Amount Amount
Particulars (Rs.) (Rs.)

(a) Share Capital

Authorised Capital
………………. Shares of Rs. ……… each XXX

Issued Capital
………………. Shares of Rs. ……… each XXX

Subscribed Capital
Subscribed and fully paid up
………………. Shares of Rs. ……… each XXX
Subscribed but not fully paid up
………….. Shares of Rs. ……. Each, Rs. …… called up XXX
(-) Calls in arrears (ifany) XXX
XXX
(+) Shares forfeited A/C XXX XXX

Note: Equity share capital and Preference share capital to be shown separately.

TYPES OF SHARES

Under Section 43 of the Companies Act, 2013 a Company may issue two types of
shares.
1. Preference Shares
2. Equity Shares

PREFERENCE SHARES: - According to Section 43 of The Companies Act, 2013, a

preference share is one, which fulfils the following TWO conditions
(1) Preference Shareholders have a right to receive to dividend at a fixed rate
before any dividend is paid on the equity shares
(2) When the company is wound up, Preference Shareholders have a right to
the return of capital before that of equity shares
In addition to the above, the preference shares may carry some more rights such as
the right to participate in excess profits when a specified dividend has been paid on
the equity shares or the right to receive a premium at the time of redemption.

EQUITY SHARES: - Equity shares are those shares which are paid dividends only
when profits are left after the preference shareholders have been paid fixed rate of
dividends. In other words, there will be no fixed rate of dividend on the equity
shares. If in a particular year, there are not profits or insufficient profits, the equity
shares will receive nothing. If the Company earns more profits, they get a higher rate
of dividend. As regards return of capital, equity share capital is returned only when
preference share capital is returned in full. Equity shareholders have voting rights
and control the affairs of the company.

ISSUE OF SHARE PROCEDURE

Following steps are to be taken by a public company for the issue of share to public

1. To issue Prospectus
2. To receive Applications
3. To make Allotment of shares
4. To make calls

To Issue Prospectus: Prospectus is an invitation to the public that a new company

has come into existence and it needs funds for doing business. Generally the
company‟s request the public to purchase its shares. It describes the profitability and
soundness of the business of the company to attract the investing public

To Receive Applications:- After reading the prospectus, prospective investors

intending to subscribe the share capital of the company would make an application
along with the application money and deposit the same with a scheduled bank as
specified in the prospectus. The application money should not be less than 25% of the
issue price of each share.

To make Allotment Shares: - After the last date fixed for receipt of application
money expires, the Bank sends all applications to the company. The direct ors of the
company cannot proceed to allot share s unless MINIMUM SUBSRIPTION mention in
the prospectus has been received by the company.

Minimum subscription: - Section 39(1) of the Companies Act, 2013 provides that
company cannot allot any securities of the company to public unless the amount
stated in the prospectus as the minimum amount has been subscribed and the sums
payable on application for the amount so stated haven received by the Company.
Companies Act, 2013 has not stated prescribed the minimum subscription. However,
according to SEBI guidelines minimum subscription has been fixed at 90% of the
issued amount. As per Section 39 (3), the company has to get minimum subscription
within 30 days from the date of issue of t he prospectus. If the company fails to
receive the minimum subscription within the said, period, the company cannot
proceed with the allotment of shares and the entire application money must be
returned within next 15 days. If there is a delay in refund of such amount by more
than 15 days, the Company shall be liable to repay it with interest at the rate of 15%
per annum for the delayed period.
To make Calls: - The amounts paid on application and allotment are not calls but
subsequent installments, as and when demanded are calls. A company may demand
the whole amount of a share on application in one installment. If the whole of the
amount of share is not paid on application and allotment, the unpaid amount may be
called by the directors in one or more installments. Each installment is named as First
Call, Second Call etc. Calls must be made strictly in accordance with the provision of
the Articles of Association. In absence of the Articles of Association, the Provisions of
Table F of Schedule I of the Companies Act, 2013 shall apply.

Methods of issue of shares

Issue
Issue of of
Issue of Shares
shares
Shares to
For VENDORS
to
consideration
public Issues
other than
for cash of
cash Shares
to
PROMOTERS
Issue Issue Issue
of of of
Shares Shares Shares
At At a At
PAR PPREMIUM DISCOUNT

ACCOUNTING TREATMENT OF ISSUE OF SHARES TO PUBLIC

ENTRIES ON APPLICATION
SITUATION ENTRY NARRATION
Being the application money
For receipt of Bank A/C Dr.
received for ….. shares @ Rs…
application money To Share Application A/C
per share)
For transfer of Being the transfer of share
Share Application A/C Dr.
application money to application money towards
To Share Capital A/C
share capital account share capital account )
For money refunded Share Application A/C Dr. (Being the money refunded to
to rejected applicants To Bank A/C the rejected applicants)
For adjustment of (Being the adjustment of
Share Application A/C Dr.
excess application excess amount received on
To Share Allotment A/C
money towards application to allotment and
To Calls-in-advance A/C
allotment and calls calls in advance a/c)
 ENTRIES ON ALLOTMENT
If the share are allotted
(Being the allotment money
at PAR
due on ….. shares @ Rs. …..
Share Allotment A/C Dr.
per share)
To Share Capital A/C
For amount due on
If the share are allotted
allotment (Being the allotment money
at a PREMIUM
due on ….. shares @ Rs. …..
Share Allotment A/C Dr.
per share including premium
To Share Capital A/C
of Rs. .. per share)
To Securities premium A/C
Bank A/C Dr.
For receipt of (Being the receipt of
Calls in arrear A/C Dr(if so)
allotment money allotment money)
To Share Allotment A/C
ENTRIES ON FIRST CALL
(Being the first call money
For amount due on Share First Call A/C Dr.
due on ….. shares @ Rs. …..
FIRST call To Share Capital A/C
per share)
Bank A/C Dr.
For receipt of (Being the receipt of first call
Calls in arrear A/C Dr(if so)
FIRST call money money)
To Share first call A/C
ENTRIES ON SECOND/FINAL CALL
Share Second/ (Being the first/final call
For amount due on
Final Call A/C Dr. money due on ….. shares @
SECOND/FINAL call
To Share Capital A/C Rs. ….. per share)
Bank A/C Dr.
For receipt of
Calls in arrear A/C Dr(if so) (Being the receipt of first/final
SECOND/FINAL call
To Share Second/ call money)
money
Final Call A/C Dr

ISSUE OF SHARES FOR LUMPSUM

IF THE ENTIRE SHARE MOENEY IS RECEIVED IN LUMPSUM
For Receipt of Share Banka/c ….Dr. (Being the application money
Application AND To Share Application and received)
Allotment Money Allotment A/C
Share Application and
Allotment A/C…….Dr (Being the issue of shares
For Allotment of
To Share Capital a/c against share application and
Shares
To Securities Premium allotment)
Reserves a/c [if the
share issued at Premium]

ISSUE OF SHARES OF TO PUBLIC FOR CASH: - Issue of shares to the public for
cash is of 3 types. Namely,

1. Issue of shares at PAR

2. Issue of shares at a PREMIUM
3. Issue of shares at DISCOUNT
ISSUE OF SHARES AT PAR: - Every share is of a certain price/value is known as its
`Face Value`. If the shares are issued at their face value, then it is said to be
“SHARES ISSUED AT PAR”.

ISSUE OF SHARES AT A PREMIUM: - Generally, some companies enjoy a good

reputation in the share market and people will be willing to buy shares of such
companies even at a price higher than the nominal value of the shares. Such
companies may issue shares at a price which is more than the face value. The excess
amount collected over and above the face value is called SECURITIES/SHARE
PREMIUM and the issue is called `Issue of Shares at a Premium`. The premium on
issue of share is a capital profit and is to be credited to a separate account called
Securities Premium Reserve Account. It must be shown separately in the Balance
Sheet on the equity & liabilities side under the head `Reserves and Surplus`.

Securities Premium A/C Versus Securities Premium Reserve A/C

As per Section 52(1) of the Companies Act, Schedule III of the Companies Act,
2013 the amount of premium received should 2013 has given the head
be credited to `Securities Premium A/C`. `Securities Premium Reserve A/C`
Students may use either of the two terms while making the journal entries.

ENTRY FOR ISSUE OF SHARES AT A PREMIUM

Share Allotment A/c Dr. (Amount due on allotment of shares @
To Share Capital A/c Rs .... per share including
To Securities Premium Reserve A/C premium)

Under Section 52(2) of the Companies Act, 2013, the amount of securities premium
reserve may be used only for the following purposes.
1. To write-off preliminary expenses of the company
2. To write-off the expenses of, commission or discount allowed on issue of
shares or debentures of company
3. To issue fully paid bonus shares to the shareholders of the company
4. To pay premium on the redemption of preference shares or debentures of
the company
5. To buy back of its own shares and other securities as per Section 68

Normally, it is mentioned in the question as to when the securities premium is

receivable, i.e., either it payable on application or on allotment or on calls. In the
absence of any information, it is assumed that the securities premium is due along
with allotment money.

ISSUE OF SHARES AT DISCOUNT: - When a share is issued at a price which is less

than its face value, it is said that is has been issued at a discount.

PROHIBITION OS ISSUE OF SHARES AT A DISCOUNT

As per Section 53 of Companies Act 2013, Companies would no longer be permitted
to issue shares at a discount. The only shares that could be issued at a discount are
SWEAT EQUITY SHARES wherein shares are issued to employees or directors in lieu
of the services under Section 54 of Companies Act, 2013
SWEET EQUITY SHARES: - A company may issue sweat equity shares as per
Section 54 of Companies Act, 2013. Sweat equity shares means equity shares issued
by the company to its employees or directors at a discount or for consideration other
than cash for providing know-how or making available intellectual property rights.
Such shares cannot be resold by their holders within a period of 3 years, called lock-in
period. The company shall not issue sweat equity shares for more than 15% of the
existing paid up equity share capital in a year or shares of the issue value of rupees
five crores, whichever is higher.

CALLS-IN-ARREARS: - It is often happens that some shareholders fail to pay the

amount of allotment or call when it becomes due. This is known as calls in arrears.
There are two methods to deal with calls in arrears.
 Without opening calls in arrear account: - Under this method, there is no
need to open calls-in-arrear account. In such a case the actual amount
received from the shredders is credited to the call account and the call account
will show a debit balance equal to the unpaid amount of the call. On a
subsequent date, when the unpaid amount is received, Bank Account is debited
and the relevant Call A/C is credited.
 By opening Calls-in-arrears account: - Under his method, `Calls in Arrears
A/C` is opened and this account is debited when some amount of allotment or
calls is not received. On a later date, when the arrear amount is received,
Bank Account is debited and the Calls in Arrear A/C is credited.
 NOTE:- Whether the calls in arrear a/c is opened or not, the amount of calls in
arrear is shown as a deduction from the amount of subscribed but not fully
paid capital on the equity & liabilities side of t he Balance Sheet. This account
is closed when the amount of arrear is received or t he relevant shares are
forfeited.

ENTRY FOR CALLS-IN-ARREARS

Calls in Arrears A/c Dr.
(Being Calls in arrears
To Share First Call A/C
For Calls-in-arrears brought into account)
To Share Second and
Final Call A/C
For receipt of calls in Bank A/C Dr. (Being the receipt of calls in
arrears To Calls-in-arrears A/C arrears)

Interest on Calls-in Arrears: - The company is authorised to charge interest on

Calls in arrears at a specified rate mentioned in its articles, from the due date t o t he
date of actual payment. But if the articles are silent, Table F of schedule I of the
Companies of Act, 2013 shall be applicable, according to which interest shall be
charged at a rate not exceeding 10% p.a. However, the directors have the right to
waive the payment of such interest wholly or in part.

ENTRY FOR INTEREST ON CALLS-IN-ARREARS @ 10%

O/S interest on Calls in (Being interest on Calls in
For interest on Calls-
Arrears A/c Dr. arrears due from share
in-arrears due from
To interest on Calls in holders)
shareholders (O/S)
Arrears A/c
Bank A/C Dr.
For receipt of interest (Being the receipt of interest
To Interest on Calls in
on calls in arrears on calls in arrears)
Arrears A/c
CALLS IN ADVANCE:- A shareholder sometimes pay a part, or whole, of the amount
not yet called upon his shares in order to save himself the trouble of paying different
calls at different times. Thus the amount of future calls is received in advance by the
Company. According to Section 50 of the companies Act, 2013 such amount of Calls
in advance can be accepted by the Company only when it is so authorised by its
Articles of Association.

The amount received as calls in advance, credited to a newly opened account “Calls in
advance A/C”. The calls in advance amount may be adjusted against allotment and
calls account. If any balance left in `Calls in advance a/c`, shown as a separate item
under the tile equity & liabilities in the company`s balance sheet under the main head
`Current Liabilities` and Sub-head `Other Current Liabilities`.

ENTRY FOR CALLS-IN-ADVANCE

For receipt of Calls-in- Bank A/C Dr. (Being the amount received
arrears To Calls in Advance A/C on calls in advance)
For transfer of share Share Application A/C Dr. (Being the application money
application money to To Calls in Advance A/C transferred to calls in
calls in advance a/c advance account )
For transfer of calls in Calls in advance A/C Dr. (Being the transfer of calls in
advance to Allotment , To Share Allotment A/C advance amount to
Calls a/c To Share Calls A/C allotment and calls account)

Interest on Calls in advance: - The amount received as Calls in advance is a debt

of the company. It is liable to pay interest on Calls in advance from the date of
receipt till the date when the calls is due for payment.

Table F of Schedule I of the Companies Act, 2013 shall be applicable which leaves the
matter to the Boar d of Directors subject to a maximum rate of 12% pa.

ENTRY FOR INTEREST ON CALLS-IN-ADVANCE @12%

Interest on Calls in
For interest on Calls- (Being interest on Calls in
Advance A/C Dr.
in-advance due to advance due to share
To O/S interest on Calls
shareholders (O/S) holders)
in Advance A/C Dr.
Interest on Calls in (Being payment of interest
For payment of interest
Arrears A/c on calls in advance to share
on calls in advance
To Bank A/C Dr. holders)

 It is to be noted that, interest on calls in advance is a charge against the profits

of the company. As such, the interest on Calls in Advance is payable even if
there are not profit s
 No Dividend is payable on Calls in advance since the amount of Calls in advance
is not a part of share capital.

UNDER SUBSCRIPTION: - Sometimes, number of shares applied for by the public

sis less than the number of shares offered by the company. Such an issue is said to
be under –subscribed.
OVER SUBSCRIPTION: - Shares issued by well managed and financially strong
Companies often get over-subscribed. Shares are said to be over-subscribed when
the number of share applied for is more than the number of shares offered to the
public for subscription. No company cannot allot shares more than that offered for
subscription.

PRO-RATA BASI/ALLOTMENT: Pro-rata basis means issue smaller numbers of

shares are allotted to each applicant according to the number of share applied by him.
The excess application money received is normally adjusted towards the amount due
on allotment

In case of over subscription, the Board of Directors can issue the shares in
any of the following four alternatives.

1. Rejecting the applications for excess number of shares

2. Allotting the shares on pro-rata basis on all the applications received
3. Rejecting some applications completely and allotting to the remaining
application on a pro-rata basis
4. Rejecting some applications, allotting the number of shares asked for by some
applicants and allotting the remaining shares to the remaining applications on a
pro-rata basis.

Accounting treatment of Surplus Application money in case of Pro-rata

allotment
1. If the question is silent about the treatment of surplus application money or
state that surplus application money will be adjusted only on allotment , then
surplus application money will be used only for allotment and the balance, if still
left, will be refunded
2. If the question specially states that surplus application money will adjusted
towards allotment and calls, then the surplus application money is transferred to
allotment and calls in advance account. The balance, if still left, will be refunded.

ISSUE OF SHARES FOR CONSIDERATION OTHER THAN CASH

Sometimes, a company purchases some assets or entire business and instead of

making the payment to the vendors in the form of cash, it issues fully paid shares to
the vendors.

ISSUE OF SHARES FOR CONSIDERATION OTHER THAN CASH

On
Sundry Assets (with agreed value assets taken over)
purchase of
ASSET
To Vendors A/C (with agreed value of Purchase Consideration)
Sundry Assets (with agreed value assets taken over)
On Goodwill A/C Dr. (with the excess of P.C. over of net assets)
01
purchase
To S. Liabilities (with agreed value liabilities taken over)
of
entire
To Vendors A/C(with agreed value of Purchase Consideration)
BUSINESS To Capital Reserves A/C (with the excess of value of net
Assets over P.C.)
 ON If the Shares are issued at Vendor A/C Dr.
ISSUE PAR To Share Capital A/C
OF Vendor A/C Dr.
02 SHARES If the Shares are issued at To Share Capital A/C
TO PREMIUM
VENDORS
To SPR A/C
Calculation of No.
Amount payable to Vendor through Shares
of Shares to be
Share value at Par/Premium
issued to Vendor

FORFEITURE OF SHARES

If any shareholder fails to pay amount due on allotment or on any call within the
specified period, the Directors may cancel his shares. This is called Forfeiture of
Shares.

It may be noted that the shares can be forfeited only if the Articles of Association of
the Company allow them to be forfeited. In order to make the forfeiture valid, it is
essential to follow the rules laid down in the Articles. If no rules are given in Articles,
the provisions of Table F of Schedule I of the Companies Act, 2013 regarding
forfeiture apply. The usual procedure is that the defaulting shareholder must be given
a minimum of 14 days notice requiring him to pay the unpaid amount on his shares
together with the accrued interest thereon. The notice must state that if the unpaid
amount is not paid within a certain period, his shares shall be forfeited. If, in spite of
this notice, the share holder still does not pay the unpaid amount on his shares, his
shares may be forfeited by a resolution of the Board of Directors.

After the forfeiture, the name of the share holder is removed from the Register of
members. The amount already paid by him belongs to the company and is not
returned to him.

Forfeiture of shares
which were ISSUED Share Capital A/C Dr. (No. of shares forfeited X
AT PAR amount called up per share EXCLUDING PREMIUM)
Forfeiture of shares To Shares forfeited A/C (Cash received on forfeited
which were ISSUED shares)
AT A PREMIUM and To Share Allotment (due on allotment)
the premium on shares To Share First call A/C (due on First call)
ALREADY RECEIVED To Share Second Call A/C (due on Second Call)
is forfeited (as per To Share Final Call A/C (due on Final Call)
Sec.52 of CA 2013)
Share Capital A/C Dr. (No. of shares forfeited X
amount called up per share EXCLUDING PREMIUM)
Forfeiture of shares Securities Premium A/C Dr. (No. of shares forfeited X
which were ISSUED Premium on each share)
AT A PREMIUM and To Shares forfeited A/C (Cash received on forfeited
the premium on shares shares)
NOT RECEIVED is To Share Allotment (due on allotment)
forfeited To Share First call A/C (due on First call)
To Share Second Call A/C (due on Second Call)
To Share Final Call A/C (due on Final Call)
 REISSUE OF FORFEITED OF SHARES
Directors have the authority to reissue the forfeited shares on such terms as they
think fit. That is to say that they are at liberty to reissue the forfeited shares at par,
at premium or at discount. However, if the shares are re-issued at a discount the
amount of the discount cannot exceed the amount previously received on these
shares.

After the reissue of forfeited shares, the credit balance left in the Share Forfeiture A/C
is a `Capital Gain` to the company and must be transferred to `Capital Reserves
Account`.

SHARES IF THE SHARES ARE RE-ISSUED AT

ORIGINALLY
PAR PREMIUM DISCOUNT
ISSUED AT
Re-issue of forfeited
shares which were
originally ISSUED AT
PAR
Re-issue forfeited shares Bank A/C Dr. (1)
which were originally Shares forfeited
Bank A/C Dr. (1)
ISSUED AT A PREMIUM Bank A/C Dr. (1) A/C Dr.(4)
To S. Capital
and the premium on To S. Capital To S. Capital
A/C (2)
shares ALREADY A/C (2) A/C (2)
To. SPR. A/C (3)
RECEIVED
Re-issue forfeited shares
which were originally
ISSUED AT A PREMIUM
and the premium on
shares NOT RECEIVED
1. Amount received on re-issue of forfeited shares
2. With the amount called-up per re-issued share
3. Premium allowed on each re-issued share
4. Discount allowed on re-issued share/Discount allowed at the time of re-issue
ENTRY FOR TRANSFER OF PROFIT ON RE-ISSUE OF FORFEITED SHARES
Shares forfeited A/C Dr.
To Capital Reserves A/C