Accounting For Share Capital Class 12 Notes

When a company offers its shares to the public, it includes many levels of payments like application, allotment, first call, second call, etc.

Based on that, journal entries will be done in the books of accounts we will study in this chapter. Here are the accounting for share capital class 12 notes.

Basic Entries

Bank A/c Dr.
To Share Application A/c

Share Application A/c Dr.
To Share Capital A/c

Share Allotment A/c Dr.
To Share Capital A/c

Bank A/c Dr.
To Share Allotment A/c

Share First Call A/c Dr.
To Share Capital A/c

Bank A/c Dr.
To Share First Call A/c

Share Second & Final Call A/c Dr.
To Share Capital A/c

Bank A/c Dr.
To Share Second & Final Call A/c

Note: If there are issue expenses:

Share Issue Expenses A/c Dr.
To Bank A/c

If some shares are given to the promoter at the time of formation of the company, then this entry will be passed:

Incorporation Tax A/c Dr.
To Share Capital A/c

Note: Share can be issued at par or a premium per the Companies Act, 2013 provisions.

If there is no information regarding receipt of the premium, it is assumed that the premium is received on allotment and this entry is passed:

Share Allotment A/c Dr.
To Share Capital A/c
To Security Premium Reserve A/c

Bank A/c Dr.
To Share Allotment A/c

Issue of Shares for Consideration other than Cash

1) When assets are purchased:

Sundry Assets A/c Dr.
To Vendor’s A/c

2) When shares are paid/issued to vendors:

Vendor’s A/c Dr.
To Share Capital A/c

Note: If the share is issued at a premium, this entry is passed:

Vendor’s A/c Dr.
To Share Capital A/c
To Security Premium Reserve A/c

In this case, it is necessary to find out the number of shares issued.

Number of Shares = Total Amount Payable/Value of the Shares

Calls in Arrear/ Calls in Advance

1) Bank A/c Dr.
To Share Application A/c

Share Application A/c Dr.
To Share Capital A/c

2) Share Allotment A/c Dr.
To Share Capital A/c

Bank A/c Dr.
To Share Allotment A/c
To Calls in Advance A/c

3) Share First Call A/c Dr.
To Share Capital A/c

Bank A/c Dr.
Calls in Arrear A/c Dr.
Calls in Advance A/c Dr.
To Share First Call A/c

4) Share Second & Final Call A/c Dr.
To Share Capital A/c

Bank A/c Dr.
Calls in Advance A/c Dr.
Calls in Arrear A/c Dr.
To Share Second & Final Call A/c

Forfeitures of Shares

If any shareholder fails to pay the amount due on allotment or any call in a specified period, the directors may cancel his shares, such cancellation of shares is known as forfeiture of shares.
Two cases arise when shares are forfeited.

Case 1: If the Shares are originally issued at Par

Share Capital A/c Dr. (Forfeited Shares*Called up money)
To Share Allotment A/c
To Calls in Arrear A/c
To Share Forfeiture A/c

Case 2: If the shares are originally issued at Premium (If Premium Received)

Share Capital A/c Dr.
To Share Allotment A/c
To Calls in Arrear A/c
To Share Forfeiture A/c

If Premium Not Received:

Share Capital A/c Dr.
Security Premium Reserve A/c Dr.
To Share Allotment A/c
To Calls in Arrear A/c
To Share Forfeiture A/c

Note: Called-up money never includes premium.

Cash Flow Statement Class 12 Notes

Re-issue of shares

1) If the shares are reissued at par:

Bank A/c Dr.
To Share Capital A/c

2) If the shares are reissued at a premium:

Bank A/c Dr.
To Share Capital A/c
To Security Premium Reserve A/c

3) If the shares are reissued at a discount:

Bank A/c Dr.
Share Forfeiture A/c Dr.
To Share Capital A/c

Note:

1. If any amount is left with the company in share forfeiture A/c after the reissue of shares, it will be transferred to capital reserve.
   Share Forfeiture A/c Dr.
   To Capital Reserve A/c
2. When there is a partial reissue of shares (Shares forfeited > shares reissued), in this case, the profit on reissued shares is calculated first and then the amount of loss is deducted from it & the balance is transferred to capital reserve.
   Profit = Amt. of Share Forfeiture/No. of Shares Forfeited * No. of Shares reissued
3. In the case of under subscription, entries will be based on the bases of number of shares applied by the public.

Disclosure of Share Capital in the Company’s Balance Sheet

Share capital is shown in a company’s balance sheet as per Schedule 3 Part 1 of the Companies Act, 2013.

Important Notes

• At the time of forfeiture of shares, share capital A/c will be debited by called-up amount.
• Profit on the reissue of forfeited shares will be transferred from share forfeiture A/c to Capital Reserve A/c.
• When the securities premium amount has been paid by the shareholder, securities premium reserve A/c will not be debited in the forfeiture entry.
• If the company opens calls in arrears A/c then calls in arrears A/c will be credited in place of share allotment and share call A/cs.