Accounting for Share Capital: CBSE Class 12 Notes & Solved Problems

Understanding Share Capital and Its Classification

A joint-stock company's capital is divided into small, transferable units called shares. Under CBSE Class 12 Accountancy, understanding how this capital is classified on the balance sheet is crucial. First, we have Nominal or Authorized Capital, which is the maximum amount of share capital a company is registered to raise. From this, the company offers a portion to the public, known as Issued Capital. The public then applies for these shares, resulting in Subscribed Capital. Subscribed Capital is further bifurcated into two critical presentation categories: 'Subscribed and fully paid-up' (where the company has called the entire nominal value and received it) and 'Subscribed but not fully paid-up' (where either the company hasn't called the full amount or some shareholders have failed to pay). Recording these flows requires structured, step-by-step journal entries that systematically track the transition of money from the bank account to the Share Capital account.

Key Terms in Share Capital Accounting

Securities Premium Account

The extra amount charged over and above the nominal (face) value of a share. Regulated by Section 52(2) of the Companies Act, 2013, it can only be used for specific purposes like issuing fully paid bonus shares or writing off preliminary expenses.

Pro-rata Allotment

The proportional allotment of shares to applicants when a share issue is over-subscribed. For instance, if applicants apply for 15,000 shares but only 10,000 are available, shares are allotted in a 3:2 ratio, and excess application money is adjusted against allotment.

Forfeiture of Shares

The cancellation of shares and confiscation of the amount already paid by a shareholder due to non-payment of allotment or call money after serving due legal notice.

Capital Reserve

A reserve created out of capital profits (such as the net gain on the re-issue of forfeited shares) which cannot be used for distributing dividends to shareholders.

Step-by-Step Accounting Cycle for Issue of Shares

1. Receipt of Application Money — When applicants apply for shares, money is received in the bank. Journal Entry: Debit Bank A/c, Credit Share Application A/c.
2. Transfer of Application Money to Share Capital — On allotment, application money is transferred. Journal Entry: Debit Share Application A/c, Credit Share Capital A/c (and Credit Securities Premium if issued at a premium).
3. Making Allotment and Call Money Due — The company demands the next installment. Journal Entry: Debit Share Allotment/Call A/c, Credit Share Capital A/c. Note that we record 'due' first, then 'receipt'.
4. Receipt of Allotment/Call Money — Money is collected from shareholders. Journal Entry: Debit Bank A/c, Credit Share Allotment/Call A/c. Any default is debited to Calls-in-Arrears A/c.

Mastering Forfeiture and Re-issue of Shares

• Problem Statement: Zephyr Ltd. forfeited 500 equity shares of ₹10 each, issued at a premium of ₹2 per share, for non-payment of first call of ₹3 per share and final call of ₹2 per share. The allotment of ₹5 per share (including premium) was paid along with application money of ₹2. Out of these, 300 shares were re-issued to Amit as fully paid up for ₹8 per share. Pass the necessary journal entries.

• Step 1: Analyzing the Forfeiture: Called-up value per share is ₹10 (since both calls were made). The premium of ₹2 was already received on allotment, so it must NOT be debited to the Securities Premium Account during forfeiture. Unpaid amount is ₹5 (₹3 first call + ₹2 final call). Paid-up nominal value is ₹5. Forfeiture entry:

  • Share Capital A/c Dr. (500 × ₹10) = ₹5,000
  • To Share First Call A/c (500 × ₹3) = ₹1,500
  • To Share Final Call A/c (500 × ₹2) = ₹1,000
  • To Shares Forfeited A/c (500 × ₹5) = ₹2,500

• Step 2: Analyzing the Re-issue: 300 shares re-issued at ₹8 as fully paid-up (nominal value ₹10). This means a discount of ₹2 per share is given, which must be debited to the Shares Forfeited Account. Re-issue entry:

  • Bank A/c Dr. (300 × ₹8) = ₹2,400
  • Shares Forfeited A/c Dr. (300 × ₹2) = ₹600
  • To Share Capital A/c (300 × ₹10) = ₹3,000

• Step 3: Calculating Capital Reserve Transfer: Forfeited amount on 500 shares = ₹2,500.
  Proportional forfeited amount for 300 shares = (₹2,500 / 500) × 300 = ₹1,500.
  Less: Discount allowed on re-issue of 300 shares = ₹600.
  Net Gain to be transferred to Capital Reserve = ₹1,500 - ₹600 = ₹900.

  Journal Entry:

  • Shares Forfeited A/c Dr. ₹900
  • To Capital Reserve A/c ₹900

Board Exam Trap: Handling Securities Premium on Forfeiture

One of the most common mistakes students make in Class 12 board papers is debiting the Securities Premium Account during forfeiture even when the premium has been successfully received.

Remember this golden rule: If the premium has been received, DO NOT touch the Securities Premium Account during forfeiture (as per Section 52 of the Companies Act, 2013). Only debit the Securities Premium Account if the premium was due (on allotment or calls) but NOT received. Double-check your allotment status before framing your forfeiture journal entries!

Practice Questions with Solutions

• Q: Alfa Ltd. issued 10,000 equity shares of ₹10 each at a premium of 10%. Applications were received for 12,000 shares. Pro-rata allotment was made to all applicants. How much excess application money will be adjusted against allotment if application money is ₹3 per share?
  A: Step 1: Calculate total application money received. Total applications = 12,000. Total money received = 12,000 × ₹3 = ₹36,000.
  Step 2: Calculate application money required for issued shares. Issued shares = 10,000. Required money = 10,000 × ₹3 = ₹30,000.
  Step 3: Compute the excess application money. Excess money = ₹36,000 - ₹30,000 = ₹6,000.
  Final answer: The excess application money of ₹6,000 will be adjusted against the allotment due.

• Q: Rahul holds 200 shares of ₹10 each of Gamma Ltd. He failed to pay the allotment money of ₹4 per share (including premium of ₹1) and first call of ₹3 per share. His shares were forfeited. What amount will be debited to the Share Capital Account and Securities Premium Account respectively?
  A: Step 1: Determine the called-up value of the shares up to the first call. Called-up nominal value = ₹3 (Application) + ₹3 (Allotment excluding premium) + ₹3 (First Call) = ₹9 per share.
  Step 2: Calculate the debit to Share Capital Account. Share Capital Dr. = 200 shares × ₹9 = ₹1,800.
  Step 3: Analyze Securities Premium. The premium of ₹1 per share was due on allotment but not paid. Therefore, it must be debited. Securities Premium Dr. = 200 shares × ₹1 = ₹200.
  Final answer: Share Capital A/c will be debited with ₹1,800, and Securities Premium A/c will be debited with ₹200.

• Q: 400 shares of ₹10 each, on which ₹7 (including ₹1 premium) was called and ₹4 (excluding premium) was paid, were forfeited. These shares were re-issued as fully paid-up for ₹9 per share. Calculate the amount to be transferred to the Capital Reserve.
  A: Step 1: Calculate the amount forfeited per share. The paid-up nominal value is ₹4. (Premium is excluded from the forfeiture calculation as it was not paid, meaning the nominal paid is ₹4). Shares Forfeited credit = 400 shares × ₹4 = ₹1,600.
  Step 2: Calculate the discount allowed on re-issue. Re-issued as fully paid (₹10) for ₹9. Discount = ₹10 - ₹9 = ₹1 per share. Total discount = 400 shares × ₹1 = ₹400.
  Step 3: Calculate Capital Reserve transfer. Capital Reserve = Total Forfeited Amount on re-issued shares - Total Discount allowed on re-issue = ₹1,600 - ₹400 = ₹1,200.
  Final answer: The amount transferred to Capital Reserve is ₹1,200.

• Q: State the purposes for which the Securities Premium Account can be utilized under Section 52(2) of the Companies Act, 2013.
  A: Step 1: Recall the statutory provisions of Section 52(2) of the Companies Act, 2013.
  Step 2: List the major permitted applications. They are:

  1. Issuing fully paid bonus shares to members.
  2. Writing off preliminary expenses of the company.
  3. Writing off commission or discount allowed on any issue of shares or debentures.
  4. Providing for the premium payable on redemption of redeemable preference shares or debentures.
  5. Buying back its own shares.

  Final answer: Securities Premium can only be used for issuing bonus shares, writing off preliminary/issue expenses, providing premium on redemption, and share buy-backs.

Frequently Asked Questions