Last Updated on: 5th July 2024, 01:04 pm
Company Equity Share Capital Accounts
Company Shares Types
Company Shares refers to a part or portion of a larger amount which is divided among a number of people, or to which a number of people contribute. It is one of the equal parts into which a company’s capital is divided, entitling the holder to a proportion of the profits
- Preference Shares: Preference Share allows preferential rights to the shareholder to get a fixed rate of dividend, and repayment of capital before the payment to equity shareholders. They have no voting rights.
- Equity Shares: Equity is the risk capital of the business. They carry voting rights and higher expected return with higher risks than preference shares. In case of winding up of the company, equity shareholders are paid the surplus, only after the preference shareholders are fully paid up.
Stock
Stock is the aggregate of fully paid-up shares legally consolidated and portion of which aggregate may be transferred or split up into fractions of any amount without regard to the original nominal amount of shares.
Features of Sock : Shares are issued in units but stock is issued in lump holding. Stock cannot be issued directly (it has to be converted from shares).
Stock must be fully paid. Stock may not have distinctive numbers like Shares. stock can be transferred in fractional amount
Company Share Capital
Generally ‘Capital’ means a particular amount of money invested in business to earn revenue.
Company Share Capital is that part of the capital of a company which is represented by the total nominal value of the shares which it has issued.
Types of Share Capital
- Nominal or Authorized Capital: It means the total face value (face value is the amount stated on a share certificate) of the shares, authorised by its memorandum.
Ex. H. Ltd incorporated with an Authorised Capital of Rs.10, 00,000 divided into 1, 00,000 shares of Rs.10 each.) - Issued Capital: It is that part of Authorised Capital which is issued to the public for subscription and allotment,
Ex. Issued Rs.5,00,000 through 50,000 shares of Rs.10 each.) - Subscribed Capital: It is that part of the Issued Capital which has been subscribed by the public
Ex. Rs.4,00,000, i.e. 40,000 shares of Rs.10 each. - Called-up Capital: It is that part of the Subscribed Capital which the directors have called up. Ex. Rs.6 per share called up. So called up Capital is 40,000 x Rs.6 = Rs.2,40,000.
- Paid-up Capital: It is that part of the Called up Capital which is actually received in cash by the company
Ex. Rs.1,94,000 (one shareholder allotted with 1,000 shares, failed to pay the call @ Rs.6 per share.) - Uncalled Capital: It is that part of the subscribed capital which has not yet been called up the directors. The difference between the Subscribed Capital and Called Up capital is represented by the uncalled capital
Ex. Subscribed Capital – Rs.4,00,000, Called up Capital Rs 2,40,000. So, Uncalled Capital = Rs.4,00,000 – Rs.2,40,000= Rs.1,60,000). - Reserve Capital: Portion of its uncalled share capital set aside not to be called up, except in the event of winding up.
Ex. Reserve Capital Rs 1,00,000. So, only Rs 60,000 of the uncalled capital may be further called. Rs 1,00,000 reserve capital may be called only at the time of winding up.
Issue of Shares at Par Accounting entries
Issue of shares at Par means shares issued at face value (called Shares Issue at par)
Accounting Entries for shares issued at per
1. On receipt of share application money
Bank A/c Dr
To Share Application A/c
(The application money received )
2. On allotment of shares
Share Application A/c Dr
To Share Capital A/c
(The application money received transferred to Share Capital)
3. On refund of excess application money
Share Application A/c Dr
To Bank A/c
(The excess application money (or not allotted) refunded)
4. On retention of excess application money against allotment money due
Share Application A/c Dr
To Share Allotment A/c (adjustment against allotment)
To Calls-in-advance A/c (surplus after adjustment)
(The excess application money adjusted against Allotment money)
Note: Any surplus money after adjustment against allotment should be transferred to Calls-in-advance account. It will be adjusted when call is made and excess money will be refunded.
5. On allotment money becoming due
Share Allotment A/c Dr
To Share Capital A/c
(The allotment money transferred to Share Capital)
6. On receipt of allotment money
Bank A/c Dr
To Share Allotment A/c
(Allotment money received )
7. On share first call becoming due
Share First Call A/c
To Share Capital A/c
(First call money transferred to Share Capital)
8. On receipt of first call money
Bank A/c
To Share First Call A/c
(Call money received)
9. On share final call becoming due
Share Final Call A/c Dr
To Share Capital A/c
(Final call money transferred to Share Capital)
11. On transfer of amount, not received, to call-in-arrears account
Call-in-arrears A/c Dr
To Share Allotment A/c
To Share Final Call A/c
(Amount not received transferred to Call-in-arrears.)
Company Shares Issue at Par – Problems
Issue of Shares at Par – Practical Problems
M Ltd. issued 10,000 equity shares of Rs.10 each to the public at par. The application money is payable on 1.4.25 @Rs.2, Allotment @ 3 on 1.6.25, Final Call @5 on 1.7.25.
Application monies were received on 12,000 shares. Excess application monies were refunded immediately to the applicants. All other amounts were received excepting final call money on 100 shares. Show Journal Entries
Entries on 1st April 2025 on receipt of application
Bank A/c Dr 24000
To Equity Share Application A/c 24000
(Application money received on 12,000
shares @ Rs.2 each)
Equity Share Application A/c Dr. 24000
To Equity Share Capital A/c 20000
To Bank A/c 4000
(The application money received on 10,000 shares @ Rs.2 transferred to Equity Shares Capital Account. Excess Application money on 2,000 shares refunded to applicants
Entries on 1st April 2025 for transfer to allotment account
Equity Share Allotment A/c Dr. 30,000
To Equity Share Capital A/c 30000
(The allotment money due on 10,000 shares @ Rs.3 each adjusted)
Entries on 1st June 2025 on receipt of allotment money
Bank A/c Dr 30000 Dr.
To Equity Share Allotment A/c 30000
(The allotment money received on 10000 shares @ Rs.3 each)
Equity Share Final Call A/c Dr. 50000
To Equity Share Capital A/c 50000
(The final call money due on 10,000 shares @ Rs.5 each)
Entries on 1st July 2025 on receipt of Final Call money
Bank A/c Dr 49500
To Equity Share Final Call A/c 49500
(The final call money received on 9,900
share @ Rs.5 each)
Calls-in-Arrear A/c Dr 500
To Equity Share Final Call A/c 500
(Amount not received for on 100shares
@ Rs.5 each transferred to Call-in-arrears.)
Company Shares Issue at Premium
Shares may be issued at a price above its nominal value, called Issue of shares at premium. The extra amount received is called shares premium. The amount received as premium is credited to a separate account called as Securities Premium Account.
Securities premium can not be distributed as dividend in cash and can not be treated as free reserve also. It must be disclosed as a separate item in Balance Sheet.
Utilisation of Securities Premium money: 1.To write off preliminary expenses. 2. To write off expenses of issue of shares or debentures. 3. To write off commission paid on issue of shares or debentures. 4. To write off discount on issue of shares or debentures. 5. To provide for premium payable on redemption of preference shares or debentures. 6. To issue fully paid-up bonus shares to the equity shareholders of the company. 7.To buy back of shares or securities.
Use of share premium for any other purpose is treated as reduction of capital.
Accounting Entries for Shares Issued at Premium
On receipt of share premium with application money
Bank A/c Dr
To Share Application A/c
Share Application A/c Dr
To Share Capital A/c
To Security Premium A/c
On receipt of share premium with allotment money
Share Allotment A/c Dr
To Share Capital A/c
To Security Premium A/c
Bank A/c Dr
To Share Allotment A/c
On receipt of share premium with call money
Share Call A/c Dr
To Share Capital A/c
To Security Premium A/c
Bank A/c Dr
To Share Call A/c
Company Shares Issue at Premium – Practical Problems
Company Shares Issue at Premium- Practical Problems
R Ltd. invites applications for 20,000 shares at Rs.10 each, at a premium of Rs.2 per share, payable @2 on application, @ 5 on allotment (including premium) and balance on call. All the shares are subscribed, allotted and paid for at due dates. Show journal entries and prepare cash book.
Bank 40000
To Share Application A/c 40000
(application money for 20000 shares @2 received)
Share Application A/c 40000
To Share Capital A/c. 40000
(The share application money for 20000 shares @2, transferred to share capital A/c)
Share Allotment A/c 100000
To Share Capital A/c. 60000
To Security Premium A/c 40000
(The allotment money due on 20,000 shares @ Rs.3 per share including Share Premium @ Rs.2 per share)
Share Call A/c 100000
To Share Capital A/c 100000
(The share call money due on 20,000 shares @ Rs.5 per share)
Bank Book
| Particulars | Dr | Particulars | Cr |
| To Share Application A/c | 40,000 | By Balance c/d | 2,40,000 |
| (Application money on 20,000 shares @ 2 ) | |||
| To Share Allotment A/c | 1,00,000 | ||
| (Allotment money on 20,000 shares @ 5) | |||
| To Share Call A/c | 1,00,000 | ||
| (Call money on 20,000 shares @ 5) | |||
| 2,40,000 | 2,40,000 |
Company Shares Issue at Discount
Company may issue Shares Issue at Discount in certain conditions.
Conditions of issue shares at a discount
1. Ordinary resolution must be passed in general meeting. 2. The shares must be of a class already issued. 3. The issue must have been sanctioned by the Central Government. 4. The maximum rate of discount shall not exceed 10 per cent (unless sanctioned by Central Government) 5. The company must have been working for at least a year before it can issue shares at a discount.
The shares shall be issued within 2 months of approval of Central Government.
Discount on Issue of Shares Account appears asset side of the Balance Sheet under “Miscellaneous Expenditure” and gradually written off against Profit & Loss Account or Securities Premium Account.
Accounting Entries for shares issued at discount
Discount on issue of shares is recorded with the entry for allotment money due.
On allotment money due
Share Allotment A/c Dr
Discount on Issue of Shares A/c Dr
To Share Capital A/c
On receipt of allotment money
Bank A/c Dr
To Share Allotment A/c
Company Shares Issue at discount – Practical Problems
Company Shares Issue at discount – Practical Problems
N Ltd. Issued 20,000 shares of Rs.10 each at a discount of 10% payable as: on Application Rs.2; on Allotment Rs.4; and on Final Call Rs.3. All shares offered were subscribed for and money was duly received. Show entries in the Cash Book and Journal and show the Balance Sheet .
Journal Entries
On Application
Share Application A/c Dr 40000
To Share Capital A/c 40000
(Application money on 20,000 shares @ Rs.2 transferred)
On Allotment
Share Allotment A/c Dr 80000
Discount on Issue of Share A/c Dr 20000
To share Capital A/c 100000
(Allotment money due on 20,000 shares @ Rs.4 & Discount @ 1)
On Final call
Share Final Call A/c Dr 60000
To Share Capital A/c 60000
(Call money due on 20,000 shares @3)
Cash Book (Bank column only)
| Particulars | Dr | Particulars | Cr |
| To Share Application A/c | 40,000 | By Balance c/d | 1,80,000 |
| (Application money on 20,000 shares @ 2 ) | |||
| To Share Allotment A/c | 80,000 | ||
| (Allotment money on 20,000 shares @ 4 ) | |||
| To Share Final Call A/c | 60,000 | ||
| (Call money on 20,000 shares @ 3 ) | |||
| 1,80,000 | 1,80,000 |
Balance Sheet of N Ltd as on …….
| Liabilities | Rs. | Assets | Rs. |
| Share Capital | Current Assets | ||
| Authorised Capital | Cash at Bank | 1,80,000 | |
| Shares of ……. Each | *** | Miscellaneous expenditure | |
| Issued Capital | Discount on issue of Shares | 20,000 | |
| 20,000 shares of Rs.10 each | 2,00,000 | ||
| 2,00,000 | 2,00,000 |
Calls on Company Shares Allotment
On allotment of shares, the applicants are asked the call money payable on Calls on Company shares allotted
Calls-in-arrear
Calls-in-arrear refers to that portion of the capital, which has been called up but not yet paid by the shareholders. When a shareholder fails to pay the amount due on allotment and/or calls, the Allotment Account and/or Calls Account will show debit balance in respect of total unpaid amount of each installment. Generally, such amount is transferred to a special account called ‘Calls-in-Arrear Account’.
The purpose of opening a Calls-in-Arrear Account is to close allotment or any other Calls Account with the amount not yet received.
Accounting Entries for Calls in Arrear
1. Opening Calls-in-Arrear A/c
Calls-in-Arrear A/c Dr.
To Share Allotment A/c
To Share Call A/c
2. When money is collected from
defaulting shareholders
Bank A/c Dr.
To Calls-in-Arrear A/c
The balance of ‘Calls-in-Arrear Account’, at the year end, is shown in the Balance Sheet as a deduction from respective Share Capital Account. It is shown in the Balance Sheet until the shares on which money unpaid are forfeited
Calls-in- Advance
Calls in Advance generally arise in case of over subscription of shares. The excess application money, after adjustment for allotment, is transferred to ‘Calls-in-Advance Account’.
Accounting Entries for Calls in Advance
1. For transferring excess
application money
Share Application A/c Dr
To Calls-in-Advance A/c
2. For Money received in advance
against call
Bank A/c Dr
To Calls-in-Advance A/c
3. For adjusting with call
Calls-in-Advance A/c Dr
To Calls A/c
Pro-rata Allotment on oversubscription of Company Shares
When there is over-subscription of Company shares (application received are more than proposed issue), the company may reject some applications altogether, allot in full on some application and make a pro-rataallotment on some applications.
Pro-rata allotment means that allotment on every application is made in the ratio which the number of shares allotted bears to number of shares applied.
For Example, Pro-rata allotment is made for 10,000 shares on application received for 15,000 shares. So, 2 shares would be allotted for every 5 shares applied for (ratio is 10,000:15,000 i.e.2:3).
Ex. A Ltd. issued 1,00,000 shares of Rs.10 each at a discount, payable as Rs.3 on application, Rs.2 on allotment and Rs.4 on first and final call.
The company received applications for 1,80,000 shares. Pro-rata allotment was made on the applications for 1,50,000 shares.
One applicant, who was allotted 100 shares, did not pay allotment, first and final call moneys. Show journal entries
- Net due on Allotment on 100 shares : Excess application money retained for allotment of 1,00,000 shares, (50,000@3) = 1,50,000. So, Proportionate excess on 100 shares who failed to pay allotment and call money = 100 X (150000/100000)=150. Allotment money due on 100 shares @2=200. Surplus money retained by the Company =150. So, Net due on allotment of 100 shares = 200 – 150 = 50. This will be transferred to Call-in-Arrear account
- Amount received on Allotment : Total net amount receivable on allotment (2,00,000 – 1,50,000) = 50000. Amount not received on 100 shares = 50. So, amount received on allotment = 50000-50 = 49950
Journal Entries for Share Application & Allotment
Bank A/c Dr 5,40,000
To Share Application A/c 5,40,000
(Application money received on 1,80,000 shares @ 3)
Share Application A/c Dr 4,50,000
To Share Allotment A/c 1,50,000
To Share Capital A/c 3,00,000
(Application money for 1,00,000 shares @3 converted into capital A/c and that for 50,000 shares @3 utilized for allotment money)
Share Application A/c Dr 90,000
To Bank A/c 90,000
(Excess Application money received (1,80,000 – 1,50,000) shares @3= 90000 returned)
Share Allotment A/c Dr 2,00,000
Discount on Issue of Share A/c Dr 1,00,000
To Share Capital A/c 3,00,000
(Allotment money on 1,00,000 shares @ 2 and discount @ 1 brought into A/c)
Journal Entries for Call Money
Bank A/c Dr 49,950
Share Allotment A/c 49,950
(Allotment money due on (1,00,000-100) = 99,900 shares @ 5) received
Share First and Final Call A/c Dr 4,00,000
To Share Capital A/c 4,00,000
(First and Final Call money @ 4 due on 1,00,000 shares)
Call-in-Arrear A/c Dr 50
To Share Allotment A/c 50
(Allotment money due on 100 shares @ 5 each not received, transferred to call-in-arrear A/c)
Bank A/c Dr 3,99,600
To Share First and Final Call A/c 3,99,600
(First and Final Call @4 per received on 99,900 shares)
Journal Entries for Adjustment of Calls in Arrears
Calls-in-Arrear A/c Dr 400
To Share First and final Call A/c 400
(Call money due on 100 shares @ 4 not received, transferred to call-in-arrear account)
Forfeiture of Company Shares
When a shareholder fails to pay the amount due on call, the directors may, if so authorized by the articles, take back his shares (called forfeiture of Company shares).
Effect of forfeiture
Theperson whose shares are forfeited ceases to be a member in respect of the forfeited shares. The liability of the person whose shares are forfeited ceases, if the amount due on the date of forfeiture is paid. If liquidation takes place within one year of forfeiture, the former holder remains liable as a part member. On forfeiture, the forfeited shares become the property of the company.
Accounting Entries
In case of shares issued at premium, “Security Premium A/c” is credited. If premium money has not been received on forfeited shares, “Security Premium A/c” will be debited to cancel the previous entry.
If premium money is already received by the company, it can not be cancelled in future, if the shares are forfeited.
When shares are issued at a discount, “Discount on Issue of Share” is debited. At the time of forfeiture, “Discount on Issue of Share” is credited to cancel it.
Accounting Entries on Forfeiture of Company Shares
Shares were issued at par
Share Capital A/c ( alled-up amount) Dr
To Call A/c [Calls in Arrears] (amount due on call)
To Share Forfeiture A/c (amount received)
Shares premium were received
Share Capital A/c (the called-up amount) Dr
To Call A/c [Calls in Arrears] (amount of call due)
To Share Forfeiture A/c (amount excluding share premium)
Shares were issued at a premium and premium money is unpaid
Share Capital A/c (called-up amount) Dr
Security Premium A/c (amount of premium) Dr
To Call A/c (amount of call due)
To Share Forfeiture A/c(amount received)
Shares were issued at discount
Share Capital A/c (called-up amount) Dr
To Call A/c(amount of call due)
To Discount on Issue of Shares A/c (amount of discount)
To Share Forfeiture A/c (amount received)
Reissue of Forfeited Share of Company
Subject to fulfillment of some conditions, Board of Directors can reissue forfeited shares. These may be issued at par, at premium or at discount.
- If such shares are issued at a discount, the maximum discount cannot exceed the amount already forfeited.
- Any balance left in the forfeited shares account after reissue, will be transferred to Capital Reserve account.
Accounting Entries for Reissue of Forfeited Shares of Company
Shares reissued at par
Bank A/c (the total amount received) Dr
To Share Capital A/c
Shares reissued at a discount:
Bank A/c (total amount received) Dr.
Share Forfeiture A/c (discount on reissue) Dr.
To Share Capital A/c (paid up value of shares.)
Shares reissued at premium
Bank A/c (the total amount received) Dr
To Security Premium A/c (premium on reissue)
To Share Capital A/c (the paid up value of shares.)
Transfer of balance of Share Forfeiture A/c to Capital Reserve Account
Share Forfeiture A/c Dr
To Capital Reserve A/c
If shares were originally issued at a discount and also reissued at a discount, then
“Share Forfeiture Account” will be debited with additional discount amount, and
“Discount on Issue of Shares” will be debited with the actual discount.
Reissue of Forfeited Share – Practical Problems
Forfeiture of Shares, reissued at par, at a discount and at a premium
A Ltd. forfeited 100 equity shares of Rs.10 each for non payment of First call of Rs.2 per share and the Final Call of Rs.3 per share. These shares are reissued at (i) Rs.10, (ii) Rs.7, (iii) Rs.11 per share.
Give necessary journal entries of forfeiture and reissue.
On Forfeiture:
Share Capital A/c Dr 1000
To Share First Call A/c 200
To Share Final Call A/c 300
To Share Forfeiture A/c 500
(forfeiture of 100 equity shares of 10 each fully called up for non payment of first call of Rs.2 and final call of Rs.3)
On Reissue at Par:
Bank A/c Dr 1000
To Share Capital A/c 1000
(Reissue of 100 shares at par as fully paid up)
On Reissue at a discount
Bank A/c Dr 700
Share Forfeiture A/c Dr 300
To Share Capital A/c 1000
(Reissue of 100 shares @7 fully paid up)
Share Forfeiture A/c Dr 200
To Capital Reserve A/c 200
(Profit on reissue transferred to Capital Reserve.)
On Reissue at a premium
Bank A/c Dr 1100
To Security Premium A/c 100
To Share Capital A/c 1000
(Reissue of 100 shares @ Rs.11 per share as fully paid up)
Share Forfeiture A/c Dr 500
To Capital Reserve A/c 500
(Profit on reissue transferred to Capital Reserve.)
The extra amount received on issue of share is credited to “Security Premium Account”. In the Balance Sheet, Capital Reserve and Security Premium will come separately under the head “Reserve & Surplus”.
Reissue of Forfeited Share – Practical Problems
Forfeiture of Shares, issue at premium, reissued at a premium and at a discount
A Ltd. forfeited 100 equity shares of Rs.10 each, issued at a premium of Rs.5 per share, for non payment of Allotment money of Rs.8 per share (including premium), the First call of Rs.2 per share, and the Final Call of Rs.3 per share. These shares are reissued. Show Journal entries if reissued at (i) Rs.11, (ii) Rs.8 per share.
Total amount payable is Rs.15 per share and unpaid amount for the 100 shares is @8 (allotment) + @2 (First call) + @ 3 (Final Call) =13 per share. So, Rs.2 per share has been paid up for the 100 shares being forfeited.
On Forfeiture
Share Capital A/c Dr 1000
Securities Premium A/c Dr 500
To Share Allotment A/c 800
To Share First Call A/c 200
To Share Final Call A/c 300
To Share Forfeiture A/c 200
(The forfeiture of 100 equity shares of Rs.10 each fully called up for non payment of allotment, first call and final call)
As the shares were originally issued at a premium and the premium amount was unpaid on forfeited shares, the Security Premium A/c is debited on forfeiture of such shares to cancel the previous entry.
On Reissue at Premium
Bank A/c Dr 1100
To Share Capital A/c 1000
To Security Premium A/c 100
(Reissue of 100 shares of Rs.10 each @ Rs.11 (premium Re.1) per share fully paid up)
Share Forfeiture A/c Dr 200
To Capital Reserve A/c 200
(Profit on reissue (paid up Rs.2 per share) transferred to Capital Reserve.)
On Reissue at Discount
Bank A/c Dr 800 Dr.
Share Forfeiture A/c Dr 200 Dr.
To Share Capital A/c 1000
(Reissue of 100 shares @8 as fully paid up)
In case of reissue at a discount, no amount will be transferred to Capital Reserve as there is no balance in Share Forfeiture Account.
Reissue of Forfeited Share – Problems
Forfeiture of Shares, issued at a discount, reissued at a premium and at a discount
A Ltd. forfeited 100 equity shares of Rs.10 each, issued at a discount of Re.1 per share, for non payment of the First call of Rs.2 per share and the Final Call of Rs.3 per share. These shares are reissued.
Give necessary journal entries if reissued at (i) Rs.11, (ii) Rs.7 per share.
On Forfeiture
Share Capital A/c Dr 1000
To Share First Call A/c 200
To Share Final Call A/c 300
To Discount on Issue of share A/c 100
To Share Forfeiture A/c 400
(Forfeiture of 100 equity shares of Rs.10 each fully called up for non payment of first call and final call)
On Reissue at Premium:
Bank A/c Dr. 1100
To Share Capital A/c 1000
To Security Premium A/c 100
(Reissue of 100 shares of Rs.10 each @Rs.11 per share fully paid up
Share Forfeiture A/c Dr 400
To Capital Reserve A/c 400
(Profit on reissue transferred to Capital Reserve.)
On Reissue at Discount
Bank A/c (100 x 7) Dr 700
Discount on Issue of Share Dr 100
Share Forfeiture A/c Dr 200
To Share Capital A/c 1000
(Reissue of 100 shares @.8 per share as fully paid up)
As the shares were originally issued at a discount and are reissued at a discount, so Share Forfeiture A/c will be debited with the additional discount amount only i.e @(9-7)= Rs.2. Discount on Issue of Share will be debited with the actual discount i.e.@ Re.1
Share Forfeiture A/c Dr 200
To Capital Reserve A/c 200
(Profit on reissue transferred to Capital Reserve.)
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