Share Capital

Company
A Company is an artificial person created by law, having
separate entity with a perpetual succession and a common
seal. The owners of the company are called Member or
Shareholders
As per Section 2(20) of the Companies Act, 2013,
“Company means a company incorporated under this Act or
any previous Company Law.”

Features of a Company

Incorporation
A company is created through the process of Law i.e. Companies Act.

Separate Legal Entity

A company has a separate legal entity from its shareholders.
Artificial Person
Company can own own property, enter into contracts, conduct business
in its own name.
Perpetual Existence
Company's existence is not affected by the death of any shareholder.
Company will come to an end through the process of law .
Limited Liability
Liability of the members of the company is limited to the extent of
unpaid amount of shares or amount guaranteed by them.

Transferability of Shares
Shares of the company are freely transferable except in case of private
companies where there are some restrictions.

Common seal
Common seal is the signature of the company which is affixed on all the
important documents of the company.
Difference between Partnership and Company
Basis Partnership Company
1. Mode of No registration is compulsory. It is It is formed through
Formation set up by an agreement among the registration under Companies
partners. Act.
2. Regulatory Act The Indian Partnership Act,1932 The Companies Act,2013
3. Number of Minimum – 2 Public company
Members Maximum – 50 Minimum – 7
Maximum – No limit
Private company
Minimum – 2
Maximum - 200
4. Liability Unlimited Limited to the extent of unpaid
amount on shares.
5. Transfer of shares Partner cannot transfer their shares Shares of the company are
without the consent of other freely transferable except in case
partners of private companies

6. Audit Audit of books of account is not It is Mandatory.

mandatory

Kinds of Companies
 On the Basis of Liability

Unlimited Company Limited by Guarantee Limited by Shares

•Liability of Member •Limited up to the •Limited up to the

is unlimited. (No amount of extent of unpaid
existence in India) Guarantee given by amount on shares.
members.
  Difference between OPC, Private and Public Company
Basis One Person Private Company Public Company
Company
1. Members Minimum – 1 Minimum – 2 Minimum – 7
Maximum – 1 Maximum – 200 Maximum - Unlimited
2. Directors Minimum – 1 Minimum – 2 Minimum – 3
Maximum – 15 Maximum -15 Maximum -15
3. Paid Up Minimum- Rs. >= 1,00,000 >= 5,00,000
Capital 1,00,000
Maximum- Rs. 50
Lakhs
4. Transfer of Not Applicable. Restrictions on Freely Transferable
shares transfer of shares.
5. Name The word ‘OPC’ is The word ‘Private ‘The word Limited’ is
used as part of the Limited’ is used. used.
name

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Share capital of a company

Amount that a company receives from issue of shares i.e. amount invested by the shareholders
in the company is called ‘share capital’. Each shareholder will invest some amount in the
company and will get a part of the ownership of the company. That unit of ownership is
known as ‘shares’.

Let’s understand this with the help of an example:

Commerce Chai wala (CCW) Limited wants to borrow Rs. 10,00,000 from the public.
Company will divide this Rs. 10,00,000 into small units such as Rs. 10 so that public
can invest easily. These small units are called ‘shares’ and Rs. 10 is called the face value
or nominal value of shares. So in this case, share capital of Rs.10,00,000 is divided into
1,00,000 shares of Rs. 10 each.
These shares represent the ownership in the company, more shares means more part of
ownership.
Let’s understand how it is done:
 1) Firstly, the company will issue a document called ‘Prospectus’ in which all the
information, terms and conditions will be mentioned. It is like an advertisement asking
for money from the public.

2) Then, public will invest the amount in the company as capital and will get a part of
ownership of the company known as ‘shares’. Let’s say if you invested Rs. 10,000 in the
company, you will get 1000 shares of Rs. 10 each.

Amount as capital

Issued Shares

Kinds or classes of Shares

As per Section 43 of the Companies Act, 2013, there are two types of shares:

Preference Shares Equity Shares

Basis Preference Shares Equity Shares
1. Right to Preferential right to receive dividend Dividend is paid after it is paid on
Dividend i.e. paid before equity shareholders. preference shares
2. Repayment On winding up, repayment in done On winding up, equity shares is repaid
of capital before equity shareholders. after the preference share capital.
3, Rate of Rate of dividend is fixed. Rate of dividend varies as per the
Dividend amount of profit.
4. Voting No voting rights to participate in Voting rights to participate in the
Rights the management of the company. management of the company.
Classes of Preference Shares

1. Cumulative and Non-cumulative Preference shares

Cumulative preference shares are those shares which has the right to receive the
arrears of dividend which means if preference shares have not received the
dividend in the previous year, then company shall pay the arrears (previous year
dividend) as well to the preference shareholders before any dividend is paid to
equity shareholders.
Non-Cumulative preference shares are those shares which do not carry the right
to receive the arrears of dividend.

2. Participating and Non-Participating Preference shares

Participating preference shares carry the right to participate in the surplus profit
which means that if profit is remaining available after paying the dividend to
preference shareholders and equity shareholders, these shareholders have the
right to receive a part of that surplus profit as well.
Non-participating preference shares do not carry the right to participate in the
profit remaining after dividends are paid.

3. Convertible and Non-convertible Preference shares

Convertible Preference shares are those shares which carry a right to be
converted into Equity shares.
Non-Convertible Preference shares are those shares which do not carry a right to
be converted into Equity shares.

4. Redeemable and Irredeemable Preference shares

Redeemable preference shares are those preference shares whose capital is repaid
or capital amount invested by them is redeemed at the time specified earlier,
when shares were issued (not exceeding 20 years from the date of issue)
Irredeemable preference shares are those shares whose capital is redeemed or
returned at the time of winding up of the company.
Classification of Share capital
1) Authorized Share capital or Nominal capital or Registered capital
It is stated in the Memorandum of Association (MOA) and is the maximum
amount that a company can raise as share capital
It is stated separately for equity and preference shares.
For example, CCW limited has an Authorized capital of Rs. 10,00,000 divided
into:
60,000 equity shares of Rs. 10 each Rs. 6,00,000
40,000 preference shares of Rs. 10 each Rs. 4,00,000

2) Issued Share capital

It is the part of Authorized share capital which is issued for subscription.
In simple words, the amount of capital offered to the investors to invest.
Since it is a part of Authorized capital so it can never exceed it.
For example, CCW limited Issued:
40,000 equity shares of Rs. 10 each Rs. 4,00,000
20,000 preference shares of Rs. 10 each Rs. 2,00,000

3) Subscribed capital
Part of issued capital which is subscribed by the members of the company.
Subscribed capital can be classified into 2 parts:
o Subscribed and Full paid-up
o Subscribed but not fully paid-up Authorized
I. Subscribed and full paid-up Share
Capital
 Company has called up the full face
Issued
value of shares ( Pura paisa mangwa liya) Share
and, Capital

 Members has paid the full amount

(Pura paisa mil bhi gya) Subscribed
 For example, in our case company has Share
Capital
issued 40,000 equity shares of Rs. 10
each and Rs. 10 has been called up by
the company and also received the full
amount , so:
Subscribed and full paid-up
40,000 equity shares of Rs. 10 each Rs. 4,00,000
II. Subscribed but not fully paid
 Company has called up the full face value but has not received it, or (Paisa
mangwaya but pura mila nahi
 Company has not called up the full face value of the shares. (Abhi pura paisa
mangwaya hi nahi)
 For example: a) Company has called up the full face value on 40,000 equity
shares but has not received Rs. 2 per share.
Subscribed but not fully paid:
40,000 equity shares of Rs. 10 each 4,00,000
Less: Calls in Arrears (40,000*2) (80,000) Rs. 3,20,000

Amount not received on subscribed shares is called Calls in Arrear.

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Meaning of some important terms:

1. Called-up capital: Called-up capital is the amount

of capital that has been called for payment from
the shareholders. (Shareholders se jo paise mangwaye)

2. Paid-up capital: Amount paid by the shareholder COMPANY

i.e. amount that the company has received from the
shareholders against the called up capital.
(Shareholders se jo paisa mila)

3. Minimum Subscription: Securities and Exchange

Board of India (SEBI), has prescribed that a listed company must receive minimum
subscription of 90% of the shares issued for subscription within 120 days from the date
of issue of prospectus.
Therefore, if application money of 90% shares is not received, company con not allot
the shares and the application money has to be refunded within 15 days from the
closure of the issue, otherwise 15% interest is charged in case of delay.

4. Preliminary Expenses: Expenses incurred for incorporating/forming the company such

as registration fee, legal fee, issue expense, etc. These expenses are written off from the
Securities Premium Reserve and then from the statement of profit and loss.
Issue of Shares for cash
Issue of shares for cash means shares issued by a company against payment received by cash or
bank. Now, company has the option to call up the share capital from the shareholders either:

In installments at different stages i.e. on application, allotment and balance on calls, or

In lump sum along with applications

 Issue of Shares and Amount payable in installments

Installments are discussed as follows:

I. Application Money
Application money is the amount that the shareholder is required to be paid at the time
of applying for the shares. If any shareholder wants to subscribe/buy the shares of the
company, then he/she is required to pay application money.
Imp: Application money should not be less than 25% of the issue price.
For example, Issue price of the share is Rs. 100 then application amount should not be
less than 25.

II. Allotment Money

After receiving the application money, company allots the shares to the
shareholders/members. After allotment of shares, company calls up the allotment
money from the shareholders.

III. Call Money

After receiving the allotment money, remaining amount is called up by the company.
Call money can be called up in one or more installments i.e. if only one call is made
then it is called first and final call and if more calls are made then add the final call in
the last call installment.
Imp: There should be at least 1 month gap between the installments..
Some important points:

Calls are made as per the Articles of Association of the company

If the company does not have Articles of Association then Table F of the
Companies Act, 2013 will apply, which states:
o There should be time gap of 1 month between two calls
o Amount on one call should not exceed 25% of the face value
o 14 days’ notice period should be given to the shareholders.
 Application Money received
Shareholders apply krne ke liye kuch amount pay krenge.

Application Amount transferred to Share capital A/c

Wo application amount share capital ka part ban jayega

Amount Due on Allotment

Shares allot karne ke bad, shareholders se Allotment ka amount manga
jayega

Amount received on Allotment

Allotment ka amount receive hogya from shareholders.

Amount due on Calls

Remaining amount ab shareholders se call krke mangwayi jayegi

Amount received on Calls

Calls ka amount bhi receive ho gaya

Terms of Issue of Shares

A company may issue shares:

I. At par i.e. at the face value of shares

II. At premium i.e. more than the face value of shares.
Issue of Shares at par

Issue of shares at par means that issue price is same as its face value. Let’s understand how
journal entries are done:

For example: CCW limited issued 1,000 shares of Rs. 10 each at par. Amount is payable as
follows:

On Application – Rs. 3
On Allotment – Rs. 4
On First and Final call – Rs. 3
Applications were received for 1,000 shares and the amount was duly received.

Rs.10

Rs.3 Rs.3
Rs.4

Journal Entry Amount Dr. Amount Cr.

1) On Receipt of Bank A/c Dr. (1,000*3) 3,000
Application money To Share Application A/c 3,000
2) Shares Application Share Application A/c Dr. 3,000
money transferred to To Share capital A/c 3,000
share capital A/c on the
date of Share Allotment
3) Amount due on Share Allotment A/c Dr. (1,000*4) 4,000
Allotment To Share capital A/c 4,000
4) On Receipt of Bank A/c Dr. 4,000
Allotment Money To Share Allotment A/c 4,000
5) Amount due on First Share First call A/c Dr. (1,000*3) 3,000
call To Share Capital A/c 3,000
6) On receipt of First Bank A/c Dr. 3,000
call To Share first call A/c 3,000

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Issue of shares at premium

Issue of shares at premium means that shares have been issued at a value that is more than its
face value. For example: Share with face value of Rs. 10 issued at Rs. 15, Rs. 5 being the
premium amount.

As per Companies Act, 2013, amount of securities premium received on the share is transferred to the
Securities Premium Reserve Account not to the Share capital account.

Always remember, share capital will be credited with the face value of shares only.

The main reason behind transferring premium amount to security premium reserve account is
that Companies Act, 2013, has restricted the use of the premium amount for the following
purposes only:

Issuing fully paid bonus shares to the shareholders.

Writing off preliminary expenses of the company
Writing off the commission expenses or discount allowed expenses on issue of
securities.
Providing for premium payable on the redemption of any redeemable preference shares
or of any debentures of the company
In purchasing its own shares i.e. buy back the shares.

Accounting entries for issue of Shares at Premium

Important points:

Company can collect the premium on shares on any installment i.e. application,
allotment or calls.
If the question is silent, it is assumed that premium is collected along with allotment
money.
Journal Entries:

Journal Entry Amount

1) On Receipt of Bank A/c Dr. Amount including
Application money To Share Application A/c premium if premium
collected on application
2) On Allotment of Share Application A/c Dr. Total application money
shares To Share capital A/c Amount towards share
capital (only face value)
To Securities Premium Reserve A/c Amount of premium
3) Amount due on Share Allotment A/c Dr. Amount due on Allotment,
Allotment including premium
To Share capital A/c Amount towards share
capital (only face value)
To Securities Premium Reserve A/c Amount towards
premium
4) On Receipt of Bank A/c Dr. Total amount received
Allotment Money To Share Allotment A/c on Allotment
5) Amount due on Share First call A/c Dr. Amount due on first call,
First call including premium.
To Share Capital A/c Amount towards share
capital (only face value)
To Securities Premium Reserve A/c Amount towards
premium
6) On receipt of Bank A/c Dr. Total amount received
First call To Share first call A/c on First and Final call.

Example: Bharat Ltd. was incorporated with a capital of ₹ 2,00,000 divided into shares of ₹ 10
each. 2,000 shares were offered for subscription and out of these, 1,800 shares were applied
for and allotted. ₹ 3 per share (including ₹ 1 premium) was payable on application, ₹ 4 per
share (including ₹ 1 premium) on allotment, ₹ 2 per share on first call and ₹ 3 per share on
final call. All the money was received. Give necessary Journal entries

Calls in Arrears

If the shareholders do not pay the amount due on

installment, the amount not received is called Calls in
Arrears.

There are 2 ways to record Calls in Arrears:

Without opening Calls-in-Arrears Account

Under this method, bank account is debited with the amount received and the relevant
installment account is credited with the same amount.
 For example: If first call money @ Rs. 2 per share on 10,000 shares is called but out of
this call money is received on 9500 shares only. Journal entry would be:

Date Particulars Amount Dr. Amount Cr.

1. Share first call A/c Dr. (10,000*2) 20,000
To Share capital A/c 20,000
Bank A/c Dr. (9500*2) 19,000
To Share first call A/c 19,000

In this, share first call account will show debit balance of Rs. 1,000 which is unpaid
amount of calls.

By Opening Calls –in-Arrears Account

Under this method, unpaid amount of installment is transferred to Calls-in-Arrears
Account. Calls in Arrear will be debited (It is receivable amount) by the amount unpaid
on the installment.
For example, Journal entry in the above case would be:

Date Particulars Amount Dr. Amount Cr.

1. Share first call A/c Dr. (10,000*2) 20,000
To Share capital A/c 20,000
Bank A/c Dr. (9500*2) 19,000
Calls in Arrear A/c Dr. (500*2) 1,000
To Share first call A/c 20,000

In this, Share first call will not show any balance. Calls in Arrear account will show the
debit balance which means the amount is still unpaid and receivable.

Example: Seema Ltd. offered for subscription 10,000 shares of ₹ 25 each, payable ₹ 5 per
share on application, ₹ 10 per share on allotment (including ₹ 5 per share as premium), ₹ 5
per share as first call on the shares and the balance on the final call. All the money was
received except the second call and final call on 400 shares respectively. Pass the entries in the
company's Journal.

Calls in Advance

Sometimes, shareholders pay the installment amount in advance. Amount received in

advance, which has not been called yet, is called Calls in Advance.

The amount received in advance is a liability for the company and therefore credited to Calls
in Advance Account.
Journal entry:

Date Particulars Amount Dr. Amount Cr.

1. Bank A/c Dr. XXX
To Calls in Advance A/c XXX

On the due date, when the installment become due then the advance amount is adjusted as
follows:

Date Particulars Amount Dr. Amount Cr.

2. Calls in Advance A/c Dr. XXX
To Application/Allotment/Firstcall A/c XXX

Example: Konica Limited registered with an authorized equity capital of Rs. 2,00,000 divided
into 2,000 shares of Rs. 100 each, issued for subscription of 1,000 shares payable at Rs. 25 per
share on application, Rs. 30 per share on allotment, Rs. 20 per share on first call and the
balance as and when required. Application money on 1,000 shares was duly received and
allotment was made to them. The allotment amount was received in full, but when the first
call was made, one shareholder failed to pay the amount on 100 shares held by him and
another shareholder with 50 shares, paid the entire amount on his shares. The company did
not make any other call.
Give the necessary journal entries in the books of the company to record these share capital
transactions.

Oversubscription of Shares
Oversubscription of shares means when the number of share applications received by the
company from shareholders is more than the number of shares offered by the company.
For example: CCW limited invited application of 50,000 shares but due to good reputation of the
company, public applied for 60,000 shares. So, shares are oversubscribed by 10,000 shares.
Ab kya kre company?? Kisko shares allot kre or kisko nahi??

In case of oversubscription, allotment of shares can be done in 3 ways:

 Rejection of Excess Application
•Excess applications are rejected and their application money is refunded.
•This is known as Rejection of Applications

Pro-rata Allotment
•All applications are allotted in proportion.
•No applications are fully rejected.

Combination of Rejection and Pro-rata

•Some applications are fully rejected & their application money is
refunded and some application are alloted on pro-rata basis.

Let’s discuss all the three alternatives in detail:

Rejection of excess application

In this case, all the excess applications are rejected and their money is refunded back.
For example, CCW limited issued 50,000 shares of Rs. 10 each payable as:
Rs. 3 on application, Rs. 4 on allotment, Rs. 3 on first and final call.
Applications are received for 60,000. Application of 50,000 shares is accepted and excess
applications are rejected. Pass journal entries.

Solution:
Date Particulars Amount Dr. Amount Cr.
1. Bank A/c Dr. (60,000*3) 1,80,000
To Share applications A/c 1,80,000
(Application money of 60,000 shares are received)
2. Share Application A/c Dr. 1,80,000
To Share capital A/c (50,000*3) 1,50,000
To Bank A/c (10,000*3) 30,000
(Shares allotted to applicants of 50,000 shares and
excess application money on 10,000 shares refunded)
3. Share Allotment Dr. (50,000*4) 2,00,000
To Share capital A/c 2,00,000
(Allotment money due on 50,000 shares)
………….no change in other entries
 Partial or Pro-rata Allotment
In this case, no applications are rejected and shares are allotted on proportionate basis. (Sabko
milega thoda thoda). For example, in the previous case, 50,000 shares will be allotted to the
applicants of 60,000 shares i.e. if one application has applied for 6 shares, he/she will be
allotted 5 shares.
In this case, we have to understand the treatment of excess money received on the application.
The company will have 2 options:
 Return the excess amount
 Adjust the excess application amount against the allotment amount or call amount.

For Example, CCW limited issued 50,000 shares of Rs. 10 each payable as:
Rs. 3 on application, Rs. 4 on allotment, Rs. 4 on first and final call.
Applications are received for 60,000 shares and shares are allotted on pro-rata basis. No
applications were rejected. Pass Journal Entries

Solution:
Application Money received on 60,000 shares @ 3 Rs. 1,80,000
Application money adjusted on allotted shares i.e 50,000 shares Rs. 1,50,000
Excess Application Money Received Rs. 30,000

Now, Company has decided to adjust this excess application money on Allotment
Amount Due on Allotment of 50,000 shares @ 4 Rs. 2,00,000
Excess Application money adjusted on allotment Rs. 30,000
Amount Received on Allotment Rs. 1,70,000

JOURNAL
Date Particulars Amount Dr. Amount Cr.
1. Bank A/c Dr. (60,000*3) 1,80,000
To Share applications A/c 1,80,000
(Application money of 60,000 shares are received)
2. Share Application A/c Dr. 1,80,000
To Share capital A/c (50,000*3) 1,50,000
To Share Allotment A/c 30,000
(Shares allotted to applicants of 50,000 shares and
excess application money adjusted on Allotment )
3. Share Allotment Dr. (50,000*4) 2,00,000
To Share capital A/c 2,00,000
(Allotment money due on 50,000 shares)
4. Bank A/c Dr. (2,00,000 – 30,000) 1,70,000
To Share Allotment A/c 1,70,000
(Amount received on Allotment)
Example: CCW limited issued 50,000 shares of Rs. 10 each payable as:
Rs. 3 on application, Rs. 4 on allotment, Rs. 4 on first and final call. Applications were
received for 70,000 shares on which allotment was made as follows:
Application for 40,000 shares – Full
Applications for 20,000 shares – 50%
Applications for 10,000 shares – Nil

Solution:
Application Money received on 70,000 shares @ 3 Rs. 2,10,000
Application money adjusted on allotted shares i.e 50,000 shares Rs. 1,50,000
Excess Application Money Received Rs. 60,000
Application Money adjusted on Allotment ( 20,000*50%) @ 3 30,000
Application Money Refunded (10,000 @ 3) 30,000

Date Particulars Amount Dr. Amount Cr.

1. Bank A/c Dr. (60,000*3) 1,80,000
To Share applications A/c 1,80,000
(Application money of 60,000 shares are received)
2. Share Application A/c Dr. 1,80,000
To Share capital A/c (50,000*3) 1,50,000
To Share Allotment A/c 30,000
To Bank A/c 30,000
(Shares allotted to applicants of 50,000 shares and
excess application money adjusted on Allotment )
3. Share Allotment Dr. (50,000*4) 2,00,000
To Share capital A/c 2,00,000
(Allotment money due on 50,000 shares)
4. Bank A/c Dr. (2,00,000 – 30,000) 1,70,000
To Share Allotment A/c 1,70,000
(Amount received on Allotment)

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Oversubscription + Calls in Arrear
Example: CCW limited issued 50,000 shares of Rs. 10 each payable as:
Rs. 3 on application, Rs. 4 on allotment, Rs. 3 on first and final call. Applications were
received for 70,000 shares and all the allotments were made on pro-rata basis
A Shareholder, Rohit, holding 1000 shares failed to pay the allotment money.

Solution: Company has made the pro-rata allotment on 70,000 shares which means applicants
of 7 shares will be allotted 5 shares and the excess application money will be adjusted on
allotment.
Application Money received on 70,000 shares @ 3 Rs. 2,10,000
Application money adjusted on allotted shares i.e 50,000 shares Rs. 1,50,000
Excess Application Money Received Rs. 60,000

 Now, in this case, one shareholder, Rohit, holding 1000 shares failed to pay allotment
money. So amount not paid by him will be calculated as follows:

Rohit has been allotted 1000 shares which mean he must have applied for more shares
because shares were allotted on pro-rata basis.
Total Share Application = 70,000
Total Shares Allotted = 50,000, which means Rohit must have applied for
1,000 * 70,000/50,000 shares = 1,400 shares.
Application Money received from Rohit ( 1400 * 3) Rs. 4,200
Application Money required as per shares allotted (1000*3) Rs. 3,000
Excess Application Money Received to be adjusted on Allotment Rs. 1,200
Allotment money due from Rohit (1,000*4) 4,000
Allotment money not paid by Rohit (4000-1200) 2,800

 Net Amount received on Allotment:

Total Amount due on Allotment ( 50,000 * 4) Rs. 2,00,00
Less: Excess Application Money adjusted (Rs. 60,000)
Less: Allotment amount not paid by Rohit (Rs. 2,800)
Amount received on Allotment Rs.1,37,200
Date Particulars Amount Dr. Amount Cr.
1. Bank A/c Dr. (70,000*3) 2,10,000
To Share applications A/c 2,10,000
(Application money of 70,000 shares are received)
2. Share Application A/c Dr. 2,10,000
To Share capital A/c (50,000*3) 1,50,000
To Share Allotment A/c 60,000
(Shares allotted to applicants of 50,000 shares and
excess application money adjusted on Allotment )
3. Share Allotment Dr. (50,000*4) 2,00,000
To Share capital A/c 2,00,000
(Allotment money due on 50,000 shares)
4. Bank A/c Dr. (2,00,000 – 30,000) 1,37,200
Calls in Arrear A/c Dr. 2,800
To Share Allotment A/c 1,40,000
(Amount received on Allotment)

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When allotment is done in Categories

Question- Sony Media Ltd.issued 50,000 shares of ₹ 10 each payable ₹ 3 on

application , ₹ 4 on allotment and balance on first and final call . Applications
were received for 1,00,000 shares and allotment was made as follows :

(i) Applicants for 60,000 shares were allotted 30,000 shares,

(ii) Applicants for 40,000 shares were allotted 20,000 shares,
Anupam to whom 1,000 shares were allotted from category (i) failed to pay the
allotment money.
Pass journal entries up to allotment.
Solution:

Calculation of Amount not received on the shares of Anupam:

Allotted Shares = 1000 shares

Shares applied by Anupam = 1000*60000/30000 = 2000 shares

Amount Due on allotment (1000*4) = 4,000

Excess Application money adjusted on allotment (1000*3) = 3,000
Amount not received = 1,000
 Amount received on allotment
Amount due on allotment (50,000*4) Rs. 2,00,000
Less: Excess Application money adjusted on allotment (50,000*3) Rs. 1,50,000
Less: Amount not received on Anupam shares Rs. 1,000
Amount received on Allotment Rs. 49,000

Date Particulars Amount Dr. Amount Cr.

1. Bank A/c Dr. (100,000*3) 300,000
To Share applications A/c 300,000
(Application money of 100,000 shares are received)
2. Share Application A/c Dr. 300,000
To Share capital A/c (50,000*3) 1,50,000
To Share Allotment A/c 1,50,000
(Shares allotted to applicants of 50,000 shares and
excess application money adjusted on Allotment )
3. Share Allotment Dr. (50,000*4) 2,00,000
To Share capital A/c 2,00,000
(Allotment money due on 50,000 shares)
4. Bank A/c Dr. 49,000
Calls in Arrear A/c Dr. 1,000
To Share Allotment A/c 50,000
(Amount received on Allotment)

Question - Sugandh Ltd. issued 60,000 shares of ₹ 10 each at a premium of ₹ 2 per share
payable as ₹ 3 on application, ₹ 5 (including premium) on allotment and the balance on first
and final call. Applications were received for 92,000 shares. The Directors resolved to allot as:

(i) Applicants of 40,000 shares 30,000 shares,

(ii) Applicants of 50,000 shares 30,000 shares,
(iii) Applicants of 2,000 shares Nil.

Mohan, who had applied for 800 shares in Category

(i) and Sohan, who was allotted 600 shares in Category
(ii) failed to pay the allotment money. Calculate amount received on allotment.

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Issue of Shares for consideration other than cash
Till now, we have discussed that company issue shares when they are in need of funds, when
they want to borrow money from the public.
However, company may issue shares against purchase of assets or purchase of business i.e. for
consideration other than cash.

CCW Purchased Assets

Limited
Issued Shares

For example: CCW Limited purchased machinery for Rs. 10,00,000 from Mr. Royal. Payment
is made by issue of equity shares of Rs. 10 each. Record journal entries.

Answer: Firstly, we need to calculate Purchase consideration and number of shares issued to
Mr. Royal

Purchase consideration = It is the total amount paid to the vendor/seller in consideration for
purchase of Assets.

Here, purchase consideration = Rs. 10,00,000.

Number of shares to be issued = Purchase consideration / Issue price of Shares

In this case, Number of shares to be issued = 10,00,000 / 10 = 1,00,000 Shares

Journal entries

Date Particulars Amount Dr. Amount Cr.

1. Machinery A/c Dr. 10,00,000
To Mr. Royal 10,00,000
(Purchase of Machinery)
2. Mr. Royal Dr. 10,00,000
To Share capital A/c 10,00,000
(Issue of 1,00,000 shares @ 10 each)
Example 2: CCW Limited purchased running business from Shyam limited for a sum of Rs.
2,50,000 payable by issue of equity shares @ 10 each. The Assets and liabilities consisted of the
following:

Plant and Machinery Rs. 90,000 ; Building Rs. 90,000 ; Sundry debtors Rs. 30,000 ; Stock Rs.
50,000 ; Cash Rs. 20,000 ; Sundry creditors Rs. 20,000

Pass Journal entries

Solution: Purchase consideration = Rs. 2,50,000

Number of shares to be issued = 2,50,000 /10 = 25000 shares

Journal

Date Particulars Amount Dr. Amount Cr.

1. Plant and Machinery A/c Dr. 90,000
Building A/c Dr. 90,000
Sundry debtors Dr. 30,000
Stock A/c Dr. 50,000
Cash A/c Dr. 20,000
To Sundry Creditors A/c 20,000
To Mr. Shyam Ltd. 2,50,000
TO CAPITAL RESERVE A/C 10,000
(Purchase of Machinery)
2. Shyam Ltd Dr. 2,50,000
To Share capital A/c 2,50,000
(Issue of 25,000 shares @ 10 each)

Important Point:

If purchase consideration is more than the Net Assets (Total assets - Liabilities) then the
difference is debited to Goodwill Account.
If purchase consideration is less than the Net Assets then the difference is credited to
Capital Reserve Account.

In this case,

Net Assets = 2,80,000 – 20,000 = Rs. 2,60,000 (Itna amount dena chahiye the)
Purchase consideration = 2,50,000 (Itna amount diya)
Capital Reserve = Rs. 10,000 ( Itne ka benefit hogya)
Example 3: Taking the same example as above, record journal entries if shares are issued at a
premium of 25% and purchase consideration is Rs. 2,75,000.

Solution: If share are issued at a premium of 25%, number of shares to be issued to the
vendor will. Face value of share is Rs. 10 and premium is 25% so share will be issued at Rs.
12.5
Number of shares to be issued = 2,75,000 / 12.5 = 22,000 shares
Date Particulars Amount Dr. Amount Cr.
1. Plant and Machinery A/c Dr. 90,000
Building A/c Dr. 90,000
Sundry debtors Dr. 30,000
Stock A/c Dr. 50,000
Cash A/c Dr. 20,000
Goodwill A/c Dr. 10,000 20,000
To Sundry Creditors A/c 2,50,000
To Mr. Shyam Ltd.
(Purchase of Machinery)
2. Shyam Ltd Dr. 2,75,000
To Share capital A/c (22,000 *10) 2,20,000
To Securities Premium Reserve A/c 55,000
(Issue of 20,000 shares @ 12.5 each)

Note: In this case,

Net Assets = 2, 80,000 (Total Assets) – 20,000 (Liabilities) = Rs. 2,60,000 { Itne dene chahiye the}
Purchase consideration = 2,75,000 (Itne diye h)
Since, Purchase consideration is more than Net Assets, balancing figure will be Goodwill
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Issue of Shares to Promoters

Promoters are the person who does all the work and provide the services relating to the
formation of a company including its incorporation, promotion, etc. Sometimes, companies
issue the shares to the promoters as compensation for the services. Such issue of shares is
debited to the ‘Incorporation expenses’

1. Incorporation Expenses A/c Dr. XXX

To Promoters’ A/c XXX
(Amount to be paid to promoters for their services)
2. Promoters’ A/c Dr. XXX
To Share capital A/c XXX
(Being issue of shares made to promoters)
Issue of Shares to Underwriters
Underwriters are the individuals or firms, who promise to subscribe to the shares of the
company if pubic don’t subscribe to the shares.
Company may issue the shares to the underwriters as a compensation for their underwriting
services.
1. Underwriting commission A/c Dr. XXX
To Underwriters’ A/c XXX
(Amount to be paid to underwriters for their services)
2. Underwriters’ A/c Dr. XXX
To Share capital A/c XXX
(Being issue of shares made to underwriters)

Example: Light Lamps Ltd. issued 50,000 shares of ₹ 10 each as fully paid-up to the promoters
for their services to set-up the company. It also issued 2,000 shares of ₹ 10 each credited as
fully paid-up to the underwriters of shares for their services. Journalize these transactions.

Solution:
Date Particulars Dr. Cr.
1. Incorporation Expenses A/c Dr. 5,00,000
To Promoters’ A/c 5,00,000
(Amount to be paid to promoters for their services)
2. Promoters’ A/c Dr. 5,00,000
To Share capital A/c 5,00,000
(Being issue of shares made to promoters)
3. Underwriting commission A/c Dr. 20,000
To Underwriters’ A/c 20,000
(Amount to be paid to underwriters for their
services)
4. Underwriters’ A/c Dr. 20,000
To Share capital A/c 20,000
(Being issue of shares made to underwriters)
Forfeiture of Shares which were issued at par
Forfeiture of shares means cancelling the shares of the shareholders for non-payment of the
installments due and forfeiting the amount already paid on the shares.
Important - Shares can be forfeited only if Articles of Association of the company allows forfeiture
The company before forfeiture must give notice to the defaulting shareholder.

Accounting Entries when shares are issued at par

Journal Entry Amount
Share capital A/c Dr. Amount called up on these
Forfeiture of shares. ( Number of Shares *
Shares Called up value)
To Share Forfeiture A/c Amount received on shares
To Calls in Arrear A/c Amount not paid on shares

Important points:
If Calls in Arrear account is not maintained, then Share Allotment A/c or Share Calls
A/c will be credited.
Share capital A/c is debited with the called-up value of the shares not the face value or
nominal value of shares.

For example: CCW limited forfeited 1000 equity shares of Rs. 10 each for non-payment of
first call. The amount payable was: Rs. 3 on application, Rs. 3 on allotment, Rs. 2 on first call
and the balance on second and final call.

Solution:
Date Transaction Debit Credit
1. Share Capital A/c Dr. (1,000*8) 8,000
To Share forfeiture A/c (1,000*6) 6,000
To Calls in Arrear / Share first call (1,000*2) 2,000

In this example, share is forfeited after non-payment of first call which means final call is not made on
those shares so called up value is Rs. 8 only.
Example 2: Alpha Ltd. issued 20,000 Equity Shares of ₹ 10 each at par payable: On
application ₹ 2 per share; on allotment ₹ 3 per share; on first call ₹ 3 per share; on second and
final call ₹ 2 per share.
Mr. Gupta was allotted 100 shares. Pass necessary Journal entry relating to the forfeiture of
shares in each of the following alternative cases:
Case I If Mr. Gupta failed to pay the allotment money and his shares were immediately
forfeited.
Case II If Mr. Gupta failed to pay allotment money and on his subsequent failure to pay the
first call, his shares were forfeited.
Case III If Mr. Gupta failed to pay the first call and on his subsequent failure to pay the
second and final call, his shares were forfeited.

Answer:
Date Transaction Debit Credit
Case Share Capital A/c Dr. (100*5) 500
1. To Share forfeiture A/c (100*2) 200
To Calls in Arrear / Share Allotment A/c (100*3) 300
Case Share Capital A/c Dr. (100*8) 800
2. To Share forfeiture A/c (100*2) 200
To Share Allotment A/c (100*3) 300
To Share first call A/c (100*3) 300
Case Share Capital A/c Dr. (100*10) 1000
3. To Share forfeiture A/c (100*5) 500
To Share first call A/c (100*3) 300
To share final call A/c (100*2) 200

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Forfeiture of Shares which were issued at premium

When shares are issued at premium, there can be two scenarios
1. Premium has been received
2. Premium has not been received

When Premium has been received

Once Securities premium is received on shares, it will not be cancelled on forfeiture of shares.
As we have discussed before, that amount credited to Securities Premium Reserve A/c can be
used only for the purposes mentioned in the Companies Act, 2013 so even if shares are
forfeited, there will no effect on premium received on those shares.
So, when premium is received and shares the forfeited then just ignore the premium amount.
Accounting Entries when shares are issued at premium
Journal Entry Amount
Share capital A/c Dr. Amount called up on these
Forfeiture of shares less premium; only face
Shares issued at value of called-up.
par To Share Forfeiture A/c Amount received on shares less
premium amount
To Calls in Arrear A/c Amount not paid on shares

Example 1: CCW Ltd. issued 20,000 equity shares of 10 each at a premium of ₹ 2 per share,
payable as:
On Application: ₹ 3
On Allotment : ₹ 5 (including premium)
On First Call : ₹ 2
On Second and Final Call: ₹ 2
Dinda was allotted 500 shares, failed to pay the first call and his shares were forfeited
immediately.
Solution:
Date Transaction Debit Credit
1. Share Capital A/c Dr. (500*8) 4,000
To Share forfeiture A/c (500*6) 3,000
To Calls in Arrear / Share first call A/c (500*2) 1,000

In this case, Premium has been received so it will not be included in the forfeiture
treatment.
Allotment includes premium of Rs. 2 so face value of premium is Rs. 3.
Called up value is Rs. 3 on application, Rs. 3 on allotment and Rs. 2 on first call
Share forfeiture account will not include the premium amount.

When Premium has not been received

The amount of the premium though credited to securities premium account but not received
on the forfeited shares is cancelled i.e. debited while forfeiting the shares.
Accounting Entries when shares are issued at premium
Journal Entry Amount
Share capital A/c Dr. Amount called up on these
shares less premium; only face
value of called-up.
Forfeiture of Securties Premium A/c Dr. Premium amount called up but
not received.
Shares issued at
To Share Forfeiture A/c Amount received on shares less
Premium premium amount
To Calls in Arrear A/c Amount not paid on shares
along with the premium
amount.

Example: CCW Ltd. issued 20,000 equity shares of 10 each at a premium of ₹ 2 per share,
payable as:
On Application: ₹ 3
On Allotment : ₹ 5 (including premium)
On First Call : ₹ 2
On Second and Final Call: ₹ 2
Dinda was allotted 500 shares, failed to pay the allotment money and his shares were forfeited
immediately.
Solution:
Date Transaction Debit Credit
1. Share Capital A/c Dr. (500*6) 3,000
Securities Premium Reserve A/c Dr. (500*2) 1,000
To Share forfeiture A/c (500*3) 1,500
To Calls in Arrear / Share Allotment A/c (500*5) 2,500

In this case, premium has not been received so securities premium reserve A/c is
debited.
Calls in Arrear or Share Allotment A/c are credited along with premium amount as it is
not received.

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Share Forfeiture + Reissue of Shares
Reissue of shares means issue of forfeited shares again. These are not fresh issue of shares;
these are re-issuing of cancelled shares. Shares forfeited by the company can be reissued at par,
at premium or at discount as well.

Important point:
Maximum Permissible Discount on Reissue of Shares:
Discount on the reissue of shares should not exceed the amount forfeited on cancelled shares i.e. amount
credited to share forfeiture account.
For example: Suppose a share of Rs. 100 issued at par and Rs. 40 have been received and the
share is forfeited. In such a case, the maximum discount on reissue of forfeited share can be
Rs. 40 i.e. amount forfeited.
In other words, the minimum amount that should be received on reissue of forfeited shares
should be Rs. 60.
Reissue price cannot be less than the amount not received by the company on forfeited shares.

Now, there are can be 2 different scenarios:

1. All the forfeited shares are reissued
2. Only some of the forfeited shares are reissued,
Let’s discuss both the cases in detail.

1) When all the forfeited shares are reissued

When all the forfeited shares are reissued, the balance left in the Share forfeiture
account is transferred to the capital reserve account as the share forfeiture amount is a
capital profit.

Accounting Treatment

A. When the forfeited shares are re-issued at par i.e. at the face value of shares
Journal Entry Amount
1) Forfeited shares Bank A/c Dr. Amount received
issued at par To Share Capital A/c Face value of shares,
called up
 For example: CCW ltd forfeits 100 shares of Rs. 100, Rs. 100 called up for non-payment of
Rs. 20 on first and final call. These shares are reissued @ 100 per share.

Date Transaction Debit Credit

1. Bank A/c Dr. (100*100) 10,000
To Share capital A/c 10,000
2. Share forfeiture A/c Dr. (100*80) 8,000
To Capital Reserve A/c 8,000
In this case, Rs. 80 per share was received so share forfeiture account had a balance of 8,000
and since shares are reissued are par value, the whole share forfeiture account is transferred
to capital reserve account.

B. When the forfeited shares are re-issued at discount

Journal Entry Amount
2) Forfeited Bank A/c Dr. Amount received
shares issued at Share Forfeiture A/c Dr. Discount allowed
discount To Share capital A/c Amount called up on the
shares

For example: CCW ltd forfeits 100 shares of Rs. 100 each, for non-payment of Rs. 20 on
first and final call. These shares are reissued @ 80 per share, fully paid up.

Date Transaction Debit Credit

1. Bank A/c Dr. (100*80) 8,000
Share Forfeiture A/c Dr. (100*20) 2,000
To Share capital A/c 10,000
2. Share forfeiture A/c Dr. (100*60) 6,000
To Capital Reserve A/c 6,000

In this case, shares are re-issued at a discount of Rs. 20 per share and therefore the discounted
amount is debited to share forfeiture account and the remaining balance in share forfeiture
account i.e. 6000 is transferred to capital reserve.

C. When the forfeited shares are re-issued at discount

Journal Entry Amount
3) Forfeited Bank A/c Dr Amount received
shares issued at To Share capital A/c Amount called up
premium To Securities Premium Reserve A/c Premium amount received
 For example: CCW ltd forfeits 100 shares of Rs. 100 each, for non-payment of Rs. 20 on
first and final call. These shares are reissued @ 120 per share, fully paid up.

Date Transaction Debit Credit

1. Bank A/c Dr. (100*120) 12,000
To Share capital A/c 10,000
To Securities Premium Reserve A/c 2,000
2. Share forfeiture A/c Dr. (100*80) 8,000
To Capital Reserve A/c 8,000

In this case, shares are issued at premium i.e. more than face value of shares and therefore
the premium amount is credited to securities premium reserve account. Balance in share
forfeiture account is transferred to capital reserve account.

Confusion point: How much amount to be credited to share capital account at the time of
reissue of shares?
There are 2 cases, we need to understand:

When paid up value on shares is not given and called up value is given
Always remember, share capital will be credited by the called-up value on shares.
For example: CCW ltd forfeits a share of Rs. 100, Rs. 80 called up for non-payment of
Rs. 20 on first and final call. These shares are reissued @ 80 per share.
In this case, Bank account will be debited by Rs. 80 per share and share capital account
will be credited by Rs. 80 per share i.e. called up value per share.

For example: CCW ltd forfeits a share of Rs. 100, Rs. 80 called up for non-payment of
Rs. 20 on first and final call. These shares are reissued @ 90 per share.
In this case, Bank account will be debited by Rs. 90 per share and share capital account
will be credited by Rs. 80 per share i.e. called up value per share and the excess Rs. 10 is
the securities premium reserve.

When paid up value of share is given

Always remember, share capital will be credited by the paid-up value of shares.
For example: CCW ltd forfeits a share of Rs. 100, Rs. 80 called up for non-payment of
Rs. 20 on first and final call. These shares are reissued @ 80 per share, fully paid up.
In this case, Bank account will be debited by Rs. 80 per share but share capital account
will be credited by Rs. 100 per share i.e. full-face value of share.
 For example: CCW ltd forfeits a share of Rs. 100, Rs. 80 called up for non-payment of
Rs. 20 on first and final call. These shares are reissued @ 120, full paid up.
In this case, Bank account will be debited by Rs. 120, share capital will be credited by
Rs. 100 per share and the excess Rs. 20 will be credited to securities premium reserve
account.

2) When all the forfeited shares are not reissued

When some of the forfeited shares are issued, gain on reissued shares is transferred to
the capital reserve.
Gain on reissued shares = [(Total amount forfeited/ No. of shares forfeited) * No. of
shares reissued] – Discount given on reissued shares.

For example: The Directors of M Ltd resolved on 1st May 2015 that 2,000 Equity
Shares of ₹ 10 each, ₹ 7.50 paid be forfeited for non-payment of final call of ₹ 2.50. On
10th June 2015, 1,800 of these shares were reissued for ₹ 6 per share. Pass journal
entries.

Date Transaction Debit Credit

1. Share Capital A/c Dr. (2,000*10) 20,000
To Share forfeiture A/c (2,000*7.5) 15,000
To calls in arrear A/c 5,000
2. Bank A/c Dr. (1,800*6) 10,800
Share forfeiture A/c Dr. (1,800*4) 7,200
To Share capital A/c (1,800*10) 18,000

3. Share forfeiture A/c Dr. 6,300

To Capital Reserve A/c 6,300

Capital Reserve = (15,000/2,000) *1,800 – 7,200 = Rs. 6,300

Some important theory points:

Private Placement of Shares: Private placements means offer to subscribe securities to a
select group of persons by the company through private placement offer letter.
Employee Stock Option Plan (ESOP): ESOP means option granted by the company to its
employees and directors to subscribe the shares at a price which is lower than the
market price. It is just an option, not an obligation on employees to subscribe to it.
Sweat Equity Shares: Shares issued to the promoters as remuneration for incorporating
the company or for their other services.