Accounting for Share Capital

1.1 Introduction

This section introduces the concept of a company as a distinct form of business organisation. Unlike sole proprietorships and partnerships, a company is recognised as a separate legal entity by law. This means the company has its own legal identity, separate from its members or shareholders. It can own property, incur debts, sue or be sued in its own name. The concept of limited liability is also introduced here, where the liability of shareholders is limited to the extent of their shareholding in the company. This feature encourages investors to invest in companies without risking their personal assets beyond their investment. The section also highlights the importance of share capital as the primary source of capital for companies, raised by issuing shares to the public or existing shareholders. This capital is used to finance the company’s operations and growth. The introduction sets the foundation for understanding the accounting treatment of share capital, which is the focus of this chapter.

• A company is a separate legal entity distinct from its members.
• Shareholders have limited liability limited to their share capital.
• Share capital is the main source of funds for a company.
• Companies can sue or be sued in their own name.
• The company’s existence is perpetual, unaffected by changes in membership.
• 📌 Company: A separate legal entity formed under the Companies Act.
• 📌 Limited Liability: Shareholders’ liability limited to the amount unpaid on shares.
• 📌 Share Capital: Capital raised by issuing shares to shareholders.

1.2 Types of Share Capital

This section elaborates on the classification of share capital as per the Companies Act, 2013. Share capital is the capital raised by a company by issuing shares to shareholders. It is classified based on the extent to which shares are issued and paid, and the nature of shares issued. The main types are: Authorised Capital, Issued Capital, Subscribed Capital, Called-up Capital, Paid-up Capital, and Calls in Arrears/Advance. Authorised Capital is the maximum amount of capital a company is authorised to raise by issuing shares, as stated in its Memorandum of Association. Issued Capital is the portion of authorised capital that has actually been offered to shareholders for subscription. Subscribed Capital is the part of issued capital that investors have agreed to buy. Called-up Capital is the amount of money the company has called from shareholders on their shares. Paid-up Capital is the amount actually received from shareholders. Calls in Arrears are unpaid calls by shareholders, while Calls in Advance are payments received before the due date. The section also distinguishes between Equity Shares and Preference Shares, the two main categories of shares. Equity shares carry voting rights and residual claim on profits, while preference shares have preferential rights on dividends and capital repayment but usually no voting rights. Table on page 5 (table_1) illustrates these types with numerical examples. **Table on page 5 (9 rows × 3 cols)** | Share Capital | | (Rs.) | | --- | --- | --- | | Authorised or Registered or Nominal Capital: | | | | 4,00,000 Shares of Rs. 10 each | | 40,00,000 | | Issued Capital | | | | 2,00,000 Shares of Rs. 10 each | | 20,00,000 | | Subscribed Capital | | | | Subscribed but not fully paid up | | | | 2,00,000 Shares of Rs. 10 each, Rs. 8 called up | 16,00,000 | | | Less : Calls in Arrears | (6,000) | 15,94,000 | **Table on page 19 (10 rows × 5 cols)** | Date | Pelos malu Particulars | | Thea Debit Amount (Rs.) | Credit Amount (Rs.) | | --- | --- | --- | --- | --- | | | Bank A/c To Equity Share Application A/c (Money received on application for 1,000 shares @ Rs. 25 per share) | | 25,000 | 25,000 | | | ale Equity Share Application A/c Dr. To Equity Share Capital A/c (Transfer of application money on 1,000 shares to share capital) | | 25,000 | 25,000 | | | Equity Share Allotment A/c Dr. To Equity Share Capital A/c (Amount due on the allotment of 1,000 shares @ Rs. 30 per share) | | 30,000 | 30,000 | | | Bank A/c Dr. To Equity Share Allotment A/c (Allotment money received) | | 30,000 | 30,000 | | | Equity Share First Call A/c Dr. To Equity Share Capital A/c (First call money due on 1,000 shares @ Rs. 20 per share) | | 20,000 | 20,000 | | | Bank A/c Dr. | | 19,250 | | | | Calls in Arrears A/c Dr. | | 2,000 | | | | To Equity Share First Call A/c | | | 20,000 | | | To Calls in Advance A/c (First call money received on 900 shares, calls in arrears for 100 shares @ Rs.20 per share and calls in advance for 50 shares @ Rs.25 per share.) | | | 1,250 | **Table on page 20 (6 rows × 3 cols)** | | Equity Shares | Preference Shares | | --- | --- | --- | | | Rs. | Rs. | | Application | 2 | 2 | | Allotment | 3 | 3 | | First Call | 2.50 | 2.50 | | Second and Final Call | 2.50 | 2.50 | **Table on page 21 (8 rows × 8 cols)** | Date | Receipts | L.F. | Amount (Rs.) | Date | Payments | L.F. | Amount (Rs.) | | --- | --- | --- | --- | --- | --- | --- | --- | | | Equity Share Application A/c 5% Preference Share Application A/c | | 30,000 20,000 | | Balance c/d | | 2,49,250 | | | Equity Share Allotment A/c | | 45,000 | | | | | | | 5% Preference Share Allotment A/c | | 30,000 | | | | | | | Equity Share First Call A/c | | 37,500 | | | | | | | 5% Preference Share First Call A/c | | 25,000 | | | | | | | Equity Share Second and Final Call A/c 5% Preference Share Second and Final Call A/c | | 37,250 24,500 | | Ablished | | | | | | | 2,49,250 | | | | 2,49,250 | **Table on page 22 (5 rows × 5 cols)** | Date | Boka Particulars | L.F. | Debit Amount (Rs.) | Credit Amount (Rs.) | | --- | --- | --- | --- | --- | | | Bank A/c Dr. To Share Application A/c (Application money received on 30,000 shares @ Rs.3 per share) | | 90,000 | 90,000 | | | Share Application A/c Dr. To Share Capital A/c (Application money transferred to share capital account) | | 90,000 | 90,000 | | | Share Allotment A/c Dr. To Share Capital A/c (Allotment money due on 30,000 shares @ Rs.3 per share) | | 90,000 | 90,000 | | | Bank A/c Dr. To Share Allotment A/c (Allotment money received) | | 90,000 | 90,000 | **Table on page 26 (6 rows × 2 cols)** | On Application | Rs. 5.00 per share | | --- | --- | | On Allotment | Rs. 7.50 per share | | On First Call | Rs. 7.50 per share | | (due two months after allotment) | | | On Second and Final Call | Rs. 5.00 per share | | (due two months after First Call) | | **Table on page 27 (6 rows × 5 cols)** | Date | Particulars | | Debit Amount (Rs.) | Credit Amount (Rs.) | | --- | --- | --- | --- | --- | | 2017 January 01 | Bank A/c To Equity Share Application A/c (Money received on applications for 4,00,000 shares @ Rs. 5 per share) | | 20,00,000 | 20,00,000 | | February 01 | Equity Share Application A/c Dr. To Equity Share Capital A/c To Bank A/c (Transfer of application money on 1,00,000 shares to share capital and money refunded on rejected applications) | | 20,00,000 | 5,00,000 15,00,000 | | February 01 | Equity Share Allotment A/c Dr. To Equity Share Capital A/c (Amount due on the allotment of 1,00,000 shares @ Rs 7.50 per share) | | 7,50,000 | 7,50,000 | | | Bank A/c Dr. To Equity Share Allotment A/c (Allotment money received) | | 7,50,000 | 7,50,000 | | April 01 | Equity Share First Call A/c Dr. To Equity Share Capital A/c (First call money due on 1,00,000 shares @ Rs. 7.50 per share) | | 7,50,000 | 7,50,000 | **Table on page 28 (3 rows × 5 cols)** | April 01 | Bank A/c Dr. To Equity Share First Call A/c (First call money received) | | 7,50,000 | 7,50,000 | | --- | --- | --- | --- | --- | | June 01 | Equity Share Second and Final Call A/c Dr. To Equity Share Capital A/c (Final Call money due on 1,00,000 shares @ Rs. 5 per share) | | 5,00,000 | 5,00,000 | | June 01 | Bank A/c Dr. To Equity Share Second and Final Call A/c (Final call money received) | | 5,00,000 | 5,00,000 | **Table on page 28 (12 rows × 5 cols)** | Date | Particulars RT | L.F. | bed Debit Amount (Rs.) | Credit Amount (Rs.) | | --- | --- | --- | --- | --- | | 2017 January 01 | Potete | | | | | | Bank A/c Dr. | | 20,00,000 | | | | To Equity Share Application A/c | | | 20,00,000 | | | (Money received on applications for 4,00,000 shares @ Rs. 5 per share) | | | | | February 01 | Equity Share Application A/c Dr. | | 20,00,000 | | | | To Equity Share Capital A/c | | | 5,00,000 | | | To Equity Share Allotment A/c | | | 7,50,000 | | | To Bank A/c | | | 7,50,000 | | | (Transfer of application money on Shares allotted to share capital, excess application amount credited to allotment account and money refunded on rejected applications) | | | | | February 01 | Equity Share Allotment A/c Dr. | | 7,50,000 | | | | To Equity Share Capital A/c (Amount due on the allotment of Rs. 1,00,000 shares @ Rs 7.50 per share) | | | 7,50,000 | **Table on page 30 (9 rows × 3 cols)** | Notes: | Rs. | Rs. | | --- | --- | --- | | Excess Application Money | | | | Less Transfers : | | | | Share Allotment - | | | | 20,000 shares @ Rs. 7.50 | 1,50,000 | | | Share Calls - | | | | 20,000 shares @ Rs. 12.50 | | 4,00,0001 | | Amount to be refunded (including that on | | 11,00,000 | | the rejected applications) | | | **Table on page 38 (5 rows × 5 cols)** | Date | epublis Particulars | | Debit Amount (Rs.) | Credit Amount (Rs.) | | --- | --- | --- | --- | --- | | | Bank A/c Dr. To Equity Share Application A/c (Application money on 10,000 shares @Rs.20 per share received) | | 2,00,000 | 2,00,000 | | | Share Application A/c Dr. To Equity Share Capital A/c (Application money transferred to share capital) | | 2,00,000 | 2,00,000 | | | Share Allotment A/c Dr. To Equity Share Capital A/c (Money due on allotment of 10,000 shares @Rs. 30 per share) | | 3,00,000 | 3,00,000 | | | Bank A/c Dr. To Equity Share Allotment A/c (Allotment Money received on 10,000 shares @ Rs. 30 per share on ) | | 3,00,000 | 3,00,000 | **Table on page 39 (8 rows × 6 cols)** | | Share First Call A/c To Equity Share Capital A/c (Money due on 10,000 shares @ Rs. 20 per share on Ist Call) | Dr. | | 2,00,000 | 2,00,000 | | --- | --- | --- | --- | --- | --- | | | | | | | | | | Bank A/c To Equity Share First Call A/c (First call money received except for 300 | shares) Dr. | | 1,94,000 | 1,94,000 | | | Share Second and Final Call A/c To Equity Share Capital A/c (Money due on 10,000 shares @ Rs. 30 per share on Second and Final Call) | Dr. | | 3,00,000 | 3,00,000 | | | Bank A/c Dr. To Equity Share Second and Final Call A/c (Second and Final Call money received except for 300 shares) | | | 2,91,000 | 2,91,000 | | | Share Capital A/c | Dr. | | | | | | To Equity Share First Call A/c | | | | 6,000 | | | To Equity Share Second and Final Call To Share Forfeiture A/c (300 shares forfeited) | A/c | | | 9,000 15,000 |

• Authorised Capital is the maximum capital a company can raise.
• Issued Capital is the part of authorised capital offered to shareholders.
• Subscribed Capital is the amount shareholders have agreed to buy.
• Called-up Capital is the amount called from shareholders.
• Paid-up Capital is the amount actually received from shareholders.
• Calls in Arrears and Calls in Advance relate to unpaid and early payments.
• 📌 Authorised Capital: Maximum capital allowed to be raised by issuing shares.
• 📌 Issued Capital: Capital offered to shareholders for subscription.
• 📌 Subscribed Capital: Capital agreed to be purchased by shareholders.