Accounting for Share Capital: Class 12 NCERT Accountancy Guide

Understanding Share Capital and Its Importance

Share capital represents the total amount invested by shareholders in a company. It is a crucial source of long-term finance for companies and appears under the shareholders' equity section in the balance sheet.

In Class 12 NCERT Accountancy, "Accounting for Share Capital" explains how companies raise capital by issuing shares and record these transactions systematically. Share capital is classified into:

• Authorized Share Capital: Maximum shares a company can issue.
• Issued Share Capital: Shares actually offered to investors.
• Subscribed Share Capital: Shares accepted by investors.
• Paid-up Share Capital: Amount received from shareholders.

Understanding these classifications helps students grasp the flow of share capital from authorization to receipt.

Journal Entries for Share Capital Transactions

Accounting for Share Capital involves recording transactions at various stages:

1. Receipt of Application Money:

When investors apply for shares, the company receives application money.

Entry:

`` Bank A/c Dr. To Share Application A/c (Application money received) ``

2. Transfer of Application Money on Allotment:

After allotment, application money is transferred to Share Capital.

`` Share Application A/c Dr. To Share Capital A/c (Application money transferred to share capital) ``

3. Allotment Money Due and Received:

When allotment money is due:

`` Share Allotment A/c Dr. To Share Capital A/c (Allotment money due) ``

When received:

`` Bank A/c Dr. To Share Allotment A/c (Allotment money received) ``

4. Calls on Shares Due and Received:

For calls due:

`` Share Call A/c Dr. To Share Capital A/c (Call money due) ``

For calls received:

`` Bank A/c Dr. To Share Call A/c (Call money received) ``

These entries ensure proper tracking of share capital at every stage.

Handling Calls in Arrears and Calls in Advance

Sometimes shareholders do not pay the full call money on time or pay it in advance. These situations require special accounting treatment:

• Calls in Arrears: When call money is not fully paid by shareholders.

Entry when call money is due but unpaid:

No entry is passed immediately. Instead, the amount is shown as 'Calls in Arrears' (a debit balance) in the calls account.

• Calls in Advance: When shareholders pay call money before it is due.

Entry when money is received in advance:

`` Bank A/c Dr. To Calls in Advance A/c (Call money received in advance) ``

When the call is due, the amount is adjusted:

`` Calls in Advance A/c Dr. To Share Call A/c (Adjustment of calls in advance) ``

These treatments ensure accuracy in the company’s financial statements.

Worked Example: Journal Entries for Share Issue and Calls

Consider a company issuing 10,000 shares of Rs. 10 each. The payment schedule is:

• Rs. 2 on application
• Rs. 3 on allotment
• Rs. 3 on first call
• Rs. 2 on final call

Assuming full payment except for 100 shares on the final call, the entries are:

This example clarifies how to record each stage of share capital transactions.

Comparison of Share Capital Accounts in Different Stages

The following table compares the main share capital-related accounts and their roles:

Understanding these accounts helps students accurately prepare company books.

Common Mistakes to Avoid in Accounting for Share Capital

Students often make errors while accounting for share capital. Here are some tips to avoid common mistakes:

• Mixing up accounts: Remember that application money is first credited to Share Application A/c, not directly to Share Capital.
• Incorrect timing: Pass journal entries only when amounts are due or received.
• Ignoring calls in arrears/advance: Always record these separately to reflect true financial position.
• Not transferring application money: Transfer application money to Share Capital after allotment promptly.
• Wrong amounts in entries: Double-check calculations, especially when shares are partly paid or forfeited.

Following these guidelines will help secure good marks in Class 12 NCERT Accountancy exams.