Accounting for Share Capital: Complete Guide for Class 12 NCERT Students

Understanding Types of Share Capital

Share capital represents the funds a company raises by issuing shares to investors. According to the Companies Act, 2013, share capital is classified based on issuance and payment status:

• Authorised Capital: The maximum share capital a company is allowed to issue as per its Memorandum of Association.
• Issued Capital: The part of authorised capital actually offered to shareholders.
• Subscribed Capital: The portion of issued capital that investors have agreed to buy.
• Called-up Capital: The amount the company has requested shareholders to pay on their shares.
• Paid-up Capital: The amount actually received from shareholders.
• Calls in Arrears: Unpaid amounts on called-up shares.
• Calls in Advance: Payments received before the due date.

There are two main types of shares:

• Equity Shares: Carry voting rights and residual claim on profits.
• Preference Shares: Have preferential rights on dividends and capital repayment but usually no voting rights.

This classification helps students grasp how share capital evolves from authorised to paid-up capital.

Accounting Entries for Share Capital Transactions

In Accounting for Share Capital, journal entries record the receipt and allotment of share money. These entries ensure transparency and accuracy in company accounts.

Common journal entries include:

1. Receipt of Application Money:

When investors apply for shares, the company receives money.

$$\text{Bank A/c Dr.} \quad \text{To Equity Share Application A/c}$$

2. Transfer of Application Money to Share Capital:

On allotment, application money is transferred to share capital.

$$\text{Equity Share Application A/c Dr.} \quad \text{To Equity Share Capital A/c}$$

3. Allotment Money Due:

When allotment money is due from shareholders.

$$\text{Equity Share Allotment A/c Dr.} \quad \text{To Equity Share Capital A/c}$$

4. Receipt of Allotment Money:

When allotment money is received.

$$\text{Bank A/c Dr.} \quad \text{To Equity Share Allotment A/c}$$

5. Calls on Shares:

When calls (first, second, final) are due and received.

$$\text{Equity Share First Call A/c Dr.} \quad \text{To Equity Share Capital A/c}$$

$$\text{Bank A/c Dr.} \quad \text{To Equity Share First Call A/c}$$

Example: A company issues 1,000 shares @ Rs. 25 per share. Application money received is Rs. 25,000.

• Entry on receipt:

$$\text{Bank A/c Dr. Rs. 25,000} \quad \text{To Equity Share Application A/c Rs. 25,000}$$

• Transfer to share capital:

$$\text{Equity Share Application A/c Dr. Rs. 25,000} \quad \text{To Equity Share Capital A/c Rs. 25,000}$$

These entries form the backbone of share capital accounting in Class 12 NCERT syllabus.

Difference Between Equity Shares and Preference Shares

Understanding the difference between equity shares and preference shares is vital for Class 12 Accountancy students.

Example:

A company issues equity shares with dividend at market rate, while preference shares carry a fixed 5% dividend.

This distinction helps students understand shareholder rights and company obligations.

Calls in Arrears and Calls in Advance Explained

Calls in Arrears and Calls in Advance are important terms in Accounting for Share Capital:

• Calls in Arrears: Amounts not paid by shareholders on or before the due date for calls. These are recorded as a debit to Calls in Arrears Account.

• Calls in Advance: Amounts received before the due date of calls. These are credited to Calls in Advance Account.

Accounting treatment example:

A company calls Rs. 20 per share on 1,000 shares but receives only Rs. 19,250. Rs. 750 is partly calls in arrears and partly calls in advance.

Journal entry:

$$\text{Bank A/c Dr. Rs. 19,250}$$ $$\text{Calls in Arrears A/c Dr. Rs. 2,000}$$ $$\quad \text{To Equity Share First Call A/c Rs. 20,000}$$ $$\quad \text{To Calls in Advance A/c Rs. 1,250}$$

This ensures accurate reflection of amounts due and received.

Worked Example: Share Capital Accounting with Calls and Allotments

Problem: Ritika Ltd. issues 1,000 equity shares of Rs. 10 each at par. The payment schedule is:

• On Application: Rs. 2 per share
• On Allotment: Rs. 3 per share
• On First Call: Rs. 2.50 per share
• On Second and Final Call: Rs. 2.50 per share

All shares are fully subscribed. Record journal entries for the transactions.

Solution:

This example illustrates the step-by-step accounting for share capital calls.

Key Points to Remember in Accounting for Share Capital

• Authorised capital is always equal to or greater than issued capital.
• The company cannot issue shares beyond authorised capital.
• Calls on shares are made in stages as per the terms of issue.
• Calls in arrears reduce company’s cash inflow and are recorded separately.
• Preference shareholders get fixed dividends before equity shareholders.
• Forfeiture of shares occurs when shareholders fail to pay calls.
• Securities premium arises when shares are issued above their face value.

These points are essential for Class 12 students to master the chapter effectively.