ACCOUNTING FOR SHARE CAPITAL

ACCOUNTING FOR SHARE CAPITAL

A company means a company incorporated or registered under the Companies Act, 1956. A Company is an artificial person having or corporate legal entity distinct from its members and has a common seal used for its signature. A company usually raises its capital in the form of shares and debentures.

Features Of A Company

        

Kinds Of A Company

Share Capital Of A Company

          The amount contributed by shareholders for the start-up and running of the company is known as share capital.

Types of Shares

Issue of Shares

Accounting Treatment

On Application

1.     On opening account in scheduled bank

Bank A/c Dr.

To Share Application A/c

(Amount received on application for — shares @ Rs. ______ per share)

2.     For Transfer of Application Money

Share Application A/c Dr.

To Share Capital A/c

(Application money on _____ Shares allotted/transferred to Share Capital)

3.     For Money refunded on rejected application

Share Application A/c Dr.

To Bank A/c

(Application money returned on rejected application for ___shares)

On Allotment

4.     For Amount Due on Allotment

Share Allotment A/c Dr.

To Share Capital A/c

5.     For Adjustment of Excess Application Money

Share Application A/c Dr.

To Share Allotment A/c

(Application Money on __Shares @ Rs__per shares adjusted to the amount due on allotment).

6.      For Receipt of Allotment Money

Bank A/c Dr.

        To Share Allotment A/c

(Allotment money received on ___Shares @ Rs. — per share Combined Account)

On Receipt of Call Money

7.  For Call Amount Due

Share Call A/c Dr.

To Share Capital A/c

(Call money due on ___Shares @ Rs. ____ per share)

8.  For Receipt of Call Amount

Bank A/c Dr.

To Share Call A/c

(Call money received)

CALLS IN ARREARS

When the shareholder fails to pay the amount due on allotment or on any of the calls, such amount is known as ‘Calls-in-Arrears’/‘Unpaid Calls’.

Calls in Arrears A/c Dr.

To Share First Call Account A/c

To Share Second and Final Call Account A/c

(Calls in arrears brought into account)

As per Table A 5% interest is applicable on calls in arear.

Bank A/c Dr.

To Calls-in-Arrears A/c

To Interest A/c

(Calls-in-arrears received with interest)

CALLS IN ADVANCE

          The amount received in advance from shareholders is a liability of the company and should be credited to ‘Call-in-Advance Account.

Bank A/c Dr.

To Calls-in-Advance A/c

(Amount received on call-in-advance)

Calls-in-Advance A/c Dr.

To Particular Call A/c

(Calls-in-advance adjusted with the call money due)

As per Table A for interest on calls in advance at a rate not exceeding 6% should be provided per annum.  

1. For Payment of Interest

Interest on Calls in Advance A/c Dr.

To Bank A/c

(Interest paid on Calls-in-Advance)

2. For Interest due

Interest on Calls-in-Advance A/c Dr.

To Sundry Shareholder’s A/c

(Interest paid on Calls-in-Advance)

OVER SUBSCRIPTION

          When company receives applications for more shares than the number offered to the public for subscription. In such a condition,

(1) they can accept some applications in full and totally reject the others;

(2) they can make a pro-rata allotment to all; and

 (3) they can adopt a combination of the above two alternatives.

Pro-rata Allotment

          When the directors opt to make a proportionate allotment to all applicants (called ‘pro-rata’ allotment), the excess application money received is normally adjusted towards the amount due on allotment.

UNDER SUBSCRIPTION

Under subscription is a situation where number of shares applied for is less than the number for which applications have been invited for subscription.

ISSUE OF SHARES AT A PREMIUM

It is the issue of shares at an amount more than the nominal or par value of shares. The premium amount is credited to ‘Securities Premium Account’ and is shown on the liabilities side of the company’s balance sheet under the head ‘Reserves and Surpluses’.

1. For Premium Amount called with Application money

Bank A/c Dr.

To Share Application A/c

(Money received on application for — shares @ Rs. — per share including premium)

Share Application A/c Dr.

To Share Capital A/c

To Securities Premium A/c

(Transfer of application money to share capital and securities premium account)

2. Premium Amount called with Allotment Money

Share Allotment A/c Dr.

To Share Capital A/c

To Securities Premium A/c

(Amount due on allotment of shares @ Rs — per share including premium)

Bank A/c Dr.

To Share Allotment A/c

(Allotment money received including premium)

ISSUE OF SHARES AT A DISCOUNT

          It is the issue of shares at an amount less than the nominal or par value of shares. The amount of discount is debited to an account called ‘Discount on the Issue of Shares Account’.

Share Allotment A/c Dr.

Discount on the Issue of Shares A/c Dr.

To Share Capital A/c

(Amount due on allotment of — shares @ Rs — per share and discount on issue brought into account)

ISSUE OF SHARES FOR CONSIDERATION OTHER THAN CASH

1. Asset A/c          Dr.

To Vendor

(Asset purchased)        

2. When shares are issued at par

Vendors A/C        Dr.

To Share Capital A/c

(Shares issued at par)

3. When shares are issued at Discount

Vendors A/C                      Dr.

Discount on Issue of Shares A/c Dr.

To Share Capital A/c

(shares issued at discount)

4. When shares are issued at premium

Vendors A/C              Dr.

To Share Capital A/c

To Securities Premium A/c

(shares issued at premium)

FORFEITURE OF SHARES

          Shareholders fail to pay one or more instalments, viz. Allotment money and/or call money.

Forfeiture of Shares Issued at Par

Share Capital A/c Dr.

To Share Forfeiture A/c

To Share Allotment A/c

To Share Calls A/c

(shares forfeited for non-payment of allotment money and calls made)

Forfeiture of Shares Issued at A Premium

Share Capital A/c Dr.

Securities Premium A/c Dr.

To Share Forfeiture A/c

To Share Allotment A/c

To Share Calls A/c (individually)

(shares forfeited for non-payment of allotment money and calls made)

Forfeiture of Shares Issued at A Discount

Share Capital A/c Dr.

To Share Forfeiture A/c

To Discount on Issue of Shares

To Share Allotment A/c

To Share Calls A/c

To Calls-in-Arrears A/c

(Forfeiture of shares for non-payment of allotment money and the calls made).

RE-ISSUE OF FORFEITED SHARES

          Forfeited shares may be reissued as fully paid at a par, premium & discount. The balance, if any, should be treated as capital profit and transferred to Capital Reserve Account.

Bank A/c                        Dr.

Share Forfeiture A/c       Dr.

To Share Capital A/c

(Reissue of forfeited shares)

Share Forfeiture A/c      Dr.

To Capital Reserve

(Profit on reissue of forfeited shares transferred)