Revision: Joint Stock Company Accounts >> Issue of Shares Accounts ISC (Commerce) Class 12 CISCE

Sec 2 (62) of the Companies Act, 2013, defines OPC as a “company which has only one person as a member”.

As per Section 2(84) of the Companies Act 2013, “Share is the share in the capital of a company and includes stock as well.”

\[\text{Number of shares to be issued  =  } \frac{\text{Amount Payable}}{\text{Issue Price}}\]

Capital Reserve = No. of Shares Reissued × (Amount forfeited per share on reissued shares - Discount allowed on reissue per share)

Application Money Received = Number of Shares Applied × Application Money Per Share

Excess Application Money = Application Money Received - Application Money Due on Shares Allotted.

\[\frac{\text{Total Shares Applied under Pro rata Category}}{\text{Total Shares Allotted under Pro rata Category}}\times\text{No. of Shares Allotted to Shareholder}\]

• Need: Introduced to overcome drawbacks of sole proprietorship and partnership, like limited capital and unlimited liability.
• Meaning: A company is a legal business setup formed by people contributing capital to run a business, recognised under the Companies Act, 2013.
• Separate Legal Entity: It exists independently from its members; can own property, sign contracts, and face legal action in its own name.
• Limited Liability: Members are responsible only for the unpaid value of their shares; personal assets are protected.
• Perpetual Existence: The company continues even if owners or members change or pass away.
• Transferability & Management: Public company shares can be transferred freely; managed by a Board of Directors, not by all shareholders.

• A one-person company has one member; a private company has up to 200 members; and a public company has no limit and can invite public investment.
• Minimum requirements are: OPC – 1 director; Private – 2 directors; Public – 3 directors and 7 members, with no minimum capital required.
• Companies may be limited by shares, limited by guarantee (liability at winding up), or have unlimited liability.
• Listed companies trade shares on stock exchanges, while unlisted companies (including all private ones) do not.
• Company names end with 'Private Limited' (Private), 'Limited' (Public), and '(One Person Company)' for OPCs.

• Share Capital is the total money raised by issuing shares, representing ownership in the company.
• Authorised Capital is the maximum amount a company can issue, as stated in its Memorandum of Association.
• Issued Capital is the part of the authorised capital offered to the public for subscription.
• Subscribed Capital is the portion of issued capital that investors agree to take.
• Called-up Capital is the amount demanded by the company, and Paid-up Capital is what shareholders actually pay; the difference is called Calls-in-Arrears.
• Reserve Capital is the part of subscribed capital to be called only during winding up.
• A Prospectus invites the public to buy shares, and the company must receive at least 90% subscription before allotting shares.

• Preference shares get fixed dividends and capital back before equity shares.
• Cumulative preference shares carry forward unpaid dividends; non-cumulative do not.
• Participating preference shares get extra profit after equity dividends; non-participating shares get only fixed dividends.
• Convertible preference shares can be changed into equity shares; non-convertible shares cannot.
• Redeemable preference shares are repaid within a set time; irredeemable shares are not allowed under law.

• Equity shares are ordinary shares that are not preference shares.
• They receive dividends only after preference shareholders are paid.
• There is no fixed dividend rate; the dividend depends on profits.
• In case of loss, no dividend is paid; in high profit, they may get more.
• Equity shareholders have voting rights and control company decisions.

                                      BALANCE SHEET as at

                 BALANCE SHEET OF...

                              as at

Note to Accounts

A. When the Issue Price is Payable in Lump Sum:

1. On Receiving Application Money:

Bank A/c                             ...Dr.

   To Shares Application A/c /  Shares Application and Allotment A/c 

(Being the application money received in a lump sum)

Or if a joint account is used:

Bank A/c           ...Dr.

         To Shares Application and Allotment A/c

(Being the application and allotment money received in a lump sum)

2. On Allotment of Shares (Transfer of Application Money):

Shares Application A/c / Shares Application and Allotment A/c    ...Dr.

       To Share Capital A/c

(Being the transfer of application money to share capital on allotment)

Or (if joint account used):

Shares Application and Allotment A/c         ...Dr.

       To Share Capital A/c

(Being the application and allotment money transferred to share capital)

B. When Issue Price is Payable in Instalments:

1. On Receipt of Application Money:

Bank A/c                              ...Dr.

      To Shares Application A/c

(Being the application money received)

2. On Allotment of Shares (Transfer of Application Money):

Shares Application A/c                  ...Dr.

      To Share Capital A/c

(Being application money transferred to share capital on allotment)

3. On Amount Due on Allotment:

Shares Allotment A/c                 ...Dr.

       To Share Capital A/c

(Being allotment money due)

4. On Receipt of Allotment Money:

Bank A/c           ...Dr.

      To Shares Allotment A/c 

(Being the allotment money received)

5. On Amount Due on First Call:

Shares First Call A/c                  ...Dr.

        To Share Capital A/c

(Being the amount due on the first call)

6. On Receipt of First Call Money:

Bank A/c                    ...Dr.

      To Shares First Call A/c

(Being the amount received on the first call)

7. (Optional) On Amount Due on Second Call:

Shares Second Call A/c      ...Dr.

      To Shares Capital A/c

(Being the amount due on the second call)

8. Bank A/c           ...Dr.

       To Shares Second Call A/c

(Being the amount received on the second call)

C. Other Related Entries:

1. For Money Refunded on Rejected Application:

Share Application A/c         ...Dr.

      To Bank A/c

(Being refund of application money on rejected shares)

2. For Adjustment of Excess Application Money towards Allotment:

Share Application A/c         ...Dr.

     To Share Allotment A/c

(Being excess application money adjusted towards allotment)

3. Combined Entry (Refund + Adjustment):

Share Application A/c       ...Dr.

      To Share Allotment A/c

      To Bank A/c

(Being excess application money adjusted and balance refunded)

A. When the Issue Price is Payable in Lump Sum:

1. On Receiving Application Money:

Bank A/c                             ...Dr.

   To Shares Application A/c /  Shares Application and Allotment A/c 

(Being the application money received in a lump sum)

Or if a joint account is used:

Bank A/c           ...Dr.

         To Shares Application and Allotment A/c

(Being the application and allotment money received in a lump sum)

2. On Allotment of Shares (Transfer of Application Money):

Shares Application A/c / Shares Application and Allotment A/c    ...Dr.

       To Share Capital A/c

(Being the transfer of application money to share capital on allotment)

Or (if joint account used):

Shares Application and Allotment A/c         ...Dr.

       To Share Capital A/c

(Being the application and allotment money transferred to share capital)

B. When Issue Price is Payable in Instalments:

1. On Receipt of Application Money:

Bank A/c                              ...Dr.

      To Shares Application A/c

(Being the application money received)

2. On Allotment of Shares (Transfer of Application Money):

Shares Application A/c                  ...Dr.

      To Share Capital A/c

(Being application money transferred to share capital on allotment)

3. On Amount Due on Allotment:

Shares Allotment A/c                 ...Dr.

       To Share Capital A/c

(Being allotment money due)

4. On Receipt of Allotment Money:

Bank A/c           ...Dr.

      To Shares Allotment A/c 

(Being the allotment money received)

5. On Amount Due on First Call:

Shares First Call A/c                  ...Dr.

        To Share Capital A/c

(Being the amount due on the first call)

6. On Receipt of First Call Money:

Bank A/c                    ...Dr.

      To Shares First Call A/c

(Being the amount received on the first call)

7. (Optional) On Amount Due on Second Call:

Shares Second Call A/c      ...Dr.

      To Shares Capital A/c

(Being the amount due on the second call)

8. Bank A/c           ...Dr.

       To Shares Second Call A/c

(Being the amount received on the second call)

C. Other Related Entries:

1. For Money Refunded on Rejected Application:

Share Application A/c         ...Dr.

      To Bank A/c

(Being refund of application money on rejected shares)

2. For Adjustment of Excess Application Money towards Allotment:

Share Application A/c         ...Dr.

     To Share Allotment A/c

(Being excess application money adjusted towards allotment)

3. Combined Entry (Refund + Adjustment):

Share Application A/c       ...Dr.

      To Share Allotment A/c

      To Bank A/c

(Being excess application money adjusted and balance refunded)

• Meaning: Shares issued above face value; excess is called securities premium.
• Nature: Securities premium is a capital receipt.
• Accounting: Credited to Securities Premium Account as per the Companies Act, 2013.
• Use: Can be used only for specific purposes, such as bonus shares, issue expenses, or redemption.
• Collection: Usually collected with allotment; credited only after shares are allotted.

1. On Receipt of Application Money:

Bank A/c               ...Dr.

       To Shares Application A/c

(Being the total application money received, including the premium)

2. On Allotment of Shares:

Shares Application A/c             ...Dr.

       To Share Capital A/c

       To Securities Premium A/c

(Being the transfer of application money to share capital and securities premium)

3. Amount Due on Allotment:

Shares Allotment A/c               ...Dr.

      To Share Capital A/c

      To Securities Premium A/c

(Being allotment money due, including premium)

4. On Receipt of Allotment Money:

Bank A/c                         ...Dr.

Calls-in-Arrears A/c        ...Dr.

      To Shares Allotment A/c

(Being receipt of allotment money; balance treated as calls-in-arrears)

5. Amount Due on First Call:

Shares First Call A/c            ...Dr.

      To Share Capital A/c

      To Securities Premium A/c

(Being first call due, including premium if any)

6. On Receipt of First Call Money:

Bank A/c                       ...Dr.

Calls-in-Arrears A/c      ...Dr.

      To Shares First Call A/c

(Being first call money received; balance treated as calls-in-arrears)

A. On Purchase of Assets:

Sundry Assets A/cs (Individually)         ...Dr.

       To Vendor A/c

(Being assets purchased and vendor credited with the purchase price)

B. On Purchase of Business:

1. When Purchase Consideration > Net Assets (Goodwill arises):

Sundry Assets A/cs (Individually)           ...Dr.

Goodwill A/c                                           ...Dr.

        To Sundry Liabilities A/cs (Individually)

       To Vendor A/c

(Being business purchased and excess amount treated as goodwill)

2. When Purchase Consideration < Net Assets (Capital Reserve arises):

Sundry Assets A/cs (Individually)           ...Dr.

       To Sundry Liabilities A/cs (Individually)

       To Vendor A/c

       To Capital Reserve A/c

(Being business purchased and difference treated as capital reserve)

C. On the Issue of Shares to Vendor:

1. If Shares Are Issued at Par:

Vendor A/c            ...Dr.

       To Share Capital A/c

(Being shares issued at par to the vendor)

2. If Shares Are Issued at Premium:

Vendor A/c              ...Dr.

       To Share Capital A/c

       To Securities Premium A/c

(Being shares issued at a premium to the vendor)

D. Issue of Shares to Promoters for Services:

1. Expense Accounted as Goodwill or Incorporation Cost:

Goodwill A/c or Incorporation Cost A/c      ...Dr.

       To Promoters’ A/c

(Being services received from promoters)

2. Issuing Shares to Promoters

(i) If Shares Are Issued at Par: 

Promoters’ A/c           ...Dr.

      To Share Capital A/c

(Being shares issued to promoters at par)

(ii) If Shares Are Issued at Premium:

Promoters’ A/c           ...Dr.

       To Share Capital A/c 

      To Securities Premium A/c

(Being shares issued to promoters at a premium)

E. Issue of Shares to Underwriters (Underwriting Commission):

1. For Underwriting Commission Due:

Underwriting Commission A/c                 Dr.

        To Underwriters’ A/c

(Being commission payable to underwriters)

2. Discharge of Commission via Shares

(i) If Shares Are Issued at Par:

Underwriters’ A/c        ...Dr.

        To Share Capital A/c

(Being shares issued to underwriters at par)

(ii) If Shares Are Issued at Premium:

Underwriters’ A/c      ...Dr.

       To Share Capital A/c

       To Securities Premium A/c

(Being shares issued to underwriters at a premium)

• Calls-in-arrears refers to the unpaid amount of allotment or call money by shareholders.
• It arises when shares are issued on an instalment basis, and payments are missed.
• The company may charge interest on calls-in-arrears, usually at 10% per annum if not specified in the Articles.
• It can be recorded either by opening a separate Calls-in-Arrear Account or without it.
• The interest collected on calls-in-arrears is treated as income in the Profit and Loss Statement.

A. For Calls-in-Arrears:

1. Without Opening Calls-in-Arrears Account:

(Amount not received is simply left unpaid in the relevant call account)
No separate entry is passed. The unpaid amount is shown as a balance in the relevant call account (e.g., Shares Allotment A/c or Call A/c).

2. With Opening Calls-in-Arrears Account:

(i) On non-receipt of call amount on the due date:

Calls-in-Arrears A/c          ...Dr.

      To Relevant Call A/c

(e.g., To Shares Allotment A/c or Shares First Call A/c) 

(Being the amount not received on call, transferred to Calls-in-Arrears)

(ii) On receipt of the amount later:

Bank A/c                     ...Dr.

       To Calls-in-Arrears A/c

(Being the amount received on Calls-in-Arrears)

1. On interest becoming due on Calls-in-Arrears:

Sundry Members’ A/c            ...Dr.

       To Interest on Calls-in-Arrears A/c

(Being interest due on Calls-in-Arrears)

2. On receipt of interest:

Bank A/c                  ...Dr.

       To Sundry Members’ A/c

(Being interest on Calls-in-Arrears received)

3. On transferring interest to Profit & Loss Account:

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

       To Statement of Profit & Loss

(Being interest on Calls-in-Arrears transferred to P&L A/c as income)

• Calls-in-advance means the amount of share capital or premium received before it is called by the company.
• It arises when excess application money is adjusted against future calls or when shareholders pay calls in advance.
• The amount received is credited to the Calls-in-Advance Account and adjusted when the call becomes due.
• Calls-in-advance are shown as Other Current Liabilities under Current Liabilities in the Balance Sheet.
• As per Section 50 of the Companies Act, 2013, calls-in-advance can be accepted only if permitted by the Articles of Association.

1. When excess application money is retained (oversubscription):

Shares Application A/c                 ...Dr.

       To Calls-in-Advance A/c

(Being excess application money transferred to Calls-in-Advance A/c)

2. When shareholders pay the call amount in advance:

Bank A/c                   ...Dr.

       To Calls-in-Advance A/c

(Being the call amount received in advance)

3. When the call becomes due (call made by the company):

Shares First Call A/c (or relevant Call A/c)   ...Dr. 

        To Share Capital A/c

(Being call money due on shares)

4. Adjustment of Calls‑in‑Advance when the call becomes due:

Calls‑in‑Advance A/c      ...Dr.

          To Shares First Call A/c

(Being calls‑in‑advance adjusted against call due)

5. Receipt of balance call money (if any):

Bank A/c              ...Dr.

          To Shares First Call A/c

(Being balance call money received)

1. On interest becoming due on Calls-in-Advance:

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

       To Sundry Members’ A/c

(Being the interest due on Calls-in-Advance)

2. On payment of interest:

Sundry Members’ A/c        ...Dr.

        To Bank A/c

(Being the interest paid to shareholders on Calls-in-Advance)

3. On transferring interest to Profit & Loss A/c:

Statement of Profit & Loss A/c            ...Dr.

        To Interest on Calls-in-Advance A/c

(Being the interest transferred to Profit & Loss A/c as expense)

• Oversubscription means more shares are applied for than offered.
• It can be handled by rejecting extra applications, pro rata allotment, or both.
• In rejection, extra applications are refused, and money is refunded.
• In pro rata, shares are allotted in a fixed ratio and excess money is adjusted or refunded.
• In the combined method, some applications are fully accepted, some partially, and some rejected.

                 Calculation of Amount Received on Allotment

A. Over-Subscription of Shares:

1. When application money is refunded for rejected shares:

Share Application A/c        ...Dr.

          To Bank A/c

(Being refund of application money for rejected applications)

2. When excess application money is adjusted towards allotment:

Share Application A/c      ...Dr.

          To Share Allotment A/c

(Being excess application money adjusted against allotment)

3. When excess application money is adjusted towards allotment and calls:

Share Application A/c      ...Dr.

          To Share Allotment A/c

          To Calls-in-Advance A/c

(Being excess application money adjusted towards allotment and calls)

B. Joint Application and Allotment Account

1. On receipt of application money:

Bank A/c         ...Dr. 

        To Share Application and Allotment A/c

(Being application money received)

2. On transfer of application money and allotment due:

Share Application and Allotment A/c     ...Dr.

        To Share Capital A/c

(Being the transfer of application and allotment money to the share capital)

3. On refund of money for rejected applications:

Share Application and Allotment A/c     ...Dr.

         To Bank A/c

(Being refund of application money on rejected shares)

4. On receipt of the balance allotment money:

Bank A/c        ...Dr.

        To Share Application and Allotment A/c

(Being receipt of balance allotment money)

Note to Accounts

A. Forfeiture of Shares (Issued at Par):

Share Capital A/c           ...Dr. [With called-up amount till the stage of forfeiture]

       To Forfeited Shares A/c  [With the amount received on forfeited shares]

       To Calls-in-Arrears A/c  [With the amount not received on forfeited shares]

(Being forfeiture of shares for non-payment of call money)

1. When Premium Amount Has Been Received:

Share Capital A/c               ...Dr.    [Amount called-up less premium]

       To Calls-in-Arrears A/c  [Amount not received on allotment and calls] 

       To Forfeited Shares A/c  [Amount received less amount of Securities Premium]

(Being forfeiture of shares where a premium has already been received)

2. When Premium Amount Has Not Been Received:

Share Capital A/c                  ...Dr.

Securities Premium A/c        ...Dr.

       To Calls-in-Arrears A/c

       To Forfeited Shares A/c

(Being forfeiture of shares where a premium has not been received)

Share Capital A/c           ...Dr.

    To Calls in Arrears A/c

    To Discount on Issue of Shares A/c

    To Share forfeiture A/c

Calculation of Gain (Profit) on Reissued Shares

1. When Reissued at Par:

Bank A/c            ...Dr.

Forfeited Shares A/c         ..Dr.

       To Share Capital A/c

(Being forfeited shares reissued at par)

2. When Reissued at Premium (above paid-up value):

Bank A/c             ...Dr.

       To Share Capital A/c

       To Securities Premium A/c

(Being forfeited shares reissued at a premium)

3. When Reissued at Discount (below paid-up value):

Bank A/c                         ...Dr.

Forfeited Shares A/c       ...Dr.

           To Share Capital A/c

(Being forfeited shares reissued at a discount)

4. On Transfer of Gain (Balance) in Forfeited Shares A/c to Capital Reserve:

(When all forfeited shares are reissued)

Forfeited Shares A/c        ...Dr.

       To Capital Reserve A/c

(Being gain on reissue of forfeited shares transferred to Capital Reserve)

1. On Receipt of Application Money:

Bank A/c            ...Dr.

       To Shares Application and Allotment A/c

(Being application money received and credited to joint account)

2. On Appropriation of Application Money and Allotment Recording (Combined Entry):

Shares Application and Allotment A/c          ...Dr.

      To Share Capital A/c

      To Calls-in-Advance A/c

      To Bank A/c

(Being appropriation of application and allotment money, adjustment, and refund recorded)