Revision: Accountancy II : Financial Statement Analysis >> Accounting for Share Capital Accountancy Commerce (English Medium) Class 12 CBSE

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)

• 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.

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)

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)

• 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.

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)

                 Calculation of Amount Received on Allotment

• 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.

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)

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)

• 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.

Share Allotment A/c         ...Dr.

Discount on Issue of Shares A/c      ...Dr.

     To Share Capital A/c

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)

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)

Note to Accounts

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)