Share Capital
The Capital of a company is divided into a very large number of equal units of small denomination. Each unit is called a Share. Suppose, a company has total capital of Rs. 2,00,000 which is divided into 20,000 equal parts of unit. Each unit part will be known as a Share of Rs. 10 each. Every company should have capital in order to finance its activities. The company collects this capital by issue of shares. Such capital is known as Share Capital.
Sub-division of Share Capital:-
1.Authorised Capital: The total amount of capital with which a company is incorporated is called its Authorised Capital. It is also known as Registered Capital or Nominal Capital. For example, X Co. is formed with 10,000 Equity Shares of Rs. 10 each. In such a case, the authorised Capital of X Co. will be Rs. (10 x 10,000)= Rs. 1,00,000.
2. Issued Capital: Issued Capital refers to the nominal value of that part of the Authorised Capital which has actually been offered to the public for subscription. If whole of the Authorised Capital is offered to the public, the Authorised and Issued Capital will be the same. But if whole of the Authorised Capital is not offered to the public, a part of the Authorised Capital remains unissued. For example suppose, the above company offered to the public 8,000 shares. In such a case, the Issued Capital of X Co. will be Rs. (10 x 8,000)= Rs. 80,000. It can be mentioned in this regard that a company cannot issue more than its Authorised Capital.
3. Subscribed Capital: Subscribed Capital refers to the nominal value of that part of the Issued Capital which has actually been subscribed by the public. If whole of the Issued Capital is subscribed by the public, the Issued and Subscribed Capital will be the same. If the public applies for the above 8,000 shares, the Subscribed Capital will also be Rs. 80,000. For example suppose, the public apply for 7,000 shares. In such a case, the Subscribed Capital of X Co. will be Rs. (10 x 7,000) = Rs. 70,000. It can be mentioned in this regard that the Subscribed Capital cannot be more than the Issued Capital. So, if the public applies for more than the Issued Capital, the excess application will be rejected. For example, suppose, the Issued Capital of a company is Rs. 80,000 divided into 8,000 Equity Shares of Rs. 10 each. But public applied for 9,000 shares. In such a case, the company cannot issue 9,000 shares. So, excess application money in respect of 1,000 shares will be refunded to the public.
4. Called-up Capital: Called-up Capital refers to that part of the Subscribed Capital which the shareholders are called upon to pay on the shares applied by them. For example suppose, the above company calls-up Rs. 8 per share on 7,000 shares subscribed by the public. In such a case, the Called-up Capital will be Rs. (8 x 7,000) = Rs. 56,000. The balance Rs. (2 x 7,000)= Rs. 14,000 will be the Uncalled Capital. Here, Rs. 8 is known as Called-up Value and Rs. 2 is known as Uncalled Value.
5. Paid-up Capital: Paid-up Capital refers to that part of the Called-up Capital which has actually been paid by the shareholders. If all the shareholders paid the Called-up Value for the above 7,000 shares, the Paid-up Capital will also be Rs. (8 x 7,000) = Rs. 56,000. For example suppose, a shareholder holding 500 shares failed to pay Rs. 2 per share. In such a case, the Paid-up Capital will be Rs. ((8 x 7,000) - (2 x 500)) = Rs. 55,000.
6. Calls-in-Arrear: Calls-in-arrear refers to that part of the Called-up Capital which has been failed to pay by the shareholders. In the above case, a shareholder holding 500 shares failed to pay Rs. 2 per share. So, the Calls-in-Arrear will be Rs. (2 x 500) = Rs. 1,000.
7. Reserve Capital: If a company decides by a special resolution that the uncalled capital or a portion thereof shall not be called-up for payment except in the event of Liquidation of the company, the Uncalled Capital or the portion thereof, as the case may be, is known as Reserve Capital. In the above case, if the uncalled capital of Rs. 14,000 is declared by special resolution, to be reserved for winding up, then it becomes the Reserve Capital.
Disclosure of Share Capital in Company's Balance Sheet-Vertical form
The Companies Act, 1956 provides for the preparation of prospectus as the last step in final accounts to disclose the financial position of a joint-stock company. As per Revised Schedule Vi, Part-1 of this Act, company's prospectus has to be prepared. The revised Sixth Schedule was presented by the Ministry of Corporate Affairs on 28.02.2011. This amended Sixth Schedule has come into force in respect of all companies from the financial year commencing on 1.04.2011 by order of the Government of India. Company prospectus is prepared following the same principles as sole proprietorship and partnership business, only the presentation differs. Assets and liabilities are recorded in various categories and sub-categories as per the table in the revised Sixth Schedule to the Articles of Incorporation of the company. These assets and sub-divisions of accounts are to be disclosed through separate statements attached to the memorandum of account called Notes to Accounts and the serial number of each note is to be mentioned next to the sub-division in the memorandum of association. The schedule of the memorandum of association of the company is vertical as per the revised Sixth Schedule. Currently the new companies act of 2013 ,As per the Act similarly the method of preparation of balance sheet is mentioned. It is similar to the revised schedule of earlier Companies Act, 1956. Below is the revised Schedule VI of the Companies Act, 1956 similar to the III Schedule of the Companies Act, 2013.
A sample table of phase-wise balance sheet is mentioned below:
PART I
FORM OF BALANCE SHEET
Name of the company..
Balance Sheet as at...........
-------------------------------------------
Particulars Note no Current yr Previous Yr
₹ ₹
------------------------------------------
EQUITY AND LIABILITIES
1. Shareholders' Funds
(a) Share Capital
(b) Reserves and
surplus
(c) Money received
against share
warrants
2. Share application
3. money pending
4. allotment
3. Non-current
4. Liabilities
(a) Long-term
borrowings
(b) Deferred tax
liabilities (Net)
(c) Other long-
term liabilities
(d) Long-term
provisions
4. Current Liabilities
(a) Short-term
borrowings
(b) Trade payables
(c) Other current
liabilities
(d) Short-term
provisions
ASSETS
1. Non-current Assets
(a) Fixed Assets
(i) Tangible assets
(ii) Intangible assets
(iii) Capital work-in-
progress
(iv) Intangible assets under
development
v) Fixed Assets held
for Sale
b)Non Current
Investment
c) Deferred tax
assets (net)
d)Long term
Loans & advances
e) Other non
Current assets
2. Current Assets
a) current Investment
b) inventories
c) Trade Receiveable
d) Cash
e)Short term
Loans & Advances
f) Other Current
Assets
Other matters are also disclosed in the Notes to Accounts in respect of share capital. Some of the important items are shown below:
1. par value per share;
2. a reconciliation of the number of shares outstanding at the beginning and at the end of the reporting period;
3. the rights, preferences and restrictions attaching to each class of shares including restrictions on the distribution of dividends and the repayment of capital;
4.for the period of five years immediately preceding the date as at which the Balance Sheet is prepared:
• Aggregate number and class of shares allotted as fully paid up pursuant to contract(s) without payment being received in cash;.
⚫ Aggregate number and class of shares allotted as fully paid up by way of bonus shares.
• Aggregate number and class of shares bought back.
5. terms of any securities convertible into equity/preference shares issued along with the earliest date of conversion in descending order starting from the farthest such date.
ISSUE OF SHARE
A salient characteristic of the capital of a company is that the amount on its shares can be gradually collected in easy instalments spread over a period of time depending upon its growing financial requirement.
The first instalment is collected along with application and is thus, known as application money,
the second on allotment (termed as allotment money),
and
the remaining instalments are termed as first call,
second call and so on.
The word final is suffixed to the last instalment.
However, this in no way which prevents a company from calling the full amount on shares right at the time of application.
The important steps in the procedure of share issue are:
⚫ Issue of Prospectus: The company first issues the prospectus to the public. Prospectus is an invitation to the public that a new company has come into existence and it needs funds for doing business. It contains complete information about the company and the manner in which the money is to be collected from the prospective investors.
Receipt of Applications: When prospectus is issued to the public, prospective investors intending to subscribe the share capital of the company would make an application along with the application money and deposit the same with a scheduled bank
as specified in the prospectus. The company has to get minimum subscription within 120 days from the date of the issue of the prospectus. If the company fails to receive the same within the said period, the company cannot proceed for the allotment of shares and application money should be returned within 130 days of the date of issue of prospectus.
• Allotment of Shares: If minimum subscription has been received, the company may proceed for the allotment of shares after fulfilling certain other legal formalities. Letters of allotment are sent to those whom the shares have been alloted, and letters of regret to those to whom no allotment has been made. When allotment is made, it results in a valid cont kiract between the company and the applicants who now became the shareholders of the company.
Shares of a company are issued either at par or at a premium. Shares are to be issued at par when their issue price is exactly equal to their nominal value according to the terms and conditions of issue. When the shares of a company are issued more than its nominal value (face value), the excess amount is called premium.
Irrespective of the fact that shares are issued at par or at a premium, the share capital of a company as stated earlier, may be collected in instalments payable at different stages.
Issue of Shares:-
A company can issue its shares in the following three ways:
1. Issue at Par.
2. Issue at a Premium.
3. Issue at a Discount.
These are being discussed below one by one.
1. Issue at Par
When shares are issued at a price equal to their face value, it is known as Issue at par. When a company issues shares at Lump-sum, the shareholders paid the consideration in full at a time. In such a case, the entry will be-
Bank A/c Dr
To Equity/Preference Share Capital A/c [Being...............Equity/Preference Shares of R...............each issued at par as fully paid-up as per Board's Resolution No............ Dated............]
But generally, a company does not call at one time the full value of the shares issued. It does so in different instalment, such as Application, Allotment, First Call, Second Call,......... Final Call etc. These are being discussed below:
Application
It is the first instalment of share money. First of all the company issues a prospectus to the public for inviting them to purchase the shares. Interested persons apply to the company for purchasing the shares in a prescribed form together with application money. The accounting entries which are required to be passed in respect of application are-
1. On receipt of Application Money:
Bank A/c Dr
To Equity/Preference Share Application A/c
[Being Application Money received on.............Equity/Preference Shares @Rs............each...]
2. Utilisation of Application Money: If the number of shares applied for is equal to the number of shares offered for issue, all the applications are accepted. Again, if the number of shares applied for is less than the number of shares offered for issue, it is not possible to issue more than the number of shares pplied for. So, whole applications are also accepted. In these two cases,
the whole application money is to be transferred to Share Capital A/c by means of following Journal Entry-
Equity/Preference
Share Application A/c Dr
To Equity/Preference
Share Capital A/c
[Being application money on ........... Equity/Preference Shares @R...................ch.. transferred to Equity / Preference Share Capital A/c as per Board's Resolution No.......Dated............]
But if the number of shares applied for is more than the number of shares offered for issue, the excess is called over -subscription . In such a case, the company can not allot shares more than those offered for subscription. In case of over-subscription, the excess application money either may be refunded (in full / a part thereof) or retained (in full /a part thereof) for the net instalment (s).
When the excess application money is refunded-
Equity/Preference Share Dr
Application A/c
To Bank A/c
[Being excess application money refunded on ......... Shares @Rs.......... each as per Board's Resolution No........... Dated.........]
When the excess application money retained for next instalments-
Equity/Preference
Share
Application A/c। Dr
To Equity / Pref. )
Share Allotment A/c
[Upto the amount due on Allotment]
To Calls-in-advance A/c
(Over the amount due on Allotment)
[ Being the excess application money upto the amount due on Allotment in respect of ...... Shares @Rs. ....... each transferred to Equity / Preference Share Allotment A/c and the balance transferred to Calls-in-advance A/c as per Board's Resolution No. Dated.........]
Note: The following compound entry can be passed instead of passing the above entries for utilisation of application money:
Equity/Preference Share Dr
Application A/c
To Equity/Preference
Share Capital A/c
To Bank A/c
To Equity/Preference
Share Allotment A/c
To Calls-in-advance A/c
[Being application money on.........shares @R............. each transferred to Equity / Preference Shares Capital A/c, on.........shares @Rs..........each refunded, on.........shares @Rs............. transferred to Allotment A/c and on shares @Rs.........each transferred to Calls-in- advance A/c as per Board's Resolution No..........Dated.........]
Allotment
It is the second instalment of share money. The amount required to be paid on allotment is known as Allotment Money. On allotment made, for the amount of Allotment money expected from the shareholders, the following entry is passed-
Equity/Preference
Share Allotment A/c Dr
To Equity/Preference Share Capital A/c
[Being allotment money due on.........Equity / Preference Shares @Rs. ors Board's Resolution No......... Dated .] each as per
On receipt of Allotment money, the entry to be passed is
Bank A/c Dr
To Equity/Preference
Share Allotment A/c
[Being Allotment money received on.........Equity / Preference Shares @Rs..........each]
]
First Call
It is the third instalment of share money. On making the First Call, the entry to be passed is—
Equity/Preference Share First Call A/c Dr
To Equity/Preference Share Capital A/c
[Being First Call money due on Equity/Preference Shares @Rs........... each as par Board's Resolution No. ..... Dated..........]
On receipt of First Call money, the entry to be passed is-
Bank A/c Dr
To Equity/Preference Share First Call A/c
[Being First Call money received on ***equity/Pref shares @₹**each)
2. Issue at a Premium
When shares are issued at a price which is more than their face value, it is said to be issued at a premium and the excess of issue price over the face value is known as Premium. For example suppose, the face value of a share is Rs. 10 but it is issued at Rs. 12. Such an issue is known as issue at a Premium.
Here the excess amount of Rs. (12 - 10) required to pay is known as Premium. The premium is payable with application money or - = Rs. 2 per share which the applicants required to pay known as premium.
The premium is payable with application money or allotment money or ,partly with application money and partly with allotment money or call money.
1.When Premium is Payable with Application money
I) on receipt of Application money
Bank A/c Dr
To Equity/Pref Share
Application A/c
(Being application money received on *** Equity/Pref shares of ₹ ** each)
ii) When Application money is Transferred:
Equity/Pref Share Application A/c Dr
To Equity/Pref Share Capital A/c
(Being application money on ** shares@₹**
each transferred to equity/Pref Share Capital Account and @₹ **each transferred to Securities Premium Account as per Board Resolution no *** dated ****)
2. When Premium is Payable with Allotment Money:
(i) When Allotment Money becomes due:
Equity/Preference Allotment A/c Dr
To Equity/Preference Share Capital A/c
To Securities Premium A/c
[Being allotment money due on ........... Equity/Preference Shares @Rs. * each including premium of ₹ ** per share as per Board's Resolution No..... Dated)
(ii) On receipt of Allotment Money:
Bank A/c Dr
To Equity/Preference Share Allotment A/c
[Being allotment money received on ............ Equity/Preference Shares @Rs............. each]
3. Issue at a Discount
When shares are issued at a price which is less than their face value, it is said to be Issued at a Discount. For example suppose, the face value of a share is Rs. 10 but it is issued at Rs. 8. Such an issue is known as issue at a discount. Here, the amount of discount will be Rs. (10-8)= Rs. 2 per share. Discount on share may be adjusted with application or allotment money.
1. When Discount is adjusted with Application Money:
I) Bank A/c Dr
To Equity/Pref Share Application A/c
(Being the application money received on ** equity/pref shares@₹**each)
ii)When Application money Transferred:
Equity/Pref Shares Application A/c Dr
Discount on Issue of Shares A/c Dr
To Equity/Pref Share Capital A/c
(Being application money on ** Shares@₹each transferred to equity/pref share Capital Account and discount of ₹ ** per share is adjusted as per Board Resolution no** Dated **)
2. When Discount is adjusted with Allotment :
(i) When Allotment Money becomes due:
Equity/Preference Allotment A/c Dr
Discount on Issue of Shares A/c Dr
To Equity/Preference Share Capital A/c
[Being allotment money due on ............ Equity/Preference Shares @Rs. ** each and discount on per share Rs. ** adjusted as per Board's Resolution No. **Dated. **)
(ii) When Allotment Money is received:
Bank A/c Dr
To Equity/Preference Share Allotment A/c
[Being allotment money received on............ Equity / Preference Shares @Rs.** each)
Calis-in-Arrear
When allotment or call(s) is made upon shares allotted, the shareholders holding the shares are bound to pay the allotment or call money within the date fixed for such payment. If a shareholder failed to pay the allotment or call money within the appropriate date, the amount thus failed is called Calls-in-Arrear
. There are two methods of dealing with the accounting of Calls-in-Arrear. These are being discussed below:
1. By opening Calls-in-Arrear Account:
Under this method, Share Allotment A/c and Call (s) A/c are closed by transferring to Calls-in-Arrear A/c with the amount failing to pay by the shareholders on various instalments. The accounting entries in respect of Calls-in-Arrear are as follows:
(i) When Allotment / Call money is in arrear:
Calls-in-Arrear A/c Dr
To Allotment / Relevant Call A/c
[Being unpaid allotment/call money on........... shares @Rs. ............ each transferred to Calls- in-Arrear A/c]
(ii) On receipt of amount of Calls-in-Arrear, on a subsequent date:
Bank A/c Dr
To Calls-in-Arrear A/c
[Being Calls-in-Arrear realised in respect of
shares @Rs.............each)
2. Without opening Calls-in-Arrear Account:
In such a case, no entry is required for Calls-in- Arrear. Only the actual amount received from the shareholders is credited to Allotment / Relevant Call(s) A/c. As a result, the Allotment / Call (s) A/c will show Debit Balance equal to the unpaid amount of Allotment / Call (s). On subsequent date, when the amount of Calls-in-Arrear is received, Bank A/c is debited and the Allotment / Relev
ant Call (s) A/c is credited.
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