Meaning of Share Capital –
Meaning of Share – Where the total capital of the company is divided into smaller units, then each such unit is known as a Share.
Types of Share
There are two types of Shares : –
- Equity Share
- Preference Share
Difference between Equity Share and Preference Share
| Basis | Equity Share | Preference Share |
| Rate of Dividend | Rate of dividend is not fixed | Rate of dividend is fixed |
| Voting Rights | Equity Shareholders have voting rights | Preference shareholders have no voting rights |
| Payment of Dividend | Dividend is paid after the payment of dividend to preference shareholders | Dividend is paid before the payment of dividend to equity shareholders |
Meaning of Share Capital
The capital raised by the company, through issue of shares is known as share capital. The capital raised by issue of Equity Shares is termed as ‘Equity Share Capital’ , and the capital raised by issue of Preference Shares is termed as ‘Preference Share Capital’.
Types of Share Capital
(i) Authorized / Registered / Nominal capital : The maximum amount of share capital , which a company is authorized to raise from the public throughout its life is known as ‘Authorized capital’. The Authorized capital of the company can be increased by following the process under the Companies Act, 2013.
(ii) Issued share capital : The part of authorized capital , which is issued to public for subscription is known as issued share capital.
(iii) Subscribed share capital: The part of issued capital which has actually been subscribed by the public, is known as subscribed share capital.
(iv) Paid up share capital: The part of the called up capital which has been received by the company from the shareholders is known as paid up share capital.
(v) Uncalled capital: The balance of the subscribed capital , not called up by the company is known as uncalled capital.
Difference between Authorized Share Capital and Issued Share Capital
| Basis | Authorized Share Capital | Issued Share Capital |
| Meaning | It is the maximum amount of share capital which a company may raise in its whole life | It is the portion of authorized capital which is offered to the public for subscription |
| Limit | Authorized Capital can exceed issued capital | Issued Capital cannot exceed authorized capital |
| Stamp Duty | Company has to pay stamp duty in case of authorized share capital | Company has not to pay stamp duty on issued share capital |
Meaning of ‘Minimum Subscription / Short Note of ‘Minimum Subscription’
Minimum Subscription is the minimum amount received from shareholders which in the option of the directors must be raised to provide funds for the following : –
(i) Purchase of necessary assets for the company.
(ii) For preliminary expenses payable by the company.
(iii) For repayment of any loan borrowed by the company for the above two matters.
(iv) For working capital.
(v) For any other expenditure required for the smooth operation of the business.
Provision of Section 52 (2) of the Companies Act,2013 [Purpose for which Securities Premium can be used)
(i) To write off the preliminary expenses of the company.
(ii) To issue fully paid bonus shares to the shareholders.
(iii) To write off expenses, commission and discount allowed on issue of shares or debentures of the company.
(iv) To buy back of equity share.
(v) To pay premium on the redemption of preference shares or debentures of the company.
Alternatives for Over Subscription of Shares
(i) Full Allotment: A company may allot the shares to some applicants fully and reject the excess applications.
(ii) Partial Allotment or Prorata Allotment: In this alternative all or some applicants may be allotted less number of shares than what they have applied for.
(iii) Full Allotment and Prorata Allotment : In this case some applications may be accepted in full, some applications may be rejected and remaining applications may be given the prorata allotment.
Note : Securities and Exchange Board of India (SEBI) has imposed restriction on the oversubscription of shares from 3rd May 2010 onwards.
Difference between Over Subscription and Under Subscription
Issue of shares at par – Fully subscribed, Payable in lump sum
Question 1:
A Ltd invited application for 1,000 equity shares of Rs 5 each at an issue price of Rs 5 .The amount payable along with application is Rs 5 .This issue was fully subscribed. The journal entries for the transactions will be:
Explanation:
Bank A/c Dr 5,000
To Equity share Application and Allotment A/c 5,000 ( 1,000 x 5 )
Equity share Application and Allotment A/c Dr 5,000
To Equity share capital A/c 5,000
When issue price is payable in one installment or lump sum, then the entry should be passed through share application and allotment account.
Issue of Equity Shares at premium, Shares fully subscribed, and money payable in lump sum
Question 2:
Albert Ltd issued 10,000 equity shares of Rs 12 each at a premium of Rs 3 payable along with the application. All the shares were applied and duly allotted. The necessary journal entry to record the transaction will be:
Explanation:
Bank A/c Dr 1,50,000 ( 10,000 x 12)
To Equity share Application and Allotment A/c 1,50,000
Equity share Application and Allotment A/c Dr 1,50,000
To Equity share capital A/c 1,20,000
To Security premium Reserve A/c 30,000
When issue price is payable in one installment or lump sum, then the entry should be passed through share application and allotment account.
Determination of total amount when Shares issue at par payable in Installments
Question 3:
Canon Ltd was registered with a Capital of Rs 5,00,000 in shares of Rs 20 each .It invited applications for 15,000 Shares. The amount is payable as Rs 10 On application, Rs 4 on allotment, Rs 6 on first and final call. The whole of above issue was applied for and amount was duly received. The total cash received by the company is:
Explanation:
Total cash received by the company
On Application 15,000 x 10 = 1,50,000
On Allotment 15,000 x 4 = 60,000
On first and final call 15,000 x 6 = 90,000
Total 3,00,000
Issue of Share at par payable in Installments
Question 4:
Ashok Ltd was registered with a Capital of Rs 2,00,000 in shares of Rs 10 each .It invited applications for 15,000 Shares. The amount is payable as Rs 7 On application, Rs 2 on allotment, Rs 1 on first and final call. The whole of above issue was applied for and amount was duly received. The journal entry for application will be :
Explanation:
Bank A/c Dr 1,05,000
To Share Application A/c 1,05,000 ( 15,000 x 7 )
Journal entry for First and final call -Shares issue at par payable in Installments
Question 5:
ABC Ltd was registered with a Capital of Rs 10,00,000 in shares of Rs 100 each .It invited applications for 4,500 Shares. The amount is payable as Rs 45 On application, Rs 45 on allotment, 10 on first and final call. The whole of above issue was applied for and amount was duly received. The journal entry for First and final call will be :
Explanation:
Bank A/c Dr 45,000
To Share first and final call A/c 45,000 ( 4,500 x 10 )
Issue of share at premium payable in installments entry for receiving allotment money
Question 6:
Atul Ltd invited applications for 1,25,000 shares of Rs 50 each at a premium of Rs 10 per share. Amount is payable as Rs 10 On application, Rs 30 on allotment and the balance on first and final call. The whole of above issue was applied for and amount was duly received. The journal entry for receiving allotment will be :
Explanation:
Bank A/c Dr 37,50,000
To Share allotment A/c 3,750,000 [ 1,25,000 x (20 + 10 ) ]
(Security premium account is credited when entry for allotment due is made .)
Issue of shares at premium, Fully subscribed, Payable in installments – Entry for allotment
Question 7:
Ball Ltd invited applications for 25,000 shares of Rs 50 each at a premium of Rs 10 per share. Amount is payable as Rs 20 On application, Rs 25 on allotment and the balance on first and final call. The whole of above issue was applied for and amount was duly received. The journal entry for allotment money due will be:
Explanation:
Share allotment A/c Dr 6,25,000 ( 2,5000 x ( 15 + 10 ))
To Share capital A/c 3,75,000 ( 25,000 x ( 15 )
To Security premium Reserve A/c 2,50,000 ( 25,000 x ( 10 )
Security premium account is credited when entry for allotment due is made .
(Security premium account is credited when entry for allotment due is made .)
Under Subscription Of Shares
Question 8:
Across Ltd invited application for 1,50,000 equity shares of Rs 15 each at the issue price of Rs 15 .The amount payable along with application is Rs 15 .Application were received for 1,25,000 shares. The journal entry for above transaction will be:
Explanation:
Bank A/c Dr 18,75,000
To Equity share application and allotment A/c 18,75,000 ( 1,25,000 x 15 )
Equity share application and allotment A/c Dr 18,75,000
To Equity share capital A/c 18,75,000
Over subscription of shares – Excess application is rejected in full
Question 9:
On January 1 2014 the Director of Iris Ltd decided to issue 15000 shares of Rs 10 each. For such issue, Rs 5 was payable on application, Rs 2 was payable at the time of allotment and the balance on first and final call. Application were received for 20,000 shares. Director decided to reject application in respect of 5,000 shares, the money being refunded in full , as all allotment money was received in full. Journal entry for application will be:
Explanation:
Money received on application = 20,000 x 5
= 1,00,000
Bank A/c Dr 1,00,000
To Share application A/c 1,00,000
Question 10:
On 1 April, 2014 the Director of MSD Ltd decided to issue 9,000 shares of Rs 40 each. In respect of such issue, Rs 10 was payable on application and Rs 12 was payable at the time of allotment and the balance on first and final call. Application were received for 11,000 shares from a single applicant. Directors decided to adjust excess application towards allotment. Money received on allotment will be:
Explanation:
Amount received on application = 11,000 x 10 = 1,10,000
Less: Amount due towards application = 9,000 x 10 = 90,000
Surplus to be adjusted on allotment 20,000 (Surplus to be adjusted on allotment)
Amount due on allotment = 9,000 x 12 = 1,08,000
Less: Surplus money 20,000
88,000 (Money received on allotment)
Over subscription of shares – Journal entry in case Excess funds received on application adjusted towards allotment money due
Question 11:
on 1 January, 2014 A company Anil Ltd offered to the public 30,000 shares of Rs 20 each. The subscription price was payable as Rs 10 on application and Rs 5 was payable at the time of allotment and the balance on first and final call. Application were received for 40,000 shares. Director decided to adjust excess application money towards allotment . The journal entry for transferring application money into share capital will be:
Explanation:
Money received on application = 40,000 x 10 = 4,00,000
Less: Money due = 30,000 x 10 = 3,00,000
Surplus money to be adjusted towards allotment 1,00,000
1 Bank A/c Dr 4,00,000
To Share application A/c 4,00,000
2 Share application A/c Dr 4,00,000
To Share capital A/c 3,00,000
To Share allotment A/c 1,00,000
Issue Of Shares For Consideration Other Than Cash -Issue At Par
Question 12:
DG Ltd Purchased assets of Rs 2,50,000 from VG Ltd . DG Ltd issued equity shares of Rs 50 each fully paid in consideration. Journal entries in the books of DG Ltd if the shares are issued at par will be:
Explanation:
Number of shares issued = 2,50,000/50
Number of shares issued = 5,000
Entries:
Sundry Assets A/c Dr 2,50,000
To VG Ltd 2,50,000
VG Ltd Dr 2,50,000
To Equity share Capital A/c 2,50,000 ( 5,000 x 50 )
Issue of shares for consideration other than cash -(Issue at Par)
Question 13:
BD Ltd Purchased assets of Rs 8,00,000 from PNT Ltd . BD Ltd issued equity shares of Rs 40 each fully paid in consideration. Calculate the Total number of share to be issued by BD Ltd
Explanation:
Number of shares issued = 8,00,000/40
Number of shares issued = 20,000 Shares
Issue Of Shares For Consideration Other Than Cash- Issue At Premium
Question 14:
C Ltd purchased assets of Rs 12,00,000 from Amit Ltd . C Ltd issued equity shares of Rs 50 each fully paid in consideration. Calculate the Total number of share to be issued by C Ltd if the shares are issued at 20 % premium
Explanation:
Number of shares issued = 12,00,000/60
Number of shares issued = 20,000
Issue Of Shares For Consideration Other Than Cash- Issue At Premium
Question 15:
Albert Ltd purchased assets of Rs 4,00,000 from Albus Ltd . Albert Ltd issued equity shares of Rs 10 each fully paid in consideration. Journal entries in the books of Albert Ltd if the shares are issued at 100 % premium will be:
Explanation:
Number of shares issued = 4,00,000/20
Number of shares issued = 20,000
Entries:
Sundry Assets A/c Dr 4,00,000
To Albus Ltd 4,00,000
Albus Ltd Dr 4,00,000
To Equity share Capital A/c 2,00,000 ( 20,000 x 10 )
To Security premium reserve A/c 2,00,000 ( 20,000 x 10 )
Issue of shares for consideration other than cash – when assets and liabilities taken over and balance is transfer to capital reserve
Question 16:
Anil Ltd purchased a running business from Anju Ltd .The assets and liabilities consisted of the following : Land Rs 1,25,000 , Debtors Rs 2,25,000 , Stock Rs 50,000 and Creditors Rs 1,00,000 .Journal entry for assets and liabilities taken over if Total purchase consideration of Rs 2,00,000 was discharged by issuing equity shares of Rs 20 each at par will be :
Explanation:
Entry for assets and liabilities taken over and balance credited to capital reserve
Land A/c Dr 1,25,000
Debtors A/c Dr 2,25,000
Stock A/c Dr 50,000
To Creditors A/c 1,00,000
To Anju Ltd 2,00,000
To Capital Reserve A/c 1,00,000
Determination of amount credited to capital reserve when assets and liabilities are taken over
Question 17:
Anil Ltd purchased a running business from Anju Ltd .The assets and liabilities consisted of the following : Land Rs 125000 , Debtors Rs 225000 , Stock Rs 50000 and Creditors Rs 100000 . Calculate the amount credited to capital reserve if the Total purchase consideration of Rs 200000 was discharged by Anil Ltd
Explanation:
Amount credited to capital reserve would be:
Land 1,25,000
Debtors 2,25,000
Stock 50,000
Total 4,00,000
Creditors 1,00,000
Anju Ltd 2,00,000
Total 3,00,000
Capital Reserve 4,00,000 (-) 3,00,000
1,00,000
Issue of shares for consideration other than cash – when assets and liabilities taken over and balance is transfer to goodwill
Question 18:
Ajay Ltd purchased a running business from Best Ltd .The assets and liabilities consisted of the following : Plant Rs 2,00,000 , Building Rs 3,2,5000 , Stock Rs 1,75,000 and Creditors Rs 1,00,000 .Journal entry for assets and liabilities taken over if purchase consideration of Rs 6,75,000 was discharged by issuing equity shares of Rs 100
Explanation:
Entry for assets and liabilities taken over and balance debited to goodwill.
Plant A/c Dr 2,00,000
Building A/c Dr 3,25,000
Stock A/c Dr 1,75,000
Goodwill A/c Dr 75,000
To Creditors A/c 1,00,000
To Best Ltd 6,75,000
Determination of amount debited to goodwill when assets and liabilities are taken over
Question 19:
Aircel Ltd purchased a running business from Jio Ltd .The assets and liabilities consisted of the following : Land Rs 7,00,000 , Debtors Rs 1,00,000 , Stock Rs 4,50,000 and Creditors Rs 2,50,000 . Calculate the amount debited to goodwill if the Total purchase consideration of Rs 12,50,000 was discharged by Aircel Ltd
Explanation:
Entry for assets and liabilities taken over and balance debited to goodwill.
Land 7,00,000
Debtors 1,00,000
Stock 4,50,000
Total 12,50,000
Creditors 2,50,000
Aircel Ltd 12,50,000
Total 15,00,000
Goodwill = 15,00,000 (-) 12,50,000
2,50,000
Entry for issue of shares to promoters for there services
Question 20:
Best Ltd issued 50,000 shares of Rs 100 each, credited as fully paid to the promoters for their services. Entries in the books for the issue of shares will be:
Explanation:
Entry for recording issue of shares to promoters
Formation Expenses A/c Dr 50,00,000
To Share Capital A/c 50,00,000 ( 50,000 x 100 )
Entry for issue of shares to underwriters for there services
Question 21:
Amit Ltd issued 8,500 shares of Rs 10 each credited as fully paid to the underwriters for their services. Entries in the books to record the transaction will be:
Explanation:
Entry for recording issue of shares to underwriters
For making underwriting expenses due
Underwriting(Commission) Expenses A/c Dr 85,000
To Underwriters A/c 85,000 ( 8,500 x 10 )
For issuing shares to underwriters:
Underwriters A/c Dr 85,000
To Share capital A/c 85,000
Issue of shares for consideration other than cash – when assets and liabilities taken over and balance is transfer to goodwill
Question 22:
Ajay Ltd purchased a running business from Best Ltd .The assets and liabilities consisted of the following : Plant Rs 2,00,000 , Building Rs 3,25,000 , Stock Rs 1,75,000 and Creditors Rs 1,00,000 .Journal entry for assets and liabilities taken over if purchase consideration of Rs 6,75,000 was discharged by issuing equity shares of Rs 100
Explanation:
Entry for assets and liabilities taken over and balance debited to goodwill.
Plant A/c Dr 2,00,000
Building A/c Dr 3,25,000
Stock A/c Dr 1,75,000
Goodwill A/c Dr 75,000
To Creditors A/c 1,00,000
To Best Ltd 6,75,000
Determination of amount debited to goodwill when assets and liabilities are taken over
Question 23:
Aircel Ltd purchased a running business from Jio Ltd .The assets and liabilities consisted of the following : Land Rs 7,00,000 , Debtors Rs 1,00,000 , Stock Rs 4,50,000 and Creditors Rs 2,50,000 . Calculate the amount debited to goodwill if the Total purchase consideration of Rs 12,50,000 was discharged by Aircel Ltd
Explanation:
Entry for assets and liabilities taken over and balance debited to goodwill.
Land 7,00,000
Debtors 1,00,000
Stock 4,50,000
Total 12,50,000
Creditors 2,50,000
Aircel Ltd 12,50,000
Total 15,00,000
Goodwill = 15,00,000 (-) 12,50,000
2,50,000
Entry for issue of shares to promoters for their services
Question 24:
Best Ltd issued 50,000 shares of Rs 100 each, credited as fully paid to the promoters for their services. Entries in the books for the issue of shares will be:
Explanation:
Entry for recording issue of shares to promoters
Formation Expenses A/c Dr 50,00,000
To Share Capital A/c 50,00,000 ( 50,000 x 100 )
Entry for issue of shares to underwriters for there services
Question 25:
Amit Ltd issued 8,500 shares of Rs 10 each credited as fully paid to the underwriters for their services. Entries in the books to record the transaction will be:
Explanation:
Entry for recording issue of shares to underwriters
For making underwriting expenses due
Underwriting(Commission) Expenses A/c Dr 85,000
To Underwriters A/c 85,000 ( 8,500 x 10 )
For issuing shares to underwriters
Underwriters A/c Dr 85,000
To Share capital A/c 85,000
Non payment of call money ( Calls in arrear)
Question 26:
Agni Ltd issued 50,000 equity shares of Rs 20 each payable at Rs 10 on application, Rs 3 on allotment, Rs 5 on first call and the balance on final call. All the shares were fully subscribed and paid except of a shareholder having 250 shares who could not pay for the final call. Journal entry for final call money due and received in the books if calls in arrear account is maintained by the company will be:
Explanation:
Entry for final call money due
Equity share final call A/c Dr 1,00,000
To Share capital A/c 1,00,000 ( 50,000 x 2 )
Entry for receiving final call money
Bank A/c Dr 99,500
Calls in arrear A/c Dr 500 ( 250 x 2 )
To Equity share final call A/c 1,00,000
Chapter 1 – Accounting for Share Capital