Accounting For Share Capital - Class 12 Commerce Accountancy - Extra Questions

Unissued capital is a part of authorized capital that has not been offered till now but can be offered to the general public in the future.

Equity share is common security issued under permanent or owner's fund capital. Equity share are the most important source of raising long-term capital. The equity share are those shares which do not carry any special or preferential rights in the payment of annual dividend or repayment of capital. At the time of winding up also capital of equity shareholders is returned only after every claim has been settled.

As per section 2(92) of the Companies Act, 2013, an unlimited company is a company in which the liability of its members is unlimited.
Unlimited companies have no limits on their members' liabilities. Hence, the company can use all personal assets of shareholders to meet its debts while winding up. Their liabilities will extend to the company's entire debt.

A limited company may call up any portion of uncalled share capital in the event of winding up of the company to pay its creditors. This amount of uncalled share capital is reserved for paying back the creditors which is why such a portion of share capital is called reserve capital.

Uncalled capital is that part of subscribed capital which is not called up till now but can be called up in future as per the need of the company.

Minimum subscription is the minimum amount that must be subscribed by the public. As per SEBI guidelines, no allotment shall be made of any share capital if a minimum subscription of 90% of the issue size is not received as per Section 69 of Companies Act, 1956.

A company offers shares to the public inviting applications for their subscription. When the number of shares applied is less than the number of shares offered for subscription, it is a situation of under-subscription. 
For example, A public company invited applications for 1,00000 shares of Rs 10 each from the public. The public applied only for 90,000 shares.

A public company is a company whose shares can be subscribed to members of the public. As per the Companies Act, 2013, a public company is:
1. A company that is not a private company;
2. Has a minimum of seven members, no maximum limit is mentioned;
3. Has a minimum paid-up capital of five lacs, again there is no maximum limit;
4. A private company that is a subsidiary of a public company, will be considered a public company.

A company that is formed with only one person as its member, with a minimum paid-up capital of not more than Rs 50,00,000 is called One Person Company (OPC). Its turnover should not exceed Rs. 2 crores. Such a company can not conduct the business of NBFC and investment of security.

Oversubscription of shares is the situation where the number of shares applied is more than the number of shares offered for subscription.

A company whose shares are not listed in the stock exchange and thereby, these shares cannot be traded in the stock exchange is called an unlisted company. For example, haldiram, patanjali.

The maximum discount at which these shares can be re-issued is the credit balance in the Share Forfeiture A/c i.e. $$Rs. 5,000 \, (1,000\times 5)$$.

	Transfer of Shares	Transmission of Shares
1. Meaning	The passing of ownership of the shares by one shareholder to another as a result of voluntary sale or gift of shares is called Transfer of shares.	The passing of ownership of a shares from one shareholder to another by the operation of law is called Transmission of the shares.
2. Kind of action	Transfer of shares take place when there is a sale / purchase / gift of shares. So it is a voluntary action.	Transmission of shares take place in the event of death or insolvency or lunancy of the shareholders. So it is compulsory action.
3. Reasons	When both the parties i.e., transferor and transferee are willing to transfer by submission of instrument of transfer by transferor. Transfer of shares take place	Transmission of shares take place only when shareholders die or become lunatic the legal representative is required to submit an evidence that proves his legal status.
4. Initiative	Transfer of shares is initiated by the shareholders i.e., transfer or by an authorized person.	Transmission of shares is initiated by the legal representative of the deceased shareholder.
5. Consideration	There must be adequate consideration in terms of money for transfer of shares unless they are transferred by way of gift.	The question of consideration in money does not aries because shares are always transmitted to legal representative without any consideration.

	Interim dividend	Final dividend
1	Meaning Interim dividend is the dividend which is declared between two annual general meetings of a company	Final dividend is the dividend which is declared at the annual general meeting of the company.
2	When declared?  Interim dividend is declared when the company makes good profit in the first half of the financial year. I.e. declared before the end of the financial year	Final dividend is declared at the completion of financial year in Annual General Meeting of the company
3	Who declares?  Interim dividend is declared by the Board by passing a resolution if they are authorised by articles	Final dividend is recommended by the Board and declared by the shareholders by passing ordinary resolution (decision) at Annual General Meeting
4	Rate of Dividend  The rate of interim dividend is less than final dividend	The rate of final dividend is generally more than interim dividend.
5	Legal Aspects:- Declaration of interim dividend becomes risky and illegal, if company incurs loss at the end of the year.	Declaration of final dividend is always legal, as it is declared only after ascertaining (discover) the correct profit on the basis of the audited accounts
6	Authorisation of Articles  Authorisation of Articles is necessary for declaration of interim dividend	Authorisation (approval) of Articles is not necessary for the declaration of final dividend.
7	Sources for declaration  An interim dividend is declared on the basis of the better financial prospective results may it to be quarterly, half yearly etc	There are number of sources available for declaring the final dividend. It can be declared out of current profits or profits of the previous years or out of reserves or out of capital profits out of the financial assistance specifically provided by Government for dividend

• An equity share, normally known as the ordinary share is part ownership where each member is a fractional owner and initiates the maximum entrepreneurial liability related to a trading concern. These types of shareholders in any organization possess the right to vote.
  
• The main features of equity shares are:

1. They are permanent in nature

2. Equity shareholders are the actual owners of the company and they bear the highest risk.

3. Equity shares are transferable, i.e. ownership of equity shares can be transferred with or without consideration to other people.

4. Dividend payable to equity shareholders is an appropriation of profit.

5. Equity shareholders do not get a fixed rate of dividends.

Meaning: - A company following conservative dividend policy accordingly shall transfer a large portion of divisible profits to the reserves every year. The accumulation of such retained may enable the company to capitalise its profits so as to establish proper balance between the paid-up capital and reserves. However. the capitalisation of profits is termed as issue of bonus shares. Bonus shares can be defined as shares issued by the company to its existing equity shareholders out of accumulated reserves. The bonus shares are equity shares that are issued to existing equity shareholders free of cost or as a gift by the company.
Condition for issue of Bonus Shares
1. The issue of bonus shares must be authorized by Articles of Association of the company. If it is not provided, the company should pass a resolution in its shareholders meeting making provision in the Articles for issuing bonus shares.
 2. It must be recommended by a board resolution and then approved by the shareholders in general meeting.
 3. The bonus issue is made out of free reserves built out of genuine profits or share premium collected in cash.
4. Reserves created by revaluation of fixed assets are not capitalised for bonus shares.
5. The bonus issue is not made unless the partly paid-up shares, if any existing is made fully paid-up.
6. There can be issue of bonus shares only twice in a period of 5 years.
7. The company issuing bonus shares should not have defaulted in payment of statutory dues such as contribution to provident fund, gratuity. and bonus.
8. Consequent to the issue of Bonus Shares, if the subscribed and paid-up capitals exceed the authorized capital, a resolution should be passed by the company at its general body meeting for increasing the authorized capital.
9. No bonus shares issue can be made by the company which will dilute (reduce in strength) the value or rights of the share holders of convertible debentures, fully or partly.
10. Bonus shares cannot be issued within 12 months of any public right issue or right issue. 

Preference shareholders are entitled to a fixed rate of dividend but Equity shareholders will get dividend only if any profit is left after distributing dividend to the Preference shareholders. 

Reissue of share is merely a sale of Forfeited Shares and not an allotment of shares. The forfeited shares can be reissued as per the provisions of Articles of the company.

The advantage of equity shareholder is that equity shareholders are the owners of the company. Moreover equity shareholders have te right over new shares at first.

A company interacts with SEBI (Securities and Exchange Board of India) in the third stage of formation that is in the stage of capital subscription. SEBI is the regulatory authority of capital markets in our country which has issued guidelines for the disclosure of information and investor protection. A company inviting funds from the general public must make adequate disclosure of all relevant information and must not conceal any material information from the potential investors as per SEBI guidelines, Prior approval from SEBI is, therefore, required before going ahead with raising funds from public SEBI ensures that the proposed issue of securities follows all the guidelines laid down by it no over subscription of any issue can be retained, full underwriting of issue is important promoters contribution must be 2596 in an issue of less than Rs. 100 crore.

No.	Points	Share certificate	Share Warrant
1	Meaning	A share certificate is the registered document of title to the shares, issued by the company under its common seal.	A share warrant is a document issued under a common seal of a public company stating that the bearer if instrument has the title of the shares mentioned there in.
2	Who issue the document?	It is issued by public as well as private company.	Only Public Limited companies can issue Share warrants.
3	Nature of Shares as regards paid up value?	A share certificate can be issued for fully paid as well as partly paid shares	It is issued only in case of fully paid shares
4	Time of Issue	A  company initially(at first) has to issue share certificate	After collection of the amount if the shareholder wishes, company can issue share warrant against the share certificate.
5	Sanction of government	Central Government's sanction is not required to issue share certificate.	After collection of the amount if the shareholder wishes, company can issue warrant against the share

Minimum Subscription: It is said to be the minimum amount which as per the directors must be raised by issuing shares to overcome various expenses like working capital required, preliminary expenses, repayment of money borrowed or any other payment etc. Company has to make sure that it must receive share applications for minimum subscription as mentioned in the prospectus, before it applies for the certificate of commencement of business. Company has to refund back all the money received from the applicants and cannot make any allotment, if the amount of capital subscribed by the public is less than the minimum subscription or if the company could not get minimum subscription within 120 days of the issue of prospectus.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
	Bank A/c   Dr.		2,10,000
	To Share Application A/c			2,10,000
	(Being application money received on 70,000 shares)
	Share Application A/c   Dr.		2,10,000
	To Share Capital A/c			1,00,000
	To Securities Premium Reserve A/c			50,000
	To Share Allotment A/c			15,000
	To Bank A/c			45,000
	(Being application money transferred to share capital and adjusted)
	Share Allotment A/c  Dr.		1,50,000
	To Share Capital A/c			1,00,000
	To Securities Premium Reserve A/c			50,000
	(Being allotment due on 50,000 shares)
	Bank A/c   Dr.		1,11,000
	Calls in Arrears A/c    Dr.		24,000
	To Share Allotment A/c			1,35,000
	(Being allotment money received with the exception of 8,000 shares)
	Share First Call A/c  Dr.		1,50,000
	To Share Capital A/c			1,50,000
	(Being first call due on 50,000 shares)
	Bank A/c   Dr.		1,20,000
	Calls in Arrears A/c   Dr.		30,000
	To Share First Call A/c			1,50,000
	(Being allotment money received with the exception of 8,000 shares)
	Share Capital A/c   Dr.		56,000
	Securities Premium Reserve A/c		8,000
	To Forfeited Shares A/c			16,000
	To Calls in Arrears A/c			48,000
	(Being 8,000 shares for non-payment of allotment and first call and 2,000 shares for non-payment of first call forfeited)
	Bank A/c  Dr.		32,000
	Forfeited Shares A/c   Dr.		8,000
	To Share Capital A/c			40,000
	(Being 50% of forfeited shares reissued as fully paid-up)

 

	Pro-Rata Computation table
Categories	Shares Applied	Shares Allotted	Application Money received @ Rs. 3	Application Money transferred to share capital & SPR @ Rs. 3	Excess on application (Rs.)	Allotment @ Rs. 3 against		First call @ Rs. 3	Refund  Rs.
						Face value @ Rs. 2	SPR @ Rs. 1
A	5,000	5,000	15,000	15,000
B	50,000	45,000	1,50,000	1,35,000	15,000	15,000
C	15,000		45,000						45,000
	70,000	50,000	2,10,000	1,50,000	15,000	15,000			45,000

As per Section 2(50) of Companies Act, 2013, "Issued Capital" means such capital as the company issues from time to time for subscription. Usually, companies do not issue all of their shares for control purpose.

A share of common stock that a candidate for a company's Board of Directions (BOD) is required to own is known as qualification shares. The term does not reflect a difference in the properties of a qualifying share compared to common shares held by other shareholders. Instead, it refers to the requirement that a member of the board must hold a vested interest in the operation of the enterprise in the form of company stock.

Date			Dr. Rs.	Cr. Rs.
(a)	Equity Share Capital A/c $$(200\times$$ Rs. $$7)$$	Dr.	$$1,400$$
	To Equity Share First Call A/c$$(200\times$$ Rs. $$2)$$			$$400$$
	To Forfeited Shares A/c$$(200\times$$Rs. $$5)$$			$$1,000$$
	(Being the forfeiture of $$200$$ equity shares of Rs. $$10$$/- (Rs. $$7$$ called up) for non-payment of first call $$@$$ Rs. $$2$$/- per share as per Board Resolution No________ dated_______)
(b)	Bank Account	Dr.	$$900$$
	Forfeited Shares Account	Dr.	$$600$$
	To Equity Share Capital Account			$$1,500$$
	(Being the re-issue of $$150$$ forfeited shares as fully paid up as per Board's resolution No_____ dated _______)
(c)	Forfeited Shares Account	Dr.	$$150$$
	To Capital Reserve Account			$$150$$
	(Being the profit on re-issue, transferred to capital reserve)

Working Note:
Balance in forfeited shares account on forfeiture of $$150$$ shares $$(150\times 5)$$          Rs. $$750$$
Less: Forfeiture of $$150$$ shares                                                                                 $$($$Rs. $$600)$$
Profit on re-issue of shares                                                                                        Rs. $$150$$

The Dividend Distribution Tax is a tax levied on dividends that a company pays to its shareholders out of its profits.

When shares are allotted to an applicant, he and the company enter into a contract automatically. Then such an applicant is bound to pay the allotment money and all the various call monies till the shares are fully paid up. But if the shareholder fails to pay any of the calls (one or more) on the authorization of the board of directors, the said shares can be forfeited. Forfeiture essentially means cancellation.

Journal Entries in the books of X Ltd.

Date			Dr. Rs.	Cr. Rs.
(a)	Equity Share Capital A/c Dr.		3,0003,000
	To Equity Share Allotment money A/c (300×(300× Rs.3)3)			900900
	To Equity Share Final Call A/c(300×(300× Rs. 4)4)			12,0012,00
	To Forfeited Shares A/c(300×(300×Rs. 3)3)			900900
	(Being the forfeiture of 300300 equity shares of Rs. 1010 each for non-payment of allotment money and final call, held by Ramesh as per Board's resolution No _______ dated ______)
(b)	Bank Account(300×8) Dr.(300×8)		2,4002,400
	Forfeited Shares Account (300×2) Dr.(300×2)		600600
	To Equity Share Capital Account			3,0003,000
	(Being the re-issue of 300300 forfeited shares @@ Rs. 88 each as fully paid up to Suresh as per Board's resolution No _____ dated_______)
(c)	Forfeited Shares Account Dr.		300300
	To Capital Reserve Account			300300
	(Being the profit on re-issue, transferred to capital reserve)

Preference shares: these are the shares that promise the holder a fixed dividend, whose payment takes priority over that of ordinary share dividends. 
In short, the preference shareholders have a preferential claim over dividend and repayment of capital as compared to equity shareholders.

The authorised capital of a company (sometimes referred to as the authorized share capital, registered capital or nominal capital, particularly in the United States) is the maximum amount of share capital that the company is authorized by its constitutional documents to issue (allocate) to shareholders. Part of the authorized capital can (and frequently does) remain unissued. The authorized capital can be changed with share holders approval. The part of the authorized capital which has been issued to shareholders is referred to as the issued capital of the company.

Return of allotment is a statement submitted to the registrar of companies. The company has to file a return of allotment with the registrar stating the names, addresses, and the number of shares allotted to each shareholder. Return of allotment, signed by a director or secretary, is filed with the Registrar of Companies within 30 days of the allotment of shares. Return of allotment confirms that the company has received the minimum subscription.

Preference shares are those shares which get preference over equity shares in respect to:-

1. The payment of dividend.
2. The repayment of investment amount during winding up.

There are several merits of issuing equity shares to raise long-term capital. These are :

1. Permanent Capital: Equity shareholders provide the permanent funds of a company. There is no fixed commitment to return the money or that a predetermined rate of dividend will be paid.
2. No Charge on Fixed Assets: A firm is not obliged to mortgage its assets in order to issue equity shares. The assets remain free for borrowing loans.
   
3. High Credit Standing: The amount of equity share in the capital structure determines the creditworthiness of a company. Creditworthiness is improved when an organization has more equity share capital.
   
4. Huge Funds: By issue of equity shares a company can raise a huge amount of funds because the denomination of equity share is very small. People from all income groups can invest in equity share capital. So a company can mobilize huge funds from investors belonging to different income groups.
   

W. No. $$1$$ :  First Call Money Received

Unsubscribe capital stands for share issued but not subscribed by people.

Difference between Shares & Debentures :-

1. A shareholder or member is joint owner of the company; but a debenture-holder is only a creditor of the company.

2. A shareholder has a voting right whereas a debenture-holder has no such right at the meeting of the company. Section 117 of the companies act prohibits the issue of debentures carrying any kind of voting rights at general meeting of the company.

3. Interest on debentures is payable whether there are profits or not. But dividend on shares is to be paid only when the company has earned profits. Interest on debentures may be paid out of capital but dividend on shares can never be paid out of capital.

4. Debentures are generally secured and carry a charge on the assets of the company whereas shares have no such charge. The debenture-holder, being a secured creditor of the company, is paid-off prior to a shareholder in the event of winding up of a company.

5. A company can repay the debentures in accordance with the terms of issue but save in the case of redeemable preference shares, the share capital cannot be repaid without legal formalities.

Journal is a book prepared by company to record every transaction that hass taken place.