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Accounting for Share Capital is a chapter in the CBSE Class 12 Accountancy syllabus from Accountancy Part - II. Use this page to access study resources for Accounting for Share Capital.

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Accounting for Share Capital

NCERT Class 12 Accountancy Chapter 1: Accounting for Share Capital (Pages 1–74)

Class 12 CBSE hubAccountancy chaptersAccountancy Part - II

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Summary of Accounting for Share Capital

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Accounting for Share Capital at a Glance

Board

CBSE

Class

Class 12

Subject

Accountancy

Book

Accountancy Part - II

Chapter

1

Pages

1–74

Accounting for Share Capital Summary

In the chapter on Accounting for Share Capital, students learn about the fundamental aspects of share capital in companies, which includes understanding what a company is, its characteristics, and the necessity of share capital raised through shares. The discussion includes the classification of share capital into authorized, issued, subscribed, paid-up, and uncalled capital. Further, the types of shares, such as equity and preference shares, are examined, along with their specific rights and obligations. The chapter elaborates on the process of issuing shares and the accounting treatments related to shares issued at par, at a premium, and at a discount. The concepts of calls in arrears and calls in advance are also discussed, explaining how they affect shareholder obligations and company accounting. Students will gain insights into the handling of over-subscription and under-subscription, including how application money is managed. The chapter highlights the critical procedures for forfeiting shares due to non-payment by shareholders and the subsequent reissue of those shares, emphasizing the related journal entries and the treatment of profits in relation to share forfeiture and reissue. By the end of this chapter, students will be able to account for these transactions accurately, thereby understanding the financial implications for companies regarding their share capital and shareholder equity.

Accounting for Share Capital Frequently Asked Questions

Explore the essential aspects of share capital accounting in this comprehensive chapter covering types of shares, their features, and key legal considerations. Ideal for Class 12 students and parents seeking clarity on accounting concepts.

A company is a form of organization where capital is contributed by multiple individuals, known as shareholders. It operates as an artificial person under the law, governed by the Companies Act, 2013, distinguishing it from other business structures.
Key features include being a body corporate, having a separate legal entity from its members, limited liability, perpetual succession, transferability of shares, and the ability to sue or be sued in its own name.
Companies can be classified as limited by shares, limited by guarantee, or unlimited companies, where liability varies based on the extent of unpaid share amounts or guarantees provided by members.
Authorized capital represents the maximum amount of share capital a company is allowed to issue as specified in its Memorandum of Association. It can be adjusted under the Companies Act provisions.
Issued capital is the portion of authorized capital offered to the public, while subscribed capital is that portion of issued capital that investors have committed to purchase. It may not always be equal due to oversubscription or other factors.
Called-up capital refers to that portion of subscribed capital that the company has requested its shareholders to pay. This can be the total nominal amount or a part of it, depending on the company's financial needs.
Paid-up capital is the amount that has actually been received from shareholders for shares issued to them. It reflects the true financial stake of investors in the company.
When shares are issued at a premium, the extra amount over the nominal value is recorded in a separate 'Securities Premium Reserve Account', which is subject to specific legal regulations on its usage.
Over-subscription occurs when applications for shares exceed the number publicly offered. Companies can manage this by either wholly accepting some applications, pro-rata allotment, or a combination of both.
Under-subscription happens when fewer applications are received than shares offered. Companies must ensure they meet minimum subscription thresholds, or they are obligated to refund the application money.
Calls in arrears are amounts due from shareholders on shares allotted to them that have not been paid by the due date. This reflects unpaid installments for either the allotment or subsequent calls.
Calls in advance refer to amounts received from shareholders for calls that have not yet been made. This is recorded as a liability in the company's accounts.
Shares may be forfeited if shareholders fail to pay allotment money or calls as per the company's Articles of Association. This reduces the capital owing to non-compliance.
Re-issuing forfeited shares involves selling them again to new or existing shareholders. Any discount on reissue cannot exceed what was originally paid on those shares when they were forfeited.
The primary regulatory framework for companies is the Companies Act, 2013, which sets forth guidelines for their formation, management, and dissolution, ensuring compliance with prescribed legal standards.
Under the Companies Act, shares can usually only be issued at a discount in specific situations, such as the reissue of forfeited shares or for sweat equity. Compliance with legal provisions is essential.
Preference shares are those that allow shareholders to receive dividends before equity shareholders and have preferential treatment in capital repayment during liquidation. They can be cumulative, non-cumulative, redeemable, or non-redeemable.
Dividends on equity shares are not fixed and may vary based on the company's profitability and decision made during annual general meetings. They are distributed after fulfilling dividend obligations to preference shareholders.
Companies must maintain accurate accounting records reflecting all share capital transactions, including applications, allotments, calls, forfeitures, and reissues to comply with legal and regulatory requirements.
Profits from reissued shares are transferred to a capital reserve account. This reflects the amount received over the original amount forfeited and serves as a buffer for shareholder equity.
Directors are responsible for decision-making regarding share capital, including issuance, management, and adhering to legal requirements. They ensure that the company's financial health is maintained through proper capital structuring.
Perpetual succession means that a company continues to exist independently of the changes in its membership. The lifecycle of the company is not affected by the death or withdrawal of its shareholders.
A common seal is an official mark that signifies the authenticity of documents and contracts executed by the company. It provides legal validity and represents the company's identity.

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