Accounting for Share Capital is a chapter in the CBSE Class 12 Accountancy syllabus from Accountancy Part - II. This chapter hub brings together revision notes, practice questions, worksheets, flashcards, formula sheet to help students learn, practice, and revise Accounting for Share Capital effectively.

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Accounting for Share Capital

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

Class 12 CBSE hub Accountancy chapters Accountancy 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

Pages

1–74

Resources

7 study resources

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 Revision Guide

Download the Accounting for Share Capital revision guide with key points, summaries, and quick revision notes for CBSE Class 12 Accountancy.

Key Points

Company is an artificial legal person.

A company is recognized as a separate legal entity independent of its shareholders.

Key features: Limited liability.

Shareholders are only liable for unpaid share amounts, protecting personal assets.

Authorized Capital defined.

The maximum capital a company can issue, as stated in its Memorandum of Association.

Issued vs. Subscribed Capital.

Issued is what a company offers; subscribed is what investors commit to buy.

Call on shares.

A call is a request for payment on shares issued, affecting cash flow for the company.

Application, Allotment, Call stages.

Shares can be paid in stages: application, allotment, and calls to manage funding.

Over-subscription scenarios.

Occurs when applications exceed share offerings; can resolve via pro-rata allotment or rejection.

Handling under-subscription.

If less than the offered amount subscribes, the issue is only confirmed to amount subscribed.

Premium on shares.

Shares can be issued above par value, with excess recorded in Securities Premium Account.

Forfeiture of shares.

Shares can be forfeited for unpaid calls; amounts previously paid are transferred to Share Forfeiture Account.

Reissue of forfeited shares.

Forfeited shares may be reissued, and any profit transfers to the Capital Reserve.

Calls in arrears.

Unpaid amounts on shares that are due from shareholders; can incur interest charges.

Calls in advance.

Payments made ahead of scheduled calls are recorded as a liability until called up.

Accounting treatment for shares.

Each stage of share capital requires specific journal entries to ensure accurate records.

Legal requirements for issuing shares.

Companies must adhere to legal provisions for issuing shares, including filing necessary documents.

Rights attached to preference shares.

Preference shareholders may have fixed dividends and priority on asset repayment during liquidation.

Accounting for issued shares.

Share capital transactions should reflect amounts received from applications and calls.

Minimum subscription concept.

A minimum amount must be received to validate the share issue; usually, 90% of offered shares.

Discount on shares.

Generally not permitted, except for specific conditions such as forfeited shares being reissued.

Sections of Companies Act, 2013.

Governs the regulations concerning share issuance, shareholder rights, and corporate structure.

Accounting for Share Capital Practice Questions & Answers

Practice important questions and exam-style problems from Accounting for Share Capital. These questions cover key topics from the CBSE Class 12 Accountancy syllabus.

How to practice: Start with the questions below to test your understanding of Accounting for Share Capital. Use the revision guide to review concepts you find difficult, then come back and retry the questions for better retention.

What are the features of a company according to the chapter Accounting for Share Capital?

Single Answer MCQ

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Explain the different kinds of companies mentioned in the chapter.

Single Answer MCQ

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What is a key characteristic of a company that distinguishes it from other forms of business?

Single Answer MCQ

Q-00082381

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Which of the following is true about the liability of shareholders in a company limited by shares?

Single Answer MCQ

Q-00082383

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What does 'perpetual succession' imply for a company?

Single Answer MCQ

Q-00082385

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Which of the following is typically required for a company to operate legally?

Single Answer MCQ

Q-00082387

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What role does a common seal play in a company's operations?

Single Answer MCQ

Q-00082389

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Which of the following signifies the transferability of shares in a public limited company?

Single Answer MCQ

Q-00082390

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View all 103 Accounting for Share Capital questions

How does a company qualify as a body corporate?

What is required of shareholders regarding their liability if a company faces dissolution?

What does it mean for a company to have a 'separate legal entity'?

Which feature of a company allows it to maintain continuity through membership changes?

What term describes the condition in which shareholders of a company are not personally liable for the company's debts?

Which type of company has share premium and discount in its share capital?

What governs a company's operational framework and structure?

In what way does a company maintenance its entity even when directors are changed?

Which is a significant advantage of being a company in terms of risk?

What type of company limits the liability of its members based on the shares they hold?

Which type of company can have only one member?

In which type of company does the liability of members arise only when the company is wound up?

What characteristic distinguishes a Public Company from a Private Company?

Which type of company is not available under Indian Company Law?

A company with at least 2 members and a limited number of shareholders, usually not exceeding 200, is classified as a?

What is the meaning of 'issue of shares at a premium'?

What is the primary legal document that governs a Private Company's operations?

Which account is credited with the amount received as a premium on shares issued?

Which type of liability do members of a Company Limited by Shares enjoy?

In a situation of under subscription, what happens to the shares that were not applied for?

Which of the following is characteristic of a Public Company?

What is a common reason for a company to issue shares at a discount?

If a company's liabilities exceed its assets and it is unable to pay creditors, what type of company would leave personal assets exposed?

How is the number of shares to be issued for consideration other than cash calculated?

What type of company must restrict its members to a certain number, generally a maximum of 200?

When can shares be issued at a discount by a company?

How does a One Person Company differ fundamentally from a Private Company?

What happens in the event that a company provides shares with calls in arrears?

Which type of company is required to have a common seal?

When it comes to share transferability, which company type has the most restrictions?

In a pro-rata allotment, how is excess application money generally treated?

Which of the following companies can transition easily to become a Public Company?

What is the term for shares issued without cash payment, often in exchange for assets?

What is the maximum number of members allowed in a One Person Company?

Which of the following statements about share forfeiture is incorrect?

When shares are issued at par, what does this mean?

In the context of shares, what does the term 'under subscription' mean?

What happens to the surplus money received due to oversubscription?

What document outlines the conditions for share issuance?

What is the primary characteristic of preference shares?

Which statement accurately describes equity shares?

Preference shares can be categorized into which of the following types?

What is a key difference between redeemable and irredeemable preference shares?

Which of the following reflects a right of equity shareholders?

Which type of shares typically has voting rights?

If a company's preference shares are cumulative, what does this imply?

How is the share capital of a company divided?

What distinguishes participating preference shares?

Which document specifies the rights and obligations related to shares?

What does authorized capital refer to?

What happens to preference shares during company liquidation?

How can shares be classified based on voting rights?

What is the implication of having differential rights attached to equity shares?

What defines a non-participating preference share?

What is the primary source of a company's share capital?

Which type of company requires a minimum of two members?

What is 'Calls in Arrears' in the context of share capital?

What does 'Issued Capital' refer to?

Which type of shares has a fixed rate of dividend?

If excess application money is received, how should it be treated?

What is the purpose of the 'Share Application Account'?

What is 'Calls in Advance'?

When can a company issue shares at a discount?

What is meant by 'over-subscription' in share allotment?

What is the accounting treatment for forfeiture of shares?

What is the significance of 'Minimum Subscription'?

Which company type allows a single individual as a member?

What are 'Preference Shares'?

What entry is made when shares are applied for and cash received?

What happens to the shares if the shareholder fails to pay the allotment money?

What happens to the application money if shares are not allotted?

When shares are reissued after forfeiture, which account reflects the profit derived?

Which account is credited when 'Calls in Advance' are received?

If 100 shares of Rs.10 each are forfeited for non-payment of Rs.3, what is the total amount transferred to the Capital Reserve if reissued at Rs.12?

What is the correct accounting treatment for forfeited shares?

In a case of share forfeiture, if the unpaid amount is Rs.50 and shares are reissued at Rs.70, what is the Capital Reserve impact?

When can a company issue shares at a discount?

What journal entry is required to record the forfeiture of shares?

How is the interest on 'Calls in Advance' accounted for?

If 500 shares at Rs.20 are forfeited and later reissued at Rs.25, what would be the Capital Reserve?

What is 'Minimum Subscription'?

Which of the following is NOT a typical reason for share forfeiture?

Which statement is true for 'Calls in Arrears'?

After forfeiting shares, if a company issues a new call for the unpaid shares, what happens?

What is the consequence of under-subscription?

If an investor has 400 shares with a face value of Rs.10 each and they fail to pay a call of Rs.2 and these shares are forfeited, what is the total amount in the Share Forfeiture Account after reissue?

If shares issued at a premium are forfeited, which account would NOT be debited?

Which of the following statements regarding share forfeiture is TRUE?

What is the impact on 'Equity and Liabilities' for 'Calls in Advance' on the balance sheet?

How is the balance in the Share Forfeiture Account treated upon reissue of forfeited shares?

When shares are reissued at a discount, which account is affected?

If a company wants to reissue forfeited shares at a different value than the original, what element must be calculated?

Amit purchased shares but failed to pay the final call. The company decided to forfeit his shares. What must they do before forfeiture?

What is the effect on shareholder equity when shares are forfeited?

If an investor owns shares that are forfeited, how does this affect their rights?

Single Answer MCQ

Q-00082485

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Accounting for Share Capital Practice Worksheets

Download and practice Accounting for Share Capital worksheets to improve problem-solving accuracy and speed for CBSE Class 12 Accountancy exams.

Accounting for Share Capital - Practice Worksheet

This worksheet covers essential long-answer questions to help you build confidence in Accounting for Share Capital from Accountancy Part - II for Class 12 (Accountancy).

Practice

Questions

Define 'share capital' and explain the different categories of share capital in a company. Provide examples and formulas where necessary.

Share capital refers to the funds raised by a company through the issuance of shares. It can be categorized into Authorized Capital, Issued Capital, Subscribed Capital, Called-up Capital, Paid-up Capital, Uncalled Capital, and Reserve Capital. For example, Authorized Capital is the maximum amount a company can issue, while Issued Capital is the part offered to shareholders. Formula: Subscribed Capital = Issued Capital - Unissued Capital.

What are preference shares? Discuss the different types of preference shares and their characteristics.

Preference shares are equity securities that provide dividends to shareholders before any dividends are paid to ordinary shareholders. Types include Cumulative, Non-Cumulative, Participating, Non-Participating, Redeemable, and Irredeemable Preference Shares. For instance, Cumulative Preference Shares accumulate unpaid dividends, while Redeemable Preference Shares can be bought back by the company.

Explain the accounting treatment involved in the issuance of shares at par, premium, and discount. Include relevant journal entries.

When shares are issued at par, the amount received equals the nominal value. At a premium, the excess amount is recorded in a Securities Premium account. Discounted shares require careful accounting, often treated as a capital loss. Journal entries include Bank A/c, Share Application A/c, Share Capital A/c, and Securities Premium A/c entries as appropriate.

Describe the process of forfeiture of shares and the subsequent reissue of shares. Include necessary journal entries.

Forfeiture involves canceling shares due to non-payment of dues. The amount received is transferred to the Share Forfeiture account. When reissued, any profit is transferred to Capital Reserve. Journal entries involve debiting Share Capital and forfeiture amounts while crediting the Forfeiture account and Share Capital upon reissuance.

Illustrate the accounting treatment for 'Calls in Arrears'. What instructions should a company follow if shares are not fully paid?

Calls in Arrears are amounts not paid by shareholders for calls on shares. Companies may charge interest on these amounts if mentioned in their Articles. In records, debit Calls in Arrears A/c when payments are not made. If shares are fully paid later, appropriate entries transfer funds back to the relevant Call accounts.

What is 'Over Subscription' in share issuance? Explain the accounting implications and procedures that accompany over subscription.

Over Subscription occurs when applications exceed the number of shares issued. Companies may fully accept some applications, reject others, or adopt a pro-rata approach. Implications include returns of application money and adjustments for excess payments against allotment. Journal entries will reflect these adjustments appropriately.

Discuss equity shares and their rights compared to preference shares. Why would investors choose equity shares over preference shares?

Equity shares represent ownership and grant voting rights, while preference shares offer fixed dividends but generally lack voting rights. Investors may prefer equity shares for potential higher returns and voting power in business decisions. Equities often reflect a company's growth potential.

How are dividends declared by a company distributed among equity and preference shareholders? What are the accounting entries related to dividend payment?

Dividends are typically declared from profits and paid first to preference shareholders before ordinary shareholders. Accounting entries include debiting the Dividend Distribution Account and crediting the respective Shareholder’s Equity Accounts when dividends are distributed.

What are the consequences of a company not meeting its Minimum Subscription requirement? Discuss the related accounting treatment.

Failure to meet Minimum Subscription (90% of the issued amount) leads to the cancellation of the share issue, requiring the return of all application money. Accounting involves reversing entries linked to applications and debiting the relevant Bank accounts to refund applicants.

Explain the concept of 'Buy-back of Shares'. What are the conditions under which a company may buy back its shares?

Buy-back refers to a company purchasing its own shares from shareholders which can only be done if authorized by shareholders via a special resolution. Conditions include compliance with legal limits, maintaining a debt-equity ratio, and using reserve funds. Journals for this transaction would involve debiting Shares Buy-Back Account and Credit Bank/Cash.

Accounting for Share Capital - Mastery Worksheet

This worksheet challenges you with deeper, multi-concept long-answer questions from Accounting for Share Capital to prepare for higher-weightage questions in Class 12.

Mastery

Questions

Explain the complete process of issuing shares, from application to at least the first call, highlighting any common challenges and their solutions.

The process includes issuing a prospectus, receiving applications, allotting shares, and calling for payments. Challenges include oversubscription, which can be addressed through pro-rata allotment.

Discuss the different types of shares that can be issued by a company and compare their features, rights, and risks.

Companies can issue equity shares and preference shares, each with unique entitlements, voting rights, and dividend claims. Preference shares provide fixed dividends and priority in liquidation, while equity shareholders profit from growth.

Analyze the accounting treatment for shares that are forfeited due to non-payment of calls and illustrate how they are reissued.

Forfeited shares' amounts are transferred to a share forfeiture account. When reissued, the forfeiture account is debited and any profit on reissue is credited to capital reserve.

Evaluate the implications of issuing shares at a discount and the conditions under which this is allowed as per the Companies Act, 2013.

Issuing shares at a discount is strictly regulated and is generally prohibited except for specific cases like reissuing forfeited shares. If permitted, the discount amount is treated as a capital loss.

Define calls in advance and calls in arrears. Discuss the accounting treatment for each and the impact on a company's financials.

Calls in advance are amounts received before a call is due, influencing liquidity positively; calls in arrears are unpaid amounts due from shareholders which can affect cash flows negatively.

Explore the nature and purpose of the securities premium account and explain how it can be utilized based on the Companies Act.

The securities premium account is created from excess amounts over the face value of shares. It can only be used for specific purposes, including issuing bonus shares or writing off preliminary expenses.

Assess the challenges faced during the over-subscription process of share issues and propose ways to manage it effectively.

Over-subscription can lead to rejection of applications. Solutions include pro-rata allotments to equally distribute shares and clear communication on refund processes.

Discuss the conditions and accounting implications of forfeiting shares issued at par, premium, and discount, using practical examples.

Forfeiture involves reversing the original entries except for premium amounts received. Case studies exemplifying each type enhance understanding of proper accounts treatment.

Illustrate the journal entries required for a company that reissues forfeited shares and the resultant impact on capital reserves.

Journal entries show debit to bank and share forfeiture account with credit to share capital. Capital reserves increase by profits on reissued shares.

Provide a detailed explanation of the procedures for issuing shares under private placement as per the Companies Act, along with their advantages and disadvantages.

Private placement allows quick capital infusion with less stringent regulations. However, it may limit investor reach and poses transparency risks.

Accounting for Share Capital - Challenge Worksheet

The final worksheet presents challenging long-answer questions that test your depth of understanding and exam-readiness for Accounting for Share Capital in Class 12.

Challenge

Questions

Discuss the impact of over-subscription on share allotment processes and how companies manage excess applications.

Analyze the alternatives for allotting shares in cases of over-subscription, supported by examples from notable companies.

Evaluate the legal implications of share forfeiture, including potential risks to shareholder trust and company compliance with the Companies Act.

Discuss both the rights of the company and the shareholders in cases of forfeiture, highlighting case studies.

Examine the accounting treatment for shares issued at a discount compared to those issued at a premium.

Provide a detailed breakdown of the journal entries required for each scenario, and their impact on financial statements.

Analyze the role of securities premium reserves in share capital management and their limitations under the Companies Act.

Discuss various uses for the securities premium and potential scenarios when companies might face restrictions.

Critically assess how self-regulatory changes in laws regarding share captial might impact small companies versus large corporations.

Evaluate the effects of such laws on capital raising strategies and operational flexibility for different company sizes.

Propose strategic recommendations for a company facing chronic issues with calls in arrears, examining both financial and reputational factors.

Formulate a multi-step plan that includes communication strategies, financial adjustments, and potential shareholder engagement initiatives.

Interpret the significance of minimum subscription requirements and how they serve as a safeguard against financial instability.

Analyze the regulatory intent behind these requirements and their practical applications in current market situations.

Hypothesize the future of share capital structures in evolving markets, referencing contemporary trends such as digital shares and blockchain.

Explore potential shifts in investor behavior and capital acquisition through innovative technologies.

Discuss how forfeiture of shares impacts both the company's financial statements and shareholder relationships.

Evaluate the immediate and long-term effects of share forfeiture on financial health and stakeholder trust.

Devise a comprehensive strategy for reissuing forfeited shares, addressing potential obstacles and market perceptions.

Detail a step-by-step approach that considers pricing, communication, and legal compliance.

Accounting for Share Capital Formula Sheet

Use this Class 12 Accountancy Accounting for Share Capital Formula Sheet for quick revision before school exams and CBSE exams. It brings together the important formulas, key concepts, and worked examples in one place so students can revise faster and download a printable PDF for offline study.

Important Formulas

Authorised Capital = Nominal Capital

Represents the maximum amount of share capital a company is authorized to issue as specified in the Memorandum of Association.

Issued Capital = Subscribed Capital + Unissued Capital

Issued capital refers to the part of the authorized capital that is actually issued to shareholders.

Subscribed Capital = Issued Capital - Unsubscribed Capital

Subscribed capital is the portion of issued capital that has been subscribed or agreed by shareholders.

Paid-up Capital = Called-up Capital - Calls in Arrears

Paid-up capital is the actual amount received from shareholders against the shares that have been called for payment.

Calls in Arrears = Amount Due - Amount Paid

Calls in arrears indicate the amount that has not been paid by shareholders against the calls made by the company.

Share Forfeiture = Share Capital Account - Allotment (or Calls)

Forfeiture involves canceling a shareholder's shares due to non-payment of calls. The amount forfeited is reversed in the Share Capital Account.

Securities Premium = Total Premium on Shares Issued

Securities premium is the amount received over and above the nominal value of shares. It is credited to the Securities Premium Account.

Calls in Advance = Total Amount Received Prior to Calls Being Made

Calls in advance represent payments received from shareholders ahead of their actual due dates.

Final Call = Face Value - Previous Calls

The final call on shares reflects the last amount that must be paid by shareholders to make their shares fully paid.

Reserve Capital = Uncalled Capital in Liquidation

Reserve capital consists of the portion of uncalled capital that is reserved to be called only upon the company’s winding up.

Worked Examples

Total Capital = Issued Shares × Face Value + Premium

Calculates total capital raised through shares, considering both the face value and any premium.

Total Amount Received = Application + Allotment + Calls

This equation sums up the total amounts received from shareholders through various stages of payment.

Forfeiture of Shares = Previous Amounts Received - Final Call

Determines the total amount forfeited based on amounts previously received against the total call amount due.

Reissue Price = Amount Received on Reissue - Original Forfeited Amount

Used to determine profit or loss on reissuing forfeited shares, reflecting the difference between the reissue price and the original amounts.

Funds from Forfeited Shares = Calls in Arrears - Calls Made

Calculates the net funds available from shares that have been forfeited after removing amounts that were not received.

Interest on Calls in Arrears = Outstanding Amount × Interest Rate × Time

Used to calculate the interest payable on calls that remain unpaid for a specific duration.

Profit on Forfeited Shares = Total Amount Received on Reissue - Amount Forfeited

Calculates the profit that can be transferred to capital reserve based on gains from reissuing forfeited shares.

Total Amount Returned = Rejected Applications × Application Money

Useful for calculating the total amounts to be refunded to applicants for shares that were not allotted.

Net Cash Flow from Shares = Total Cash Inflows - Total Cash Outflows

This evaluates the overall cash flow impact resulting from share issuance activities, including inflows and returns of applications.

Balance in Share Forfeiture Account = Total Forfeited - Total Reissued

Maintains a record of the remaining balance from shares forfeited until they are fully reissued.

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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.

QWhat is a company?

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.

QWhat are the key features of a company?

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.

QWhat types of companies exist based on the liability of their members?

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.

QWhat is authorized capital?

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.

QWhat is the difference between issued capital and subscribed capital?

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.

QWhat does called-up capital entail?

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.

QWhat is paid-up capital?

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.

QHow are shares issued at a premium handled in accounting?

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.

QWhat is over-subscription in share issuance?

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.

QWhat implications arise from under-subscription?

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.

QWhat are calls in arrears?

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.

QWhat are calls in advance?

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.

QWhat are the circumstances under which shares can be forfeited?

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.

QWhat happens during the re-issue of forfeited shares?

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.

QWhat is the legal framework governing companies in India?

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.

QWhat conditions allow a company to issue shares at a discount?

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.

QWhat is a preference share?

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.

QHow are dividends on equity shares determined?

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.

QWhat records must companies maintain for share capital transactions?

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.

QHow are profits from the reissue of shares managed?

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.

QWhat role do company directors play in share capital management?

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.

QWhat is meant by perpetual succession?

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.

QWhat is the significance of a company’s common seal?

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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Accounting for Share Capital Formula Sheet

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Accounting for Share Capital Flashcards

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These flash cards cover important concepts from Accounting for Share Capital in Accountancy Part - II for Class 12 (Accountancy).

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What is a Company?

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A company is a legal entity formed by a group of individuals, known as shareholders, contributing capital for a common objective, governed by the Companies Act.

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Define Share Capital.

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Share capital is the total amount raised by a company through the issuance of shares to shareholders.

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What does 'Separate Legal Entity' mean?

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A company exists independently from its shareholders, allowing it to own assets, enter contracts, and be liable in its name.

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What is Limited Liability?

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Limited liability means that a shareholder's financial responsibility is limited to their unpaid shares in the company.

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Explain Perpetual Succession.

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Perpetual succession means a company's existence continues irrespective of changes in ownership or the death of members.

6/20

What is the Common Seal used for?

6/20

A common seal is the official signature of a company used to validate documents; it must be affixed to contracts.

7/20

How is share transferability defined?

7/20

In a public limited company, shares are transferable without restriction, unless stated otherwise in the Articles of Association.

8/20

What is meant by 'Body Corporate'?

8/20

A body corporate is an organization created under the law, like a company, which can own property and sue or be sued.

9/20

What is the main use of the Articles of Association?

9/20

The Articles of Association outline the rules for a company's operations, including share transfer procedures and governance.

10/20

Difference between Equity Shares and Preference Shares?

10/20

Equity shares provide ownership and voting rights; preference shares have fixed dividends but generally no voting rights.

11/20

What does 'May Sue or be Sued' imply?

11/20

It implies that a company can initiate legal action or defend itself in court as an entity independent of its shareholders.

12/20

What are Debentures?

12/20

Debentures are long-term securities issued by a company to borrow funds, promising to pay interest and repay principal on a fixed date.

13/20

Define Issued Capital.

13/20

Issued capital is the portion of authorized capital that has been issued to shareholders and is either paid or unpaid.

14/20

What is Authorised Capital?

14/20

Authorised capital is the maximum amount of capital that a company is allowed to raise through the issuance of shares.

15/20

What is the significance of the Companies Act, 2013?

15/20

The Companies Act, 2013 governs company formation, management, and regulations to ensure transparency and protect stakeholders.

16/20

What is a Prospectus?

16/20

A prospectus is a formal document issued by a company inviting the public to subscribe to its shares, detailing its business and financial information.

17/20

Common mistake: Not recording unpaid calls.

17/20

Failing to record unpaid calls can misrepresent the company's financial position and affect shareholder liability.

18/20

What is a Capital Reserve?

18/20

A capital reserve is a reserve created from profits that can only be used for specific purposes, like issuing bonus shares.

19/20

What happens during Liquidation?

19/20

During liquidation, a company's assets are sold, and the proceeds are used to pay off debts, after which any remaining funds are distributed to shareholders.

20/20

Define Subscribed Capital.

20/20

Subscribed capital is the portion of issued capital that shareholders have agreed to take up and is a crucial measure of shareholder commitment.

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