This chapter explores the accounting principles related to share capital in companies, including share issuance, types of shares, and the treatment of unpaid calls.
Accounting for Share Capital - Quick Look Revision Guide
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This compact guide covers 20 must-know concepts from Accounting for Share Capital aligned with Class 12 preparation for Accountancy. Ideal for last-minute revision or daily review.
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Essential formulas, key terms, and important concepts for quick reference and revision.
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.
This chapter covers the accounting treatment of issuing and redeeming debentures, an important way for companies to raise long-term finance. Understanding this process is crucial for financial management.
Start chapterThis chapter covers the financial statements of a company, including their types, purposes, and importance for users.
Start chapterThis chapter focuses on the analysis of financial statements, crucial for understanding a company's financial health. It equips students with the skills to interpret key financial data for informed decision-making.
Start chapterThis chapter explores accounting ratios, crucial for analyzing financial statements. Understanding these ratios helps assess a company's performance, solvency, and efficiency, aiding decision-making.
Start chapterThis chapter covers the Cash Flow Statement, a key financial document that reflects the movement of cash in a business over a specific period. Understanding this statement is crucial for assessing the liquidity and financial health of a company.
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