Notes And Questions NCERT Class 12 Accountancy Chapter 1 Accounting for Share Capital

Please refer to Accounting for Share Capital Class 12 Accountancy notes and questions with solutions below. These revision notes and important examination questions have been prepared based on the latest Accountancy books for Class 12. You can go through the questions and solutions below which will help you to get better marks in your examinations.

Class 12 Accountancy Accounting for Share Capital Notes and Questions

Meaning and definition of company

Share capital AccountingMeaning of company: A company is an organization formed by an association of persons through a process of law for undertaking (usually) a business venture.

Definition –“Company means a company incorporated under this Act or any previous company – Section 2(20) of the Companies Act, 2013 Share Capital – Schedule III of the Companies Act, 2013 classified Share Capital as:
i. Authorized Share Capital is the maximum amount up to which a company can issue shares.
ii. Issued share capital is a part of authorized share capital that is issued by a company for sub-scription.
iii. Subscribed share capital is a part of issued share capital that is subscribed. Subscribed share capital is shown as
a. Subscribed and fully paid – up
b. Subscribed but not fully paid – up
iv. Called–up amount is the amount of nominal value of shares that has been called up for pay-ment. v. Paid–up amount is the amount that is received by the company.
v. Reserve capital is a part of subscribed share capital that a company resolves, by a special resolution, not to call except in the event and for the purpose of company being wound up.
vi. PREFERENCE SHARES – These are the shares that carry preferential right as to dividend at fixed rate and preferential right as to repayment of capital.
vii. EQUITY SHARES – These shares are the shares that are not preference shares. Shares can be issued (i) for cash and (ii) for consideration other than cash. Further, the shares can be issued (i) at par, or (ii) at premium
viii. OVER SUBSCRIPTION OF SHARES – It means shares applied for are more than the shares offered for subscription.

UNDER SUBSCRIPTION OF SHARES –It means shares applied for are less than the shares offered for subscription.
PRO RATA ALLOTMENT – It means allotment of shares in a fixed proportion.
Pro rata allotment takes place only when the shares are oversubscribed.

SECURITIES PREMIUM RESERVE – It can be utilized for the purpose prescribed in section 52(2) of the Companies Act, 2013, which are:
i. writing off preliminary expenses;
ii. Writing off expenses such as share such as share issue expenses, commission, discount al-lowed on issue of securities

iii. Providing for the premium payable on redemption of debentures or Preference Shares;
iv. In buying-back its own shares.
v. Issuing fully paid bonus shares;

CALL – It is a demand by a company from the holders of partly paid shares to pay a further instalment towards full nominal value.
CALLS-IN-ARREARS- It is the amount not yet received by the company against the call or calls demanded.
CALLS-IN –ADVANCE- It is the amount received by the company from its allotters against the calls not yet made. Calls- In- Advance is shown as ‘Other Current Liability’ under ‘Current Liabilities’.

FORFEITURE OF SHARES- It means cancellation of shares and forfeiting the amount received against these shares. Forfeiture of shares takes place when a shareholder fails to pay the calls made.
Securities premium-How dealt when shares are forfeited
In case where Securities Premium Reserve Account has been credited and also it has been received- Securi-ties Premium Reserve Account is not debited because of the restrictions imposed by Section52(2) of the Companies Act,2013 . In case Securities Premium Reserve Account has been credited but the amount has not been received –Securities Premium Reserve Account is debited because the amount has not been received and therefore Section 52(2) of the Companies Act, 2013 does not apply.

REISSUE OF FORFEITED SHARES-
Forfeited Shares can be reissued and they might have been reissued at par at premium or at a discount. But the discount on reissue of a share cannot be more than the forfeited amount of that share credited to Forfeited Share account at the time of forfeiture.
Regarding Reissue of Forfeited Shares, always keep in mind that:
1. Discount on reissue cannot exceed the forfeited amount.
2. If the discount on reissue is less than the amount forfeited, the surplus (i.e., gain on reissue of shares) is transferred to Capital Reserve.
3. When only a part of the forfeited share is reissued then the gain on reissue of such share is transferred to Capital Reserve.
4. The forfeited amount on shares not yet reissued is shown in the Balance Sheet as an addition to the paid-up share capital.
5. When the shares are reissued at discount, such discount is debited to Forfeited Shares Account. 6. If the shares are reissued at a price which is more than the nominal (face) value of the shares, the excess amount is credited to Securities Premium Reserve Account.
6. In case of the Forfeited Shares are reissued at a price higher than the paid- up value, the excess of issue price over paid up value is credited to ‘Securities Premium Reserve Account’.

PRIVATE PLACEMENT OF SHARES-
It refers to issue and allotment of shares to a selected group of persons. In other words, an issue, which is not a public issue but offered to a selected group of persons, is called Private Placement Of Shares.

EMPLOYEES STOCK OPTION PLAN (ESOP) –
It is the plan for granting options to subscribe shares by employees and employee directors. A company may issue stock (shares) options fulfilling the following conditions:
a) These shares are of the same class of shares already issued;
b) It is authorized by a special resolution passed by the company;
c) The resolution specifies the number of shares, the current market price, consideration, if any, and the class or classes of directors or employees to whom such equity shares are to be issued;
d) Not less than one year has, at the date of issue, elapsed since the date on which the company had commenced business and
e) These shares are issued in accordance with SEBI regulations, if the shares are listed
Journal Entries Regarding Issue of Shares Capital

1. ISSUE OF SHARES FORCASH
1) Shares Payable in Lump Sum:
For Receiving Share Application Money:
Banka/c….….Dr.
To Share Application and Allotment a/c
(Being the application money received)
For Allotment of Shares:
Share Application and Allotment a/c…….Dr
To Share Capital a/c [With Nominal (face) Value]
To Securities Premium Reserves a/c [With Premium Amt]
(Being the shares against share application and allotment money received)

Accounting Entries in Case of Over subscription

1. For Application Money Received
Bank A/c ……Dr
To Share Application A/c
Application Money For Allotted Shares
Share Application A/c ……Dr
To Share Capital A/c

2 Excess Application Money
Refund
To Share Application A/c ……Dr
To Bank A/C

Adjustment :
Share Application A/c ……Dr
To Share Allotment A/c
To Calls – in- Advances A/c

Combined Entry:
Share Application A/c ……Dr
To share Capital A/c
To Bank A/c
To Share Allotment A/c
To Calls-in–Advance A/c

SHARE ISSUED FOR CONSIDERATION OTHER THAN CASH

The journal entries passed are:
I. (a) On Purchase of Assets
Sundry Assets A/cs (Individually) …Dr [With the amount of purchase price]
To Vendor’s A/cs [With purchase consideration]
(b) On Purchase of Business
Sundry Assets A/cs …Dr [Agreed value of assets]
Goodwill A/c* ….Dr
To Sundry Liabilities A/c [Agreed value of liabilities]
To Vendor’s A/c ** [With purchase consideration]
To Capital Reserve A/c***

Note: Purchasing consideration is an amount paid by purchasing company in consideration for purchase of assets/business from other enterprise. It may be given in the question otherwise it will be equal to net assets, i.e, sundry assets minus sundry liabilities.

– If purchase consideration given is more than net assets, then the difference is debited in Goodwill Account.

– Vendor is credited by purchase consideration payable to him.

– If purchase consideration given is less than the net assets, then the difference is credited to Capital Reserve. Either Goodwill or Capital Reserve will appear at a time.

II. On Issues of Shares
If shares are issued to vendor at par:
Vendor’sA/c ….Dr [With the nominal value of share allotted]
To share Capital A/c
(b) If share are issued to vendor at a premium:
Vendor’s A/c ….Dr [With the purchase price]
To share Capital A/c [With the nominal value of share allotted]
To Securities Premium Reserve A/c [With the amount of premium]

FORFEITURE OF SHARES –
Forfeiture of shares issued at par:
The entry for forfeiture of shares is:
Shares capital a/c (called up value) Dr.
To Share forfeited A/c
To share allotment a/c
To share call a/c

Forfeiture of shares which were originally issued at premium:
i. securities premium amount has been received; and
ii. Securities Premium amount has not been received.
Accounting Entries for Forfeiture of Shares Issued at a Premium:

i) If premium has been received:
Share Capital a/c Dr
To Share Allotment a/c
To Share Call/calls a/c
To Share forfeited A/c

ii) If premium has not been received:
Share Capital a/c Dr.
Securities Premium Reserve a/c Dr.
To Share Allotment a/c
To Share call / calls a/c
To Share forfeited A/c

REISSUE OF FORFEITED SHARES

In case, they are reissued at par, accounting entry is:
Bank a/c Dr
To Share Capital
In case, they are reissued at discount,
Accounting entry is:
Banka/c Dr.
Share forfeited A/c Dr
To Share Capital a/c

If the forfeited shares are reissued at a price higher than that of paid-up value, the excess of reissues price over paid-up value is credited to Securities Premium Reserve a/c.
Following entry is passed:
Banka/c Dr.
To Share capital a/c
To Securities Premium Reserve a/c

NOTE: Maximum Permissible Discount on Reissue of Forfeited Shares:
Maximum Permissible Discount on Reissue of Forfeited Shares is the amount forfeited, i.e., the amount credited to the forfeited shares.

VERY SHORT ANSWER-QUESTIONS

Question. Name the head of Capital Clause of Memorandum of Association of a company in which maximum amount of share capital mentioned is called .
(a) Reserve Capital
(b) Subscribed Capital
(c) Authorised Capital
(d) Issued Capital

Question. A shareholder allotted to whom 9,000 shares of ₹ 10 per share failed to pay first & final of ₹ 2 per share. ₹ 18,000 to be recorded in the books of company with
(a) Dr. to Calls-in Arrears A/c
(b) Dr. to Share Forfeiture
(c) Cr. to Calls-in Arrears A/c
(d) Cr. to Share Forfeiture A/c

Question. Arrange the following in proper sequence as types of “Share Capital”
a) Paid up capital
b)Issued capital
c) Subscribed capital
d)Authorised capital
(a) a) ,c) , d) , b)
(b) d), c) , b), a)
(c) d), b), c),a)

Question. Shobha Limited was formed with share capital of Rs. 50,00,000 divided into 50,000 shares of Rs.100 each. 8,000 shares were issued to the vendor as fully paid for purchase consideration of a Machinery acquired. 30,000 shares were allotted in payment of cash on which Rs.70 per share was called and paid. State the amount of subscribed capital:
(a) Rs. 50,00,000
(b) Rs. 30,50,000
(c) Rs. 29,00,000
(d) Rs. 20,00,000

Question. Star Ltd forfeited 1,000 shares of Rs.10 each (which were issued at par )of Jeevan, a share holder of the company, for non payment of allotment money of Rs.4 per share. The called up value per share was Rs.7. On forfeiture, the amount debited to share capital:
(a) Rs.3,000
(b) Rs.7,000
(c) Rs.4,000
(d) Rs.10,000

Question. The allowed amount of discount on re-issue of shares will be
(a) 10% of issue price
(b) Up to the amount of forfeited money
(c) Could not issue at discount
(d) None of these

Question. Once, forfeited shares reissued, balance of share forfeiture money will be transferred to:
(a) General Reserve
(b) Capital Reserve
(c) Reserve Capital
(d) Securities Premium Reserve

Question. 12,000 shares of ₹ 100 each forfeited due to non-payment of allotment of ₹ 40 per share and first & final call of ₹ 30 per share. Out of the forfeited shares, 9,000 shares were reissued at ₹ 80 per share fully paid. Which of the following amount of share forfeiture account will be transferred to Capital Reserve Account?
(a) 90,000
(b) 1,80,000
(c) 3,60,000
(d) 2,70,000

CASE STUDY BASED QUESTIONS

Read the following statement carefully and give the answer for the questions: Shine Firework Ltd is authorised to issue shares 5,00,000 of ₹ 100 each. Company raised the capital by issue of 2,00,000 shares through e-IPO. As per the decision of Managing Board of Directors of company, company issued 75,000 shares to their parent company and 40,000 shares issued to existing employees of company as per their choice and option at the below price than the market price.

Question. “Company issued 75,000 shares to their parent company” is an example of .
(a) Public Issue
(b) Private Placement
(c) ESOP
(d) Issue other than cash

Question. “40,000 shares issued to existing employees of company as per their choice and option at the below price than the market price.” Is an example of
(a) Public Issue
(b) Private Placement
(c) ESOP
(d) Issue other than cash

Read the following statement carefully and give the answer for the questions:

X Ltd issued 2,00,000 shares of ₹ 100 each. Amount to be paid on Application ₹ 30 per share; on allotment ₹ 40 per share and on first & final call ₹ 30 per share. All money was duly subscribed and paid towards the nominal value of shares except on 9,000 shares who failed to pay allotment and calls money. These shares were forfeited. 5,000 shares were re-issued at ₹ 80 per share fully paid.

Question. Which amount of the following will be shown into the Balance Sheet of the company under the sub-head “Share Capital”?
(a) ₹ 1,96,00,000
(b) ₹ 1,97,20,000
(c) ₹ 2,00,00,000
(d) ₹ 1,97,70,000

Question. Which of the following amount will be, balance in Share Forfeiture Account?
(a) ₹ 4,00,000
(b) ₹ 1,50,000
(c) ₹ 1,20,000
(d) ₹ 50,000

Question. Given below are two statements, one labelled as Assertion the other labelled as Reason (R):

Assertion(A): Preferential allotment means allotment of shares at a pre determined price to the identified people who are interested in taking shares in the company.
Reason(R): Employee Stock Option Plan is a category of sweat Equity In the context of the above two statements, which of the following is correct?
(A) Both (A) and (R) are correct and (R) is the correct reason of (A)
(B) Both (A) and (R) are correct but (R) is not the correct reason of (A).
(C) Only (R) is correct.
(D) Both (A) and (R) are wrong.

Question. Given below are two statements, one labelled as Assertion the other labelled as Reason (R):
Assertion (A): The forfeited shares may be reissued by the company at par, at premium or at discount.
Reason(R): Reissue of forfeited shares is not an issue of shares but is selling the shares that were issued earlier and were cancelled by the company. In the context of the above two statements, which of the follow-ing is correct?
(A) Both (A) and (R) are correct and (R) is the correct reason of (A).
(B) Both (A) and (R) are correct but (R) is not the correct reason of (A).
(C) Only (R) is correct.
(D) Both (A) and (R) are wrong.

Question. Given below are two statements, one labelled as Assertion (A) and the other labelled as Reason (R) 
Assertion (A) The part of un-called capital, to be called only in the liquidation of a company is called Reserve Capital.
Reason (R) :It can be used for writing off capital losses.
In the context of the above two statements, which of the following is correct?
(A) is correct, but (R) is wrong.
(B) Both (A) and (R) are correct.
(C) (A) is wrong, but (R) is correct.
(D) Both (A) and (R) are wrong

SHORT ANSWER-QUESTIONS

Question. Rajesh Ltd purchased land costing Rs.9,50,00000/- from YLtd Rs.50,00,000 were paid through bank and the balance by issuing equity shares of rs.100 each at a premium of 50% . Pass the necessary journal entries for making payment through bank and by issue of equity shares.
Answer.No of shares issued = 90000000/150=600000

Question. What do you mean by minimum subscription?
Answer. Minimum subscription is the minimum amount to be received by the subscription of shares within the prescribed period. If the minimum subscription is not received within the prescribed period, the application money received will be returned to the applicants within 15 days of clo-sure of the issue. Minimum subscription is 90% of the issued capital.

Question.Distinguish between reserve capital and capital reserve.
Answer.

Question. Guru limited invited applications for 500000 equity shares of Rs.10/- each at a premium of Rs.5/- per share. Because of favourable market conditions, the issue was over subscribed. Suggest the alter-natives available to the Board of Directors for the allotment of shares.
Answer.A. First alternative. Rejection of excess application
B. Second alternative. Pro rata allotment
c. Third alternative . Rejection and Pro rata allotment.

Question. What is meant by Private Placement of share?
Answer.It means allotment of shares to a select group of persons privately and not to public in general through public issue.

Question. State any three purposes other than issue of bonus shares for which securities premium can be utilised.
Answer.
a. To write off preliminary expenses
b. to purchase its own shares
c. To write off discount or loss on issue of shares/debentures
d. To pay premium payable on the redemption of redeemable preference shares or deben-tures.

Question. Read the information given below and give the answer for the questions 15 to 18: Exe Ltd issued 50,000 shares of ₹ 100 per share for public subscriptions at 20% premium. Amount payable as under: On Application : ₹ 40 per share (including 10% premium) On Allotment : ₹ 40 per share (excluding 10% pre-mium) On First & Final Call : ₹ Balance Application received for 75,000 shares. Allotment was made to 60,000 share applicants. All due money was duly received except from a shareholder (Amal) allotted to whom 12,000 shares, failed to pay allotment and calls. These shares were forfeited.
a.Write the amount of excess application money adjusted on allotment?
b. What the amount received on allotment?
c. How much amount did not receive on allotment?
d. What the amount forfeited on 12,000 shares?
Answer.
(a) 4,00,000
(b) ₹ 15,96,000
(c) ₹ 5,04,000
(d) ₹ 4,56,000

Question. A company issued 40,000 preference shares of ₹ 100 per share at par payable as under: On Appli-cation : 20% On Allotment : 40% On First & Final Call : balance Applications were received for 50,000 shares. Allotment was made on pro-rata basis. How much amount will be received in cash on allotment?
Answer.Rs.14,00,000

Question. Love India Ltd is registered with an authorised capital of 10,00,000 divided into 1,00,000 equity shares of 10 each. The company issued 50,000 equity shares at a premium of Rs.5 per share. Rs.2/ per share payable with application, Rs.8/-per share ( including premium) on allotment and the balance amount on first and final call. The issue was fully subscribed and all the amount due was received except the first and final call money on 500 shares allotted Balaram. Present the Share capital in the Balance Sheet of Love India Ltd as per Schedule III, part I of the Companies Act,2013. Also prepare Note to Accounts for the same.
Answer.

Question. What is meant by Preferential Allotment of Shares?
Answer.Preferential Allotment of Shares is one that is made at a predetermined price to the identi-fied people, such as promoters, venture capitalists, financial institutions, buyers of company’s products or its suppliers, who wish to take a strategic stake in the company.

LONG ANSWER-QUESTIONS

Question. Bombay Limited invited applications for issuing 100000 Equity shares of Rs.10 each at a premium of Rs.10 per share. The amount was payable as follows:
On applicationRs.10 per share (including Rs.5premium)
On allotment the balance
The issue was over subscribed. A shareholder holding300 shares paid the full share money with application. Another shareholder holding 200 shares failed to pay the allotment money. His shares were forfeited. Later on, these shares were reissued for Rs.4000/- as fully paid. Pass necessary journal entries for the above transactions in the books of Bombay Ltd.
Answer.

Question. ABC Ltd forfeited 150 shares of Rs.10 each issued at a premium of Rs.5 per share, for non payment of allotment of Rs.8 per share including premium of Rs.5 per share), the first call of Rs.2 pershare and the final call of Rs.3 per share. Out of these,100 Equity shares were reissued at Rs.14/share.
Give journal entries to record forfeiture and re- issue.
Answer.

Question. Fill in the blank spaces in the journal entries given below.

Answer.

Question. A . X. Ltd forfeited 10 shares of 10 each, Rs.7 called up on which shareholders had paid application and allotment money of Rs.5 per share. Out of these 8 shares were reissued to Y for Rs.8 per share at Rs.8 paid up. Record the journal entries for forfeiture and re-issue of shares by opening calls-in arrears and calls in advance accounts.
B. L. Ltd forfeited Mr. M’s shares who had applied for 600 shares and was allotted 400 shares failed to pay allotment money of Rs.4 per share including premium of Rs.2 on which he had paid application money of Rs.2 only. Pass journal entries for forfeiture of shares by opening calls in arrears and calls in advance accounts.
Answer.

Question. DN Ltd issued 50000 shares of Rs.10 each payable as Rs.2 per share on application, Rs. 3 on allotment, and Rs.5 on first and final call. Applications were received for 70000 shares. It was decided that
a.to refuse allotment to the applicants for 10000 shares
b.to allot 20000 shares to Mohan who had applied for similar number and
c.to allot the remaining shares on pro rata basis
Mohan failed to pay the allotment and Sohan who belonged to category ‘c’ and was allotted 3000 shares paid the call money with allotment.
Calculate the amount received on allotment.
Answer.

Question. Mam Ltd issued 50000 shares of Rs.100 each payable as Rs.20 on application, Rs. 40 on allotment and Rs.20 each on two calls. Applications were received for 75000 shares. Applications of 25000 shares were sent letters of regret and application money was refunded.
Mohan, a holder of 1500 shares failed to pay allotment money which he paid along with the first call. Raman, a shareholder , holding 500 shares paid both the calls along with allotment. Kamal, a shareholder, holding 1000 shares did not pay first call and second and final call. His shares were forfeited. The forfeited share were reissued atRs.120 per share as fully paid up.
Pass necessary journal entries for the above transactions in the books of the compan . The company maintains calls in arrears account.
Answer.

Question. ABC Ltd is registered with an authorised capital of Rs. 80000000 divided into equity shares of Rs.12 each. Subscribed and fully paid up share capital of the company was Rs.40000000. For providing employ-ment to the local youth and for the development of rural area of Jammu and Kashmir state, the company decided to set up a food processing unit in Anantnag District. The company also decided to open skill development centres in Ladakh, Srinagar and Punch. To meet its new financial requirements, the company decided to Issue 100000 equity shares of Rs 10 each and 10000, 9% Debentures of Rs.100 each. Te deben-tures were redeemable after 5 years. The issue of equity shares and debentures was fully subscribed. A shareholder holding 1000 shares failed to pay the final call of Rs 2/share. Present the share capital in the Balance sheet of the company as per the provisions of schedule III of te Companies Act 2013..
Answer.

Question. XYZ Ltd purchased machinery of Rs.430000 from perfect machines Ltd and paid as follows.
a. Issued 10000 equity shares of Rs.10 each at a premium of Rs.3
b. Issued an acceptance of Rs.100000 payable after 3 months.
c. Balance by issuing post-dated cheque of two month of Rs.200000
Pass journal entries in the books of XYZ Ltd and Perfect Machines Ltd
Answer.

Question. Pooram Ltd forfeited 2000 shares of rs.10 each, fully called up, on which they have received only Rs.14000. 50 of the forfeited shares were reissued for Rs.9 per share fully paid up.
Pass journal entries for forfeiture and re-issue of shares. Also prepare share forfeited a/c.
Answer.

Question. Sun star Ltd invited applications for issuing 200000 equity share of Rs.50 each. The amount was payable as follows.
On application Rs.15/share, on allotment Rs. 10 per share, on first and final call Rs.25/share. Applications for 300000 shares were received. Allotment to the applications were made as follows.

Excess money received with application was adjusted towards sums due on allotment and calls. Namita, a shareholder of category I , holding 3000 shares failed to pay the allotment money. Her shares were forfeited immediately after allotment. Manav , a shareholder of category II, who had applied for 1000 shares failed topay the first and final call. His shares were also forfeited. All the forfeited shares were reissued at Rs.60/share , fully paid up.
Pass necessary journal entries and prepare cash book for the above transactions
Answer.