Accounting for Share Capital

CBSE Class 12 Accountancy | 2026–27

1. Share Capital Vocabulary

Authorised: maximum capital stated in the company’s constitutional documents. Issued: portion offered for subscription. Subscribed: portion subscribed by applicants. Called-up: amount called by the company. Paid-up: amount actually paid/credited as paid.

2. Issue of Shares

The accounting cycle can involve application, allotment and calls. The journal entries must follow the actual amounts due at each stage.

Full Illustration

10,000 shares of ₹10 are issued at ₹2 premium. Application ₹3, allotment ₹5 including the ₹2 premium, final call ₹4. Total amount received per fully paid share = ₹12. Application = ₹30,000; allotment = ₹50,000; final call = ₹40,000. The premium component of ₹20,000 is credited to Securities Premium Account.

3. Oversubscription

If applications exceed the issue, applications may be rejected, money may be refunded, or shares may be allotted proportionately. Example: 12,000 applications for 10,000 shares gives an overall application ratio of 10:12 = 5:6 if all applicants participate proportionately.

4. Calls in Arrears

This is the amount called but unpaid. The treatment and interest, if any, depend on the terms and applicable rules. Keep arrears separate from calls received.

5. Calls in Advance

Money received before it is called is calls in advance. It is not treated as called-up share capital merely because cash has been received early.

6. Forfeiture

Forfeiture arises when a shareholder fails to pay amounts due and the company follows the required procedure. The forfeiture entry must identify the called-up amount, amount received and unpaid amount.

7. Reissue

Reissued forfeited shares may be issued at a discount subject to the prescribed limit. The profit relating to reissued shares is transferred to Capital Reserve after the relevant forfeiture adjustment.

🖼️ Share Capital Flow

Exam-Focused Questions

1. Pass complete journal entries for issue of shares at premium.
2. Solve an oversubscription and pro-rata allotment case.
3. Calculate calls in arrears.
4. Pass forfeiture and reissue entries and calculate Capital Reserve.
5. Prepare the relevant Share Capital disclosure.

MCQs

1. ₹10 face-value shares issued at ₹12 are issued at a ₹2 premium.
2. Calls in arrears are amounts called but not received.
3. Calls in advance are amounts received before they are called.
4. Excess application money may be adjusted against allotment when permitted. Correct.
5. Reissue discount cannot exceed the forfeited amount relating to the reissued shares. Correct.