CBSE Class 12 Accountancy – Chapter 6: Accounting for Share Capital
NCERT/CBSE-aligned study resource
1. Meaning of Share Capital
Share capital is the amount raised by a company by issuing shares. Equity shares represent ownership interest, while preference shares carry preferential rights regarding dividend and repayment of capital.
2. Types of Share Capital
| Type | Meaning |
|---|---|
| Authorised | Maximum capital a company is authorised to issue |
| Issued | Part of authorised capital offered for subscription |
| Subscribed | Part of issued capital subscribed by applicants |
| Called-up | Amount demanded from shareholders |
| Paid-up | Amount actually received or treated as received |
3. Issue of Shares
Shares may be issued at par or at a premium subject to applicable company law. Amounts may be collected through application, allotment and calls.
Cash received at each stage is recorded through appropriate bank and share-account entries.
4. Oversubscription and Pro-rata Allotment
When applications exceed shares offered, the company may reject some applications, make pro-rata allotment or use a combination. Excess application money may be adjusted against allotment or refunded according to the terms of issue.
5. Calls in Arrears and Calls in Advance
Calls in arrears represent called money not received by the due date. Calls in advance are amounts received before they are formally called and are treated according to the applicable accounting and legal requirements.
6. Forfeiture of Shares
Shares may be forfeited when a shareholder fails to pay amounts due and the company’s articles permit forfeiture. The accounting entry removes the relevant called-up capital and adjusts unpaid amounts and securities premium where applicable.
7. Reissue of Forfeited Shares
Forfeited shares may be reissued at a discount subject to the amount previously forfeited on those shares and applicable rules. Any remaining balance in Share Forfeiture Account relating to reissued shares is transferred to Capital Reserve.
Worked Illustration
A company issues 10,000 equity shares of ₹10 each. If ₹3 is payable on application, ₹4 on allotment and ₹3 on final call, total share capital per share is ₹10 and the full issue amount is ₹1,00,000.
Chapter-Specific MCQs
- Paid-up capital represents: (A) amount actually paid or credited as paid (B) only authorised capital (C) only issued capital (D) reserve capital only. Answer: A.
- Excess application money may be: (A) refunded or adjusted as permitted (B) ignored (C) treated as sales (D) always written off. Answer: A.
- Profit on reissue of forfeited shares is transferred to: (A) Capital Reserve (B) Sales Account (C) General Expenses (D) Share Application Account. Answer: A.
Practice Set
- Record journal entries for issue of shares at par through application, allotment and calls.
- Prepare entries for oversubscription with pro-rata allotment and adjustment of excess application money.
- Calculate the maximum permissible discount on reissue of forfeited shares and pass the entries.