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Recapulitation: Collaborating Technique

This document provides an overview of accounting for share capital in companies. It discusses types of shares a company can issue, such as equity and preference shares. Shares can be issued for cash at par value, premium or discount. The document outlines journal entries for share issues with lump sum payment or installment payments. Premium received must be credited to a securities premium reserve which can only be used for specific purposes according to the Companies Act 2013. The document concludes with sample accounting questions related to share issues.

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70 views

Recapulitation: Collaborating Technique

This document provides an overview of accounting for share capital in companies. It discusses types of shares a company can issue, such as equity and preference shares. Shares can be issued for cash at par value, premium or discount. The document outlines journal entries for share issues with lump sum payment or installment payments. Premium received must be credited to a securities premium reserve which can only be used for specific purposes according to the Companies Act 2013. The document concludes with sample accounting questions related to share issues.

Uploaded by

ayesha
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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SUBECT: ACCOUNTANCY

CLASS: XII(SESSION 2020-21)


UNIT 3 – ACCOUNTING FOR COMPANIES
Ch.- 8 Accounting for Share Capital
Handout -1

Collaborating Technique
 Explanatory
 Group discussion

Recapulitation
 Meaning and Characteristics of a Company
 Kinds of Companies – Public, Private and OPC
 Kind and Classes of Shares – Equity Shares and Preference Shares
 Types of Preference Shares – Cumulative / Non Cumulative; Participating / Non
Participating; Convertible / Non Convertible and Redeemable / Irredeemable

A company raises its capital by issue of shares. A Public Company can issue shares only after it has met the
prescribed legal compliances. A company may issue shares either:-
 For cash and / or
 For consideration other than cash

ISSUE OF SHARES FOR CASH


A company may issue shares:-
 At Par (i.e. at the nominal or face value) (Issue Price = Face Value)
 At Premium (i.e. above the nominal or face value) (Issue Price > Face Value)

Note:- However a company cannot issue shares at discount (i.e. below the nominal or face value). Section 53 of
Indian Companies Act 2013 does not allow Issue of Shares at discount. However, Section 54 allows issue of
shares at discount, when they are issued as Sweat Equity Shares.

Company can call the issue price either:-


 In Lump sum along with the application
 In installments at different stages ( either partly on application and balance on allotment or partly on
application, partly on allotment and balance in one or more calls)

Company can face three situations after issuing shares


 Normal subscription:- when public applied for the same number of shares than what the company had
offered. (No. of shares subscribed by public = No. of shares issued by company)

 Under subscription:- when public applied for the less number of shares than what the company had
offered. (No. of shares subscribed by public < No. of shares issued by company)

 Over subscription:- when public applied for the more number of shares than what the company had
offered. (No. of shares subscribed by public > No. of shares issued by company)
When Issue price is payable in Lump sum (Normal Subscription)
 Issue at par
 Issue at premium

Q.1 A Ltd. issued 2,00,000 Equity Shares of Rs. 10 each fully payable on application at par. All the shares
are duly subscribed and allotted. Pass necessary journal entries in the books of the company.

Q.2 B Ltd. issued 50,000 Equity Shares of Rs. 10 each fully payable on application at 50% premium. All
the shares are duly subscribed and allotted. Pass necessary journal entries in the books of the company.

As per Section 52(1) of the Companies Act 2013, the amount of premium received on securities has to be
credited to Securities Premium Reserve Account.

Premium received being a capital receipt is to be shown under the main head ‘Shareholders’ Funds’ under the
sub head ‘Reserves & Surplus’.

Section 52(2) of the Companies Act 2013 restricts the use of the amount of Security Premium received for the
following purposes only:-

1) Issuing fully paid bonus shares to the members.


2) Writing off preliminary expenses of the company.
3) Writing off the expenses of, or the commission paid on issue of securities and discount allowed or loss
on issue of debentures of the company.
4) Writing off the premium payable on the redemption of any redeemable Preference Shares or Debentures.
5) In purchasing its own shares (buy back of equity).

When Issue price is payable in Installments at different stages (Normal Subscription)


 Issue at par
 Issue at premium

Q.3 C Ltd. issued 75,000 Equity Shares of Rs. 10 each, at par, payable Rs. 5 on application; Rs, 3 on
Allotment and balance on call. All the shares are duly subscribed and allotted. All the money due was duly
received. Pass necessary journal entries in the books of the company.

Q.4 D Ltd. issued 60,000 Equity Shares of Rs. 10 each, at 20% premium, payable Rs. 5 on application; Rs, 5
on Allotment and balance in two equal calls. All the shares are duly subscribed and allotted. All the
money due was duly received. Pass necessary journal entries in the books of the company.

Q.5 E Ltd. issued 40,000 Equity Shares of Rs. 10 each, at Rs. 25, payable Rs. 10 on application( including Rs
5 as premium); Rs, 10 on Allotment (including Rs. 8 as premium) and balance on call. All the shares are
duly subscribed and allotted. All the money due was duly received. Pass necessary journal entries in the
books of the company.

Note:- Premium on shares may be collected by a company either with application and / or with the allotment
and / or with one or more calls as per the terms of issue.
But in the question is silent, it is assumed that the Security Premium is collected along with the
Allotment.
Facts as per Companies Act 2013 related with Application and calls:-

 According to Section 39(2), minimum application money should be 5% of the nominal value of share or
as prescribed by SEBI
However SEBI prescribes that the application money should not be less than 25% of the issue price.
 Calls are made as per the provisions of Article of Association.
But in case company doesn’t have its own AOA, clauses of ‘Table F’ of the Companies Act, 2013 will
be implemented which are as follows:-
 A period of one month must exist between two calls.
 Amount of one call should not be more than 25% of the nominal value of the share.
 Notice of atleast 14 days period prior should be given to the shareholders to pay the amount.
 Calls should be made on uniform basis on all the shares of the same class.

Notebook Work:-
Do Q. Nos. 6, 7, 9, 10 and 13

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