2020 EDITION Textbook may CBSE Class XII Jess GREWAL S Nia nile [ + BOOK KEEPING» ACCOUNTING FOR COMPANIES Includes * Case-based/Source-based Integrated Questions Tscanl & Objective Type/Multiple ME Choice Questions (MCQs) U'=lcoves “ Scanner AT an ertyympany Accounts— ccounting for Share Capital hestudyotthis Chapter would enable you to understand: s mearingand characteristics (Features) of a Company piference between Partnership and Company (Joint Stock Company) Kinds of Companies piffeence Among One Person Company, Private Company and Public Company incorporation of a Company Meaning of Share Capital Kinds or Classes of Shares 5 Difference between Preference Shai s and Equity Shares SG) Accounting Treatment of Issue of Shares for Cash at Par and at Premiur Oversubscription of Shares Undersubscription of Shares Accounting Treatment of Calls-in-Arrears and Accounting Treatment of Shares Issued for C Procedure and Accounting Treatment of Forfeiture and Reissue of Shares Concept of Preferential Allotment Concept of Private Placement of Shares ‘Concept of Employees Stock Option Plan (ESOP) nsideration Other than Cash Meaning and Defini A company (or ssociation of persons formed and r tinder a (©F @ joint stock company) is an association of F formed Companies Act. It is created and effected by the process of law. It is a leg not having physical existence. It is a separate legal entity, ke, an artifical person separate ca peembere Ghareholders). It normally has a share capital divided into units called ete owners 0 pers or shareholders. It being separate from its Shara g meI8 Of which are known as members or sharehol ing sep ies bidet, insolvency or death of a member does not affect the continuity of the company “Cop, SmPANY continues even if a member(s) becomes insolvent or dies fi f : mPery means a company incorporated under this Act or any previous Company Lace Section 2(20) of the Companies Act, 2013 jandcTPANY is an artificial person, created by law hnving separate entity with a perpetual succession | "common seal.” —Prof. Haney is (Features) of a Company oration: A company is an artificial person created by _ Companies Act either under the present Companies i Companies Acts. ins Separate Legal Entity: A company is an artificial from its shareholders. Artificial Person: In the eyes of law it is an artificial person. It can own p into contract, conduct business, sue or be sued for its debts and actions, Perpetual Existence: A company has a perpetual succession, i, its exi affected by the death, lunacy or bankruptcy of its members or shareholders of a company comes to an end, only by winding up through the process off Limited Liability: Liability of its members is limited to the value of shares by them or amount guaranteed to be paid at the time of winding up in ff companies limited by guarantee. However, in case of companies incorporate unlimited liabilities, liability of members is unlimited. 7 (vi) Transferability of Shares: Shares of a company are freely transferable, except it i private companies. Transfer of shares of private companies is regulated by its of Association. Management and Ownership: A company is not managed by all the members but elected representatives called Directors. Thus, management and ownership are: Common Seal: A company may or may not have a common seal. If it has a seal, it is affixed to all the important documents of the company. ‘ person having ak (iv) Ww) (viii) Basis Partnership “1. Mode of Formation | Itisset up by an agreement among the partners. | Itisset up by regstrationunder Registration is not compulsory under the Indian | Act, 2013 or under any pf | Partnership Act, 1932. Acts. | The indian Partnership Act, 1932 applies. “The Companies Act,2013 applies ‘Minimum numberof partnersis2and maximum | In the case of public co 50 as per Section 464 of the Companies Act, | numberof membersis 7 witho | 2013and Rule 10 of Companies (Miscellaneous) | limit. A private company mu | Rules, 2014, | 2 members but not mor its present or‘Apartner cannot trans son without the consent of other partners, ‘A partnership can carry on any business, if all | A company can carry on the partners agree, which is permitted by an i its Memorandum of As ‘Apartnership may be wound upbyan ag ‘orbyanorder ofthecourt.Incase the iris unable | out the process prescribed in the topayits debts, the Insolvency Act will apply. | Act,2 fi Itis affected by death, retirement or insolvency | Shareholder’s death insolvency ortra | ofpartners. donot affect the continuity ofthe company. pt in casgcompanies are of following three kinds: by its Artig (@ OnePerson Company; (ii) Private Company; and ss but by thy (ii) Public Company. are Separaltone Person Con aS a comm, ‘section 2(62) of the Companies Act, 2013 defines One Person Company as ‘One Person Company means a company which has only one person as member’. Rule 3 of the Companies (Incorporation) Rules, 2014 further prescribes that: Company) (3) Only a natural person being an Indian Citizen and resident in India can form One Person: StheComps_ company or can be a nominee for the sole member of One Person Company. fous compa(®) One person can form only one ‘One Person Company’ or become nominee of only one such company. (6) Itcannot be formed for charitable purposes. (@) Itcannot carry out Non-Banking Financial Investment activities including investments in TE. eeutities of any body corporate. 4:0) Its Paid-up Share Capital is not more than € 50 lakh. {9 Weaverage annual turnover of three years should not exceed € 2 crore, J Person Company should have at least 1 director but not more than 15 directors. mpany is one which has a minimum paid-up share capital as may its Articles of Association: : ght to transfer its shares, if any. e of one person company, limits the number of paelo vedic eribarniiig0Uk :mpany paid-up capital as may be prescribed"; and e Company, being a subsidiary of a company which is nota [Section 2(71) of the number of members. _ Apublic limited company should have at least 3 directors but not more than 15 ‘The name of a Public Company ends with the word ‘Limited’. A public company can raise its capital by issue of shares to public for subscription, A company, private or public, may be: (i) Limited Liability Company, (i) Unlimited Liability Company, and (iii) Company Limited by Guarantee. Limited Liability Company or Company Limited by Shares A company having the liability of its members limited by the memorandum to the any, unpaid on shares respectively held by them is termed as a company limited by: [Section 2(22) of the Companies Unlimited Liability Company Itis a company where the liability of its members is unlimited. 4 [Section 2(92) of the Companies Thus, in the event of winding up of unlimited liability company, debts of the be met from private property of the members. Company Limited by Guarantee Itisa company having the liability of its members limited by the memorandum tosueh as the members may respectively undertake to contribute to the assets of the comp event of it being wound up. [Section 2(21) of the Companies 4 Difference Among 0; and Public Compal One Person Company 1. Number of | inimum and maximum Minimum number of members| Minimum nun umber of members (share- is 2 and the maximum 200, ex- is 7 holders) is 1 (one), t8 - Company Acc Prospectus need not be issued. | the Regi Shares cannot be offered to| Shares cannot be offered to) Shares can be offered to pu public. public. : pedal Articles of Assocation |Special Articles of Assocation) Table F given inthe Companies | are necessary. |are necessary. ‘Act, 2013 may be adopted. Alternatively, it can have its | | own Articles, of Association | | having clauses different from he may those given in Table F of the Companies Act, 2013, which will override Table F. directoy | an 6 Number of FRmust have atleast 1 Director |Tt must have at least 2 Director It must have at east 3 Directors Directors: but not more than 15. but not more than 15. but not more than 15. 7 7. Allotment of Not Applicable. Shares may be allotted as the Shares can be allotted only Shares Directors decide. if Minimum Subscription has been received. & PublieDeposits [It cannot invite and accept|It cannot invite ‘and accept Itcan invite and accept deposits deposits from public. deposits from public. from public. The word ‘Limited’ is used as 9, Name ‘The word ‘OPC’ is used as part The words Private Limited’ are of the name. usedaspartofthename. _| partof the name. re amott_ a { by shai ies Act ™ de whe process for incorporating a company can be divided into four principal stages: . Promotion; 14 ‘ zB “a - Incorporation or Registration of a Company; man“. Capital Subscription; and Commencement of Business, - Promotion ‘is thes ; settee of the company’s incorporation. A person or a group of persons agree to start form of a company. These persons are called Promoters. ration or Registration of a Company getting the name of the proy posed company approved from pleroapenduy of Association, Articles of Association, cor3s to obiain ‘Commencement of Business’ certificate wie ‘A company has to submit a declaration to the effect that \dum of Association has paid the value of the shares agreed bliccompany issties a document called ‘Prospectus’ in which terms and condi "are stated along with the purpose for which the proceeds of the issue of se rit “Prospectus” means any document described or issued as a prospectus and ip herring prospectus or shelf prospectus or any notice, circular, advertisement op inviting offers from the public for the subscription or purchase of any corporate. [Section 2(70) of the ion is the amounts the prospectus that must be subscribed and the amount payable on application fort stated as minimum subscription have been paid to and received by the company b or other instrument. SEBI (Securities and Exchange Board of India), the regulatory authority for listed e0 prescribes that a company must receive minimum subscription of 90 per cent of thes for subscription before it allots the shares. Thus, in effect, unless 90% of the sum payable on application for shares issued to th for subscription is received by the company, shares cannot be allotted. In case, minimum subscription is not received within the specified period, appli shall be refunded within fifteen days from the closure of the issue. Pre Preliminary Expenses are the expenses incurred for incorporating the company, Tegistration fee, legal expenses, public issue expenses, etc. These expenses may be either from Securities Premium Reserve (permitted by Section 52(2) of the Companies: or from the Statement of Profit and Loss in the year they are incurred. SHARE CA AN ° Capital means the amount that a company receives towards Share s both Equity Shares and Preference Shares. ut in which capital of the company is divided. Each share has i are called Shareholders or Members of the comPreference Shares [Section 43(b) of the Companies Act, 2013] § ference Shares are the shares which carry the following two preferential rights: Right to receive dividend, to be paid as fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income tax, before it is paid to Equity Shareholders, and. ) Right to receive repayment of capital on the winding up of the company before that of equity shares. pes or Classes of Preference Shares ‘ference Shares can be broadly classified as follows: With Reference to Dividend; With Reference to Participation in Surplus Profit; } With Reference to Convertibility; and | With Reference to Redemption. \ith Reference to Dividend }umulative Preference Shares and Non-Cumulative Preference Shares. Cumulative Preference Shares bumulative Preference Shares carry the right to receive arrears of dividend before dividend 5 paid to the Equity Shareholders. For example, a company has 10,000; 7% Preference Shares |< 100 each and dividend for the years ended 31st March, 2018 and 2019 has not been paid. jhe company shall pay & 2,10,000 as dividend for three years ended 31st March, 2020 to the reference Shareholders before dividend is paid to the Equity Shareholders, Yon-Cumulative Preference Shares Non-Cumulative Preference Shares do not carry the right to receive arrears of dividend. In the \bove example, Preference Shareholders shalll be entitled to receive dividend only for the year inded 31st March, 2020, i.e., ¥ 70,000 before dividend is paid to Equity Shareholders. With Reference to Participation in Surplus Profit “arficpating Preference Shares and Non-Participating Preference Shares. °articipating Preference Shares The Ailes of Association of a company may provide that after dividend has been paid f0 peBauity Shareholders, holders of Preference Shares will also have a right to persceaiaal he remaining profit, The Preference Shares carrying this right are called Participat tence Shares. rofit res which do not carry the right to participate in the p) s have been paid dividend are Non-Participating Preferencepe ra carry a right to be converted into f : Preference Shares do not carry a right to be converted into ta to Redemption ; erence Shares and Irredeemable Preference Shares, Preference Shares ble Preference Shares are redeemed by the com exceeding 20 years from the date of issue) for their re amount is termed as Redemption. "_Irvedeemable Preference Shares Inredeemable Preference Shares are those the amount of which ca to the holders of such shares when the company is wound up. pany at the time s payment or earlier. The in be returned by the « The Companies Act, 2013 does not permit issue of Irredeemable Preference Shares. 2. Equity Shares [S Equity Shares are those shares which are not Preference Shares. Stating differently, shares enjoy preferential right of receiving dividend or repayment of capital are equity shares. Equity are the most commonly issued class of shares and carry the maximum ‘risks and re business: the risks being losing part or all of the value of shares if the business incurs the rewards being payment of higher dividends and appreciation in the market value. Difference betwee q Basis Preference Shares 1. Right to Dividend Dividend is Paid on Preference Shares if itis paid Dividend a fs. on Equity Shares. Shares if 2 Rate ofDividend | Rate of Dividend is fixed. 43, Arrears of Dividend Shares,arrear of dividend is paid before dividend | dend is not declared dur _Ispaid on Equity Shares. | accumulated to be paid int Preference Shares may be converted to Equity | Equity Shares are not Shares ifthe terms of issue so provide. Hon __|_ Preference Shares are redeemed on the due date, ‘company may bu nly fee heChapter 8 Company Accounts—Accounting ation of Share Capital (from Accounting Point of View) ‘ofa company is prepared in the form prescribed in Part “Act, 2013. It requires a Company to show T of Schedule IIT of the ) Issued ‘ gi) Sul ibed Capital each class of Share Capital. ‘Authorised or Nominal or Registered Capital Truthorised Capital’ or ‘Nominal Capital’ or ‘Registered Capital” __ jg authorised by the Memorandum of a company to be the maximum ‘ifkcapital of a company. —Section 2(8) of the Comp: q Z | uthorised Capital’ or ‘Nominal Capital’ or ‘Registered Capital! is stated in the Memorandum share capital. i Association and is the maximum amount that a company can raise as xr each class or kind of shares, i.e., Preference Shares and Equity Shares and is stated separately for t the maximum amount of share capital under each class or kind of shares which a company an issue for subscription. \uthorised Share Capital under each class or kind (Equity or Prefe ' the Issued Share Capital, but cannot be less than the Issued Capital. viqjp2pital of the company is divided into units of smaller denomination and is called a share which may be € 1 or ¥2 or €5 or @ 10 or in fact siygacshare has a nominal value or face value, yy amount. For example, a company registered with an authorised share capital of € 10,00,000 [emtey taveils Authorised Share Capital as follows: aaa means such capital as | amount of share Act, 2013 | sence) may be more or equal x 4e 75000 Equity Shares of € 10 each 7,50,000 2,500 Preference Shares of € 100 each 2,504,000 or say 150,000 Equity Shares of €5 each 7,50,000 5/000 Preference Shares of € 50 each 2,50,000 Issued Capital Capital” means such capital as the company issues from time to time for ion. _ Section 2(50) of the Companies Act, 2013 tal is a part of Authorised Capital that is issued for subscription. It includes besides for subscription, shares allotted for consideration other than cash, shares subscribed to the Memorandum of Association and shares taken by directors as quali d be kept in mind that Issued Capital cannot exceed the company’s Aua - = | which the company has des shares issued for subscription a lemorandum of Association, s y allotted for consideration 9 th std. issued 2,00,000 Equity Shares of € 10 each as follower lares are subscribed by signatories to the Memorandum of A y Shares have been issued for consideration other than cash, Shares were issued for sub: scription against which it received appli 30,000 Equity Shares, d Capital and Subscribed Capital of Nokia Ltd. will be: Issued Capital: 2,00,000 Equity Shares of € 10 éach, ic, & 20,00,000. Subscribed Capital: 1,90,000 Equity Shares of & 10 each, ie, Z 19,00,000. Subscribed Capital is classified or shown under the following two heads: (@) Subscribed and fully paid-up; and (b) Subscribed but not fully paid-up. ) @) Subscribed and fully paid-up Shares are classified, i.e., shown as on Share Capital when: G@) the company has called-uj (i) has also received it. For example, Mist Ltd. has issued 1,00,000 Equity Shares of 10 each. It has calles’! ” £10 per share and has received the amount called, ie, 710 per share. It means the shiNotet are subscribed and fully paid-up. F Share Capital is shown in the Note to Accounts on Share Capital under Subscribed Cq as ‘Subscribed and Fully Paid-up’ as follows: Subscribed and fully paic 1,00,000 Equity Shares of € 10 each Example 1. Following example (with imaginary amounts) shows how Note to Accounts on Share is prepared when the company has received full nominal (face) value of the shares Note to Accounts : Particulars : ‘Subscribed and fully paid-up’ in the Note to Acq ip the total nominal (face) value of the share, and % 10,00,000 Share Capital Authorised Capital 100,000 Equity Shares of € 10 each 10,000 Preference Shares of€ 100 each {Issued Capital 90/000 Equity Shares of € 10 each 10,000, Preference Shares of € 100 eachoma ‘Subscribed but not fully paid-up’ in the mpany has not called-up the total nominal (face) value of the share. ‘the above two situations in detail, When the Company has called-up the total nominal (face) value of the share but has not received it “When the company has called-up the total nominal (face) value of share but has not received the amount on all the shares. The shares on which the total nominal (face) value isnot received are classified, i.e., shown as ‘Subscribed but not fully paid-up’ as follows: ‘Subscribed but not fully paid-up: 15,000 Equity Shares of 10 each 1,50,000 Less: Calls-in-Arrears 30,000 %1,20,000 Example 2. Fifth Avenue Ltd. a company registered with authorised capital of 1,50,000 Equity Shares of £10 each issued 1,00,000 Equity Shares. It has called the total nominal (face) value of the share (Ge, 10) and received the amount except final call of 3 on 10,000 Equity Shares (known as {Calls-in-Arrears). Share capital of 10,000 Equity Shares will be classified, :e., shown as ‘Subscribed bout nt filly paid-up’. Share Capital will be shown in the Note to Accounts as follows: Year Ended 31st March, 2020 ®) ty Shares of 10 each {00.00 rrears (10,000 x 3) _ oo ee 9,70,000 (i) When the Company has not called-up the total nominal (face) value of the share If the company has not called-up the total nominal (face) value of shares, shares are classified, i.e,, shown as ‘Subscribed but not fully paid-up’ as follows: ‘Subscribed but not fully paid-up: 1,50,000 Equity Shares of € 10 each; 8 called-up %12,00,000 d Ltd. a company registered with authorised capital of 2,00 00 Equity Shas of 150,000 Equity Shares on which itis yet to make a final call o! bah tbe classified, i,, shown as ‘Subscribed but not fully paid-up|but not Fully Paid-up 50 juity Shares of 10 each, 8 Called-up_ i Yetanother situation may arise, ie, if the company has not called-up the total nominal (face) the share and also the company has not received the amount called-up. It is shown asf Subscribed but not fully paid up: z 1,50,000 Equity Shares of t 10 each; 8 called-up Less: Calls-in-Arrears Total If the company has passed resolution for Reserve Capital, the shares are shown as ‘Subser not fully Paid-up’ because the company has not called the total nominal (face) value of the Issue ‘of Different : ‘Where the company has issued different classes or kinds of shares, detail of each class ofs is shown. For example, if a company has issued both Equity and Preference Shares, Aud Capital, Issued Capital and Subscribed Capital will be shown for both Equity and Pret Shares. It is illustrated below by taking imaginary data: Note to Accountsrespect of such shares, by | | whatever name called. ~ Section 2(64) of the Companies Act, 2013 Calls-in-Arrears GalisirAmears means the amount not received by the company, statenoKer(s) against the amount called towards share capital, Sha thecalls are in arrears are shown under 4e., not paid by res against which “Subscribed but not fully paid-up” at the amount feea¥ad by the company against those shares. For example, DBH International Ltd. tested 1190,000 Equity Shares of & 10 each. All calls were made and received except nalcall of € 2 per share on 10,000 Equity Shares. Itisshown in the Note to Accounts on Share Capital under Subscribed Capital as follows: Subscribed and fully paid-up: = 14,00,000 1,40,000 Equity Shares of = 10 each | Subscribed but not fully paid-up: 10,000 Equity Shares of € 10 each 1,00,000 tess: Calls-in-Arrears (10,000 x % 2) 20,000 Calls-in-Advance its Articles of Association permits, may receive de. The amount so received is called Calls-in:Subscribed Capital that a Il except in the event of win d but not Fully Paid-up’. company ding up of the company. Such. RESERVE CAPITAL AND CAPITAL RESERVE Capital is part of Share Capital that a company resolves not to call exe, ‘event of it being wound up. Capital Reserve is a re: Fotve, which is created out of capital Profits and is not distribution as dividend. ttisthat part of the uncalled ca becalled-up exceptin the 2. Creation pital which cannot Itis that part of ent of winding up, for distribution a the reserves wich is s dividend. Itis an uncalled capital. "isa reserve set aside out of capital SptionaMandatory itis not mandatory t have reserve capital 3 {tis appropriate to trar insfer capital Capital reserve, 4. Resolution Pecll resolution is required for reserve No resolution is required for captalve | Capital, 5. Writing off "cannot be used to write off capital losses, "tan be used to write off capital loses Cepital Losses 6. Disclosure | ltisot disclosed, 4e,shown in the companys Balance Sheet, It is disclosed, ie, shown im the Accounts on Shareholders’ Funds head Reserves and Surph Difference between Authorised or Nomin, ued Capital Authorised or Nominal Capital 'tis the amount stated in the Memorandum lation which a OMpany can raise as pita of the company.”Shee ril ey received against Share Warrants plication Money Pending Allotment Tax Liabilities (Net) (@_ other Long-term Liabilities {@) Long-term Provisions current Liabilities fa) Short-term Borrowings {o) Trade Payables {¢) Other Current Liabilities {@) Short-term Provisions a Total a Sh, ASSETS 4, Non-Current Assets (a) Fixed Assets: {) Tangible Assets {i Intangible Assets (ii) Capital Work-in-Progress 5 (i) Intangible Assets under Development ~ a {b) Non-Current Investments (@) Deferred Tax Assets (Net) a g {¢) Long-term Loans and Advances . x {¢) Other Non-Current Assets a 2. Current Assets @) Current Investments 3 _ 1) Inventories ss fs (9 Trade Receivables - - (8) Cash and Cash Equivalents Short-term Loans and Advances Other Current Assets | t ho 5 5 items of Balance Sheet are 2013 prescribes that details of in the Balance Sheet. ‘of the Companies Act, be put against the item fo Accounts and Note numberBALANCE SHEET OF (EXTRACT) ast 1. Share Capital ‘Authorised Capital Equity Shares of ® each Preference Shares of each {ssued Capital ~-Equity Shares of ®..each ~Preference Shares of ..each Subscribed Capital Subscribed and fully paid-up Equity Shares of each Preference Shares of each ‘Subscribed but not fully paid-up Equity Shares of ® each, ..called-up Less: Calls-n-Arrears Preference Shates of ® ..each,® ..called-up ess: Calls-in-Arrears ‘Add: Forfeited Shares Account ‘Amount to be shown in the Balance Sheet against Share Capital Miustre (When Subscribed Shares are Fully Paid-up) Strong Lid. is registered with capital of % 10,00,000 divided into 100,000 Equity 8 ® P 4 BWW each It issued 75,000 Equity Shares to public for subscription. It received applicatio ft y P F F PPM Equity Shares. The directors called & 10 per share which was received. P will be Share Capital shown in the Bal lution: lance Sheet of Strong Lta.? Strong Ltd. BALANCE SHEET (EXTRACT) as athen Shares are not Fully Called-up). PP cresof® recnth with an authorised capital of € 1,00,00,000 divided r 50 each. The company issued inviti i Pee pom phone 215, = 20, Balance amount. as fully subscribed and the company allotted shares to all thi i not make the call during the yee y aleted acta ~_(@ Share eee Balance Sheet of the company as per Schedule Ill, Part T of the (b) Aloprepare ‘Note to Accounts’ for the same (Delhi 2014, Modified) {solutions —__ BALANCE SHEET OF VIVEK LTD.(EXTRACT) as at. = NoteNo.| & 1 EQUITYAND LIABILITIES Sarebolder' Funds Share Capital 1 | 6300000 “NotetoAccounts a “1. Share Capital a ‘Ahorised Capitol 4 $000 Equity Shares of € 50 each 1,00,00,000 ity Shares of € 50 each 90,00,000 Copital d but not Fully Paid-up 63,00,000 ‘Shares of & 50 each; 35 called-up Bn: As the fist and final cal is not made, amount of Subseribed Capital will be shown under *Subseribed y Paid-up” s Lid. is registered with the Authorised Share Capital of & 50,00,000 divided ity Shares of Z 10 each and 10,000 Preference Shares of % 100 each. d 2,75,000 Equity Shares and 10,000; 10% Preference Shares for s received for 2,50,000 Equity Shares ‘and 10,000; 10% Preference Sh .d @ 80 on 10% Preference Shareses of 100 each;& 80 called-up | 809i : 33,0001 ’ A —_ ikea ee _ Explanation: 10% reference Shares are not shown as fully paid-up because against no? %80 has been called. = minal (face) value of © 7 sue of shares. A Public Company can issue shares only aft Public Issue of Shares of hares means offer made hy a company to public for subscription ofs de by a Public Company after complying with the prescribed legal complia capital and not to public in general ual funds and insurance companies.Wo ils dai hats Shares for cash means shares issued by i : "y a company against amount received by ing instrument. These shares may Se ae yy be issued at par (at nominal or face value} : h or at the nominal or face value). Issue of shares at a discount is not allowed th 2013 (Section 53). om be payable by the subscriber either: Issue of ora premium (above ‘Companies Act, Issue price may ( in ump sum (ji) in instalments at different stages, ie., partly on application, pat balance in one or more calls. « the accounting of issue of shares for cash in detail along with the application; or rtly on allotment and Letus discuss (@ Issue of Shares and Amount Payable in Lump Sum When theissue price of shares is payable along with the application, been issued against payment in lump sum. the shares are said to have Accounting Entries For Receiving Shares Application and Allotment Money Bank A/c Dr. Jo. Shares Application and Allotment A/c (Application and allotment money received) For Allotment of Shares: Shares Application and Allotment A/c Dr. To Share Capital A/c [With Nominal face) Value} [with Premium Amountfissued at Premium] To Securities Premium Reserve Ale (Ghares alloted against shares application and allo Gi Isue of Shares and Amount Payable in Instalmente Issue prie ofthe shares may be payable in instalments. Fi with theapplication and is called Application Money. Application mon Capital Account at the time of allotment of shares. Second instalment is called by BME. cated Allotment Money. After allotment of shares remaining P tment money received) st instalment on shares is paid along ey is transferred to Share the company on art of issue 3013, minimum application money the share ot such other perosnteds or \d Exchange Board of India (SEB). n 25% of the issue price. ) value of ities an hould not be less ‘thal ue iz 2 called by the company #0 be paid by the shareholders in one or more x area oe rut and Final Cal npc OUR a |is added to the last instalment. the nominal (face) prescribed by Securl ion money $I8.20 Double Entry Book Keeping °°" counting Entries Act etn ety fon recent of ‘application | Bank A/c SD) antec wR . Rloney, To. shares Application A/c application eo On Allotment of Shares | = srpteaton Money| SPATS Application A/c Dr Applicaton money on shares To. share Capital A/c ickied: Shares Allotment A/c Dr. le Money due on Shares allotted. To. share Capital A/c On Receipt of Allotment | Bank A/c Dr. ‘Amount received on shares a |__ To. Shares Allotment A/C allotted. ‘On First Call Being Due | shares First Call Alc Dr. "Amount payable on first cll | To share Capital A/c a ‘On Receipt of First Call — | Bank A/c Dr. “Amount received on first cl. To. Shares Fist call Ac 3 1. Application money received is retained in Shares Application ‘account till the allotment of shares Thereafte fa transferred to Share Capital ‘Account. 2, Two accounting entries are passed for each instalment. 00 receipt of application money HS entry iso Meeipt of application money and nother is for transfer of the pplication money to Share Capital Account itis passed before passing the env") Fa proline due on allotment EY for receiving allotment mone) © passed thereafter. Later on fist ent iefor the call amount due and eecond entry is for receipt of amount 3, The word ‘Equity’ or ‘reference’ is reed before the word share 2s the case may be, ed» Equity aS ‘pplication, Equity Shares Allotment oF preference Shares Application, preference share Capital, te 4, Ifcalls are more than one, they are termed as First Call second Call OF Final call 5, Ifsharesare sued premium, ie, issued at more thar its nominal (face) value and the amount of premiul FE aeeivable along with allotment oF calls ‘ecurties Premium Reserve Account is credited along witht? entry for amount due with sarich the premium isto be paid. the premium is payable along with Shae fappcation Money, Securities Premium Reser¥e raecountiscredited when application money is transferreoe ies for Securities Premium Reserve are elaborately discussed later in the chapt Share Capital Account. Entri les of Association of the company: ‘Association or the Articles of Association ies Act, 2013 will apply as follo\ he Artic! its own Articles of ‘et, Table F of the Compan! tween two calls. than 25% of the n ‘e shareholders to pay the amount. f the same class. 1, Calls are made as provided in th 2, {It the company does not have i does not have a clause to this effe (i) A period of one month must exist bet {ii) Amount of one call should not be more (ili) Notice of 14 days period should be given to the iv) Calls should be made on uniform basis on all shares 0 sue of Shares mn ‘may issue shares: é the nominal or face value), oF the nominal or face value). ominal (face) value of the shai 013Chapter 8. Company Accounts—Accounting for Share Capital 8.21 of issue of shares varies in case of issue of shares at par and at premium. ‘Accounting: of Shares at Par shares at par means that issue price of share is same as its nominal (face) value, For {ssue price and nominal (face) value of the share is € 10. 4. Issue Issue of example, lustration 4(ssue of Shares at Par, Fully Subscribed, Issue Price Payable in Lump Sum). micLtd. offered for subscription on 1st April, 2020, 1,00,000 Equity Shares of € 10 each at Dynat _ payable along with application. Applications were received for all the shares by 30th April, ¥ oo0 and the shares were allotted on 15th May, 2020. | pass necessary Journal entries in the books of the company. } solution: In the Books of Dynamic Ltd. JOURNAL =. = a - eee a Date | Particulars Dr@ | CR) } 2020 | ‘April 30 | Bank Alc Dt 10,00,000 10,00,000 To. Equity Shares Application and Allotment A/c | (Application money received on 1,00,000 shares @ 10 each) Shares Application and Allotment A/c On 10,00,000 To. Equity Share Capital A/c 10,00,000 (shares allotted and money transferred to Equity Share Capital Account) [is astration 5 (Issue of Shares at Par, Fully Subscribed, Issue Price Payable in Instalments). ares of € 10 each. The amount is payable as <3 Star Ltd. invited applications for 10,000 sh on application, < 4 on allotment and balance € 3 on first and final call. The issue Was fully ‘es for the above transactions. subscribed and amount was duly received. Pass Journal entr Solut In the Books of Star Ltd. = JOURNAL ao | Particulars .®) DatecfReceipt | Bank A/c Dr. | To Shares Application A/c 30,000 | (Application money: received on 10,000 shares @ 73 per share) | DateofAlotment | shares Application A/c Dt 30,000 To Share Capital A/c (el | 30,000 | (Transfer of application money on 10,000 shares to Oe | Share Capital Account on allotment) | ‘oF Allotment | Shares Allotment A/c 40,000 To Share Capital A/c | 40,000 Date, {Allotment money due on 10,000 shares 4 per share) ‘atReceipt | Gank Alc Dr | 40,000 40,000 To Shares Allotment A/c | (Allotment money eceived on 10,000 shares) ‘Shares First and Final Call A/c To Share Capital A/c _ (First and final call money due on 10,000 sh ie 08 pealilag Dr, Dr, Final Call A/c ‘received on 10,000 shares)—— tustration 6 (Issue of Shares Al Par, Fully Subscribed, Issue Price Payable in Lump Sum), — um). 6C Ltd. invited applications for 20,000 Equity Shares of € 10 each at the issue price of along with application is € 10. This issue was fully meee Wiss %10. The amount payable Journal entries for the above transactions and also prepare Balance Sheet of the Company. fi In the Books of TSC Ltd. | ition: out JOURNAL | ie Particulars LE] or® | a@ Date of Receipt | Bank A/c Dt. 2,00,000 “a To. Equity Shares Application and Allotment A/c (Note) Scant | (application money received on 20,000 Equity Shares of € 10 each) Date of Allotment | “Faulty Shares Application and Allotment A/c .Dr. 2.00000, | 2,00,000 To Equity Share Capital A/c | (Shares application money transferred to Equity hare Capital Account) ‘iment, the entry is passed through ‘Equity Shares Note: Asthe issue prices payable in lump sume, in one inst Application and Allotment Account. BALANCE SHEET as at Particulars 1, EQUITY AND LIABILITIES Shareholders’ Funds Share Capital 1 Total ASSETS Current Assets Cash and Cash Equivalents | 2 2,00,000 Total | 20000 Notes to Accounts 1. Share Capital pbc a La Authorised Capital Equity Shares of 10 each Issued Capital 20000 Equity Shares of € 10 each | Subscribed Capital Subscribed and fully paid 20/000 Equity Shares of & WDeach | 2, Cashand Cash EquivalentsChapter 8» Company Accounts—Accounting for Share Capital / 923° * of the Companies Act, 2013 Z s Act, 2013 (Section 52(1)) requires that the amount of the premium received is to be credited to Securities Premium Account, ie, Securities Premium presentation in the Balance Sheet ium received being a capital receipt is credited to Securities Premium Reserve Account and is shown in the Equity and Liabilities part of Balance Sheet under the main head ‘shareholders’ Funds’ and sub-head ‘Reserves and Surplus’ as Securities Premium Reserve. —— Ps Utilisation of Securities Premium Reserve | Section 52(2) of the Companies Act, 2013 restricts the use of the amounts received as premium | on securities for the following purposes: - {i) Issuing fully paid bonus shares to the members; (i) Writing off preliminary expenses of the company; (ii) Writing off the expenses of, or the commission paid or discount allowed on any issue of ‘securities or debentures of the company; {iv) Providing for the premium payable on the redemption of any redeemable Preference Shares or of any debentures of the company; (W) In purchasing its own shares (buy-back). Accounting E1 | Premium on shares may be collected by a company either with application money and/or with the allotment money and/or even with one or more of the calls money as per the terms of issue. Ifthe question is silent, itis assumed that the amount of the Securities Premium is collected along with the dllotment money, In other words, it is included in the allotment money. The accounting entries in different cases are given below: en Journal Entry Apes ‘ofApplication | “Bank A/c pee. Shares Application A/c 1. | (Withthe total appiaton money received including premium) i application money) of Shares | hares Application A/c «Dr, | (With total ae sins at To Share Capital A/c {With amount pa To Securities Premium Reserve A/C _ Shares Allotment A/cDouble Entry Book Keeping—CBSE XII On Receipt of Allotment | Bank Ale Dr | ‘With amount receiy inst alvotment Money | money) dex Calls-in-Arrears A/ct** Dr. | With amount not received against | | allotment money) To Shares Allotment A/c 4 nt Due th the Amount Due on First Call** Shares First Call A/c Dr. | [With the amount due on first call] To Share Capital Ac (Withtheamountduetowardsshare cata, To Securities Premium Reserve A/c [With the amount due towards premium) On Receipt of Bank A/c Dr. | (Withthe amountrecsived against frst ca Calls-in-Arrears A/c .Dr. | [With the amount not received agains first call money due] To Shares First Call A/c *When shares Application Money is received in lump sum, Shares Application and Allotment Accountis credited in place of Shares Application Account. ** Entries for subsequent calls will be same as are in the case of first call ***When Calls-in-Arrears Account is maintained in the books for the amount not received on allotmer and/or calls. Itshould be noted from the Journal entry of Shares Application Money that Securities Premium Account or Securities Premium Reserve Account is not credited although the amount is received. It is not credited to Securities Premium Reserve Account at this stage because tte shares have not been allotted yet. When securities premium is to be received along with different calls, it is credited # Securities Premium Reserve Account at the time of passing the Journal entry for calls made stration 7 (Issue of Shares at Premium, Fully Subscribed, Issue Price Payable Simeo Ltd. issued 20,000 Equity Shares of €10 each at a premium of €2 payable along witht! application. All the shares were applied and duly allotted. P: ‘ass necessary Journal entriesafl also show Shareholders’ Funds in the Balance Sheet of the Company. in Lump Sum). Solui = In the Books of Simco Ltd, we JOURNAL Date Particulars ‘ LE) Dre) a Bank A/c D Dr, | To Equity Shares Application and Allotment A/c qt ‘Application money on 20,000 shares received @% 12 per share) J __Eauity Shares Application and Allotment A/c To. Equity Share Capital A/c a To. Securities Premium Reserve A/c (Application money on allotted shares transfer red Acountand Secures Premium Reserve Account)” Shae CaP ‘count)= _ BALANCE SHEET (EXTRACT) as at. ‘Authorised Capital «Equity Shares of 8 10 each Issued Capital 20,000 Equity Shares of € 10 each Subscribed Capital Subscribed and fully paid-up 20,000 Equity Shares of & 10 each 9. Reserves and Surplus Securities Premium Reserve Illustration 8 (Issue of Shares at Premium). Stylon Ltd. issued 1,00,000 Equity Shares of 10 each at a premium of & 10 per share, payable as follows: %10 per share on application; and Balance on allotment. Theissue was subscribed and shares were issued to the applicants. Pass the necessary Journal entries. JOURNAL To Shares Application A/c (Application Money received on 1,00,000 Equity Shares) Shares Application A/c To Share Capital A/c i {Shares Application money transferred to Share Capital Account Securities Premium Reserve A/c ‘on allotment on 1,00,000 Equity Shar0 equity shares of € 10 each. The company issued 50,000 equity shares at a premit share. 82 per share were payable with application, ¥8 per share (including pret and the balance amount on first and final call. The issue was fully subscribed and all “amount due was received except the first and final call money on 500 shares allotted to Ba Present the ‘Share Capital’ in the Balance Sheet of “Tractors India Ltd’ as per Schedule Part of the Companies Act, 2013. Also prepare Note to Accounts for the same. (Delhi 264 Solution: Tractors India Ltd. BALANCE SHEET (Extract) as at... Particulars Note No, 1. EQUITY AND LIABILITIES 100,000 Equity Shares of 10 each Issued Capital 50,000 Equity Shares of 10 each Subscribed Capital Subscribed and Fully Paid-up 49,500 Equity Shares of€ 10 each 4,95,000 ‘Subscribed but not Fully Paid-up ‘500 Equity Shares of 10 each 5,000 -Less:Callsin-Arrears (500 x 5) 2,500 Explanation: Full nominal (face) value of shares 500 Equity Shares did not pay the call amount, Thus, Mlustration 10 (Issue of shares at Premium, towards share capital is called. Shareholders 500 shares are not fully paid-up, Fully subscribed, Issue Price Payable in Instalments) New India Ltd. was registered with a cay ipital of € 1,00,00,000 in equity shares of T 100 IEissed a prospectus inviting appiation for 2900, shares at 40% premium payable as f On Application © 50 including ® 10 premium); 3 On Allotment 840 (including ® 10 premium);"(Application money received on 20,000 shares @ 750 per share) I équty Shares Application Alc To Equity Share Capital A/c (20,000 x 40) To Securities Premium Reserve A/c (20,000 x 10) (Application money adjusted) Equity Shares Allotment A/c To Equity Share Capital A (20,000 30) To Securities Premium Reserve A/c (20,000 x 10) {Allotment money due on 20,000 shares) | Banke Dr 8,00,000 | To Equity Shares Allotment A/c | lotment money received) ee 8,00,000 | Equity Shares First Call A/c De 6,00,000 To Equity Share Capital A/c (20,000 x 20) | 400,000 To Securities Premium Reserve A/c (20,000 x® 10) | 2,00,000 | (First call money due on 20,000 shares) | Bank A/c Dr. 6,00,000 To Equity Shares First Call A/c 6,00,000 (Shares first call amount received on 20,000 shares) | Equity Shares Second and Final Call A/c Dr 4,00,000 To Equity Share Capital A/c (20,000 x 10) | 2,00,000 To Securities Premium Reserve A/c (20,000 x 10) | | 2.00000 (Second and final call money due on 20,000 shares) | BankAlc id Dr | 400,000 | 400,000 To Equity Shares Second and Final Call A/c (Shares second and final call money received) —_ BALANCE SHEET OF NEW INDIALTD. as at... Particulars 1. EQUITY AND LIABILITIES Shareholders’ Funds Share Capital Note to Accounts 1 Share Capital 1 caplet 100,000 Equity Shares of € 100 each Issued ‘Capital 20,000 Equity Shares of & 100 eachscribed when the shares applied are more than the shares off shares more than the shares offered owing three alternatives: Shares are said to be oversub: for subscription. Since the company cannot allot subscription, shares can be allotted by any of the foll | 1. First Alternative: Rejection of Excess Applications Some applications are accepted in full and excess applications are rejected and th ded. This is known as Rejection of Applications. For exam application money is refun s. Applicati against the issue of 50,000 shares, applications received are for 70,000 share for shares in excess of 50,000 shares, i-e., 20,000 shares are not accepted and their applicat money is refunded. 2, Second Alternative: Partial or Pro rata Allotment All applicants are allotted shares in proportion. This is called Partial or Pro rata Allotme For example, considering the above example, shares are allotted to all the applicants in} ratio of 5 shares for every 7 shares applied 3. Third Alternative: Any Combination of above Two Alternatives A combination of the above two alternatives may be adopted. Some applications are accepted full, some applications are rejected and proportionate allotment is made to the remaining.} example, considering the above example, shares are allotted as follows Applications for 20,000 shares are accepted in full, applications for 10,000 shares are rejed and the balance applications are allotted on pro rata basis, 4 shares applied. ie, in ratio of 3 shares for evt Illustration 11. Guru Ltd. invited applications for 5,00,000 Equity Shares of % 1 5 per share, Because of favourable market conditions, applications for 15,00,000 shares were received. 0 each at a premium the issue was oversubscribed a Suggest the alternatives available to the Board of Directors for the allotment of shai of share Solution: Alternatives available to the Board of Directors of Guru Ltd. are: ee (@) Excess applications may be rejected and shares ‘be init s reje may be allotted to the remaining applicaf _ Gi) Shares may be allotted to all the applicants on pro rata basis. i “4