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Case of Oversubscription For Application Money Recelved Bank A/c To_Shates Application Ale “rpplication Money for Allotted Shares ‘shares Application A/c Dr Excess Application Money i To Share Capital A/c Refund Adjustment Shares Application A/c Dr Shares Application Alc Dr To Bank Ac To Shares Allotment Alc Y To Calls-in-Advance Alc Combined Entry ‘Shares Application A/c Dr To. Share Capital A/c To Bank Ac To Shares Allotment A/c To. Calls-in-Advance A/c Letus discuss these possibilities and accounting entries in each such possibility in detail with the help of illustrations. ( First Alternative—Rejection of Applications The company may reject excess applications. In such a case, application money received from such applicants is returned to them in full. Illustration 12 (Issue of Shares, Oversubscribed —Rejecting the Excess Applications). Good Co. Ltd. invited applications for 1,00,000 shares of € 10 each payable: %3 on application, % 3 on allotment and the balance when required. Applications were received for 1,20,000 shares out of which applications for 1,00,000 shares Were accepted and remaining applications were rejected. Allotment money was received on 500 shares, Pass Journal entries in the books of Good Co. Ltd. Solution; JOURNAL OF GOOD CO. LTD. Pe rataes Bank Alc To Shares Application A/c (Application money received on 1,20,000 shares @ % 3 per share) Shares Application A/c To Share Capital A/c (1,00,000 x ® 3) To Bank A/c (20,000 x 3) \n money adjusted and surplus refwn‘Book Keeping—CBSE XI! ‘Alternative—Partial or Pro rata Allotment jssue is oversubscribed, shares may be allotted on pro rata basis. “allots 80,000 shares to the applicants of 70,000 shares. It is a pro a ample, if the jon of 5:7. In such a situation, main issue is dealing with excess mee in the ation. The company may either return the excess amount oF retain it to as ae ‘amount due on allotment and calls, if the terms of issue of shares permit adjusting excess application money against calls. Treatment of Surplus Application Money on Pro rata Allotment = ‘When question is silent or states that ‘excess application money re6s ed is to be adjustes ‘against allotment’, surplus application money is ‘adjusted against allotment money due ang ‘amount in excess of allotment money is refunded. ‘@ When question prescribes that surplus application money is to be refunded after adjustment of ‘Allotment Money and Call Money, then the amount is transferred to Shares Allotment Account ‘and Calls-in-Advance Account. The balance, if any, is refunded. Suppose, the application money and the allotment money per share are % 3 and %2 respectively. A applies for 200 shares but is allotted only 60 shares. The application money fon 140 shares, i, % 420, is surplus whereas the amount due on allotment on 60 shares @2 per share is€ 120 only. This will still leave @ 300 as surplus. The excess application mong} may be retained to be set off against calls, if the terms of issue of shares so prescribes. Tis accounting entry in respect of the total application money, % 600, will be: Date | Particulars “ Le| De® | Cel | Shares Application A/c (200 x 3) Dr. 600 t gg Share Capital Alc (60 x3) 18 | To Shares Allotment A/c (60 x & 2) 10 | To Callsin-Advance A/c (Balance) 30 |_ Application money adjusted) It should be observed that the amount received as application money is fully adjusted agai Share Capital Account, Shares Allotment Account and Calls-in-Advance Account. In case, application money, in excess of the money due on allotment, is refunded, the entrys ‘Shares Application Nc (200 x & 3) To Share Capital Alc (60 x 3) To Shares Allotment A/c (60 x 2) To Bank A/c (Balance) pplication money adjusted and surplus refunded) Iustration 13, aorta tories applications for 1,00,000 equity shares of 850 each payable ast! a 10 per share; On First Call (due two months after allotment os aa ) . {and Final Call (due two months ater First Cal) ae h | for 4,00,000 shares on 1st January, 2020 and " ; x:Pass Journal ; {@) Allotted 1,00,000 shares in full to selected 3,00,000 shares were rejected. ) Prorataallotment of 25 per cent of the shares a ofapplication money towards amount due (c) Reject applications for 2,00,000 shares, apro rata allotment of 20,000 shares to remaining aj be adjusted towards allotment and calls, Solution: (2) JOURNAL OF CRYSTA HOSPITALITY LTD. Chapter 8 - Company Accounts—Accounting for Share Capital 8.31 entries for issue of shares under each of the following cases: pPlicants and the applications for the remaining pplied to every applicant; to apply the balance on allotment; and to refund the balance amount. accept full applications for 80,000 shares and make ipplicants. Excess application money to Le | Dr) CRY 2020 Jan, 1 Bank A/c To Equity Shares Application Aic ___|(Application money received for 4,00,000 shares @ 10 per share) Feb. 1 EquityShares Application A/c “Tae To Equity Share Capital A/c (1,00,000 x 10) To Bank Alc (3,00,000 x & 10) (Application money adjusted and surplus refun Feb. 1 Equity Shares Allotment A/c a To Equity Share Capital A/c (Allotment money due on 1,00,000 shares @ 15 per share) Bank Alc To Equity Shares Allotment A/c {Allotment money received) April 1 |Equity Shares First Call A/c To Equity Share Capital A/c {First call money due on 1,00,000 shares @ € 15 per share) Bank Alc To Equity Shares First Call A/c (First call money received) Dr. 40,00,000 Dr -40,00,000 June 1 Equity Shares Second and Final Call A/c To Equity Share Capital A/c e Isecond'avd frat call aoe ‘due on 1,00,000 shares @ 10 per share) Bank Ale To. Equity Shares Second and Final Call A/c [ose ‘and final call money received) Dr. 10,00,000 40,00,000 10,00,000 | 30,00,000 15,00,000 15,00,000 15,00,000 15,00,000 10,00,000 10,00,000 JOURNAL OF CRYSTA HOSPITALITY LTD. ation A/C si ona for 400 shares @€ 10 pe shat)FF q 8.32 Double Entry Book Keeping—CBSE XII © JOURNAL OF CRYSTA HOSPITALITY LTD. Date | Particulars Lp] Dn@®) 2020 Jan. 1) Bank A/c wuDr. 40,00,000 To. Equity Shares Application A/c (Application money received on 4,00,000 shares @& 10 per share) | Equity Shares Application A/c br | | 4000000 To. Equity Share Capital A/c (1,00,000 x 10) | 1 To Equity Shares Allotment A/c (20,000 x ® 15) | To Calls-in-Advance A/c (20,000 x 25) To Bank A/c (WN) | {Application money adjusted and surplus refunded) | Feb, 1 | Equity Shares Allotment A/c Dr. | 15,00,000 To Equity Share Capital A/c | 1 (Allotment money due on 1,00,000 shares @ 15 per share) Bank A/c ar es ~Dr | | 12,00,000 To Equity Shares Allotment A/c | | 15,00,000 1 112,00,000 (Allotment money received) April 1/| Equity Shares First Call A/c To. Equity Share Capital Alc | (First call money due on 10,000 shares @ €15 per share) | | Bank A/c Sipemoe | Calls-in-Advance A/c Dr. 3,00,000 To Equity Shares First Call A/c | 15; (Callsin-Advance adjusted and the balance fist call money received) June 1 | Equity Shares Second and Final Call A/c De | 10,00,000 To Equity Share Capital A/c 104 (Final call money due on 7,00,000 shares @ & 10 per share) | eee | Bank A/c De | 8,00,000 Callsin-Advance A/c 2,00,000 To Equity Shares Second and Final Call A/c (Calls:in-Advance adjusted and the balance second and final call money received) Working Note: Excess application money as a result of pro rata allotment is adequate to meet the allo! money and two calls. Besides, it leaves amount to be refunded along with that on the rej applications. x x Excess Application Money {(4,00,000 x & 10 = 40,00,000) - (1,00,000 x & 10 = ¥ 10,00,000)) ag) ‘Less: Transfer to Equity Shares Allotment (20,000 x: 15) 3,00,000 Transfer to Calls-in-Advance (20,000 x % 25) 5,00,000 ‘Total Amount Refunded 2Chapter 8- Company Accounts—Accounting for Share Capital 8.33 Tlustration 14- ‘To provide employment to the youth and to develop Baramula district of Jammu and Kashmir, qyoti Power Ltd. decided to set up a power plant. For raising funds the company decided to issue 8,50,000 equity shares of € 10 each at a premium of & 3 per share, The whole amount was payable on application. Applications for 20,00,000 shares were received. Applications for 3,00,000 shares were rejected and shares were allotted to the remaining applicants on pro rata basis. Pass necessary Journal entries for the above transactions in the books of the company. (OD 2016, Modified) Solution: In the Books of Jyoti Power Ltd. JOURNAL. Date | Particulars Bank Alc Dr. To Equity Shares Application and Allotment A/c | (Application and allotment money received on 20,00,000 shares of | 10 each @ 13 per share) | Equity Shares Application and Allotment A/c Dr. 2,60,00,000 To Equity Share Capital A/c (8,50,000 x 10) 85,00,000 | To Securities Premium Reserve A/c (8,50,000 x 3) 25,50,000 | To Bank A/c (11,50,000 x 13) 1149,50,000 (Application and allotment money adjusted for 8,50,000 shares. | and the balance refunded) Ilustration 15 (Issue of Shares at Par, Oversubscription and Pro rata Allotment), Kirloskar Ltd. issued 20,000 shares of % 10 each, payable % 4 on application, ¢3 on allotment and % 3 on first and final call. Applications were received for 25,000 shares. The company decided to allot 20,000 shares on pro rata basis and surplus of application money was adjusted for allotment money due. Pass Journal entries if amounts due were received. Also, show share capital in the Balance Sheet of the company. Solution: JOURNAL OF KIRLOSKAR LTD. Date | Particulars | LR} De®) | Co® Bank Mc Dr 1,00,000 To Shares Application A/c 1,00,000 ‘on 25,000 shares @ €4 per share) Shares Application A/c 100,000 © | Te Share Capital A/c (20,000 x & 4) 80,000 To Shares Allotment A/c (5,000 x & 4) 20,000 ication money transferred to Share Capital Account on 20,000 ‘and excess money adjusted towards Shares Allotment)Double Entry Book Keeping—CBSE XII Shares Allotment A/c C | To Share Capital A/c \ a (Allotment money due on 20,000 shares @ & 3 per share) a" Bank A/c Or. | To Shares Allotment A/c (Amount received for allotment) (WN 1) Shares First and Final Call A/c Dr. 0,000 To Share Capital A/c 6900 (First and final call money due on 20,000 shares @ & 3 per share) Bank Ac Dr. 60,000 To Shares First and Final Call A/c on {Amount received on first and final call) BALANCE SHEET OF KIRLOSKAR LTD. asat Particulars | 1, EQUITY AND LIABILITIES Shareholders’ Funds Share Capital Note to Accounts : 1. Share Capital j ‘Authorised Capital Equity Shares of 10 each Issued Copital | 20,000 Equity Shares of 10 each al Subscribed Capital = Subscribed and fully paid-up 20,000 Equity Shares of % 10 each = sa Working Notes: z 1. Amount due for Allotment Less: Excess Application Money Adjusted (WN 2) 28 20, ‘Net Amount Received on) 2 ANAQYSIS TABLE ““Sharesissued | shares Applied | Shares Aone |Chapter 8» Company Accounts—Accounting for Share Capital 8.35 rind Alternative—Combination of above Two Alternatives ii) Incase of to others an oversubscription, the company can make full allotment to some applicants, partial allotment 1d no allotment to the rest. In such a situation, application money is refunded to the cessful applicants, surplus application money on partially allotted shares is retained to inst ee inst amount due on allotment and future calls. pe utilised ag [FRG tet he Sr con oes over and above Wat LO RRR) [__ tended the atottees Ilustration 16 (Shares Issued at Par, Oversubscribed—full allotment to some applicants, partial allotment to others and no allotment to the rest). yhav Ltd. was registered with an authorised capital of % 10,00,000 divided into 1,00,000 shares of % 10 each. The company offered 60,000 shares to public on which amounts were payable %3 per share on application, X 3 per share on allotment and the balance when required. Applications for 92,000 shares were received on which the Directors allotted as follows: Applicants for 40,000 shares = Full, Applicants for 50,000 shares = 40%, Applicants for 2,000 shares = Nil. % 84,000 were received as allotment money (excluding the amount carried from application money). Show the Journal entries recording the above. In the Books of Raghav Ltd. a JOURNAL Date Particulars LE Or) ae Bank A/c (92,000 x ® 3) Dr. 2,76,000 To Shares Application A/c 2.76000 (Application money received for 92,000 shares) Shares Application A/c Dr. 276,000 To Share Capital A/c (60,000 x % 3) To Bank A/c (2,000 x 3 + 10,000 x @ 3) To Shares Allotment A/c (20,000 x % 3) (Application money adjusted and surplus refunded) | ‘Shares Allotment A/c Dr. 1,80,000 To Share Capital A/c | (Allotment money due on 60,000 shares @ ® 3 per share) Dr 84,000 | Bank Ale | To Shares Allotment A/c —_| imo int received on allotment except on 12,000 shares) a 7 ~ fSplication money received on 50,000 shares @ 3 per share °S Application money due on shares allotted [20,000 shares (40% of 50,000) x 3) ms pplication money on 50,000 shares Applied but Allotted 20,000 shares (30,000 x & 3) Amount receivable on allotment on allotted 20,000 shares Ss application money to be refunded 1Double Entry Book Keeping—CBSE XI! 2. Calculation of Shares on which Allotment money not received: Total allotment money due ess: Allotment money received on application stage (wnt) Less: Allotment Amount Received Later ‘Allotment money not received Allotment money not received on shares (36,000 + %3) = 12,000 shares. Tilustration 17. On 1st April, 2019, Prarthana Ltd. was fon nto 90,000 Equity Shares of € 100 each. The company invited app! Shares. The amount was P: On application On allotment ned with an authorised capital of € 90,00,000 divided ications for 80,000 Equity ayable as follows: ms 30 per share, % 40 per share, Balance amount. On first and final call ‘Applications for 1,00,000 shares were received. Applications for 20,000 shares were rejected and the application money was refunded. All valls were made. A shareholder holding 600 share, did not pay the first and final call. Show ‘Share Capital’ in the Balance Sheet of the company as per Schedule I, Part T of te Companies Act, 2013 as at 31st March, 2020. (AI 2013 C, Modif BALANCE SHEET OF PRARTHANA LTD. (An Extract) ——— as at 31st March, 2020 Parte ae Note No. wy 1. EQUITY AND LIABILITIES Shareholders’ Funds Share Capital a 1 nan a Note to Accounts particles 1, Share Capital ‘Authorised Capital 90,000 Equity Shares of £100 each Issued Capital £80,000 Equity Shares of % 100 each Subscribed Capital Subscribed and Fully paid-up 79,400 Equity Shares of % 100 each ibscribed but not fully pak-up Equity Shares of& 100 each s-in-Arrears (600 x 30) ‘Shares shares 1. Ap 2 Tey alle— categories of Applicants ses shares application money received by a company is divided into different categories. Chapter 8 - Company Accounts—Accounting for Share Capital 8.37 Someli In such a c#8e money received anc its appropriations or adjustment towards share capital, shares allotment, and refund, if any, to applicants or shareholders. it is appropriate to prepare a statement showing details of shares application calls-in-advance An outline of the statement can be as follows: STATEMENT SHOWING DETAILS OF SHARES APPLICATION MONEY Gaegores| Shares | Shares Application Disposal of Shares Application Money Received Applied | Allotted | MoneyReceived | Share Shares Gallsin- | Refund or Capital | Allotment | Advance Bank z z x z z Shares Application Money, on allotment, is transferred to Share Capital Account for the allotted shares. The balance application money, if any, is adjusted as follows: 1. Application money is refunded to applicants to whom no allotment is made. 2. If partial allotment is made, surplus of application money is adjusted towards ‘shares allotment money’ or ‘call money’ due, if the question so requires. The balance, if any, is refunded to the applicants. Calculation of Amount Due but not Received on Allotment in Case of Pro rata | When the shares are allotted on pro rata basis and one or some of the shareholders of pro rata category may not pay the allotment money, then it is necessary to compute the amount due but not received on allotment. We should take the following steps: alculate Number of Shares Applied/Shares Allotted to defaulting shareholders: When Shares Applied are Given Step 1: When Shares Allotted are Given aleuate Number of shares Applied as: Calculate Number of Shares Allotted as: Total Shar Total shares Allotted Torr eled | Totalshares Allotted no, of Shares Applied TotlShaes Aloe” NO: of Shares Allotted | eran Tonia = Apo | Step 2: 1 i ahereReleaee ee Step 2: Calculate the Amount due but not paid by defaulting shareholders on Alllot A Leogitt leon Allotment (shares Alotted x Allotment Money Per share) ates Aplcation Money Adjusted on Allotment mean ‘Applied - Shares Allotted) x Application Money per share) but not paid by defaulting Shareholders on Allotment——— 8.38 Double Entry Book Keeping—CBSE XII Ps Pixample 4. jons for X Ltd. issued 50,000 shares of € 100 each at par and company received appt 50 and 1,00,000 shares. The amount is payable as follows: on application % 30, on all balance on call, The company made allotment as under: Category "Shaves Applied juli nae Shaves atte — @) 30,000 | 30000 (o) 50,000 | 20,000 o 20,000 Nit Mohan of Category (b) who was allotted 1,500 shares failed to pay allotment money: Calculate: (i) Allotment money due but not paid by Mohan. (ii) Amount received by the company on Allotment. Solution: Step 1: Number of Shares Applied by Mohan = ao 50,000 1,500 = 3,750 shares. (i) Step 2: Calculation of Allotment money due but not paid by by! MONT eee Seen Gala Ohman y ‘Amount due on Allotment (Shares Allotted x Allotment Money = 1,500 x 50) 7? Less: Excess Application Money Adjusted on Allotment [3,750 - 1,500) x & 30] as Allotment Money due but not paid ia (ii) Calcilation bani! Received by the company on Allotment: Particulars z Total Amount due on Allotment (50,000 x % 50) 2008 Less: Excess Application Money Adjusted (30,000 x 730) gona 1600 Less: Amount due but not Received on Allotment [as per (i)] ’ 15308 Amount Received on Allotment Illustration 18. MCS Ltd. issued 40,000 shares of € 10 each payable as € 2 per share on application, t4 co on allotment and the balance in two equal instalments. Applications were received for 80,000 shares and the allotment was made as follows: A (a) Applicants of 50,000 shares were allotted 30,000 shares. / | (b) Applicants of 30,000 shares were allotted 10,000 shares. q yent (i Neeraj, to whom 600 shares were allotted from Category (a), failed to pay the allotm Pass necessary Journal entries up to allotment only. (Deli, Ala ae SEE "ae Chapter 8+ Company ‘Accounts —Accounting for Share Capital 8.39 Solution: Im the Books of McS Ltd, JOURNAL i, ne) | cee ic To Shares Application Ale es ee {nppcation money recived on 8,000 shares) Be ‘Application A/ i 4 Severe vi To Shares Allotment A/c oo (Application money adjusted) | bi: Shares Allotment Ac 7 i ieroed To Share Capital A/c 120008 {allotment money due on 40,000 shares @ & 4 per share) [ad | Banke Dr. 78,400 To Shares Allotment A/c | 7308 {Allotment money received except on 600 shares) (WN 2) Working Notes: 1. Amount due but not paid by Neeraj on Allotment: (2) Number of shares applied by Neeraj = 50,000/30,000 x 600 = 1,000, (6) Application money received from Neeraj = 1,000 x & 2 = 2,000, (0. Application money required as per shares allotted to Neeraj = 600 x2 = 1,200, (4) Surplus application money (& 2,000 - 1,200) to be adjusted on allotment = 800. (6) Allotment money due from Neeraj = 600 x ¥ 4 = % 2,400. {f) Allotment money due but not paid by Neeraj = & 2,400 ~¥ 800 = 1,600. 2 Amount Received on Allotment: z Total amount due to allotment 1,60,000 Less: Excess application money adjusted 80,000 80,000 4455: Allotment Money due but not paid by Neeraj (WN 1) 1,600 Amount Received on Allotment 78.400 lustration 19 (Comprehensive Illustration). company invited applications for 50,000 Equity Shares of % 10 each payable as follows: on allotment ® 3; on first and final call & 4, On application & 2 Pplications were received for 1,10,000 shares. It was decided (}) to refuse allotment to the applicants for 10,000 shares, Hi) to allot 50% to X who has applied for 20,000 shares, 4) to allot in full to Y who has applied for 10,000 shares, —— ——ee available shares on pro rata basis among the other app! balanc call. In in part payment of allotment and final is. utilise excess application money in par ount due on allotment is receiv ad ‘entries till the stage of allotment if total am mile eeu uw) oe | @ Alli ~ Dr 3,30,000 Jay | ap] fina Ap or. | | 330,000 | @ | Pa ©) ‘To Equity Share Capital Alc eda | © To Equity Shares Allotment A/c | | To Calisin-Advance Nic | Ra To Bank Alc | ce {Application money adjusted and surplus refunded) (WN) | | Ca eratySharesAllotment A/c Dr, 150,000 | So To Equity Share Capital A/c Ca (Allotment money due on 50,000 equity shares @ & 3 per share) | Ad | Bank Alc Dr. | 30,000 Le To Equity Shares Allotment A/c | | {Allotment money received on 10,000 equity shares of Y who I as allotted in ful) ag Le Working Note: ‘ STATEMENT SHOWING DETAILS OF SHARES APPLICATION MONEY Al pes Shares | Application | Pisposal of Shares Application Money Received wi Rae | Alotted | Wen) Share Shares Callsin- | R a Received Capital Allotment Advance (10,000 x 3) 30,000IMPORTANT NOTE it when shares are issued at a premium, excess applic ! ‘towards Share Capital. Amount left after adjustment to share capit ds the Securities Premium Reserve due on account of allotment. Mustration 20 (Shares issued at Premium, Oversubscribed—Pro rata Allotment to some and no “Allotment tothe Rest). Jaya Ltd. issued 60,000 shares of € 10 each at a premium of % 2 per share payable as € 3 on application, 5 (including Premium) on allotment and the balance on first and final call. ‘Applications were received for 82,000 shares. The Directors resolved to allot as follows: (@) Applicants of 30,000 shares 20,000 shares, (b) Applicants of 50,000 shares 40,000 shares, (© Applicants of 2,000 shares Nil. Ramesh, who had applied for 900 shares in Category (a) and Suresh, who was allotted 600 shares in Category (b) failed to pay the allotment money. Calculate amount received on allotment. (Delhi 2009) Solution: Calculation of Amount Received on Allotment; z Amount due on allotment (60,000 « 5) 3,00,000 Less: Excess application money adjusted towards allotment: 30,000 [Category (a)] + & 30,000 [Category (b)] 60,000 ~ 2,40,000 Less: Amount unpaid by Ramesh (WN 1) 2,100 2,37,900 Less: Amount unpaid by Suresh (WN 2) 2,550 Amount Received on Allotment _2,35,350 Working Notes: 1. Amount! ‘unpaid by Ramesh—Category (a): Shares applied = 30,000, hares allotted 2p money received Shares allotted to Ramesh = 20,000/30,000 x 900 = 600 shares * shares applied = 900, Shares allotted = 600 * application money received adjusted towards allotment = 300 x €3=€ 900 Ytdue on allotment = 600 x ® 5 =¥ 3,000 tunpaid by Ramesh = % 3,000 - ¥ 900 =& 2,100. c ation money received = 10,000 x % 3 = ® 30,000 f ,000/40,000 x 600 = 750 shares 5 600 a= Shares are said to be undersubscribed if the number of shares soe are less than the m of shares issued for subscription. For example, a company has offered 50,000 shares to p for subscription and applications received are for 45,000 shares it is a case of undersubscripg Minimum Subscription According to SEBI Guidelines, if a company does not receive minimum subscription, ig does not receive subscription for at least 90% of the shares issued, it cannot allot the st As a result, it will have to refund the application money to the subscribers. Accounting Treatment: In case of undersubscription, accounting entries are passed on the ba of shares applied because allotment is made in full to all the applicants. Mlustration 21 (Issue of Shares at Par, Undersubscription). Sarvottam Ltd. invited applications for 40,000 Equity Shares of 10 each. The amount was payal as follows: on application & 3 per share; on allotment % 4 per share and on first and final %3 per share. Applications were received for 37,500 shares. Ashok to whom 1,000 shares allotted did not pay the allotment money and also first and final call. Sohan who had appli for 500 shares did not pay the first and final call. Pass necessary Journal entries to record the above transactions, Solution: In the Books of Sarvottam Ltd. JOURNAL D | Particulars a 5 : LE | | Bank Ale ay 7 apaela | To Equity Shares Application A/c lation money eeveon3750 Equity Shares @ 3 per share) Eierisyshaies Applestion A/c To Equity Share Capital Alc (hpplication money tasted to Equity Share Capa Account) Equity Shares Allotment A/c To Equity Share Capital A/c (Allotment nent money due on 37,500 Equity Shares pares @ 4 per share) Bank Nc To Equity Shares Allotment A/c money received) (WN 1)e on allotment ment money not paid by Ashok (1,000 x & 4) don allotment due on first and final call ‘First call money not paid by Ashok and Sohan on 1,500 shares Less: (1,000 +500) @& 3 per share “amount received on frst and final cal (Share Capital in Balance Sheet in case of Undersubscription). ‘The authorised capital of Suhas Ltd. is €50,00,000 divided into 25,000 shares of 2 200 each. Out sorthese the company issued 12,000 shares of 8200 each at a premium of 10%. The amount per chare was payable as follows: 60 on application, % 60 on allotment (including premium), % 30 on first call, and balance on final call. Jied for 11,000 shares. All the money was duly received. per Schedule Il Part I of the Companies (AI2013, Modified) Iilustration 22 Public app ‘an extract of Balance Sheet of Suhas Ltd. as ‘Act, 2013 showing share capital. BALANCE SHEET OF SUHAS LTD. (An Extract) 5 Ot a a Particulars Note No. ms L ‘EQUITY AND LIABILITIES il = a ane — ear: aad 1 -22,00,000 Solution: NotetoAccounts _ 7 - Particulars ated 1. Share Capital : Authorised Capital 25000 Equity Shares of € 200 each sues ham |_ 200000 Capital 12,000 Equity Shares of € 200 each Subscribed Siete on fly paid-up 1900 aut shares of 200 each nin een Mlustrati Fe cribed, Issue Price Payable in Instalmets), Ne See an authorised capital of © 5,00,000 divided into 50,000 ee of 10 each. Since, the economy was IR robust shape, the company ede to nae subscription 30,000 equity shares of € 10 each at a pecan per ; 28,000 shares were received and allotment was made to wa Ee cere exopeta ciel tl aE i uly ceed geen Lio pox Scheie Accounts for the same, f mpl 1 mium, undersubsDouble Entry Book Keeping—CBSE XII Newbie Ltd. BALANCE SHEET as at... wee Particulars “L. EQUITY AND LIABILITIES Shareholders’ Funds Share Capital Note to Accounts Particulars __—__—_—_—= 1, Share Capital Authorised Capital '50,000 Equity Shares of € 10 each Issued Capital 30,000 Equity Shares of € 10 each Subscribed Capital Subscribed and Fully Paid-up 27,800 Equity Shares of € 10 each Subscribed but not Fully Paid-up 200 Equity Shares of 10 each Less: Calls in-Arrears (200 x 2) Difference between Oversut { ig x Undersubscription of Shares = ie : 2 1. Shares Applied | Number of shares applied is more than the | Number of shares applied is less than th | shates offered for subscription shares offered for subscription. 2. Acceptance |All applications are not accepted. Some are | All the applications for shares are accepted ‘ejected, Alternatively, shares are allotted on | and allotment is made to all the applicants | pro rata basis. | 3, Refund | Excess application money is refunded or | As all the applications are accepted, there adjusted towards allotment and calls. no excess application money to be refur 4. Minimum Subscription | A company does not face such a problem. A company may face the problem | | ‘Minimum Subscription: Preparation of Cash Book Cash Book is a Special Journal which is ust issued for cash, Cash Book may have to (i) cash transactions are recorded in a (ii) non-cash transactions are recorded Mlustration 24 (Issue of Shares at Par and Grand Ltd, offered 1,00,000 shares of & 1 %3 to be paid on application, € 3 to be allotment. ed for recording cash transactions, When shares be prepared. Thus: Cash Book, and in Journal. money due on allotment was received Of 500 shares didnot poy tree YH May, 2020, Call wasdlutye aN ass entries in the Cash Book, Balance Sheet of the company shows edger of the ZBIDIZ |5 [To Shares Allotment A/c fo Shares First and Final Call A/c Date | Particulars Le | ore) 2020 May 1. Shares Application A/c Dr | 270,000 To Share Capital A/c | {Application money on 90,000 shares transferred to Share Capital Account) | May 1 Shares Allotment A/c q || 270,000 To Share Capital A/c ioc | {Allotment money due on 90,000 shares) | July 1. Shares First and Final Call A/c Dr | | 3,60,000 To Share Capital A/c | | (Amount due on 90,000 shares @ & 4 per share on the first and final | Ledger Or. SHARES APPLICATION ACCOUNT a a Date Particulars % | Date —_| Particulars 220 May 1|To Share Capital A/c 2 SHARES ALLOTMENT ACCOUNT Date Particulars j | “| pate | Particulars aby are [eae 2020 May 1 To Share Capital A/c 2,70,000 | May 15 By Bank A/c © 2,70,000. 2,70,000 2,70,000 3,60,000 SHARES FIRST AND FINAL CALL ACCOUNT z Date Particulars oa 2 2020 Z it 7 By Bank A/c ee) 4ry Book Keeping—CBSE XII ‘SHARE CAPITAL ACCOUNT Particulars © [ate | Panicaars 2020 | 2 [To Balance cid 900,000 | May —1| By Shares Application A/c 27000 chat May 1 By Shares Allotment A/¢ | 2700 equ [uy 1) By hares Fist and Final Cal Ale | 3809) | 900,000 | 260 SB es Grand Ltd. BALANCE SHEET as at... . ok Paces 7 a : NoteNo.| @ 1. EQUITY AND LIABILITIES Shareholders’ Funds Share Capital 1 Sal a 2 Note to Accounts 5, 1. Share Capital =f ‘Authorised Capital Ar .-Equity Shares of 10 each Sh Issued Capital 7 100,000 Equity Shares of € 10 each : Subscribed Capital ‘Subscribed and fully paid-up £26,500 Equity Shares of 10 each Subscribed but not fully paid-up 1,500 Equity Shares of € 10 each F Les: Callsin-Arearst bee 6,000 po ut M *Calls-in-Arrears ® 6,000 is the amount not received by the uw company on First and Final Call.y issues both classes of shares, ic,, Preference Shares and Equity Shares, the share is prefixed by the term ‘Preference Shares’ or ‘Equity Shares’ as the case Shares Application Account, Equity Shares Application Account, Preference ent Account, Equity Shares Allotment Account, Preference Share Capital Account, y Share Capital Account, ete. lustration 25 (Issue of Ttvo Classes of Shares), i Ltd. offered to public 1,00,000 Equity Shares and 50,000 Preference Shares of % 10 each | gntst April, 2020 payable as under: Equity Shares ) Preference Shares (2) On Application 3 3 ‘On Allotment (Ist May) 3 4 On Firstand Final Call (Ist September) 4 3 Subscription was received for 1,20,000 Equity Shares and 45,000 Preference Shares. Out of applications for Equity Shares, applications for 10,000 shares were rejected; applications for 85,000 shares accepted in full and 15,000 shares were allotted to the remaining applicants. Applications for Preference Shares were accepted in full. Amounts due were received except call amount on 1,000 Equity Shares and 500 Preference Shares. Pass entries in the Cash Book and Journal. Solution: In the Books of Shakti Ltd. CCASH BOOK (BANK COLUMN ONLY) % | Date | Particulars 020 April | 2020 | May 1 By Equity Shares Application A/c 30,000 &3.0n 1,20,000 shares) (Refund on 10,000 shares) | ae To Preference Shares Appication lc 135,000 | Sept. 1) By Balance c/d yaaas00 3.0m 45,000 shares) |To Preference Share Capital A/c (Application money on 45,000 Preference Shares transferred to Preference Share Capital Account) _ I a | May 1 Equity Shares Allotment A/c (%1,00,000 x ® 3) Oa To Equity Share Capital A/c | 3000 {Allotment money due on 1,00,000 Equity Shares) | a i = br May 1 Preference Shares Allotment A/c 180,000 Fat To Preference Share Capital A/c | aa Dat {Allotment money due on 45,000 Preference Shares) | | Sept. 1 Equity Shares Fist and Final Call A/c Da} 4,00,000 To Equity Share Capital A/c | 40001 = — (Fist and final call ue on 1,00000 Equity shares @ 4 per share) The Sept. 1 Preference ‘Shares First and Final Call A/c oad as Dr. 1,35,000 cy To Preference Share Capital A/c | 135g Un {Fist and final cll due on 45,000 Preference Shares @ €3 per share) | | a Note: When two types of shares are issued, the types of shares, ie, Equity and Preference Shares, mention? and while passing the entries thereof, Int CALLS-IN-ARREARS = Ifa shareholder does not pay the call amount due on allot terms, the amount not so received is called C. account of allotment or calls may or may not ment or on any calls according to tt alls-in-Arrears. The unpaid or arrear amount be transferre. d to Calls-in-Arrears Account. If the question requires that the amount of calls Not received be Account, the amount not received should be ‘transferred to Calls-in-Ar e transferred to Calls-in-Arrears Account. Interest on Calls-in-Arrears The company if authorised by its Articles of Association May charge interest at the specifié rate on Calls-in-Arrears from the due date to De. | pi iChapter 8- Company Accounts—Accounting for Sha accounting of Calls-in-Arrears ‘There are two methods of accounting, of Calls-in-Arrears: o without Opening Calls-in-Arrears Account Under this method, amount not received from the shareholders is not transferred to Calin-Arrears Account. Total of balances in different Call Accounts is the unpaid amount on. calls. Ona subsequent date, when the amounts received, Bank Account is debited and relevant Call Account is credited. Suppose, if first call money @ % 2 per share on 10,000 shares is called butout of this frstcall money on 9,500 shares is received, entries willbe passed a follows: 35q, Date | Particulars Le] De®) | CR) | Shares First Call A/c Dr. | | To Share Capital A/c is aj, 1900 (First call money due on 10,000 shares @ 2 per share) Bank A/c Dr, 19,000 oom To Shares First Call A/c ‘ 19000 | (First call money received only on 9,500 shares) SHARES FIRST CALL ACCOUNT oa JE. % | Date | Particulars 20,000 By Bank A/c By Balance c/d (Calls-in-Arrears) | 20,000 | you — wT: The above balance of Shares First Call Account shows the amount receivable, ie,,Calls-in-Arrears. (ii) By Opening Calls-in-Arrears Account Under this method, unpaid amount is transferred to Calls-in-Arrears Account. As a ‘50M sesult, Shares Allotment Account and different Call Accounts will not show balance. The Calls-in-Arrears Account will show a debit balance equal to the total unpaid amount on allotment ona and calls. Later, on receipt of arrear amount, itis credited to the Calls-in-Arrears Account, Inthe above example, if Calls-in-Arrears Account is opened, entries will be passed as follows: 4 Date | Particulars Le] @ | o® 3 "Shares First Call Ac 7 i a Dr | 20,000 te To Share Capital A/c | 20,000 ? First call money due on 10,000 shares@%2pershare) tof | Bank A/c as 19,000 | 19,000 | To Shares First Call A/c x \(Fist call money received only on 9,500 shares) Calls-in-Arrears A/c 1.00, To Shares First Call A/c | | | (Unpaid amount on First Call transfered to Calls-in-Arears Accound), _ | a Blac of above two entries, a combined Date ea wi 8 entry may also be passed as follows: os LR] De®) Bank A/c Callsin-Arrears A/c _ 1 First Call A/c a received except on 500 shares and unpaid amount to Calls-in-Arrears Account)of Calls-in-Arrears in the Balance Sheet ‘Account is shown in the Note to Accounts on ‘Share Capital’ to . ‘a deduction from the amount of *Subscribed but not fully paid-up’ under ’ “Accounting Entries of Calls-in Arreal 1. On non-receipt of call amount: Ne Dt To Relevant Call A/c (Say, Shares Allotment A/c) 2. Onreceipt of Call-in-Arrears ata subsequent date: Nc Dr. {With the Calls-in- Arrears: | To Calls-in-Arrears A/c a Mlustration 26. of 10,00,000 divided into shares of 7 10 each. It offer X Ltd. was formed with a capital {90% shares for subscription. 40% payable on application, 25% payable on allotment and ty balance on final call. The applicants paid & 3,60,000 on application and 1,69,000 on allot Final call had not yet been made. Calculate: (a) Authorised Capital, (b) Issued Capital, (c) Subscribed Capital, (d) Called-up Capital, (e) Paid-up Capital, (6) Calls-in-Arrears. s Calculation of various capitals: {a) Authorised Capital =F 10,00,000. (©) Issued Capital = & 9,00,000 (ie, 90% of % 10,00,000). (©) Subscribed Capital = & 9,00,000. (@) Called-up Capital = € 5,85,000 (ie, 65% of & 9,00,000) (e) Paid-up Capital = 5,29,000 (ie. € 3,60,000 + & 1,69,000). ; (@®) Calls-in Arrears =& 56,000 (i.e, & 5,85,000 -% 5,29,000). } fh > (Calls-in-Arrears). Ben Tech Ltd. company had an authorised capital of % 12,50,000 divided into 12,500 s %100each. The company issued 10,000 shares payable as € 25 on application, % 25 ¥ ap.0n fret call and € 20 on second and final cal. All the shares were subscribed. 4 sas made and the money was duly received except the second and final call on 500 shares istransferred to Calls-in-Arrears Account Pass Journal entries, prepare Share Capital AS and show how share capital will appear in the Balance Sheet (Dethi 2012 Solution: In the Books of Ben Tech Ltd. JOURNAL ‘bank Ay (10000 25) To Shae money received for 10,000 shares @ € 25 per shave)Chapter 8: Company ‘Accounts—Accounting for Share Capital 8.51 Dr, Sea a n ees Allotment A/c 7 Jament money received on 10,000 shares) | 250,000 al pores Fist cal AZ (10000 30) i Jo share Capital A/c ¢ristcall money de) 3,00,000 Bank Vc - = ‘Jo shares First Call A/c 3,00,000 (Fisteall money received) shares Second and Final Call A/c (10,000 x % 20) . To Share Capital Ac {Second and final call due) 2,00,000 2,00,000 Bank A/c (9500 x & 20) 4 Galsin-Arrears A/c (500 x 20) ins To Shares Second and Final Call A/c cond and final call money received on 9,500 1,90,000 10,000 res) Or SHARE CAPITAL ACCOUNT Particulars z Particulars 7 To. Balance od 10,00,000) By Shares Application A/c By. Shares Allotment A/c By Shares First Call A/c By. Shares Second and Final Call A/c 2,00,000 10,00,000 10,00,000 BALANCE SHEET (EXTRACT) as at.. Particulars Note No, z |. EQUITY AND LIABILITIES Shareholders’ Funds Share Capital = Note to Accounts 1. Share Capital ‘Authorised Capital 1 2.500 Equity Shares of 100 each | sued capita 000 200 Gty Shares of 100 each, aa t ‘ubscribed Capital *ubstibed and fully paid-up ie Shares of 100 each a ‘d but not fully paid-u aay ‘Shares of & 1Oveach fs rane i * Gals Arrears (500 x 20) ar 9509,pplicants to whom pro rata allotment is made ipplication money may be adjusted towards lave paid excess ap 0 Fatlicd Securities Premium, if shares are aglgiffeee ean te a eae Wards Share Capital and thereafter, towards Securities Premtam, Adjustment is made balance may be carried forward and adjusted against calls, if the question specifies. [llustration 28 (Oversubscription of Shares and Calls-in-Arrears). ‘Alfa Co. Ltd. issued 50,000 Equity Shares of & 10 each at a premium of € 2 per share payable |) as follows: %3 on application, Applications were re accepted in full; 10,000 Equit applications for 5,000 Equity the first call on 1,000 Equity Shares and final cé Pass entries in the Cash Book and Journal of the Company: Also, Balance Sheet. 4 on allotment (including premium), % 2 on first call and % 3 on final call ceived for 65,000 Equity Shares. Applications for 40,000 Equity Shares were ty Shares were allotted to applicants of 20,000 Equity Shares and Shares were rejected. The amounts due were duly received excep all on 1,500 Equity Shares. show Share Capital in the Solution: In the Books of Alfa Co.Ltd. ‘Dr. CASH BOOK (BANK COLUMN: ONLY) Date | Particulars @ [Date _| Particulars ic To Shares Appli 1,95,000 By Shares Application A/c | &30n 65,000 shares) | (©3 on 5,000 shares refunded) | To Shares Allotment A/c | 1,70,000 By Balance c/d % 2,00,000 - 30,000) To Shares First Call A/c (© 1,00,000-% 2,000) ‘To. Shares Second and Final Call (© 1,50,000-% 4,500) 98,000 | Nc | 145,500 | \3\ a:Callsin-Arears Nc To Shares First Call A/c ¢amoney not reevedranstered to Cals nears Account) Shares Second and Final Call A/c | To Share Capital A/c | Sond and Final all due on 50.000 shares) Calisin-Arrears A/c | To Shares Second and Final Call Ac {Gell money not received transferred to Calls-in-Arrears Account) BALANCE SHEET asat... Particulars NoteNo.| & 1. EQUITY AND LIABILITIES Shareholders’ Funds Share Capital 1 493,500 Note to Accounts: $$$ 1. Share Capital < Authorised Capital ~Equity Shares of € 10 each Issued Capital 50/000 Equity Shares of € 10 each Subscribed Capital Subscribed and fully paid-up 48,500 Equity Shares of & 10 each Subscribed but not fully paid-up } 1,500 Equity Shares of € 10 each Le (658: Calisin-Arrears {(1,000 x 2) + (1,500 3)] Notes; 1. Securities Premium Reserve Account, being capital profit, will be shown in the Equity and Balance Sheet under the head’Reserves and Surplus: 2. Theamount not received on shares may or may not be transferred to Calhin Arrears Ac Uestion prescribes so, amount not received is transfered to Call-in Arrears i ‘call or calls are in arrear are shown as ‘Shares Subscribed but ch calls are not received are shown as sharesble Entry Book Keeping—CBSE Xil CALLS-IN-ADVANCE if its Articles of Association allows, accept the amount against te Call ‘A company may, a or calls not yet made. The amount so received in advance is credited to C a ent ‘Account. As discussed earlier, it may also happen in case of partial or pro rata allotment & % ae .5 in excess shares when the company retains excess amount received on application of share: of allotment money. Disclosure of Calls-in-Advance in the Balance Sheet ae m in fl The amount received that is not yet due is a liability of the company: It is show! the Equity and Liabilities part ofthe Balance Sheet under the main head Current Liabilities and sub-head Other Current Liabilities. The Journal entry passed to record Calls-in-Advance is: Bank A/c Dr, [With the amount of calls money received in advanc To Calls-in-Advance A/c Itis adjusted when the respective call is made due. The entry is: Calls-in-Advance A/c Dr. To Relevant Call A/c (Say, Shares First Call A/c) Interest on Calls-in-Advance Interest on Calls-in-Advance is paid if the Articles of Association so provides. But if Articles of Association is silent or it does not have clause to this effect, provisions of Tabll of the Companies Act, 2013 apply and the company is liable to pay interest on Calls-in-Ada@ @12% pa. Interest on Calls-in-Advance and Calls-in-Arrears is not in syllabus Illustration 29 (Calls-in-Arrears and Calls Paid in Advance both). The Kerala Coir Mills Ltd., with an authorised cay _ issued 2,00,000 Equity Shares, %20n second and final call, a ae, pital of 5,00,000 Equi de ' ,00, quity Shares of & 1 payable % 3 on application, 2 on allotment, 3 on first The it i Z ae ae a ea Was received. On the first call being made, one Iding 6, ires paid second i : : eee ain Nee nd and final call a with the first cé sharehol id not pay the 8 of 10,000 Equity Shares dlemanded the second and final calChapter 8» Company Accounts—Accounting for Share Capital 8.55 In the Books of Kerala Coir Mills Ltd. JOURNAL Equity Shares Application A/c gation money on 200,000 shares @ & 3 per share received) 2 Jegaly Sars Application Ne Dr. 6,00,000 Jo Equity Share Capital A/c | 690000 Equity Shares Allotment A/c =D. | — | 400,000 To Equity Share Capital A/c 4,00,000 {Amount due on allotment on 2,00,000 shares @ %2 per share) “Bank lc Or. 4,00,000 To Equity Shares Allotment A/c 4,00,000 {Allotment money received) Equity Shares First Call A/c Dt 6,00,000 To Equity Share Capital A/c 6,00,000 EFistcall money due on 2,00,000 shares @ 3 per share) Bank A/c Dr. 5,82,000 Gisin-Arrears A/c Dr. 30,000 To Equity Shares First Call A/c 6,00,000 To Calls-in-Advance A/c 12,000 [Fist call money received except on 10,000 shares @% 3 per share 4nd fina call of €2 per share on 6,000 shares received in advance) | BALANCE SHEET OF KERALA COIR MILLS LTD. asat.aid-up Equity Shares of 1Oeachs 8 called-uP “Less: Callsin-Arrears (10,0003) “2, Other Current Liabilities Callsin-Advance +3. Cashand Cash Equivalents ‘Cash at Bank Illustration 30. | Shares of € 10 each payable as: On 1st January, 2020, Bani Ltd. issued 10,000 Equity on allotment & 3, on first and final call @ 4 (three months after allotment). ‘on application & 3, ‘Applications were received for 13,000 shares and Directors made allotment in full to the applicants demanding five or more shares and refunded amount to the applicants for 3,000 shares. One shareholder, who was ‘allotted 200 shares, paid first and final call with allotment money and another shareholder did not pay allotment money on his 300 shares and paid it with first and final call. Journalise the transactions in the books of Bani Lt ‘maintains Calls-in-Arrears Account. d. including cash transactions. The company In the Books of Bani Ltd. Solution: JOURNAL Date _| Particulars ik Bank Alc (13,000 x 3) To. Equity Shares Application A/c | {Application money received on 13,000, shares) Equity Shares Application A/c To. Equity Share Capital A/c (10,000 x3) To. Bank Ac (3,000 x 3) (Application money adjusted and surplus refunded) Equity Shares Allotment Vc 7 ‘n To pieaai sit ort Nc Polaroids pm adosrnent of 10,000 shares @ C3 per shal a 3per share) Calls-in-Arrears A/c (300 x 3) To Equity Shares Allotment A/c To Callsin-Advance Ac (200 x & 4) ent money ton 300 shares, hares First and Final Call tal A/c© eT a ‘Chapter 8 - Company Accounts—Accounting for Share Capital 8.57 Dr 40,100 | 39,200 Jo Callsin-Arrears A/c | se ‘and final call money received including arrears on 300 shares as | i ‘allotment money) | alisin-Advance A/c 7Be | 00 Jo Equity Shares First and Final Call A/c 200 I eter adjusted) | { | [Ilustration 31. | cp tstanuary, 2016 the first call of 3 per share became due on 1,00,000 equity shares issued by Kamini Ltd. Karan a holder of 500 shares did not pay the first call money. Arjun a shareholder holding 1,000 shares paid the second and final call of €5 per share along with the first call. Pass the necessary Journal entry for the amount received by opening ‘Calls-in-Arrears’ and *Calls-in-Advance’ Account in the books of the company. (CBSE 2016) JOURNAL OF KAMINI LTD. a Jan, 1} Bank A/c{(99500 x €3) + (1,000 x5)] Dr. 3903500 | Cals-in-Arrears A/c (500% 3) Dr. 1500 To. Equity Shares Fist Call A/c 3.00000 To Callsin-Advance A/c (1,000 x5) 5,000 (Fist call money received except on 500 shares and received second and final call in advance on 1,000 shares) Note:The question requires a Journal entry for the transaction. Therefore, a single entry has been passed. Differenc Basis Callsin Arrears Callsin-Advance 5. Meaning Calls-in-Arrears is the amount called-up by the | Callsin-Advance is the amount not callec-up company, but not paid by the shareholders. _| by the company, but pai by the shareholders. 2 Interest Interest is charged on Calls-in-Artears. Interests allowed on Calls-n-Advance. 3. Rate of interest ‘As per Table F of the Companies Act, 2013 | As per Table F of the Companies Act, 2013, fi interests charged @ 10% pa. interestis paid @ 12% pa. 4 Authorityunder Articles of Association does not have any clause | A company may accept Calls-in-Advance only Articles of to this effect as non-payment is beyond the | if ts Articles of Association authorises it to __ Association company’s control. doo, 5. Disclosure Tt is shown by way of deduction from | It is shown in the Balance Sheet as Other Subscribed Capital (subscribed but not fully | Current Liabilities under the main head dup) in the Note to Accounts on Share | Current Liabilities.a \l, SHARES ISSUED FOR CONSIDERATION OTHER THAN CAS i ‘inst ase ‘Accompany may issue shares for consideration ‘i aire aan = asset or purchi if business or services taken, etc. Purct a : ca and mae of ase are two separate transactions. Thus, entry is passed for each transact ‘The Journal entries passed are: |. (a) OnPurchase of Assets Di. {With the amount of purchase ga un all {With purchase consider To Vendor's A/c (b) On Purchase of Business lu Sundry Asset A/cs (Individually) Dr. thgreed value ofa Or Goodwill A/c* 3 4 To Sundry Liabilities A/c individually) (Agreed value of ibis To Vendors A/c {With purchase consideraag To. Capital Reserve A/c** Purchase consideration is the amount paid by purchasing company in consideration for purchase of asseu Pusiness from other enterprise, It may be given in the question, otherwise it will be equal to net assets ite., sundry assets minus sundry liabilities. “Trpurchase consideration givens more than net asets, then diferenceis debited to Goodwill Account. tisag of Purchased Goodwill hence, willbe recorded in the books ‘NfPurchase consideration avenisless than net asses then the cfferencei credited to Capita Reserve Ether Goodwill or Capital Reserve will appear ata time. I. On Issue of Shares (@) Ifshares are issued to vendor at par Vendors A/c Dr, To Share Capital A/c (6) Ifshares are issued to vendor ata premium: Vendors A/c To. Share Capital A/c To Securities Premium Reserve A/c (With the nominal value of shares alot Dr. (With the purchase pri With the nominal value of shares alltel (With the amount of premitsh Note: Before passing the Journal entr Nr calculate the number of shares to be consideration as follows: issued against purch Number of Shares to be Issued = Purchase Consideratio Issue Price of a Share Newton Ltd. purchased machinery for & 6,00,000 from issue of equity shares of & 10 each. Calculate number shares are to be issued at: (i) Par; (ii) Premium of 20%, Ans, The number of shares to be issued in each of the alte ) Issued at Par = & 6,00,000% 10 = 60,000 shares (ii) Issued at Premium of 20% = 6,00,0007 12. 50,000 shares, "mative cases will be: Issue of Shares to Promoters Bometimes, companies isaue shares to promoters for thle sey rendered to th i s 7 ‘rvices rend rom the accounting point of view, its ‘incorporation costs’ or formation ae theamount is debited to”Incorporation Expenses Account’ vn “Pre . ‘liminary Expenses eemotets AC To Share Capital A/c = gue of shares ofeach 5 fully pa tothe promoters) Bes 23 val off in the year they are incurred from Securities Premium _ Preliminayatement of Profit and Loss, Reserve OF Statem f issue of Share ‘Underwsting means a contract by which a person, known as underwriter, agrees usually for ‘commission to take the shares not subscribed by ptiblic. The company may issue shares to the , instead of paying the commission in cash. s to Underwriters sunderwrit ‘The Journal entries in this case are: Underwriting Commission A/c eon | To Underwriters’ A/c E {Underwriting commission due) Underwriters’ A/c Dr. To Share Capital A/c (ushares of Z..each issued to the underwriters) Underwriting commission is written off in the year shares are issued from Securities Premium _ Reserve or Statement of Profit and Loss. Disclosure of Shares Issued for Consideration other than Cash in the Balance Sheet Shares issued for consideration other than cash are disclosed, ie, shown in the Balance Sheet under Subscribed Capital (either as Subscribed and fully paid-up or Subscribed but not fully paid-up, as the case is) in the Note to Accounts on ‘Share Capital’. ER oe Example 6, Shares of 10 each towards consideration Share Capital as follows: fitzen Watches Ltd. issued 1,00,000 fully paid Equity Purchase of machinery. It is shown in the Note to Accounts ons Ltd, purchased the business of Ram Bros. for & 1,80,000 payable in fully = Of € 10 each. Pass the Journal entries in the books of Tiny Toys Ltd. if the Solution: JOURNALOFTINYTOYSUTD. = ~7 ji i a | Or Date | Particulars LF ®@ Sundry Assets Ac Dt. 1,80,000 — | To Ram Bros. {Business purchased from Ram Bros) - sol y font acon Dr. 1,80,000 To Equity Share Capital A/c (issue of 18,000 shares of € 10 each at par to Ram Bros.) (WN 1) i)_| When shares ae sued ata premium: a Dr 180,000 To Equity Share Capital A/c To Securities Premium Reserve Alc (issue of 15,000 shares of € 10 each at a premium of 20%) (WN 2), Purchase Consideration 3 i fret eetied ee occas Consiceration Working Notes: Number of Equity Shares to be issue iesieprceCra Give | Pas 1. No. of Equity Shares Tigo.coo =18,000 shares; 2. No. of Equity Shares = Eigeoee =15000staR “G Mlustration 33 (Issue of Shares for Purchase of Business) | sajan Lid. purchased a running business from Vikas Ltd. for a sum of & 2,50,000 payable (ii £2,20,000 in fully paid equity shares of € 10 each and balance by a bank draft. The acets liabilities consisted of the following: Plant and Machinery & 90,000; Building Cash % 20,000; Sundry Creditors % 20,000, Journalise the above transactions. € 90,000; Sundry Debtors % 30,000; Stock & 50 (Dethi Solutio: JOURNAL Date | Particulars Soleo LE] De® | Plantand Machinery A/c Building Aic by | Sundry Debtors A/c 30, Stock Ale oe | Gash Ac Song To. Sundry Creditors A/c pee To Vikas Ltd, To Capital Reserve A/c (Balancing Figure) (Business of Vikas Ltd. purchased) | Vikas Led. | j To. Equity Share Capital A/c Dr 250,000 | To Bank ic Y | (Purchase consideration pa o Vikas Ld, by issu of 2,000 Equity of 10 each and balance by bank draft) Shares