Accounting for Companies
This domain tests share capital, debentures, company final accounts and reserves under the Companies Act 2013 framework. Expect journal entries for issue, forfeiture/reissue, calls, debentures and dividends, plus balance-sheet presentation.
Core rules
- Share capital is shown at face value. Calls in arrears are deducted from called-up capital; calls in advance are a liability. Securities premium is a capital receipt with restricted uses; it cannot be used to pay dividends.
- On forfeiture, debit share capital with the called-up amount, credit calls in arrears with unpaid calls, and credit forfeited shares with amounts already received. On reissue, any discount is charged to forfeited shares; the remaining balance is capital reserve.
- Debentures are long-term liabilities. Interest is an expense and accrues; discount or premium on issue is dealt with separately from the face value.
- Dividends are declared by shareholders and are not an expense; unpaid dividends are a current liability. Transfer to reserves follows the applicable law and articles.
Worked example
10,000 equity shares of ₹10 each are issued at par: ₹3 on application, ₹4 on allotment, ₹3 on final call. A holder of 1,000 shares fails the final call. Forfeiture: Share capital Dr ₹10,000; Calls in arrears Cr ₹3,000; Forfeited shares Cr ₹7,000. The 1,000 shares are reissued at ₹8. Bank Dr ₹8,000; Forfeited shares Dr ₹2,000; Share capital Cr ₹10,000. The remaining forfeited balance ₹5,000 is transferred to capital reserve.
Traps
Do not credit securities premium as revenue. Do not charge reissue discount to profit and loss if forfeited shares balance exists. Do not show calls in arrears as an asset. Do not treat debenture interest as an appropriation of profit. Do not record dividend as an expense.