Accounting for Share Capital
Presentation
Share capital in the Balance Sheet is built up as Authorised → Issued → Subscribed → Called up → Paid up. The gap between subscribed and paid up is Calls in Arrears, deducted from subscribed capital; Calls in Advance is a current liability. Securities premium is credited only for amounts actually received and may be used only for the purposes listed in section 52 of the Companies Act, 2013 - issue of bonus shares, writing off preliminary expenses or share issue expenses, premium on redemption of shares or debentures, and buy-back.
Forfeiture and reissue
On forfeiture: debit Share Capital with the called-up amount, credit Share Forfeiture with the amount already received (excluding securities premium), and credit Calls in Arrears with the unpaid amount. On reissue at a discount, the loss is debited to Share Forfeiture; the remaining balance is transferred to Capital Reserve. Amounts forfeited on shares not yet reissued stay in the Share Forfeiture Account.
Worked example
500 shares of ₹10 issued at par: application ₹3, allotment ₹4, first call ₹3. The holder paid application and allotment but failed the first call. Forfeiture: Dr Share Capital 5,000; Cr Share First Call 1,500; Cr Share Forfeiture 3,500. Reissue at ₹8: Dr Bank 4,000; Dr Share Forfeiture 1,000; Cr Share Capital 5,000. Capital Reserve = 3,500 − 1,000 = ₹2,500.
Marks-losing traps
- Applying pro-rata allotment to the wrong category of applicants.
- Showing calls in arrears as an asset.
- Transferring the whole ₹3,500 to Capital Reserve instead of the net figure.
- Ignoring that premium received is never reversed on forfeiture.