Accounting for Share Capital
This section covers Accounting for Share Capital. BSEB tests issue of shares at par and premium, calls in arrears and advance, forfeiture and reissue, and the presentation of share capital under the Companies Act, 2013.
Core rules
- Share capital is classified as authorised, issued, subscribed and paid-up. Calls in arrears are deducted from subscribed capital; calls in advance are shown separately.
- On issue, application money is received first, then allotment and calls. Securities premium is credited to Securities Premium Account and is not revenue profit.
- Forfeiture cancels defaulted shares. Share Capital is debited with the called-up amount; Calls in Arrears is credited with the unpaid amount; Share Forfeiture is credited with the amount already received.
- On reissue, any discount cannot exceed the forfeited amount. The balance in Share Forfeiture is transferred to Capital Reserve.
Worked example
A company issued 500 shares of ₹10 each. Application ₹3, allotment ₹4, first call ₹2 and final call ₹1 were made. A holder paid only application money. Unpaid = ₹7 × 500 = ₹3,500. Forfeiture entry: Share Capital A/c Dr ₹5,000; To Calls in Arrears A/c ₹3,500; To Share Forfeiture A/c ₹1,500. If the shares are reissued at ₹8, Bank Dr ₹4,000; Share Forfeiture Dr ₹1,000; To Share Capital ₹5,000. The remaining ₹500 in Share Forfeiture is transferred to Capital Reserve.
Traps
Do not credit forfeiture with unpaid calls; only the amount received is forfeited. Do not use securities premium to pay dividends. Do not show calls in advance as part of paid-up capital. On reissue at a discount, check that the discount does not exceed the forfeited amount.