Accounting for Share Capital
Capital categories
Authorised (nominal) capital is the maximum stated in the memorandum; issued capital is what is offered; subscribed is what is accepted; paid-up is subscribed less calls in arrears. Share capital is presented in the balance sheet by notes under Schedule III.
Issue mechanics
Applications exceeding the offer are allotted pro rata: excess application money is adjusted towards allotment and later calls, and any surplus is refunded. Calls in advance carry interest at the rate in the articles (often 12% p.a.) and are shown under current liabilities; calls in arrears are deducted from paid-up capital. Section 53 of the Companies Act, 2013 prohibits issue of shares at a discount.
Forfeiture and reissue
Forfeiture cancels the defaulting holder's shares; the amount already received, excluding premium not yet due, is credited to Share Forfeiture. On reissue at a discount the loss is met from that account, and the balance is capital reserve.
Worked example
1,000 shares of ₹10 each; application ₹3, allotment ₹4, first call ₹3. A holder of 200 shares paid application and allotment but not the first call, so 200 × 3 = ₹600 is unpaid. Forfeiture: Share Capital A/c Dr ₹2,000; To Calls in Arrears ₹600; To Share Forfeiture ₹1,400. Reissue of the 200 shares at ₹9 fully paid: Bank A/c Dr ₹1,800; Share Forfeiture A/c Dr ₹200; To Share Capital ₹2,000. Capital reserve = 1,400 − 200 = ₹1,200.
Traps
Crediting premium received on forfeited shares to Share Forfeiture when it was not yet due; treating calls in advance as share capital; and forgetting to show calls in arrears as a deduction in the notes.