Company Accounts: Issue of Shares and Debentures
Company Accounts: Issue of Shares and Debentures tests share capital and debenture accounting, including calls, forfeiture and premium.
Core rules
- Share capital categories: authorised, issued, subscribed, called-up and paid-up. Equity shares carry voting rights; preference shares carry fixed dividend and priority.
- Issue may be at par, premium or (historically) discount. Money is collected in instalments: application, allotment and calls. Excess application money may be adjusted against allotment on a pro-rata basis.
- Forfeiture: if a call is unpaid, shares may be forfeited; the amount already received is credited to Forfeited Shares Account. On reissue, any discount is set off against the forfeited amount; a balance is transferred to capital reserve.
- Debentures are debt; interest is a charge against profit, payable even without profit.
Worked example
10,000 shares of ₹10 issued at ₹12: ₹3 on application, ₹5 on allotment (including premium ₹2), ₹4 on call. Applications for 12,000 shares; excess ₹6,000 adjusted. Application money = ₹36,000; allotment due = ₹50,000 − ₹6,000 = ₹44,000; call = ₹40,000. Share capital = ₹1,00,000; securities premium = ₹20,000.
Traps
Do not credit premium to share capital; interest on calls in advance is an expense; calls in arrears are deducted from called-up capital; on forfeiture, do not transfer premium to forfeited shares account in the same way as capital.