Accounting for Share Capital
What the exam tests
Accounting for Share Capital tests issue of shares at par, premium and discount, calls, pro-rata allotment, forfeiture and reissue, and presentation of share capital. Share capital is credited with face value only; premium goes to Securities Premium. Calls in arrears is an asset until forfeiture; calls in advance is a liability. On forfeiture, debit Share Capital with the called-up amount, credit Calls in Arrears with the unpaid amount, and credit Share Forfeiture with the amount received. On reissue, any discount not exceeding the forfeited amount is debited to Share Forfeiture; the remaining balance is transferred to Capital Reserve.
Worked example
A company issued 5,000 equity shares of Rs. 10 at par, payable Rs. 3 on application, Rs. 4 on allotment and Rs. 3 on call. A holder of 200 shares fails to pay the call. Amount received = 200 x (3 + 4) = Rs. 1,400. Forfeiture entry: Share Capital Dr Rs. 2,000; Calls in Arrears Cr Rs. 600; Share Forfeiture Cr Rs. 1,400. If the 200 shares are reissued at Rs. 8, discount is Rs. 400: Bank Dr Rs. 1,600; Share Forfeiture Dr Rs. 400; Share Capital Cr Rs. 2,000. Capital Reserve = Rs. 1,400 - Rs. 400 = Rs. 1,000.
Traps
Do not credit share capital with premium. In pro-rata allotment, excess application money is adjusted against allotment and then calls, not refunded automatically. Do not forfeit shares before the due call remains unpaid. Do not transfer the whole forfeiture balance to Capital Reserve if a reissue discount has been charged to it.