Accounting for Share Capital
Share capital questions combine company-accounts procedure with careful arithmetic on application, allotment and calls.
Basic structure
Share capital is disclosed as authorised, issued, subscribed, called-up and paid-up. Calls in arrears are deducted from called-up capital; calls in advance are a separate current liability, carrying interest at 12% p.a. when the articles are silent. Securities premium is credited to a separate account under Section 52 and may be used only for the purposes the section permits.
Pro-rata allotment
When applications exceed the issue, excess application money is adjusted against allotment and later calls. Work per share for the applicant who is allotted fewer shares: excess = (shares applied − shares allotted) × application money per share.
Forfeiture
Share Capital is debited with the called-up value of the forfeited shares; Calls in Arrears is credited with the unpaid amount; Share Forfeiture is credited with the amount actually received. If premium was due but not received, Securities Premium is also debited with the unpaid premium. On reissue, the discount allowed cannot exceed the amount forfeited on those shares, and the balance left in the Forfeiture Account is transferred to Capital Reserve.
Worked example
500 shares of ₹10 each issued at ₹2 premium are forfeited after the first and final calls went unpaid. Application ₹3 and allotment ₹5 (including the ₹2 premium) had been received. Entry: Share Capital Dr ₹5,000; To Share Forfeiture ₹3,000; To Calls in Arrears ₹2,000. Reissue at ₹7: Share Forfeiture Dr ₹1,500; Bank Dr ₹3,500; To Share Capital ₹5,000. The remaining ₹1,500 goes to Capital Reserve.
Traps
Charging interest on application money as calls in advance; debiting the full premium when only part was received; transferring the whole forfeiture balance to Capital Reserve when only part of the shares were reissued.