Company Accounts
Company Accounts
This domain tests share capital, issue of shares, calls in arrears and advance, forfeiture and reissue of shares, and the relevant balance sheet presentation.
Core rules
- Share capital may be authorised, issued, subscribed and paid-up. Calls in arrears is deducted from called-up capital; calls in advance is a liability.
- On forfeiture, Share Capital is debited with the called-up amount, Calls in Arrears is credited with the unpaid amount, and Forfeited Shares is credited with the amount already received.
- On reissue, any discount allowed is debited to Forfeited Shares; the remaining balance is transferred to Capital Reserve.
Worked example
A company issued 1,000 shares of Rs.10 each: application Rs.3, allotment Rs.4, first call Rs.3. A holder of 100 shares paid application and allotment but failed to pay the first call. Forfeiture entry: Share Capital Dr Rs.1,000; Calls in Arrears Cr Rs.300; Forfeited Shares Cr Rs.700. The 100 shares are reissued at Rs.8 fully paid: Bank Dr Rs.800; Forfeited Shares Dr Rs.200; Share Capital Cr Rs.1,000. Remaining forfeited balance Rs.500 is transferred to Capital Reserve.
Traps
Forfeiting shares issued at a premium without adjusting securities premium; transferring the whole forfeited balance to Capital Reserve when only part of the shares is reissued; and treating calls in advance as an asset.