I85PREP
⌘ K
WB HS Accountancy study materials
WB HS Accountancy study resources

WB HS Accountancy: Accounting for Share Capital and Debentures

WB HS Accountancy · Work through your exam, one topic at a time.

All guide sections

Accounting for Share Capital and Debentures

What the exam tests

Company accounts questions test share capital presentation, issue procedures, calls, forfeiture and reissue, and debentures. You must distinguish share capital (ownership) from debentures (debt).

Share capital rules

  • Authorised, issued, subscribed, and paid-up capital are separate. Called-up capital less calls in arrears equals paid-up capital.
  • Issue at premium: Securities Premium is credited; it is not revenue profit. It can be used for bonus issue, buy-back, writing off preliminary expenses, or premium on redemption, not for dividends.
  • Pro-rata allotment: excess application money is adjusted against allotment; any surplus is refunded. Calls in arrears are shown as a deduction from called-up capital.
  • Forfeiture: debit share capital (called-up amount) and credit Forfeited Shares A/c with the amount received. If shares were issued at a premium and the premium is unpaid, do not credit Securities Premium; if already credited, debit it.
  • Reissue at a discount: the discount cannot exceed the forfeited amount; the balance in Forfeited Shares A/c is transferred to Capital Reserve.

Debentures

  • Issue at par, premium, or discount. Discount on issue is a loss written off; premium is a capital profit.
  • Interest is a charge against profit, payable even if there is a loss. TDS and interest accrued must be recorded.
  • Redemption may be by lump sum, instalments, or purchase in the open market.

Worked example

A company issued 10,000 shares of ₹10 at a premium of ₹2. Applications for 12,000 shares; allotment was pro-rata. Application money ₹3 including premium ₹2; allotment ₹5; first call ₹2; final call ₹2. A holder of 600 applied shares was allotted 500. Excess application = 100 × 3 = ₹300, adjusted against allotment. Allotment due = 500 × 5 = ₹2,500; balance ₹2,200. Reasoning: premium is collected at application here, so it is credited when received.

Traps

Showing calls in arrears as an asset; using Securities Premium to pay dividends; crediting the full premium on forfeited shares when it was never received; and calculating pro-rata on the number applied rather than the number allotted.