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Class 12 Accountancy Chapter 1 – Accounting For Share Capital

Short Questions for NCERT Accountancy Solutions Part 2 Class 12 Chapter 1

1. What is public company?

A Public company as per section Sec 2(71) and Sec.3 (1) (a) of Company Act, 2013 means a company which

a. Is not a private company

b. Has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed

c. Is a private company, being a subsidiary of a company which is not a private company.

The stock of a public company can be acquired by any individual and it may be through IPO or through trading on stock market.

2. What is private limited company?

As per Section 2(68) of Companies Act, 2013, Private limited companies are defined as companies that have following characteristics:

1. Companies whose article of association restricts transfer of shares

2. No minimum paid up capital

3. Minimum 2 members and maximum of 200 members (Only one in case of One Person Company)

4. Must include “private limited” or “Pvt Ltd” in their names

5. Shares of a private company are not traded in stock exchanges

3. When can shares be forfeited?

A shareholder has to pay allotment money for holding the shares and has to pay the calls which are part of share allotment. When a shareholder fails to do so, a 14 days’ notice is served to the shareholder, if the shareholder does not pay in these 14 days, the shares will be forfeited.

4. What is meant by Calls-in-Arrears?

When an investor (shareholder) fails to pay all the instalments for the allotted shares in the due time, the company expects the investor to pay the amount on subsequent calls or stages. The amount of money that is paid at later stages is called as Call-in-Arrears.

5. What do you mean by a listed company?

Public companies whose shares are listed in recognised stock exchanges for public trading are called as Listed Company. Such companies are also known as Quota Companies. Once the securities are listed it helps the investors in knowing the value of their investment in a listed company. It provides the potential investors an idea about the goodwill of the company and helps them on taking future investment decisions and evaluate the viability of investing in the company.

6. What are the uses of securities premium?

Securities premium can be used for these activities:

1. Issuing fully paid up bonus shares to existing shareholders.

2. Writing off expense of issue of shares and debentures, such as discount given on issue of shares.

3. Writing off preliminary expenses

4. Buying back shares

5. For paying premium payable on redemption of debentures.

7. What is meant by Calls-in-Advance?

When the shareholder pays the whole amount before the share payment date becomes due i.e. before the share issuing company makes a call for it. It is known as Calls-in-advance.

8. Write a brief note on ‘Minimum Subscription’.

It refers to the minimum amount of shares that must be subscribed by the public, so that the share allotting company can allot shares to the applicants, is termed as Minimum Subscription. If Minimum Subscription is not attained, the company cannot allot shares to its applicants and it should refund the amount received to the public. Minimum Subscription should not be less than 90% of the amount issued.

Long Questions for NCERT Accountancy Solutions Part 2 Class 12 Chapter 1

1. What is meant by the word ‘Company’? Describe its characteristics.

Section 2(20) of the Companies Act 2013, defines the term “company” to mean “a company incorporated under the Companies Act, 2013 or any previous company law. In general parlance, a company is an artificial person, created by law and having a separate legal entity, common seal, perpetual succession and limited liability. It is a voluntary association of persons who come together and contribute capital for doing business. Capital of a company is available in form of shares and the ownership of shares is subject to certain terms and conditions. Public and private are two forms of company.

Characteristics of a Company

1. A company is an association formed voluntarily by a group of persons having a common business goal. Minimum number of members required for a private company is two and that for a public company is seven.

2. Company is a juristic and artificial person created by law.

3. Company is a separate legal entity from shareholders and directors. It has the authority to open a bank account, sign contracts and own property in its name.

4. The liability of the members of a company is limited to the unpaid value of the shares they are holding.

5. The company is having perpetual existence which means the existence of the company is not affected by death, insolvency or retirement of any of its members

6. The company being an artificial person has no individual signature, hence it carries a common seal for validating the official documents.

7. Shares of a public company is transferrable while private companies do not allow transfer of shares without member’s consent.

2. Explain in brief the main categories in which the share capital of a company is divided.

Following categories of share capital are there:

1. Authorised Capital: This is the maximum amount a company can raise by issuing of shares. It is the amount mentioned during the formation of Memorandum of Association.

2. Issued Capital: A portion of authorised share capital that is offered by the company to general public for subscription.

3. Unissued Capital: A part of authorised capital that is not yet offered to general public for subscription but can be offered in near future.

4. Subscribed Capital: A part of issued capital which is subscribed by the general public.

5. Unsubscribed Capital: Referred to as that part of issued capital that has not been subscribed by the people (public).

6. Called up Capital: It is a portion of the subscribed capital for which the shareholders are called to pay

7. Uncalled up capital: It is that part of a subscribed capital that is not yet called up, but can be called up as per requirement.

8. Paid Up Capital: It is part of called up share capital that is received by the shareholders

9. Reserve Capital: A company may call up certain part of uncalled share capital when a company is winding up. This cannot be used for any other purpose other than paying back creditors, hence it is called reserve capital.

3. What do you mean by the term ‘share’? Discuss the type of shares, which can be issued under the Companies Act, 2013 as amended to date.

In a company the capital is split into small denominations which are known as shares. Shares can be easily transferred from one person to another and this transfer is bound by certain terms and conditions. Shareholder is that person who is contributing capital in form of shares. Ownership is limited to the value of shares possessed by the shareholder. There are two types of shares:

1) Preference Shares and 2) Equity Shares

1)Preference Share: Section 43 of the Company Act, 2013 defines preference shares as which entitles the holder to receive dividend and also the right to receive capital invested in order of preference before equity share holders when the company is wind up.

2) Equity Shares: Equity shareholders manage the affairs of the company and also have a voting right. These type of share do not possess any preferential right for dividend payment or capital repayment. The dividend rate is not fixed and varies year on year which is dependent on available profit left after distributing to preference shareholders.

4. Discuss the process for the allotment of shares of a company in case of over subscription.

Over-subscription: It is referred to as the situation where the total number of applications received for share allotment exceeds the available number of shares that are issued by the company for public.

In case of over subscription there are 3 ways to deal with it:

5. What is a ‘Preference Share’? Describe the different types of preference shares.

Preference Share: Section 43 of the Company Act, 2013 defines preference shares as shares which entitles the holder to receive dividend and also the right to receive capital invested in order of preference before equity share holders when the company is wind up.

The different types are:

1. Cumulative Preference Share: When arrears of a dividend are cumulative and such arrears are paid before paying any dividend to equity shareholders, such shares are known as cumulative shares.

2. Non-Cumulative Preference Share: Shares where the dividend is paid from the net profits earned each year are known as non-cumulative preference share. If the company does not earn profits in any of the year, the arrears of dividend cannot be claimed.

3. Participating preference share: In these type of shares the preference shareholder has the luxury of participating in the surplus profit (i.e. apart from fixed rate of dividend) which is remaining after paying equity shareholders.

4. Non-participating Preference Share: The condition in which the shareholder is entitled only to a fix dividend pay-out and no share in surplus profits is known as non-participating preference share.

5. Convertible Preference Share: Type of shares which can be converted to equity shares within a period of time.

6. Non-Convertible Preference Share: Type of shares which do not have the right to convert into equity shares.

7. Redeemable Preference Shares: Those shares that can be repaid to the shareholders after a certain period as per provisions mentioned in Companies Act, 1956

8. Guaranteed Preference Shares: These shares have the provision of getting fixed dividend, even if the company is making no profits

6. Describe the provision of law relating to ‘Calls-in-Arrears’ and ‘Calls-in-Advance’.

When an investor (shareholder) fails to pay all the instalments for the allotted shares in the due time, the company expects the investor to pay the amount on subsequent calls or stages. The amount of money that is paid at later stages is called as Call-in-Arrears. The company is authorized by its Article of Association for charging a interest at a specified rate on the call in arrears amount from due date till the date of payment. If Article of Association does not mention or is silent about such a case, then a 5% charge is levied.

The amount is deducted from called up share capital on the liabilities side of Balance Sheet. If the due amount is not paid the shares can forfeited with proper notice to shareholders.

When the shareholder pays the whole amount before the share payment date becomes due i.e. before the share issuing company makes a call for it. It is known as Calls-in-advance. In case of advance payment the company has provision in their article of association to pay interest to shareholders from date of payment till date of call. If the article of association is silent in this regard, then a default 6% interest is provided.

It is shown on liabilities side of Balance Sheet under the heading of current liabilities.

7. Explain the terms ‘Over-subscription’ and ‘Under-subscription’. How are they dealt with in accounting records?

Over-subscription: It is referred to as the situation where the total number of applications received for share allotment exceeds the available number of shares that are issued by the company for public.

Under-subscription: This is the situation when the number of applications for share allotment are less than the number of shares issued by the company. A 90% subscription of the shares is called as Mini Subscription. If 90% subscription does not take place, the company should refund the money back to applicants.

In case of over subscription there are 3 ways to deal with it:

8. Describe the purposes for which a company can use ‘Securities Premium Account’.

Securities premium account can be used for these activities:

1. Issuing fully paid up bonus shares to existing shareholders.

2. Writing off expense of issue of shares and debentures, such as discount given on issue of shares.

3. Writing off preliminary expenses

4. Buying back shares

5. For paying premium payable on redemption of debentures

9. State clearly the conditions under which a company can issue shares at a discount.

Under the following conditions a company can issue shares at a discount:

1. The shares issued must belong to a class of shares that are already issued.

2. Shares can be issued at discount after a minimum time frame of 1 year from the date business has started

3. The issue of shares at discount is authorised by a resolution that is passed by the company in general meeting and approved by Company law board.

4. Shares can be issued at discount within two months of obtaining sanction company law board.

5. Maximum rate of discount must not cross 10% of face value or as decided by company law board.

10. Explain the term ‘Forfeiture of Shares’ and give the accounting treatment on forfeiture.

A shareholder has to pay allotment money for holding the shares and has to pay the calls which are part of share allotment. When a shareholder fails to do so, a 14 days’ notice is served to the shareholder, if the shareholder does not pay in these 14 days, the shares will be forfeited.

Table A of the Company Act, 2013 deals with Memorandum of Association for a company limited by shares. It has the following procedure for forfeiting of shares:

1. Notice sent to shareholder for making payment related to call arrears and interest on outstanding call money within a period of 14 days of receipt of the notice.

2. On non-payment of dues, the company can forfeit the share by passing a resolution

3. Forfeit notice resolution sent to the shareholder and a statement published in daily newspaper

4. Name of shareholder removed from registered shareholders list. 

Accounting Treatment for Forfeiture of Shares:

Numerical Questions for NCERT Accountancy Solutions Part 2 Class 12 Chapter 1

1. Anish Limited issued 30,000 equity shares of ₹ 100 each payable at ₹ 30 on application, ₹ 50 on allotment and ₹ 20 on Iast and final call. All money was duly received.

Record these transactions in the journal of the company.

 

2. The Adersh Control Device Ltd was registered with the authorised capital of ₹ 3, 00,000 divided into 30,000 shares of ₹ 10 each, which were offered to the public. Amount payable as ₹ 3 per share on application, ₹ 4 per share on allotment and ₹ 3 per share on first and final call. These share were fully subscribed and all money was dully received. Prepare journal and Cash Book.

3. Software solution India Ltd inviting application for 20,000 equity share of ₹ 100 each, payable ₹ 40 on application, ₹ 30 on allotment and ₹ 30 on call. The company received applications for 32,000 shares. Application for 2,000 shares were rejected and money returned to Applicants. Applications for 10,000 shares were accepted in full and applicants for 20,000 share allotted half of the number of share applied and excess application money adjusted into allotment. All money received due on allotment and call. Prepare journal and cash book.

Working Note:

4. Rupak Ltd. issued 10,000 shares of ₹ 100 each payable ₹ 20 per share on application, ₹ 30 per share on allotment and balance in two calls of ₹ 25 per share. The application and allotment money were duly received. On first call all member pays their dues except one member holding 200 shares, while another member holding 500 shares paid for the balance due in full. Final call was not made.

Give journal entries and prepare cash book.

Working Note:

5. Mohit Glass Ltd. issued 20,000 shares of ₹ 100 each at ₹ 110 per share, payable ₹ 30 on application, ₹ 40 on allotment (including Premium), ₹ 20 on first call and ₹ 20 on final call. The applications were received for 24,000 shares and allotted 20,000 shares and reject 4,000 shares and amount returned thereon. The money was duly received.

Give journal entries.

6. A limited company offered for subscription of 1, 00,000 equity shares of ₹ 10 each at a premium of ₹ 2 per share. 2, 00,000. 10% Preference shares of ₹ 10 each at par.

The amount on share was payable as under:

 

All the shares were fully subscribed, called-up and paid.

Record these transactions in the journal and cash book of the company:

7. Eastern Company limited, having an authorised capital of ₹ 10, 00,000 in shares of ₹ 10 each, issued 50,000 shares at a premium of ₹ 3 per share payable as follows:

 

 

Applications were received for 60,000 shares and the directors allotted the shares as follows:

(a) Applicants for 40,000 shares received shares, in full.

(b) Applicants for 15,000 shares received an allotment of 8,000 shares.

(c) Applicants for 500 shares received 200 shares on allotment, excess money being returned.

 

All amounts due on allotment were received.

The first call was duly made and the money was received with the exception of the call due on 100 shares.

Give journal and cash book entries to record these transactions of the company. Also prepare the Balance Sheet of the company.

Note: In order to solve this question, applicants of category C has been assumed as 5000 instead of 500 and allotment to the applicants of this category has been taken as 2000 in place of 200. 

NOTES TO ACCOUNTS

8. Sumit Machine Ltd. issued 50,000 shares of ₹. 100 each at premium of 5%. The shares were payable ₹. 25 on application, ₹. 50 on allotment and ₹. 30 on first and final call. The issue was fully subscribed and money was duly received except the final call on 400 shares. The premium was adjusted on allotment.

Give journal entries and prepare balance sheet.

9. Kumar Ltd. purchased assets of ₹. 6, 30,000 from Bhanu Oil Ltd. Kumar Ltd. issued equity share of ₹. 100 each fully paid in consideration. What journal entries will be made, if the shares are issued, (a) at par, and (b) at premium of 20%?

Case (a)

Case (b)

10. Bansal Heavy machine Ltd purchased machine worth ₹ 3, 20,000 from Handa Trader. Payment was made as ₹ 50,000 cash and remaining amount by issue of equity share of the face value of ₹ 100 each fully paid at an issue price of ₹ 90 each.

Give journal entries to record the above transaction.

Working Notes:-

1. Number of share issued

11. Naman Ltd issued 20,000 shares of ₹ 100 each, payable ₹ 25 on application, ₹ 30 on allotment, ₹ 25 on first call and the balance on final call. All money duly received except Anubha, who holding 200 shares did not pay allotment and calls money and Kumkum, who holding 100 shares did not pay both the calls. The directors forfeited shares of Anubha and Kumkum.

Give journal entries.

It can also be solved by debiting Calls in Arrears Account

Working Note:

 

1. Forfeited Amount

12. Kishna Ltd issued 15,000 shares of ₹ 100 each at a premium of ₹ 10 per share, payable as follows:

 

 

All the shares subscribed and the company received all the money due, With the exception of the allotment and call money on 150 shares. These shares were forfeited and reissued to Neha as fully paid share of ₹ 12 each.

 

Give journal entries in the books of the company.

Note: In the solution, the reissued price of ₹ 12 has been assumed as ₹ 120 per share.

13. Arushi Computers Ltd. issued 10,000 equity shares of ₹. 100 each at 10% premium. The net amount payable as follows:

 

 

A shareholder holding 200 shares did not pay final call. His shares were forfeited. Out of these 150 shares were reissued to Ms. Sonia at ₹. 75 per share.

 

Give journal entries in the books of the company.

Working Notes:

Amount Transferred to Capital Reserve A/c

Amount transferred to Capital Reserve Account = Balance per share after adjustment × Number of shares reissued

₹ 9,750 = ₹ 65 × ₹ 150 per share

14. Raunak Cotton Ltd. issued a prospectus inviting applications for 6,000 equity shares of ₹ 100 each at a premium of ₹ 20 per shares, payable as follows:

 

 

Applications were received for 10,000 shares and allotment was made Pro-rata to the applicants of 8,000 shares, the remaining applications Being refused. Money received in excess on the application was adjusted toward the amount due on allotment.

 

Rohit, to whom 300 shares were allotted failed to pay allotment and calls money, his shares were forfeited. Itika, who applied for 600 shares, failed to pay the two calls and her share were also forfeited. All these shares were sold to Kartika as fully paid for ₹ 80 per shares.

 

Give journal entries in the books of the company.

Working Note:

2. Call in arrears by Rohit on allotment

4. Share Forfeiture amount

15. Himalaya Company Limited issued for public subscription of 1, 20,000 equity shares of ₹ 10 each at a premium of ₹ 2 per share payable as under:

Applications were received for 1, 60,000 shares. Allotment was made on pro-rata basis. Excess money on application was adjusted against the amount due on allotment.

Rohan, whom 4,800 shares were allotted, failed to pay for the two calls. These shares were subsequently forfeited after the second call was made. All the shares forfeited were reissued to Teena as fully paid at ₹ 7 per share.

Record journal entries in the books of the company to record these transactions relating to share capital. Also show the company’s balance sheet.

NOTES TO ACCOUNTS

16. Prince Limited issued a prospectus inviting applications for 20,000 equity shares of ₹. 10 each at a premium of ₹. 3 per share payable as follows:

 

 

Applications were received for 30,000 shares and allotment was made on pro-rata basis. Money overpaid on applications was adjusted to the amount due on allotment.

 

Mr. Mohit whom 400 shares were allotted, failed to pay the allotment money and the first call, and his shares were forfeited after the first call. Mr. Joly, whom 600 shares were allotted, failed to pay for the two calls and hence, his shares were forfeited.

 

Of the shares forfeited, 800 shares were reissued to Supriya as fully paid for ₹. 9 per share, the whole of Mr. Mohit’s shares being included.

 

Record journal entries in the books of the Company and prepare the Balance Sheet.

As per the Revised Schedule VI, the Balance Sheet of Prince Limited is as follows:

NOTES TO ACCOUNTS

Working Notes:

2. Amount to be transferred to Capital Reserve

17. Life machine tools Limited, issued 50,000 equity shares of ₹ 10 each at ₹ 12 per share, payable at to ₹ 5 on application (including premium), ₹ 4 on allotment and the balance on the first and final call.

Applications for 70,000 shares had been received. Of the cash received, ₹ 40,000 was returned and ₹ 60,000 was applied to the amount due on allotment, the balance of which was paid. All shareholders paid the call due, with the exception of one share holder of 500 shares. These shares were forfeited and reissued as fully paid at ₹ 8 per share. Journalise the transactions.

18.The Orient Company Limited offered for public subscription 20,000 equity shares of ₹ 10 each at a premium of 10% payable at ₹ 2 on application; ₹ 4 on allotment including premium; ₹ 3 on First Call and ₹ 2 on Second and Final call. Applications for 26,000 shares were received. Applications for 4,000 shares were rejected. Pro-rata allotment was made to the remaining applicants. Both the calls were made and all the money were received except the final call on 500 shares which were forfeited. 300 of the forfeited shares were later on issued as fully paid at ₹ 9 per share. Give journal entries and prepare the balance sheet.

NOTES TO ACCOUNTS

Working Notes:

Amount transferred to Capital Reserve Account, after adjustment for 300 shares = 300 Shares @ ₹ 7 per share = ₹ 2,100

19. Alfa Limited invited applications for 4, 00,000 of its equity shares of ₹ 10 each on the following terms:

 

 

Applications for 5, 00,000 shares were received. It was decided:

 

(a) to refuse allotment to the applicants for 20,000 shares;

(b) to allot in full to applicants for 80,000 shares;

(c) to allot the balance of the available shares’ pro-rata among the other applicants; and

(d) to utilise excess application money in part as payment of allotment money.

One applicant, whom shares had been allotted on pro-rata basis, did not pay the amount due on allotment and on the call, and his 400 shares were forfeited. The shares were reissued @ ₹ 9 per share. Show the journal and prepare Cash book to record the above.

Working Note:

2. Call in arrears by applicant on allotment

3.

 

20. Ashoka Limited Company which had issued equity shares of ₹.20 each at a premium of ₹. 4 per share, forfeited 1,000 shares for non-payment of final call of ₹.2 per share. 400 of the forfeited shares were reissued at ₹.14 per share out of the remaining shares of 200 shares reissued at ₹.20 per share. Give journal entries for the forfeiture and reissue of shares and show the amount transferred to capital reserve and the balance in Share Forfeiture Account.

Balance in Share Forfeiture Account (18,000 – 10,800) = ₹ 7,200

Working Notes:

For 400 Shares

Amount of 400 shares transferred to Capital Reserve Account, after reissue

= 400 Shares @ ₹ 12 per share

= ₹ 4,800

For 200 Shares

Amount of 200 shares transferred to Capital Reserve Account, after reissue

= 200 Shares @ ₹ 18 per share

= ₹3,600

 

21. Amit holds 100 shares of ₹ 10 each on which he has paid Re.1 per share as application money. Bimal holds 200 shares of ₹ 10 each on which he has paid Re.1 and ₹ 2 per share as application and allotment money, respectively. Chetan holds 300 shares of ₹ 10 each and has paid Re.1 on application, ₹ 2 on allotment and ₹ 3 for the first call. They all fail to pay their arrears and the second call of ₹ 2 per share and the directors, therefore, forfeited their shares. The shares are reissued subsequently for ₹ 11 per share as fully paid. Journalise the transactions.

Working Notes:

22. Ajanta Company Limited having a normal capital of ₹ 3,00,000, divided into shares of ₹ 10 each offered for public subscription of 20,000 shares payable at ₹ 2 on application; ₹ 3 on allotment and the balance in two calls of ₹ 2.50 each. Applications were received by the company for 24,000 shares. Applications for 20,000 shares were accepted in full and the shares allotted. Applications for the remaining shares were rejected and the application money was refunded.

All moneys due were received with the exception of the final call on 600 shares which were forfeited after legal formalities were fulfilled. 400 shares of the forfeited shares were reissued at ₹ 9 per share.

Record necessary journal entries and prepare the balance Sheet showing the amount transferred to capital reserve and the balance in Share forfeiture account.

NOTES TO ACCOUNTS

Working Note:

Amount of 400 shares transferred to Capital Reserve Account, after reissue = 400 Shares @ ₹ 6.5 per share = ₹ 2,600

23. Journalise the following transactions in the books Bhushan Oil Ltd.:

(a) 200 shares of ₹. 100 each issued at a premium of ₹. 10 were forfeited for the non-payment of allotment money of ₹. 60 per share. The first and final call of ₹. 20 per share on these shares were not made. The forfeited shares were reissued at ₹. 70 per share as fully paid-up.

(b) 150 shares of ₹. 10 each issued at a premium of ₹. 4 per share payable with allotment were forfeited for non-payment of allotment money of ₹. 8 per share including premium. The first and final calls of ₹. 4 per share were not made. The forfeited shares were reissued at ₹. 15 per share fully paid-up.

(c) 400 shares of ₹. 50 each issued at par were forfeited for non-payment of final call of ₹. 10 per share. These shares were reissued at ₹. 45 per share fully paid-up.

Case (a)

Case (b)

Case (c)

24. Amisha Ltd inviting application for 40,000 shares of ₹ 100 each at a premium of ₹ 20 per share payable; on application ₹ 40 ; on allotment ₹ 40 (Including premium): on first call ₹ 25 and Second and final call ₹ 15.

Application were received for 50,000 shares and allotment was made on pro-rata basis. Excess money on application was adjusted on sums due on allotment.

Rohit to whom 600 shares were allotted failed to pay the allotment money and his shares were forfeited after allotment. Ashmita, who applied for 1,000 shares failed to pay the

Two calls and his shares were forfeited after the second call. Of the shares forfeited, 1,200 shares were sold to Kapil for ₹ 85 per share as fully paid, the whole of Rohit’s shares being included.

Record necessary journal entries.

Working Notes:

2. Call in arrears by Rohit on allotment

3

5. Profit on the forfeiture of 600 share of Rohit = ₹ 30,000

Profit on the forfeiture of 600 share of Ashmita = ₹ 36,000

6. Balance in Share Forfeiture Account (48,000 – 36,000) = ₹ 12,000

Concepts covered in this chapter –

• Features of a company
• Types of companies
• Share capital of a company
• Nature and classes of shares
• Issue of shares
• Accounting treatment
• Forfeiture of the shares