COMPANY ACCOUNTS 11.

UNIT – 2 ISSUE, FORFEITURE AND RE-ISSUE

OF SHARES

LEARNING OUTCOMES
After studying this unit, you would be able to:
 Appreciate various types of shares and share capital.
 Learn the accounting treatment if shares issued under
different circumstances.
 Differentiate the accounting treatment for under-
subscription and over-subscription of shares.
 Understand the concept and accounting treatment of call-in-
arrears and call-in-advance.
 Deal with the forfeiture of shares issued with different
conditions.
 Journalize the entry for re-issue of shares.
 Know the treatment of shares issued for consideration
other than cash.

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 11.2 ACCOUNTING

UNIT OVERVIEW
Procedure for raising funds through
equity
Issue of prospectus inviting applications for share from
the public

Over subscription i.e.

Full subscription i.e. Under subscription i.e.
applications received
application received application received are are more than share
for all issued shares less than share issued issued

Pro–rata allotment
Minimum made by
Minimum subscription Directors
subscripti not received
on
received
All
application
money
returned Allotment money
Directors make received
allotment for
shares applied

Further calls made

and call money
received

Share issued for cash

Shares issued at Face Shares issued at

Value Premium

“Securities Premium
Account” is credited with
the entry for “Share
Capital Account”

Note: As per Section 53 of Companies Act, 2013 a company cannot issue shares at
discount except for in case of sweat equity shares and therefore any issue on
discount by the company will be void with company being punishable with fine.
Sweat equity shares means such equity shares as are issued by a company to its
directors or employees at a discount or for consideration, other than cash, for
providing their know-how or making available rights in the nature of intellectual
property rights or value additions, by whatever name called.

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 COMPANY ACCOUNTS 11.25

2.1 INTRODUCTION
Funds provided by the owner(s) into a business are recorded as capital. Capital of
the business depends upon the form of business organisation. Proprietor provides
capital in a sole- proprietorship business. In case of a partnership, there is more
than one proprietor, called partners. Partners introduce capital in a partnership
firm. As the maximum number of members in a partnership firm is restricted,
therefore only limited capital can be provided in such form of businesses. Moreover,
the liability of the proprietor(s) is unlimited in case of non- corporate business,
namely, sole-proprietorship and partnership.
Capital funding process for different types of business forms can be summarised as
follows:
Business Ownership Type of Liability of Owners
Organisation Capital
Sole - Proprietor - He Capital Unlimited
Proprietorship alone is the owner
of business

Partnership Partners Partners' Unlimited

Capital
Company Shareholders Share Capital Limited to issue price
of shares held

With the onset of industrial revolution, requirement of capital investment soared to

a new height and the attached risk of failure increased due to pace of technological
developments. Non-corporate entities could not cope with the pressure of
increased capital and degree of risk involved. This led to the emergence of
corporate form of organisation.

2.2 SHARE CAPITAL

Total capital of the company is divided into a number of small indivisible units of a
fixed amount and each such unit is called a share. The fixed value of a share,
printed on the share certificate, is called nominal/par/face value of a share.
However, a company can issue shares at a price different from the face value of a
share. The liability of holder of shares (called shareholders) is limited to the issue
price of shares acquired by them.
Note: The issue price need not be equal to market price of the share. These
days the shares are generally priced on the basis of book building process. (Book
building is a process through which company determines it's share prices. Under
this method company determines a price band of its shares and on the basis of bids
received from potential investors at various prices within the price band finally fixes
its issue price.)

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 11.26 ACCOUNTING

The total capital of the company is divided into shares, the capital of the company
is called ‘Share Capital’. At the time of issue of shares, every Company is required
to follow SEBI Regulations.
Share capital of a company is divided into following categories:
(i) Authorised Share Capital or Nominal Capital: A company estimates its
maximum capital requirements. This amount of capital is mentioned in
‘Capital Clause’ of the ‘Memorandum of Association’ registered with the
Registrar of Companies. It puts a limit on the amount of capital, which a
company is authorised to raise during its lifetime and is called ‘Authorised
Capital’. It is shown in the Share Capital schedule in the financial
statements as per the prescribed format at face value.
(ii) Issued Share Capital: A company need not issue total authorised capital.
Whatever portion of the share capital is issued by the company, it is called
‘Issued Capital’. Issued capital means and includes the nominal value of
shares issued by the company for:
1. Cash, and
2. Consideration other than cash to:
(i) Promoters of a company; and
(ii) Others.
It is also presented in the balance sheet at nominal value.
The remaining portion of the authorised capital which is not issued either in
cash or consideration may be termed as ‘Un-issued Capital’. It is not shown
in the balance sheet.
(iii) Subscribed Share Capital: It is that part of the issued share capital, which
is subscribed by the public i.e., applied by the public and allotted by the
company. It also includes the face value of shares issued by the company
for consideration other than cash.
(iv) Called-up Share Capital: Companies generally receive the issue price of
shares in instalments. The portion of the issue price of shares which a
company has demanded or called from shareholders is known as ‘Called-up
Capital’ and the balance, which the company has decided to demand in
future may be referred to as Uncalled Capital.
(v) Paid-up Share Capital: It is the portion of called up capital which is paid by
the shareholders. Whenever a particular amount is called by the company
and the shareholder(s) fails to pay the amount fully or partially, it is
known as ‘unpaid calls’ or ‘instalments (or Calls) in Arrears’. Thus,
instalments in arrears mean the amount not paid although it has been
demanded by the company as payment towards the issue price of shares.
To calculate paid-up capital, the amount of instalments in arrears is
deducted from called up capital.

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 COMPANY ACCOUNTS 11.27

Call-in-advance is that portion of capital which is yet to be called by the

company but has already been paid by shareholder.
In the financial statements, called-up and paid-up capital are shown together.
(vi) Reserve Share Capital: As per Section 65 of the Companies Act, 2013, a
Company may decide by passing a resolution that a certain portion of its
subscribed uncalled capital shall not be called up except in the event of
winding up of the company. Portion of the uncalled capital which a
company has decided to call only in case of liquidation of the company is
called Reserve Capital.
Reserve Capital is different from Capital reserve, Capital reserves are part of
‘Reserves and Surplus’ and refer to those reserves which are not available for
declaration of dividend. Thus, reserve capital which is portion of the
uncalled capital to be called up in the event of winding up of the company is
entirely different in nature from capital reserve which is created out of capital
profits only.

1 Authorised Capital = Issued Capital + Unissued Capital.

.
Subscribed Capital can be equal to or grater than or less than Issued
2 Capital resulting in 3 situations respectively: Fully Subscribed; Over
. Subscribed and Under Subscribed.
Called up Capital = Paid up Capital + Calls in arrears if any – Calls
in advance
if any.

ILLUSTRATION 1
A company had an authorised capital of ` 10,00,000 divided into 1,00,000 equity
shares of ` 10 each. It decided to issue 60,000 shares for subscription and received
applications for 70,000 shares. It allotted 60,000 shares and rejected remaining
applications. Upto 31-3 -2022, it has demanded or called ` 9 per share. All
shareholders have duly paid the amount called, except one shareholder, holding
5,000 shares who has paid only ` 7 per share.
Prepare a balance sheet assuming there are no other details.
SOLUTION
Balance Sheet as at 31st March, 2022
Particulars Notes No. `
EQUITY AND LIABILITIES
Shareholders’ funds
Share capital 1 5,30,000
Total 5,30,000

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 11.28 ACCOUNTING

ASSETS
Current assets
Cash and cash equivalents 2 5,30,000
Total 5,30,000
Notes to accounts
` `
1. Share Capital
Equity share capital
Authorised share capital
1,00,000 Equity shares of ` 10 10,00,000
each Issued share capital
60,000 Equity shares of ` 10 each
6,00,000
Subscribed share capital
60,000 Equity shares of ` 10 each
Called up and Paid up share capital 6,00,000

60,000 Equity shares of ` 10 each ` 9

called up Less: Calls unpaid on 5,000 shares 5,40,00
0 5,30,000
@ ` 2 per share Cash and cash
(10,000
equivalents
)
2. Balances with banks

5,30,000

It is clear from above, that details of authorised, issued and subscribed capital are
given in the Notes to Accounts but are not counted. It is only the paid-up capital i.e.,
the portion of the issued capital subscribed by shareholders which is taken into
account while totalling the liabilities side of the balance sheet.

2.3 TYPES OF SHARES

Share issued by a company can be divided into following categories :
(i) Preference Shares: According to Section 43 of the Companies Act, 2013
persons holding preference shares, called preference shareholders, are
assured of a preferential dividend at a fixed rate during the life of the
company. They also carry a preferential right over other shareholders to be
paid first in case of winding up of the company. Thus, they enjoy preferential
rights in the matter of:
(a) Payment of dividend, and

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 COMPANY ACCOUNTS 11.29

(b) Repayment of capital

Generally, holders of these shares do not get voting rights. Companies use this
mode of financing as it is cheaper than raising debt. Dividend is generally
cumulative in nature and need not be paid every year in case of deficiency of
profits. The Companies Act, 2013 prohibits the issue of any preference share
which is irredeemable. Preference shares are cumulative and non-
participating unless expressly stated otherwise.
Types of Preference Shares
Preference shares can be of various types, which are as follows :
(a) Cumulative Preference Shares: A cumulative preference share is
one that carries the right to a fixed amount of dividend or dividend
at a fixed rate. Such a dividend is payable even out of future profit if
current year’s profits are insufficient for the purpose. This means that
dividend on these shares accumulates unless it is paid in full and,
therefore, the shares are called Cumulative Preference Shares. The
companies are required to disclose the arrears of fixed cumulative
dividends on preference shares separately in the financial statement.
In case, the dividend remains in arrears for a period of not less than
two years, holders of such shares will be entitled to take part and vote
on every resolution on every matter in the general body meeting of the
shareholders.
(b) Non-cumulative Preference Shares: A non-cumulative preference
share carries with it the right to a fixed amount of dividend. In case no
dividend is declared in a year due to any reason, the right to receive
such dividend for that year expires. It implies that holder of such a
share is not entitled to arrears of dividend in future.
(c) Participating Preference Shares: Notwithstanding the right to a
fixed dividend, this category of preference share confers on the holder
the right to participate in the surplus profits, if any, after the equity
shareholders have been paid dividend at a stipulated rate. Similarly, in
the event of winding up of the company, this type of share carries the
right to receive a pre-determined proportion of surplus as well once
the equity shareholders have been paid off.
(d) Non-participating Preference Shares: A share on which only a
fixed rate of dividend is paid every year, without any accompanying
additional rights in profits and in the surplus on winding-up, is called
‘Non-participating Preference Shares.’ Unless otherwise specified, the
preference shares are generally non- participating.

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 11.30 ACCOUNTING

(e) Redeemable Preference Shares: These are shares that a

company may issue on the condition that the company will repay after
the fixed period or even earlier at company’s discretion. The
repayment on these shares is called redemption and is governed by
Section 55 of the Companies Act, 2013.
(f) Non-redeemable Preference Shares: The preference shares,
which do not carry with them the arrangement regarding redemption,
are called Non- redeemable Preference Shares. According to Section
55, no company limited by shares shall issue irredeemable preference
shares or preference shares redeemable after the expiry of 20 years
from the date of issue. However, a Company may issue preference
shares redeemable after 20 years for such infrastructure projects as
may be specified, under the Companies Act, 2013.
(g) Convertible Preference Shares: These shares give the right to
the holder to get them converted into equity shares at their option
according to the terms and conditions of their issue.
(h) Non-convertible Preference Shares: When the holder of a
preference share has not been conferred the right to get his holding
converted into equity share, it is called Non-convertible Preference
Shares. Preference shares are non- convertible unless otherwise
stated.
(ii) Equity Shares: Equity shares are those shares, which are not preference
shares. It means that they do not enjoy any preferential rights in the matter
of payment of dividend or repayment of capital. The rate of dividend on
equity shares is recommended by the Board of Directors and may vary from
year to year. Rate of dividend depends upon the dividend policy and the
availability of profits after satisfying the rights of preference shareholders.
These shares carry voting rights. Companies Act, 2013 permits issue of
equity share capital with differential rights as to dividend, voting or
otherwise in accordance with prescribed rules.
The shares can be issued by a company either

(1) for cash or

(2) for consideration other than cash.

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 COMPANY ACCOUNTS 11.31

2.4 ISSUE OF SHARES FOR CASH

To issue shares, private companies depend upon ‘Private Placement’ of shares. Public
companies issue a ‘Prospectus’ and invite general public to subscribe for shares. To
discuss accounting treatment, we shall concentrate on public companies who invite
general public to subscribe for equity shares. Similar accounting treatment is
applicable in other cases. However, for journal entries in case of issue of
preference shares, the word ‘Equity’ is replaced with the word ‘Preference’.
A public company issues a prospectus inviting general public to subscribe for its
shares. On the basis of prospectus, applications are deposited in a scheduled bank
by the interested parties along with the amount payable at the time of application,
in cash. First instalment paid along with application is called ‘Application Money’.
As per Section 39 of the Companies Act, 2013. Application money must
be at least 5% of the nominal value of shares. After the closing date of the
issue (the last date for filing applications), company decides about allotment of
shares in consultation with the SEBI and stock exchange concerned. According
to the Companies Act, 2013, a company cannot proceed to allot shares unless
minimum subscription is received by the company.
Minimum Subscription: A public limited company cannot make any allotment of
shares unless the amount of minimum subscription stated in the prospectus has
been subscribed and the sum payable as application money for such shares has
been paid to and received by the company. The amount of minimum
subscription to be disclosed in prospectus by the Board of Directors taking into
account the following:
(a) Preliminary expenses of the company,
(b) Commission payable on issue of shares,
(c) Cost of fixed assets purchased or to be purchased,
(d) Working capital requirements of the company, and
(e) Any other expenditure for the day to day operation of the business.
As per guidelines of the Securities Exchange Board of India (SEBI), the minimum
subscription to be received in an issue shall not be less than ninety per cent of the
offer through offer document [Provided that in the case of an initial public offer, the
minimum subscription to be received shall be subject to allotment of minimum
number of specified securities, as prescribed by Securities Contracts (Regulation)
Rules, 1957]. If the Company does not receive the minimum subscription of 90% of
the issue, all application moneys received shall be refunded to the applicants
forthwith, but not later than:
(a) fifteen days of the closure of the issue, in case of a non-underwritten issue;
and

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 11.32 ACCOUNTING

(b) seventy days of the closure of the issue, in the case of an underwritten issue
where minimum subscription including devolvement obligations paid by the
underwriters is not received within sixty days of the closure of the issue.
The company reserves the right to reject or accept an application fully or partially.
Successful applicants become shareholders of the company and are required to
pay the second instalment which is known as ‘Allotment Money’ and unsuccessful
applicants get back their money. However, in case of delay in refunding the
money, the Company becomes liable to pay interest on the amount of refund.
Subsequent instalments, if any, to be called by the company are known as ‘Calls’.
As per Section 39 of the Companies Act, 2013, application money must be at least 5% of
the face value of shares. However, as per SEBI Regulations, the minimum
application moneys to be paid by an applicant along with the application money
shall not be less than 25% of the issue price. According to Section 24 of the
Companies Act, 2013 matters related to issue and transfer of securities will be
administered by the SEBI and not by the Company Law Board.
The issue price of shares is generally received by the company in instalments and these
instalments are known as under :
instalment ………….. Application Money
Second Instalment ………….. Allotment Money
Third Instalment ………….. Call Money
Fourth Instalment ………….. Second Call Money and so on.
Instalment Final Call Money

2.4.1 Journal Entries for Issue of Shares for Cash

Upon the issue of share capital by a company, the undermentioned entries are
made in the financial books:
(1) On receipt of the application money
Bank Account Dr. (With the actual amount received.)
To Share Application Account
(Being application money received)
(2) On allotment of share
Share Allotment Account Dr. (With the amount due on allotment.)
Share Application Account Dr. (With the application amount received
on
allotted shares.)

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 COMPANY ACCOUNTS 11.33

To Share Capital Account (With the amount due on allotment

and
application.)
(Being the sum due on allotment and
application money transferred to capital account)
(3) On receipt of allotment money
Bank Account Dr. (With the amount actually received
on allotment.)
To Share Allotment A/c
(Being money received on allotment)
Sometimes separate Application and Allotment Accounts are not
prepared and entries relating to application and allotment monies
are passed through a combined Application and Allotment Account.
On receipt of Application Money:
Bank A/c Dr
To Share Application and Allotment A/c
On allotment of shares:
Share Application & Allotment A/c Dr (With total application and
allotment
amount)
To Share Capital A/c
On Allotment money being received:
Bank A/c Dr
To Share Application & Allotment A/c

(4) On a call being made

Share Call Account Dr. (With the amount due on the call)
To Share Capital Account
(Being share call made due at `...)
(5) On receipt of call money
Bank Account Dr. (With the due amount actually received
on call)
To Share Call Account
(Being share call money received)

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 11.34 ACCOUNTING

2.5 SUBSCRIPTION OF SHARES

Accounting for issue of shares depends upon the type of subscription. Whenever a
company decides to issue shares to public, it invites applications for
subscription by issuing a prospectus. It is not necessary that company receives
applications for the number of shares to be issued by it. There are three
possibilities:

2.5.1Full Subscription
Issue is fully subscribed if the number of shares offered for subscription and the
number of shares actually subscribed by the public are same. To start discussion on
accounting treatment for issue of shares, let us assume that the issue is fully
subscribed.
ILLUSTRATION 2
A company invited applications for 10,000 equity shares of ` 50 each payable on
application
` 15, on Allotment ` 20, on first and final call `15. Applications are received for
10,000 shares and all the applicants are allotted the number of shares they have
applied for and instalment money was duly received by the company. Show
Journal entries in the books of the company.
SOLUTION
Journal entries in the books of a company
For application money received: Amount received along with application is
accounted as follows:
Bank A/c Dr. (Application money on allotted
share i.e.,10,000 × `15 =
`1,50,000)
To Equity Share Application A/c
At the time of allotment: Application money received from successful applicants
become part of share capital and is transferred to share capital as under:
Equity Share Application A/c Dr. (Application money on allotted share
i.e.,10,000 ×
` 15 = ` 1,50,000)
To Equity Share Capital A/c
To record amount due on allotment: When the decision is taken to allot shares,
allotment money on allotted shares falls due and is recorded as follows:
Equity Share Allotment A/c Dr. (Allotment money due at the allotted
share
i.e.,10,000 × ` 20 = ` 2,00,000)
To Equity Share Capital A/c

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 COMPANY ACCOUNTS 11.35

For allotment money received: Allotment money received from shareholders is

recorded as follows:
Bank A/c Dr. (Allotment money received from
shareholders i.e.10,000 × ` 20 =` 2,00,000)
To Equity Share Allotment A/c
When decision to demand first call is made: After allotment of share, when the
Board of Directors decide to demand the next instalment from shareholders, first
call money falls due and is accounted for, as under:
Equity Share First Call A/c Dr. (No. of shares × first call money per
share
i.e.,10,000 × ` 15 = ` 1,50,000)
To Equity Share Capital A/c
On receiving first and final call money: The journal entry passed to record the
money received on account of first call is as under:
Bank A/c Dr. (Amount actually received on account
of first call i.e., ` 10,000 × ` 15 = `
1,50,000)
To Equity First Call A/c

2.5.2 Under Subscription

It means the number of shares offered for subscription is more than the number of
shares subscribed by the public. In this case, the journal entries as discussed
above are passed but with one change i.e., calculation of application, allotment
and for that matter, the call money is based on number of shares actually applied
and allotted. It must be remembered that shares can be allotted, in this case, only
when the minimum subscription is received.
ILLUSTRATION 3
On 1st April, 2021, A Ltd. issued 43,000 shares of ` 100 each payable as follows:
` 20 on application;
` 30 on allotment;
` 25 on 1st October, 2021; and
` 25 on 1st February, 2022.
By 20th May, 40,000 shares were applied for and all applications were accepted.
Allotment was made on 1st June. All sums due on allotment were received on 15th
July; those on 1st call were received on 20th October. Journalise the transactions
when accounts were closed on 31st March, 2022.

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 11.36 ACCOUNTING

SOLUTIO
N
A Ltd.
Journal

2021 ` `
May 20 Bank Account Dr. 8,00,000
To Share Application A/c 8,00,000
(Application money on 40,000 shares at `
20 per share received.)

June 1 Share Application A/c Dr. 8,00,00

To Share Capital A/c 0 8,00,00
(The amount transferred to Capital Account 0
on 40,000 shares at - ` 20 on application.
Directors’ resolution no...... dated )

Share Allotment A/c Dr. 12,00,00

To Share Capital A/c 0 12,00,00
(Being share allotment made due at ` 30 0
per share. Directors’ resolution no......
dated...................................................................)
July 15 Bank Account Dr. 12,00,000
To Share Allotment A/c 12,00,000
(The sums due on allotment received.)

Oct. 1 Share First Call Account Dr. 10,00,000

To Share Capital Account 10,00,000
(Amount due from members in respect of
first call-on 40,000 shares at ` 25 as per
Directors, resolution no... dated...)

Oct. 20 Bank Account Dr. 10,00,000

To Share First Call Account 10,00,000
(Receipt of the amounts due on first call.)

2022
Feb. 1 Share Second and Final Call Dr. 10,00,000
A/c To Share Capital 10,00,000
A/c
(Amount due on 40,000 share at ` 25 per
share on second and final call, as per
Directors resolution no... dated...)

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 COMPANY ACCOUNTS 11.37

Mar. 31 Bank Account Dr. 10,00,00

To Share Second & Final Call A/c 0 10,00,00
(Amount received against the final call on 0
40,000 shares at ` 25 per share.)

2.5.3 Over Subscription

In actual practice, issue of shares is either under or over-subscribed. If an issue is
over- subscribed, some applications may be rejected and application money
refunded and in respect of others, only a part of the shares applied for may be
allotted and the excess amount received can be utilised towards allotment or call
money which has fallen due or will soon fall due for payment. The entries are:
(1) On refund of application money to applicants to whom shares have not been
allotted: Share Application A/c Dr.
To Bank Account
(Being application money refunded)
(2) When only a part of shares applied for are
allotted. Share Application A/c Dr.
To Share Allotment* A/c (With the application money accepted
for
allotment)
To Share Calls-in-Advance* A/c (With the amount received in
advance)
To Bank A/c (With any excess amount to be
refunded) (Being application money adjusted)
*Credited to Share Capital A/c subsequently.
(Note: This type of share allotment is termed as Pro-rata allotment and has been
discussed in detail in para 2.8)
ILLUSTRATION 4
Pant Ltd. invited applications for 50,000 equity shares at ` 50 each, which are
payable as on application ` 20, on allotment ` 10 and on first and final call ` 20. The
company received applications for 60,000 shares. The directors accepted
application for 50,000 shares and rejected the rest. Show Journal entries if company
refunded the application money to rejected applicants and allotment money was
received for 45,000 shares.

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 11.38 ACCOUNTING

SOLUTION
Pant Ltd.
Journal
` `
Bank A/c Dr. 12,00,000
To Equity Share Application A/c 12,00,000
(Being the application money received for 60,000
shares at
` 20 per share)
Equity Share Application A/c Dr. 12,00,000
To Equity Share Capital 10,00,00
0
A/c To Bank A/c
2,00,00
(Being share allotment made for 50,000 shares and
0
excess refunded.)

Equity Share Allotment A/c Dr. 5,00,000

To Equity Share Capital A/c 5,00,000
(Being allotment amount due on 50,000 equity shares
at ` 10 per share as per Directors’ resolution no...
dated...)
Bank A/c Dr. 4,50,000
Calls in Arrears A/c Dr. 50,000
To Equity Share Allotment A/c 5,00,000
(Being allotment money received for 45,000 shares
at ` 10 per share.)

ILLUSTRATION 5
The Delhi Artware Ltd. issued 50,000 equity shares of ` 100 each and 1,00,000
preference shares of ` 100 each. The Share Capital was to be collected as
under:

Equity Shares (`) Preference Shares (`)

On Application 25 20
On Allotment 20 30
First Call 30 20
Final Call 25 30

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 COMPANY ACCOUNTS 11.39

All these shares were subscribed. Final call was received on 42,000 equity shares
and 88,000 preference shares. Prepare the cash book and journalise the remaining
transactions in the books of the company.
SOLUTION
Delhi Artware Ltd.
Cash Book
Dr. Cr.
` `
To Equity Shares Applications 12,50,000 By Balance c/d 14,440,000
Account (application money
on
50,000 shares at ` 25)
To Preference Share 20,00,000
Application A/c
(application money on
1,00,000
shares at ` 20)
To Equity Share Allotment A/c 10,00,000
(allotment money on
50,000
shares at ` 20)
To Preference Share Allotment 30,00,000
A/c
(allotment money on
1,00,000
shares at ` 30)
To Equity Shares First Call A/c (` 15,00,000
30 on 50,000 shares)
To Preference Share First Call 20,00,000
A/c (` 20 on 1,00,000
shares)
To Equity Shares Final Call A/c 10,50,000
(` 25 on 42,000 shares)
To Preference Share Final A/c (` 26,40,000
30 on 88,000 shares)
1,44,40,000 1,44,40,000
To Balance b/d 1,44,40,000

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 11.40 ACCOUNTING

Journal

` `
Equity Share Application A/c Dr. 12,50,00
Equity Share Allotment A/c Dr. 0

To Equity Share Capital A/c 10,00,00 22,50,000

0
[The Credit to share capital on allotment of 50,000
equity shares at ` 45 per share (` 25 on application and
` 20 on allotment) allotted as per Directors resolution
no.... dated ]
Preference Share Application A/c Dr. 20,00,00
Preference Share Allotment A/c Dr. 0

To Preference Share Capital A/c 30,00,00 50,00,000

0
[The credit to Preference Share Capital on allotment
of 1,00,000 preference shares at ` 50 per share (` 20
on application and `30 on allotment), allotted as per
Directors’ resolution no... dated...]

Equity Share First Call A/c Dr. 15,00,000

To Equity Share Capital A/c 15,00,000
(Amount due on 50,000 equity shares at ` 30 per share
as per Directors’ resolution no... dated...)

Preference Share First Call A/c Dr. 20,00,000

To Preference Share Capital A/c 20,00,000
(Amount due on 1,00,000 preference shares at ` 20 per
share, as per Directors’ resolution no...dated...)

Equity Share Final Call A/c Dr. 12,50,000

To Equity Share Capital A/c 12,50,000
(Amount due on final call on 50,000 equity shares at `
25 per share, as per Directors’ resolution no... dated...)

Preference Share Final Call A/c Dr. 30,00,000

To Preference Share Capital A/c 30,00,000
(Amount due on final call on 1,00,000 preference shares
at ` 30 per share, as per Directors’ resolution no...
dated...)
Note: Students may note that cash transactions have not been journalised as these
have been entered in the Cash Book.

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 COMPANY ACCOUNTS 11.41

2.6 SHARES ISSUED AT DISCOUNT

Shares are regarded to be issued at a discount, if issue is at an amount less than
the nominal or par value of shares. The excess of the nominal value over the issue
price represents discount on the issue of shares. For example, when a share of the
nominal value of ` 100 is issued at ` 98, it is said to have been issued at a
discount of 2 per cent.
According to Section 53 of the Companies Act, 2013, a Company cannot issue
shares at a discount except in the case of issue of sweat equity shares (issued to
employees and directors). Thus, any issue of shares at discount shall be void.

2.7 SHARES ISSUED AT PREMIUM

When a company issues its securities at a price more than the face value, it is said
to be an issue at a premium. Premium is the excess of issue price over face value
of the security. It is quite common for the financially strong, and well-managed
companies to issue their shares at a premium, i.e. at an amount more than the
nominal or par value of shares. Thus, where a share of the nominal value of ` 100 is
issued at ` 105, it is said to have been issued at a premium of 5 per cent.
When the issue is at a premium, the amount of premium may technically be
called at any stage of share capital transactions. However, premium is generally
called with the amount due on allotment, sometimes with the application of
money and rarely with the call money.

2.7.1Accounting Treatment
When shares are issued at a premium, the premium amount is credited to a
separate account called “Securities Premium Account” because it is not a part of
share capital. Rather, it represents a gain of a capital nature to the company.
Being a credit balance, Securities premium Account is shown under the
heading, “Reserves and Surplus”. However, ‘Reserves and Surplus’ is shown as
‘shareholders’ funds in the Balance Sheet as per Schedule III. According to Section
52 of the Companies Act, 2013, Securities Premium Account may be used by the
company:
(a) Towards issue of un-issued shares of the company to be issued to members
of the company as fully paid bonus securities.
(b) To write off preliminary expenses of the company.
(c) To write off the expenses of, or commission paid, or discount allowed on any
of the securities or debentures of the company.

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 11.42 ACCOUNTING

(d) To provide for premium on the redemption of redeemable preference

shares or debentures of the company.
(e) For the purchase of own shares or other securities.
Note : It may be noted that certain class of Companies as prescribed under Section
133 of the Companies Act, 2013, whose financial statements comply with the
accounting standards prescribed for them (i.e. those companies to whom Indian
Accounting Standards are applicable), can’t apply the securities premium account
for the purposes (b) and (d) mentioned above.
When shares are issued at a premium, the journal entries are as follows:
(a) Premium amount called with Application money
(i) Bank A/c Dr. [Total Application money
+ Premium Amount]
To Share Application A/c [Amount
received] (Money received on applications
For Shares @ `
per share including
premium)
(ii) Share Application A/c Dr. [No. of Shares Applied for x
Application Amount per share]
To Securities Premium A/c [No. of Shares allotted x
Premium
Amount per share]
To Share Capital A/c [No. of Shares allotted x
Nominal value per share for
capital]
(b) Premium Amount called with Allotment Money
(i) Share Allotment A/c Dr. [No. of Shares Allotted x
Allotment
and Premium Money per share]
To Share Capital A/c [No. of Shares Allotted x
Allotment Amount per share]
To Securities Premium A/c [No. of Share Allotted x
Premium
Amount per share]
(Amount due on allotment of
shares @ ` per share
including premium)

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 COMPANY ACCOUNTS 11.43

(ii) Bank A/c Dr.

To Share Allotment A/c
(Money received including
premium consequent upon
allotment).
ILLUSTRATION 6
On 1st October, 2022 Pioneer Equipment Limited received applications for
2,50,000 Equity Shares of ` 100 each to be issued at a premium of 25 per cent
payable as :
On Application ` 25
On Allotment ` 75 (including
premium) Balance Amount on Shares As and
when required
The shares were allotted by the Company on October 20, 2022 and the allotment
money was duly received on October 31, 2022.
Record journal entries in the books of the company to record the transactions in
connection with the issue of shares.
SOLUTION
Pioneer Equipment Limited Journal

Date Particulars L.F. Debit Credit

Amount Amount
2022 (`000) (`000)
Oct. Bank A/c Dr. 6,250
1
To Equity Share Application A/c
6,250
(Money received on applications for
2,50,000 shares @ ` 25 per share)

Oct. 20 Equity Share Application A/c Dr. 6,250

To Equity Share Capital A/c 6,250
(Transfer of application money on allotment
to share capital)

Oct. 20 Equity Share Allotment A/c Dr. 18,750

To Equity Share Capital A/c 12,500

© The Institute of Chartered Accountants

of India
 11.44 ACCOUNTING

To Securities Premium A/c 6,250

(Amount due on allotment of 2,50,000
shares @
` 75 per share including premium)
Oct. 31 Bank A/c Dr. 18,750
To Equity Share Allotment A/c 18,750
(Money received including premium
consequent upon allotment)

Note: Bifurcation of Allotment amount

Security premium per share = 25% x `100
= ` 25
Money received on allotment per share = ` 75
Premium Capital
Per Share (75) ` 25 ` 50
No. of Shares (in '000) 250 250
Total Amount (In '000) ` 6,250 `12,500

2.8 OVER SUBSCRIPTION AND PRO-RATA

ALLOTMENT
Over subscription is the application money received for more than the number of
shares offered to the public by a company. It usually occurs in the case of good
issues and depends on many other factors like investors’ confidence in the
company, general economic conditions, pricing of the issue etc. When the shares
are oversubscribed, the company cannot satisfy all the applicants. It means that a
decision is to be made on how the shares are going to be allotted. Shares can be
allotted to the applicants by a company in any manner it thinks proper. The
company may reject some applicants in full, i.e., no shares are allotted to some
applicants and application money is refunded. Usually, multiple applications by
the same persons are not considered. Allotment may be given to the rest of the
applicants in full, i.e., for the number of shares they have applied for. A third
alternative is that a company may allot shares to the applicants on pro-rata basis.
‘Pro-rata allotment’ means allotment in proportion of shares applied for.
For example, a company offers to the public 10,000 shares for subscription. The
company receives applications for 12,000 shares. If the shares are to be
allotted on pro-rata basis,

© The Institute of Chartered Accountants

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 COMPANY ACCOUNTS 11.45

applicants for 12,000 shares are to be allotted 10,000 shares, i.e., on the 12,000:
10,000 or 6:5 ratio. Any applicant who has applied for 6 shares will be allotted 5
shares.
Under pro-rata allotment, the excess application money received is adjusted against
the amount due on allotment or calls. Surplus money after making adjustment
against future calls is returned to the applicants. The applicants are informed about
the allotment procedure through an advertisement in leading newspapers.
When there is a pro-rata allotment, the total application money paid by an applicant
is more than the exact amount due on application. The excess amount is treated as
an advance against allotment or any other future calls. The net amount due on
allotment or any other calls is the difference between the amount due on allotment
or any other calls and the excess amount received in application.
Accounting Entries
(a) For rejected applications:
Share Application Account Dr.
To Bank Account
(Being application money refunded for rejected
applications as per Board’s Resolution No….dated….)
(b) For pro-rata allotment:
Share Application Account Dr.
To Share Allotment Account
(Being excess application money adjusted against
allotment money as per Board’s Resolution
No….dated….)
Illustration 7
JHP Limited is a company with an authorised share capital of 10,00,000 in equity
shares of ` 10 each, of which 6,00,000 shares had been issued and fully paid on
30th June, 2021. The company proposed to make a further issue of 1,00,000 of
these ` 10 shares at a price of ` 14 each, the arrangements for payment being:
(a) ` 2 per share payable on application, to be received by 1st July, 2021;

(b) Allotment to be made on 10th July, 2021 and a further ` 5 per share
(including the premium) to be payable;
(c) The final call for the balance to be made, and the money received by 30th
April, 2022.

© The Institute of Chartered Accountants

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 11.46 ACCOUNTING

Applications were received for 3,55,000 shares and were dealt with as follows:
(i) Applicants for 5,000 shares received allotment in full;
(ii) Applicants for 30,000 shares received an allotment of one share for every
two applied for; no money was returned to these applicants, the surplus on
application being used to reduce the amount due on allotment;
(iii) Applicants for 3,20,000 shares received an allotment of one share for every
four applied for; the money due on allotment was retained by the company,
the excess being returned to the applicants; and
(iv) the money due on final call was received on the due date.
You are required to record these transactions (including cash items) in the
Journal of JHP Limited.
SOLUTION
Journal of JHP Limited
Date ` `
2021 Particulars
Bank A/c (Note 1 – Column 3) Dr. 7,10,000
1 To Equity Share Application A/c 7,10,000
(Being application money received on 3,55,000 shares
@ ` 2 per share)

10 Equity Share Application A/c Dr. 7,10,000

To Equity Share Capital A/c 2,00,000
To Equity Share Allotment A/c (Note 1 4,30,000
Column 5)
To Bank A/c (Note 1 – Column 6)
80,000
(Being application money on 1,00,000 shares
transferred to Equity Share Capital Account; on
2,15,000 shares adjusted with allotment and
on 40,000 shares refunded as per Board’s
Resolution No…..dated…)

Equity Share Allotment A/c Dr. 5,00,000

To Equity Share Capital A/c 1,00,000

© The Institute of Chartered Accountants

of India
 COMPANY ACCOUNTS 11.47

To Securities Premium a/c 4,00,000

(Being allotment money due on 1,00,000
shares @
` 5 each including premium at ` 4 each as per
Board’s Resolution No….dated….)
Bank A/c (Note 1 – Column 8) Dr. 70,000
To Equity Share Allotment A/c 70,000
(Being balance allotment money received)

2022 Equity Share Final Call A/c Dr. 7,00,000

To Equity Share Capital A/c 7,00,000
(Being final call money due on 1,00,000 shares
@ ` 7 per share as per Board’s Resolution
No…..dated….)
April 30 Bank A/c Dr. 7,00,000
To Equity Share Final Call A/c 7,00,000
(Being final call money on 1,00,000 shares @ ` 7
each received)

Working Notes:
Calculation for Adjustment and Refund
Category No. of No. of Amount Amount Amount Refun Amount Amount
Shares Shares Received Required adjusted d [3 - due on received
Applie Allotte on on on 4 + Allotmen on
d for d Applicatio Application Allotmen 5] t Allotmen
n t t
(1) (2) (3) (4) (5) (6) (7) (8)
(i) 5,000 5,000 10,000 10,000 Nil Nil 25,000 25,000
(ii) 30,000 15,000 60,000 30,000 30,000 Nil 75,000 45,000
(iii) 3,20,000 80,000 6,40,000 1,60,000 4,00,000 80,000 4,00,000 Nil
TOTAL 3,55,00 1,00,00 7,10,000 2,00,000 4,30,000 80,00 5,00,000 70,000
0 0 0
Also,
(i) Amount Received on Application (3) = No. of shares applied for (1) x ` 2
(ii) Amount Required on Application (4) = No. of shares allotted (2) x ` 2

© The Institute of Chartered Accountants

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 11.48 ACCOUNTING

2.9 CALLS-IN-ARREARS AND CALLS-IN-ADVANCE

At the time of receiving the value
of shares in instalments (calls)

Share calls money

received in full Calls-in-arrears i.e. Calls-in-advance i.e.
money received is less money of future
than due instalments received
before hand
“Bank A/c” is debited
with full money “Calls-in-arrears A/c” is
received debited with the entry “Calls-in-advance A/c” is
for Bank A/c credited with entry for
“Bank A/c”

Calls-in-Arrears
Sometimes shareholders fail to pay the amount due on allotment or calls. The total
unpaid amount on one or more instalments is known as Calls-in-Arrears or Unpaid
Calls. Such amount represents the uncollected amount of capital from the
shareholders; hence, it is shown by way of deduction from ‘called-up capital’ to
arrive at paid-up value of the share capital.
For recording ‘Calls-in-Arrears’, the following journal entry is recorded :
Calls-in-Arrears A/c Dr. [Amount of Unpaid Calls]
Bank A/c Dr. [Amount received]
To Share Allotment A/c [Total allotment money due]

To Share Calls A/c [Total Call money due]

(Being call money/ allotment money received on .... shares at ` per share.)
Calls-in-Advance
Some shareholders may sometimes pay a part, or whole, of the amount not yet
called up, such amount is known as Calls-in-advance. According to Table F,
interest at a rate not exceeding 12 per cent p.a. is to be paid on such advance call
money. This amount is credited in Calls-in- Advance Account. The following entry is
recorded:
Bank A/c Dr. [Call amount received in
advance] To Call-in-Advance A/c
When calls become actually due, calls-in-advance account is adjusted at the time
of the call. For this the following journal entry is recorded:
Calls-in-Advance A/c Dr. [Call amount received in advance]

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 COMPANY ACCOUNTS 11.49

Bank A/c Dr. [Remaining call money received,

if any] To Particular Call A/c [Call money due]
(Being call in advance adjusted and call money due received)
ILLUSTRATION 8
Shreyas Ltd. did not receive the first call on 10,000 equity shares @ ` 3 per share
which was due on 1.7.2021. This amount was received on 1.4.2022.
Open Calls in arrears account and journalise the entries in the books of the company
on 1.7.2021 and 1.4.2022.
SOLUTION
Shreyas Ltd
Journal
Date Particulars L.F. Amount Amount
Dr. Cr.
1.7.202 Calls in Arrears A/c Dr. 30,000
1 To Equity Share First Call A/c 30,000
(Being amount due on first call on 10,000
shares at ` 3 per share transferred to calls
in arrears account)

1.4.202 Bank A/c Dr. 30,000

2 To Calls in Arrears A/c 30,000
(Being calls in arrears
received)

2.10INTEREST ON CALLS-IN-ARREARS AND CALLS-

IN-ADVANCE
Interest on calls in arrears is recoverable and that in respect of calls in advance is
payable, according to provisions in this regard in the articles of the company, at the
rates mentioned therein or those to be fixed by the directors, within the limits
prescribed by the Articles. Table F prescribes 10% and 12% p.a. as the maximum
rates respectively for calls in arrears and those in advance.
Interest on Calls in Arrears Interest on Calls in Advance
It is payable by shareholders to It is payable by the Company to
company on
the calls due but remaining unpaid. Shareholders on the call money
received in advance but not yet due.

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 11.50 ACCOUNTING

As per Table F maximum prescribed As per Table F maximum prescribed

rate is 10%. rate is 12%.

Period considered : From the date call Period considered: From the date
money was due to the date money is money was received to the day call
finally received. was finally made due.

Directors have a right to waive off such Shareholders are not entitled for
interest in individual cases at their own any dividend on calls
discretion. in advance.

It is a nominal account in nature and is It is a nominal account in nature

credited to statement of profit and loss with interest being an expense for the
as an income. company.

The book entries to be passed for the adjustment of such interest are much the
same as those in case of temporary borrowings or loans raised, the only
difference being that debits are raised and credits are given to Sundry Members
Account (and not the individual accounts of shareholders) in respect of interest
recoverable on calls in arrear or that payable on call received in advance, the
corresponding entries being made in the Interest Receivable on Calls in Arrears
and Interest Payable on Calls in Advance, respectively.
The journal entries for calls-in-arrears are as follows :
(i) For interest receivable on calls-in-arrears
Shareholders’ A/c

Dr.
To Interest on calls-in-arrears A/c
(Being interest on calls in arrears at the rate of ...% made due)
(ii) For receipt of interest
Bank A/c Dr.
To Shareholders’ A/c
(Being interest money
received)
The accounting treatment of interest on Calls-in-Advance is as follows:
(i) Interest Due
Interest on Calls-in-Advance A/c Dr. [Amount of interest due
for payment]
To Shareholder’s A/c
(Being interest on calls in advance made due)

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 COMPANY ACCOUNTS 11.51

(ii) Payment of Interest

Shareholder’s A/c Dr. [Amount of interest paid]
To Bank A/c
(Being interest paid on calls-in-advance)
ILLUSTRATION 9
Rashmi Limited issued at par 1,00,000 Equity shares of `10 each payable `2.50 on
application;
`3 on allotment; ` 2 on first call and balance on the final call. All the shares were
fully subscribed. Mr. Nair who held 10,000 shares paid full remaining amount on
first call itself. The final call which was made after 3 months from first call was
fully paid except a shareholder having 1000 shares who paid his due amount after 2
months along with interest on calls in arrears. Company also paid interest on calls
in advance to Mr. Nair. Give journal entries to record these transactions.
SOLUTION
Date Particulars L.F. Debi Credi
t t
Amoun Amoun
t t
(`) (`)
Bank A/c Dr. 2,50,000
To Equity Share Application A/c 2,50,000
(Money received on applications
for 1,00,000 shares @ ` 2.50
per share)
Equity Share Application A/c Dr. 2,50,000
To Equity Share Capital A/c 2,50,000
(Transfer of application money on
1,00,000 shares to share capital)

Equity Share Allotment A/c Dr. 3,00,000

To Equity Share Capital A/c 3,00,000
(Amount due on the allotment of
1,00,000 shares @ ` 3 per share)

Bank A/c Dr. 3,00,000

To Equity Share Allotment A/c 3,00,000
(Allotment money received)

© The Institute of Chartered Accountants

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 11.52 ACCOUNTING

Equity Share First Call A/c Dr. 2,00,000

To Equity Share Capital A/c 2,00,000
(Being first call made due on 1,00,000
shares at ` 2 per share)

Bank A/c Dr. 2,25,000

To Equity Share First Call 2,00,000
A/c To Calls in Advance 25,000
A/c
(Being first call money received along
with calls in advance on 10,000 shares
at ` 2.50 per share)
Equity Share Final Call A/c Dr. 2,50,000
To Equity Share Capital A/c 2,50,000
(Being final call made due on 1,00,000
shares at ` 2.50 each)

Bank A/c Dr. 2,22,500

Calls in Advance Dr. 25,000
A/c Calls in Dr. 2,500
Arrears A/c 2,50,000
To Equity Share Final Call A/c
(Being final call received for 89,000
shares and calls in advance for 10,000
shares adjusted)
Interest on Calls in Advance Dr. 750
A/c To Shareholders A/c 750
(Being interest made due on calls in
advance of ` 25,000 at the rate of 12%
p.a.)
Shareholders A/c Dr. 750
To Bank A/c 750
(Being payment of interest made
to shareholder)

Shareholders A/c Dr. 41.67

To Interest on Calls in Arrears A/c 41.67
(Being interest on calls in arrears made
due at the rate of 10%)

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 COMPANY ACCOUNTS 11.53

Bank A/c Dr. 2,541.6

To Calls in Arrears 7 2,500
A/c To Shareholders 41.67
A/c
(Being money received from shareholder
for calls in arrears and interest
thereupon)

2.11FORFEITURE OF SHARES
The term ‘forfeit’ actually means taking away of property on breach of a condition.
It is very common that one or more shareholders fail to pay their allotment and/or
calls on the due dates. Failure to pay call money results in forfeiture of shares.
Forfeiture of shares is the action taken by a company to cancel the shares. The
directors are usually empowered by the Articles of Association to forfeit those
shares by serving proper notice to the defaulting shareholder(s). When shares are
forfeited, the title of such shareholder is extinguished but the amount paid to date
is not refunded to him. The shareholder then has no further claim on the company.
The power of forfeiture must be exercised strictly having regard to the rules and
regulations provided in the Articles of Association and it should be bonafide in the
interests of the company.
The Articles of a company usually authorise the Directors to forfeit shares of a
member on account of non-payment of a call or interest thereon after serving him a
prior notice as prescribed by the Articles. Directors also have the right to cancel
such forfeiture before the forfeited shares are re-allotted.
Accounting Entries
At the time of passing entry for forfeiture of shares, students must be careful
about the following matters:
(i) Amount called-up (i.e., amount credited to capital) in respect of forfeited
shares.
(ii) Amount already received in respect of those shares.
(iii) Amount due but has not been received in respect of those shares.
We know that shares can be issued at par or at a premium. Accounting entries
for forfeiture will vary according to situations.

2.11.1 Forfeiture of Shares which were issued at Par

In this case, Share Capital Account will be debited with the called-up value of shares
forfeited. Allotment or Calls Account will be credited with the amount due but not
paid by the shareholder(s). (Alternatively, Calls-in-Arrears Account can be
credited for all amount due, if

© The Institute of Chartered Accountants

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 11.54 ACCOUNTING

it was transferred to Calls-in-Arrears Account). Forfeited Shares Account or Shares

Forfeiture Account will be credited with the amount already received in respect of
those shares.
Share Capital Account Dr. [No. of shares x called-up value per
share]
To Forfeited Shares Account [Amount already received on
forfeited shares]
To Share Allotment Account [If amount due, but not paid]
To Share First Call Account [If amount due, but not paid]
To Share Final Call Account [If amount due, but not paid]
Where all amounts due on allotment, first call and final call have been transferred
to Calls-in- Arrears Account, the entry will be :
Share Capital Account Dr. [No. of shares x called-up value per
share] To Calls-in-Arrears Account [Total amount due, but not paid]
To Forfeited Shares Account [Amount received]
ILLUSTRATION 10
A Ltd forfeited 30,000 equity shares of ` 10 fully called-up, held by Mr. X for
non-payment of final call @ ` 4 each. However, he paid application money @ ` 2
per share and allotment money @ ` 4 per share. These shares were originally
issued at par. Give Journal Entry for the forfeiture.
SOLUTION
In the books of A Ltd.
Journal
Date Particulars ` `

Equity Share Capital A/c (30,000 x ` 10) Dr. 3,00,000

To Equity Share Final Call A/c (30,000 1,20,00
0
x ` 4) To Forfeited Shares A/c (30,000
1,80,00
x ` 6) 0
(Being the forfeiture of 30,000 equity shares of
` 10 each fully called-up for non-payment of
final call money @ ` 4 each as per Board’s
Resolution No…. dated….)

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 COMPANY ACCOUNTS 11.55

ILLUSTRATION 11
X Ltd forfeited 20,000 equity shares of ` 10 each, ` 8 called-up, for non-payment of
first call money @ ` 2 each. Application money @ ` 2 per share and allotment
money @ ` 4 per share have already been received by the company. Give Journal
Entry for the forfeiture (assume that all money due is transferred to Calls-in-Arrears
Account).
SOLUTION
In the books of X Ltd
Journal
Date Particulars ` `

Equity Share Capital A/c (20,000 x ` 8) Dr. 1,60,000

To Calls-in-Arrears A/c (20,000 x ` 40,000
2) To Forfeited Shares A/c 1,20,000

(20,000 x ` 6)
(Being the forfeiture of 20,000 equity shares of
` 10each, ` 8 called-up for non-payment of
first call money @ ` 2 each as per Board’s
Resolution No……dated….. )

2.11.2 Forfeiture of Shares which were issued at a Premium

In this case, Share Capital Account will be debited with the called-up value of
shares forfeited. If the premium on such shares has not been paid by the
shareholder, the Securities Premium Account will be debited to cancel it (if it was
credited earlier). Allotment, Calls and Forfeited Accounts will be credited in the
usual manner.
If the premium has already received by the company, it cannot be
cancelled even if the shares are forfeited in the future.

If premium not received

Share Capital A/c Dr. [Called-up value]

Securities Premium A/c Dr. [Amount of Security premium not

received]
To Share Allotment Account [If amount due, but not paid]
To Share First Call Account [If amount due, but not paid]

To Share Final Call Account [If amount due, but not paid]

To Forfeited Shares Account [Amount received on forfeited shares]

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 11.56 ACCOUNTING

If premium received
Share Capital A/c Dr. [Called-up value]
To Share Allotment Account [If amount due, but not paid]

To Share First Call Account [If amount due, but not paid]
To Share Final Call Account [If amount due, but not paid]

To Forfeited Shares Account [Amount received on forfeited

shares]
ILLUSTRATION 12
X Ltd. forfeited 5,000 equity shares of `100 each fully called-up which were issued
at a premium of 20%. Amount payable on shares were: on application ` 20; on
allotment ` 50 (including premium); on First and Final call ` 50. Only application
money was paid by the shareholders in respect of these shares. Pass Journal Entries
for the forfeiture.
SOLUTION
In the books of X Ltd.
Journal
Date Particulars ` `

Equity Share Capital A/c (5,000 x ` Dr. 5,00,00

0
100) Securities Premium A/c (See Dr.
1,00,00
Note) 2,50,00
0 0
To Equity Share Allotment A/c (5,000 x ` 50)
2,50,00
To Equity Share First and Final Call A/c (5000 0
x ` 50) To Forfeited Shares A/c (5000 x ` 20) 1,00,00
(Being the forfeiture of 5,000 equity shares of ` 0
100 each fully called-up, issued at a premium of
20%, for non-payment of allotment and call
money as per Board’s Resolution No…..dated….)
Tutorial Note: Share premium @ ` 20 on 5,000 shares has not been received by
the company. Therefore, at the time of forfeiture, Securities Premium Account will
be debited to cancel it (because Securities Premium Account was credited at the
time of allotment).
Also, in case of pro-rata allotment where shares are issued at premium,
the excess money received on application will be first adjusted to capital
account and then for securities premium.

© The Institute of Chartered Accountants

of India
 COMPANY ACCOUNTS 11.57

ILLUSTRATION 13
Mr. Shami has applied for 1,000 shares of Company XYZ Ltd. paying application
money @ ` 2 per share but has been allotted only 600 shares. The shares have a
face value of ` 10 and a premium of ` 2 per share, which are payable as: on
Allotment- ` 5 (including premium) and on final call ` 5. Now in case Mr. Shami
doesn't pay allotment money and final call and his shares are forfeited, then
following entry will be passed on forfeiture:
SOLUTION

Share Capital A/c (600 x ` 10) Dr. 6,000

Securities Premium A/c (600 x ` 2) Dr. 1,200

To Share Forfeiture A/c 2,000
To Share Allotment A/c 2,200
To Share Final Call A/c (600 x 5) 3,000

(Being 600 shares forfeited due to non-payment of

allotment
money and call money as per Board Resolution no.....
dated.....................................................................................................)
Note:
Total Amount Received on application (1,000 x 2) 2,000
Less: Amount used for application money (600 x 2) (1,200)
Excess money received on application 800
Amount due on Allotment (600 x 5) 3,000
For premium (600 x 2) 1,200
For Capital A/c (600 x 3) 1,800
Thus amount not received on allotment (3,000 - 800) 2,200

For Premium A/c For Capital A/c

Amount not received on allotment ` 1,200 ` 1,000
(2,200)

2.11.3 Forfeiture of Fully Paid-Up Shares

Forfeiture for non-payment of calls, premium, or the unpaid portion of the face
value of the shares is one of the many causes for which a share may be forfeited.
But fully paid-up shares may be forfeited for realization of debts of the
shareholder if the Articles specifically provide it.

© The Institute of Chartered Accountants

of India
 11.58 ACCOUNTING

2.12RE-ISSUE OF FORFEITED SHARES

A forfeited share is merely a share available to the company for sale and
remains vested in the company for that purpose only. Reissue of forfeited shares is
not allotment of shares but only a sale.
The share, after forfeiture, in the hands of the company is subject to an
obligation to dispose it off. In practice, forfeited shares are disposed off by
auction. These shares can be re-issued at any price so long as the total amount
received (from the original allottee and the second purchaser) for those shares is
not less than the face value on those shares.
Accounting Entries :
(a) Bank Account Dr. [Actual amount
received] Forfeited Shares Account Dr. [Loss on
re-issue]
To Share Capital Account
(Being the re-issue of….shares @ ` …. each as per Board’s Resolution No….
dated.)
(b) Forfeited Shares Account Dr.
To Capital Reserve Account
(Being the profit on re-issue, transferred to capital reserve).

2.12.1 Points for Consideration

In connection with re-issue, the following points are important:
1. Loss on re-issue should not exceed the forfeited amount.
2. If the loss on re-issue is less than the amount forfeited, the surplus
should be transferred to Capital Reserve.
3. The forfeited amount on shares (amount originally paid-up) not yet
reissued should be shown under the heading ‘share capital.’
4. When only a portion of the forfeited shares are re-issued, then the profit
made on re- issue of such portion of shares only must be transferred to
Capital Reserve.
5. When the shares are re-issued at a loss, such loss is to be debited to
“Forfeited Shares Account”.
6. If the shares are re-issued at a price which is more than the face value of
the shares, the excess amount will be credited to Securities Premium
Account.

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of India
 COMPANY ACCOUNTS 11.59

7. If the re-issued amount and forfeited amount (taken together) exceeds the
face value of the shares re-issued, it is not necessary to transfer such
amount to Securities Premium Account.

2.12.2Calculation of Profit on Re-Issue of Forfeited Shares

Students will appreciate that the credit balance of forfeited shares account cannot be
considered a surplus until the shares forfeited have been re-issued, because the
company may, on re-issue, allow the discount to the new purchaser equivalent to
the amount held in credit in this regard in the forfeited shares Account. Suppose
120 shares of a nominal value of ` 10 have been forfeited upon which ` 5 per
share was paid up and transferred to Forfeited Share Account. Afterwards, 50
shares are re-issued, ` 6 per share being collected to make them fully paid up; `
200 (50 shares x ` 10- 50 shares x ` 6) out of shares forfeited will be credited to
Share Capital Account to make up the deficiency on re-issued shares, and ` 50 (50
shares x ` 5 - ` 200) will be transferred to the Capital Reserve Account being
the surplus on re-issue of the 50 shares. It would have in the Forfeited shares
Account balance equivalent to the amount collected on the remaining 70 forfeited
shares i.e. ` 350 which will be carried forward till these are re-issued.
In the above case, it has been assumed that the amount paid up on all the 120 forfeited
shares was ` 5 per share. But in practice, shares may be forfeited on which varying
amounts are out- standing. For instance, if in the above case 70 shares were
forfeited with ` 5 paid up thereon and 50 shares with ` 7.50 was paid up thereon
then:
Share Forfeited Account Balance = (70 x 5) + (50 x 7.50)
= ` 725
Thus if 50 shares with ` 7.50 paid up are re-issued for ` 6 per share then
Capital Reserve balance will be as follows:
` (7.50 + 6 -10) x 50 shares = ` 175
ILLUSTRATION 14
Mr. Long who was the holder of 2,000 preference shares of ` 100 each, on which `
75 per share has been called up could not pay his dues on Allotment and First
call each at ` 25 per share. The Directors forfeited the above shares and
reissued 1500 of such shares to Mr. Short at ` 65 per share paid-up as ` 75 per
share.
Give Journal Entries to record the above forfeiture and re-issue in the books of the
company.

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of India
 11.60 ACCOUNTING

SOLUTION
Particulars ` `

Preference Share Capital A/c (2,000 x ` 75) Dr. 1,50,000

To Preference Share Allotment 50,000
A/c To Preference Share First 50,000
Call A/c To Forfeited Share A/c 50,000
(Being the forfeiture of 2,000 preference shares ` 75
each being called up for non-payment of allotment
and first call money as per Board’s Resolution No....
dated...........................................................................)
Bank A/c (1,500 x ` 65) Dr. 97,500

Forfeited Shares A/c (1,500 x ` 10) Dr. 15,000

To Preference Share Capital A/c 1,12,500

(Being re-issue of 1500 shares at ` 65 per share
paid-up as
` 75 as per Board’s Resolution No…..dated….)
Forfeited Shares A/c Dr. 22,500
To Capital Reserve A/c (Note 1) 22,500
(Being profit on re-issue transferred to
Capital/Reserve)
Working Note:
Calculation of amount to be transferred to Capital Reserve
Forfeited amount per share = ` = ` 25
50,000/2000
Loss on re-issue = ` 75 – ` 65 = ` 10
Surplus per share re-issued ` 15

Transferred to capital Reserve ` 15 x = `

1500 22,500
ILLUSTRATION 15
Beautiful Co. Ltd issued 30,000 equity shares of ` 10 each payable as ` 3 per
share on application, ` 5 per share (including ` 2 as premium) on allotment and ` 4
per share on call. All the shares were subscribed. Money due on all shares was fully
received except from Ram, holding 500 shares, who failed to pay the Allotment and
Call money and Shyam, holding 1,000 shares, who failed to pay the Call Money. All
those 1,500 shares were forfeited. Of the shares forfeited, 1,250 shares (including
whole of Ram’s shares) were subsequently re-issued to Jadu as fully paid up at a
discount of ` 2 per share.

© The Institute of Chartered Accountants

of India
 COMPANY ACCOUNTS 11.61

Pass the necessary entries in the Journal of the company to record the forfeiture
and re-issue of the share. Also prepare the Balance Sheet of the company.
SOLUTION
In the books of Beautiful Co. Ltd.
Journal
Date Particulars ` `
Equity Share Capital A/c (1,500 x ` 10) Dr. 15,000

Securities Premium A/c (500 x ` 2) Dr. 1,000

To Equity Share Allotment A/c (500 x 2,500
` 5) To Equity Share Call A/c (1,500 x 6,000
` 4) 7,500
To Forfeited Shares A/c
(Being forfeiture of 1,500 equity shares for non
payment of allotment and call money on 500
shares and for non-payment of call money on
1,000 shares as per Board’s Resolution
No…..dated ….)
Bank A/c Dr. 10,000
Forfeited Shares A/c Dr. 2,500
To Equity Share Capital A/c 12,500
(Being re-issue of 1250 shares @ ` 8 each
as per Board’s Resolution No…..dated….)

Forfeited Shares A/c Dr. 3,500

To Capital Reserve A/c 3,500
(Being profit on re-issue transferred to Capital
Reserve)
Balance Sheet of Beautiful Limited as at……
Particulars Notes No. `
EQUITY AND LIABILITIES
Shareholders’ funds
Share capital 1 2,99,000
Reserves and Surplus 2 62,500
Total 3,61,500

© The Institute of Chartered Accountants

of India
 11.62 ACCOUNTING

ASSETS
Current assets
Cash and cash equivalents (bank) 3,61,500
Total 3,61,500

Notes to accounts
` `
1. Share Capital
Equity share capital
Issued share
capital 3,00,000
30,000 Equity shares of ` 10 each
Subscribed, called up and paid up share
2,97,500
capital
1,500 2,99,000
29,750 Equity shares of ` 10 each
2. Add: Forfeited shares
Reserves and Surplus 59,000

Securities Premium 3,500 62,500

Capital Reserve
Working Note :
(1) Calculation of Amount to be Transferred to Capital Reserve
Amount forfeited per share of `3Amount forfeited per share `6
Ram of Shyam
Less: Loss on re-issue per
Less: Loss on re-issue per (` 2) (` 2)
share Surplus
share
` 500
Surplus `1 `4
Transferred to Capital ` 3,000
Reserve: Ram share (500 x ` 1)
` 3,500
Shyam’s Share (750 x ` 4)
Total

(2) Balance of Security Premium

Total Premium amount receivable on allotment = 60,000
Less: Amount reversed on forfeiture = (1,000)
Balance remaining = 59,000

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 COMPANY ACCOUNTS 11.63

ILLUSTRATION 16
A holds 2,000 shares of ` 10 each on which he has paid ` 2 as application
money. B holds 4,000 shares of ` 10 each on which he has paid ` 2 per share
as application money and ` 3 per share as allotment money. C holds 3,000
shares of ` 10 each and has paid ` 2 on application, ` 3 on allotment and ` 3 for
the first call. They all fail to pay their arrears on the second and final call and the
directors, therefore, forfeited their shares. The shares are re- issued
subsequently for ` 12 per share fully paid-up. Journalise the transactions relating to
the forfeiture and re-issue.
SOLUTION
Journal
Date Particulars ` `
Share Capital A/c (9,000 x ` 10) Dr. 90,000
To Share Allotment A/c (2,000 x 6,000
` 3) To Share First Call A/c 18,000
(6,000 x ` 3) To Share Final Call 18,000
A/c (9,000 x ` 2) 48,000
To Forfeited Shares A/c
(Being forfeiture of 9,000 shares of ` 10 each for
non- payment of allotment, first and final call money
as per Board’s Resolution No…..dated….)
Bank A/c (9,000 x ` 12) Dr. 1,08,000
To Share Capital A/c 90,000
To Securities Premium A/c 18,000
(Being the re-issue of 9,000 shares of ` 10 each @
` 12 as per Board’s Resolution No…..dated…)

Forfeited Shares A/c Dr. 48,000

To Capital Reserve A/c 48,000
(Being profit on re-issue transferred to Capital
Reserve).

Working Note:
Shareholder Money Received Money Not Received On
s
Application Allotment First Final Allotment First Final
Call Call Call Call
A 2,000 - - - 2,000 2,000 2,000
B 4,000 4,000 - - - 4,000 4,000
C 3,000 3,000 3,000 - - - 3,000

© The Institute of Chartered Accountants

of India
 11.64 ACCOUNTING

TOTAL 9,00 7,00 3,00 - 2,00 6,00 9,00

Money 0 0 0 `2 0 0 0
`2 `3 `3 `3 `3 `2
Receivable
` `21,00 ` - ` ` `
18,000 0 9,000 6,000 18,000 18,000

ILLUSTRATION 17
X Limited invited applications for issuing 75,000 equity shares of ` 10 each at a
premium of ` 5 per share. The total amount was payable as follows:
- ` 9 per share (including premium) on application and allotment
- Balance on the First and Final Call
Applications for 3,00,000 equity shares were received. Applications for 2,00,000
equity shares were rejected and money refunded. Shares were allotted on pro-rata
basis to the remaining applicants. The first and final call was made. The amount
was duly received except on 1,500 shares applied by Mr. Raj. His shares were
forfeited. The forfeited shares were re-issued at a discount of ` 4/- per share.
Pass necessary journal entries· for the above transactions in the books of X
Limited.
SOLUTION
Journal
Dr. Cr.
` `
1 Bank Account Dr. 27,00,000
To Share Application & Allotment A/c 27,00,000
(Being Application money on 3,00,000 shares at
` 9 per share received.)

2 Share Application & Allotment A/c Dr. 27,00,000

To Share Capital A/c (75,000 x ` 4) 3,00,00
To Securities premium A/c (75,000 x 0
` 5) To Bank A/c (2,00,000 x ` 9) 3,75,00
To Share First & Final Call A/c 0

(Being application money 18,00,00

transferred) 0
2,25,00
0
3 Share First & Final Call A/c (75,000 x6) Dr. 4,50,000
To Share Capital Account 4,50,000
(Amount First & Final Call A/c due from members
as per Directors, resolution no...... dated )

© The Institute of Chartered Accountants

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 COMPANY ACCOUNTS 11.65

4 Bank Account A/c Dr. 2,21,625

Calls in arrear A/c Dr. 3,375
To Share First & Final Call Account 2,25,000
(Being Receipt of the amounts due on first call.)

5 Equity share capital A/c Dr. 11,250

To Share forfeiture 7,875
A/c To Calls in arrear 3,375
A/c
(Being 1,125 shares forfeited for non payment of
final call.)
6 Bank Account A/c (1,125 x ` 6) Dr. 6,750
Share forfeiture A/c (1,125 x ` 4,500
4) 11,250
To Share Capital Account (1,125 x ` 10)
(Being forfeited shares reissued at ` 4
discount)
7 Share forfeiture A/c 3,375
To Capital reserve A/c 3,375
(Being share forfeiture transferred to capital
reserve*)
Working notes:
1.

Shares Shares Money Money Money Excess Share Amount Money

Applied Allotted Received on Transferred Transferred Application First and received Refunded
Application to Share to Security Money Final Call from
@ ` 9/- Capital@ Premium @ Share
` 4/- @` 5/- ` 6/- First and
Final Call
after
adjusting
excess
appl.
money

2,00000 - 18,00,000 - - - - - 18,00,000

1,00,000 75,000 9,00,000 3,00,000 3,75,000 2,25,000 4,50,000 2,25,000* -

3,00,000 75,000 27,00,000 3,00,000 3,75,000 2,25,000 4,50,000 4,46,625* 18,00,000

*4,50,000 less 2,25,000

** ` 4,50,000 less ` 3,375.
2. Number of shares allotted to Mr. Raj = 1,500 x 75,000 / 1,00,000 = 1,125
shares

© The Institute of Chartered Accountants

of India
 11.66 ACCOUNTING

3. Calculation of calls in arrear

Application money received from Raj (1,500 x9) 13,500
Less: actual application money 1,125 x9 10,125
Excess Application & Allotment Money Adjusted 3,375
with first and final call
Final call due from Raj 6,750
Less: Adjusted with final call (3,375)
Calls in arrear 3,375

2.13ISSUE OF SHARES FOR CONSIDERATION

OTHER THAN CASH
Public limited companies, generally, issue their shares for cash and use such cash to buy
the various types of assets needed in the business. Sometimes, however, a
company may issue shares in a direct exchange for land, buildings or other assets.
Shares may also be issued in payment for services rendered by promoters, lawyers
in the formation of the company. These shares should be shown separately under
the heading ‘Share Capital’.
Within specified time of allotment, the company must produce before the Registrar a
written contract of sale of service in respect of which shares have been allotted.
Under accounting standards, if an asset is acquired, or partly acquired, by the issue of
shares or other securities, the acquisition cost is the fair value of the securities
issued (which, in appropriate cases, may be indicated by the issue price as
determined by statutory authorities). The fair value may not necessarily be equal to
the nominal or par value of the securities issued.
Accounting Entries
When assets are purchased in exchange of shares
Assets Account

Dr.
To Share Capital Account
ILLUSTRATION 18
X Co. Ltd. was incorporated with an authorized share capital of 90,000 equity
shares of ` 10 each. The company purchased land and buildings from Y Co. Ltd for
` 4,00,000 payable in fully paid-up shares of the company. The balance of the
shares were issued to the public, which were fully subscribed and paid for.
You are required to pass Journal Entries and to prepare the Balance Sheet.

© The Institute of Chartered Accountants

of India
 COMPANY ACCOUNTS 11.67

SOLUTION
Journal
Date Particulars ` `
Land and Buildings A/c Dr. 4,00,000
To Y Co. Ltd A/c 4,00,000
(Being the land and buildings purchased from Y
Co. Ltd as per agreement dated…).

Y. Co. Ltd A/c Dr. 4,00,000

To Equity Share Capital A/c 4,00,000
(Being 40,000 shares of ` 10 each issued to Y Co.
Ltd. on purchase of land and building)

Bank A/c Dr. 5,00,000

To Equity Share Application and Allotment A/c 5,00,000
(Being the issue of 50,000 shares of ` 10 each
as per Board’s Resolution No…..dated…)

Equity Share Application and Allotment A/c 5,00,000

5,00,000
Dr To Equity Share Capital A/c
(Being shares allotted for application
money received.)
Balance Sheet of X Company Limited as at….
Particulars Notes No. `
EQUITY AND LIABILITIES
Shareholders’
funds 1 9,00,000
Share capital
9,00,000
Total
ASSETS
1.
Non-current assets
a Fixed assets
i. Plant Property and Equipment 2 4,00,000
2. Current assets
Cash and cash equivalents 3 5,00,000
Total 9,00,000

© The Institute of Chartered Accountants

of India
 11.68 ACCOUNTING

Notes to accounts

`
1. Share Capital
Equity share capital
Authorised share capital
90,000 Equity shares of ` 10 each 9,00,000
Issued share capital
90,000 Equity shares of ` 10 each
9,00,000
Subscribed Share Capital
90,000 Equity Shares of ` 10
9,00,000
each Called up and Paid up Capital
90,000 Equity Shares of ` 10 each
(Out of the above 40,000 shares have been allotted as fully 9,00,000
paid up pursuant to contract(s) without payment being
received in cash)
Plant Property and Equipment
2.
Land and Building
4,00,000
Cash and cash equivalents
3.
Balances with banks
5,00,000

SUMMARY
 Total capital of the company is divided into a number of small indivisible
units of a fixed amount and each such unit is called a share.
 The total capital of the company is divided into shares, the capital of the
company is called ‘Share Capital’.
 Share capital of a company is divided into following categories:
(i) Authorised Share Capital or Nominal Capital; (ii) Issued Share
Capital; (iii)
Subscribed Share Capital (iv) Called-up Share Capital; (v) Paid-up Share
Capital; (vi) Reserve Share Capital

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 Types of shares are:

(i) Preference Shares. Preference shares can be of various types, e.g.:
(a) Cumulative Preference Shares (b) Non-cumulative Preference
Shares (c) Participating Preference Shares (d) Non-participating
Preference Shares (e) Redeemable Preference Shares (f) Non-
redeemable Preference Shares (g) Convertible Preference Shares (h)
Non-convertible Preference Shares.
(ii) Equity Shares
 A company can issue shares either
(1) for cash or
(2) for consideration other than cash.
 A public limited company cannot make any allotment of shares unless the
amount of minimum subscription stated in the prospectus has been
subscribed and the sum payable as application money for such shares has
been paid to and received by the company.
 When a company issues its securities at a price more than the face value,
it is said to be an issue at a premium. Premium is the excess of issue price
over face value of the security.
 According to Section 52 of the Companies Act, 2013, Securities Premium
Account may be used by the company:
(a) Towards issue of un-issued shares of the company to be issued to
members of the company as fully paid bonus securities.
(b) To write off preliminary expenses of the company.
(c) To write off the expenses of, or commission paid, or discount
allowed on any of the securities or debentures of the company.
(d) To provide for premium on the redemption of redeemable
preference shares or debentures of the company.
(e) For the purchase of own shares or other securities.
 Sometimes shareholders fail to pay the amount due on allotment or calls. The
total unpaid amount on one or more instalments is known as Calls-in-
Arrears or Unpaid Calls.
 Some shareholders may sometimes pay a part, or whole, of the amount not
yet called up, such amount is known as Calls-in-advance.

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 11.70 ACCOUNTING

 Interest on calls in arrear is recoverable and that in respect of calls in

advance is payable, according to provisions in this regard in the articles of
the company, at the rates mentioned therein or those to be fixed by the
directors, within the limits prescribed by the Articles. Table F prescribes 10%
and 12% p.a. as the maximum rates respectively for calls in arrears and
those in advance.

The term ‘forfeit’ actually means taking away of property on breach of a
condition. It is very common that one or more shareholders fail to pay their
 allotment and/or calls on the due dates. Failure to pay call money results
in forfeiture of shares.
A forfeited share is merely a share available to the company for sale and
 remains vested in the company for that purpose only. Reissue of forfeited
shares is not allotment of shares but only a sale.
Public limited companies, generally, issue their shares for cash and use
such cash to buy the various types of assets needed in the business.
Sometimes, however, a company may issue shares in a direct exchange
for land, buildings or other assets. These shares should be shown
separately under the heading ‘Share Capital’.

TEST YOUR KNOWLEDGE

True and False
1. Liability of a holder of shares is limited to the face value of shares acquired
by them.
2. Authorised capital appears in the balance sheet at face value.
3. The rate of dividend on preference shares may vary From year to year.
4. A company may issue shares at a discount to the public in general.
5. Sweat equity shares are those which are issued to employees & directors at
a discount.
6. As per table F, rate of interest on calls in arrears is 12%.
7. As per Table F, rate of interest on calls in advance is 10%.
8. Non-participating preference shareholders enjoy voting rights.
9. Forfeited shares are available to the company for the purpose of resale.
10. Loss on reissue should exceed the forfeited amount.

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 COMPANY ACCOUNTS 11.71

Multiple Choice Questions

1. The excess price received over the par value of shares, should be credited
to .
(a) Calls-in-advance account
(b) Share capital account
(c) Securities premium account
2. The Securities Premium amount may be utilized by a company for .
(a) Writing off any loss on sale of fixed asset
(b) Writing off any loss of revenue nature
(c) Writing off the expenses/discount on the issue of debentures
3. When shares are forfeited, the share capital account is debited with
and the share forfeiture account is credited with .
(a) Paid-up capital of shares forfeited; Called up capital of shares forfeited
(b) Called up capital of shares forfeited; Calls in arrear of shares forfeited
(c) Called up capital of shares forfeited; Amount received on shares
forfeited
4. T Ltd. proposed to issue 6,000 equity shares of ` 100 each at a premium of
40%. The minimum amount of application money to be collected per share as
per the Companies Act, 2013
(a) ` 5.00

(b) ` 6.00

(c) ` 7.00
5. Dividends are usually paid as a percentage of .
(a) Authorized share capital
(b) Net profit
(c) Paid-up capital
6. As per the SEBI guidelines, on issue of shares, the application money
should not be less than
(a) 2.5% of the nominal value of shares
(b) 2.5% of the issue price of shares
(c) 25.0% of the issue price of shares

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7. G Ltd. acquired assets worth ` 7,50,000 from H Ltd. by issue of shares of `

100 at a premium of 25%. The number of shares to be issued by G Ltd. to
settle the purchase consideration = ?
(a) 6,000 shares
(b) 7,500 shares
(c) 9,375 shares
8. Securities Premium is presented as a part of
(a) Reserves & Surplus
(b) Share Capital
(c) Liabilities
9. Schedule III of Companies Act 2013 prescribes the format for
(a) Financial statements
(b) Directors’ Report
(c) Auditors' Report
10. Dividend on shares have to be paid before dividend on shares.
(a) Equity, Preference
(b) Preference, Equity
(c)Convertible, Non-Cumulative
11. Preference shares are unless expressly stated otherwise.
(a) Non-participating
(b) Convertible
(c) Interest-bearing

Theory Questions
1. Write short notes on:
(i) Utilization of securities premium account
(ii) Re-issue of forfeited shares
2. Distinguish between:
(i) Calls-in-Arrears and Calls-in-advance

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(ii) Issue of shares for cash and Issue of Shares for Consideration other
than Cash
3. Can a company issue shares at discount?

Practical Questions
1. X Ltd. invited applications for 10 lakhs shares of ` 100 each payable as
follows :
`
Application 20
Allotment (on 1st May, 2022) 30
First Call (on 1st Oct., 2022) 30
Final Call (on 1st Feb., 2023) 20
All the shares were applied for and allotted. A shareholder holding 20,000
shares paid the whole of the amount due along with allotment. Journalise the
transactions, assuming all sums due were received. Interest was paid to the
shareholder concerned on 1st February, 2023.
2. A limited Company, with an authorized capital of ` 20,00,000 divided into
shares of
` 100 each, issued for subscription 10,000 shares payable at ` 25 per
share on application, ` 30 per share on allotment, ` 20 per share on first call
three months after allotment and the balance as and when required.
The subscription list closed on January 31, 2022 when application money
on 10,000 shares was duly received and allotment was made on March 1,
2022. All amounts due were received within one month of the date they
were called.
The allotment amount was received in full but, when the first call was made,
one shareholder failed to pay the amount on 1,000 shares held by him and
another shareholder with 500 shares paid the entire amount on his
shares.
Give journal entries in the books of the Company to record these share
capital transactions.
3. A Ltd. forfeits 100 shares of Rs.10 each fully called upon. The shareholder
failed to pay the first call money of Rs. 4 per share and the second and final
Call Money of Rs. 4 per share. Give journal entry to show the effect of this
transaction.
4. B Ltd. issued 20,000 equity shares of ` 100 each at a premium of ` 20 per
share payable as follows: on application ` 50; on allotment ` 50 (including
premium); on final call ` 20. Applications were received for 24,000 shares.
Letters of regret were issued to applicants for 4,000 shares and shares
were allotted to all the other applicants. Mr. A, the holder of 150 shares,
failed to pay the allotment and call money, the shares were forfeited. Show
the Journal Entries and Cash Book in the books of B Ltd.
© The Institute of Chartered Accountants
of India
 11.74 ACCOUNTING

ANSWERS/ HINTS
True and False
1. False: Liability of the holder of shares is limited to the issue price of shares
acquired by them.
2. True: Authorised capital is the amount of capital mentioned in ‘capital clause’
of the ‘Memorandum of Association’. Authorised capital is considered only
as presentation and not considered in total of balance sheet.
3. False: Rate of preference dividend is always fixed.
4. False: According to Section 53 of the Companies Act, 2013, a Company
cannot issue shares at a discount except in the case of issue of sweat equity
shares (issued to employees and directors). Thus any issue of shares at
discount shall be void.
5. True: According to Section 53 of the Companies Act, 2013, a Company
cannot issue shares at a discount except in the case of issue of sweat equity
shares (issued to employees and directors).
6. False: As per table F, rate of interest on calls in arrears is 10%.
7. False: As per Table F, rate of interest on calls in advance is 12%.
8. False: A share on which only a fixed rate of dividend is paid every year,
without any accompanying additional rights in profits and in the surplus on
winding-up, is called 'Non-participating Preference Shares. Non-participating
preference shareholders do not enjoy voting rights.
9. True: Reissue of forfeited shares is not allotment of shares but only a sale.
10. False: Loss on re-issue should not exceed the forfeited amount.

Multiple Choice Questions

1. (c) 2. (c) 3. (c) 4. (a) 5. (c) 6.

7 (a) 8. (a) 9. (a) 10. (b) 11. (a)

Theoretical Questions
1. (i) Refer para 2.7.1 for utilization of securities premium account.
(ii) A forfeited share is merely a share available to the company for
sale and remains vested in the company for that purpose only.
Reissue of forfeited

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of India
 COMPANY ACCOUNTS 11.75

shares is not allotment of shares but only a sale. The share, after
forfeiture, in the hands of the company is subject to an obligation
to dispose it off. In practice, forfeited shares are disposed off by
auction. These shares can be re- issued at any price so long as the
total amount received (from the original allottee and the second
purchaser) for those shares is not less than the amount in arrears on
those shares.
2. (i) Calls-in-Arrears: Sometimes shareholders fail to pay the amount
due on allotment or calls. The total unpaid amount on one or more
instalments is known as Calls-in-Arrears or Unpaid Calls. Such amount
represents the uncollected amount of capital from the shareholders;
hence, it is shown by way of deduction from ‘called-up capital’ to
arrive at paid-up value of the share capital.
Calls-in-advance: Some shareholders may sometimes pay a part, or whole,
of the amount not yet called up, such amount is known as Calls-in-
advance.
(ii) The shares can be issued by a company either for cash or for
consideration other than cash. Public limited companies, generally,
issue their shares for cash and use such cash to buy the various types
of assets needed in the business. Sometimes, however, a company
may issue shares in a direct exchange for land, buildings or other
assets.
3. According to Section 53 of the Companies Act, 2013, a Company cannot
issue shares at a discount except in the case of issue of sweat equity
shares (issued to employees and directors). Thus any issue of shares at
discount shall be void.

Practical Question
1. Journal of X Ltd.
2022 ` in ` in
lakhs lakhs
1 Bank A/c Dr. 200
To Share Application A/c 200
(Receipt of applications for 10 lakh shares along
with application money of ` 20 per share.)

1 Share Application A/c Dr. 200

Share Allotment A/c Dr. 300

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of India
 11.76 ACCOUNTING

To Share Capital A/c 500

(The allotment of 10 lakh shares: payable on
application ` 20 share and ` 30 on allotment
as per Directors’ resolution no... dated...)

May 1 Bank A/c Dr. 310

To Shares Allotment 300
A/c To Calls in 10
Advance A/c
[Receipt of money due on allotment @ ` 30,
also the two calls (` 30 and ` 20) on 20,000
shares.]
Oct. 1 Share First Call A/c Dr. 300
To Share Capital A/c 300
(The amount due on 10 lakh shares @ ` 30 on
first call, as per Directors, resolution no...
dated...) 294
Bank A/c Dr.
6
Calls in Advance A/c Dr.
300
To Share First Call A/c
(Receipt of the first call on 9.80 lakh shares,
the balance having been previously received
and now debited to call in advance account.)

2023
Feb. 1 Share Final Call A/c Dr. 200
To Share Capital A/c 200
(The amount due on Final Call on 10 lakh
shares @
` 20 per share, as per Directors’ resolution
no... dated...)
Feb. 1 Bank A/c Dr. 196
Calls in Advance A/c Dr. 4
To Share Final Call A/c 200
(Receipt of the moneys due on final call on
9.80 lakhs shares, the balance having been
previously received.)

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of India
 COMPANY ACCOUNTS 11.77

Feb. 1 Interest on calls in Advance Dr. 0.66

A/c To Shareholder A/c 0.66
(Being interest on call in advance made
due)
Feb 1 Shareholder A/c Dr. 0.66
To Bank A/c 0.66
(Being interest paid)

Working Note:
The interest on calls in advance paid @ 12% on : `
` 6,00,000 (first call) from 1st May to 1st Oct., 2022–5 30,000
months
36,000
` 4,00,000 (final call) from 1st May to 1st Feb., 2023–9
66,000
months Total Interest Amount Due

2. Journal Entries in the Books of the Company

Date Particulars L.F. Debit Credit
2022 Amount Amount
(`) (`)
Jan. 31 Bank A/c Dr. 2,50,000
To Equity Share 2,50,000
Application A/c
(Money received on applications
for 10,000 shares @ ` 25 per share)

March 1 Equity Share Application A/c Dr. 2,50,000

To Equity Share Capital A/c 2,50,000
(Transfer of application money on
10,000 shares to share capital)

March 1 Equity Share Allotment A/c Dr. 3,00,000

To Equity Share Capital A/c 3,00,000
(Amount due on the allotment of
10,000 shares @ ` 30 per share)

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of India
 11.78 ACCOUNTING

April 1 Bank A/c Dr. 3,00,000

To Equity Share Allotment A/c 3,00,000
(Allotment money received)
June 1 Equity Share First Call A/c Dr. 2,00,000
To Equity Share Capital A/c 2,00,000
(First call money due on 10,000
shares @
` 20 per share)
July 1 Bank A/c Dr. 1,92,500
Calls-in-Arrears A/c Dr. 20,000
To Equity Share First Call 2,00,000
A/c To Calls-in-Advance 12,500
A/c
(First call money received on 9000
shares and calls-in-advance on 500
shares @
` 25 per share)
3. In the Books of A Ltd.
Journal Entries
Date Particulars ` `

Equity Share Capital A/c (100X10) Dr. 1,000

To Share First Call A/c (100X4) 400
To Second and Final Call A/c 400
(100X4) To Share Forfeiture A/c 200
(100X2)
(Being share forfeiture of 100 shares as per
Board’s Resolution No…..dated…)
4. In the Books of B Ltd.
Cash Book (Bank column only)
Date Particulars ` Date Particulars `
To Equity Share By Equity Share
Application 12,00,000 Application 2,00,000
A/c A/c
(Being application (Being excess money
money received refunded on 4,000
on 24,000 shares @ ` 50 each as
shares @
per Board’s Resolution
` 50 each)
No…dated….)

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of India
 COMPANY ACCOUNTS 11.79

To Equity 9,92,50 By Balance c/d 23,89,50

Share 0 0
Allotment A/c
(Being
allotment
money received
on
19,850 shares @ 3,97,00
` 50 each) 0
To Equity
Share Final
Call A/c
(Being final call
money received
on 19,850 25,89,50 25,89,50
shares @ 0 0
` 20 each)
Journal Entries
Date Particulars ` `
Equity Share Application A/c Dr. 10,00,000
To Equity Share Capital A/c 10,00,000
(Being application money on 20,000 shares @ `
50 each transferred to Equity Share Capital
Account as per Board’s Resolution
No…..dated…)
Equity Share Allotment A/c Dr. 10,00,000
To Equity Share Capital 6,00,000
A/c To Securities 4,00,000
Premium A/c
(Being allotment money @ ` 50 per share
including premium of ` 20 per share being
made due as per Board’s Resolution No……
dated….)
Equity Share Capital A/c (150 x ` 100) Dr. 15,000
Securities Premium A/c (150 x ` 20) Dr. 3,000
To Equity Share Allotment 7,500
A/c To Equity Share Final 3,000
Call A/c To Forfeited Shares 7,500
A/c
(Being forfeiture of 150 shares for non-
payment of allotment money and final call
money as per Board’s Resolution
No….dated…)

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of India
 11.80 ACCOUNTING

Equity Share Final Call A/c (19,850 x ` 20) Dr. 3,97,00

0
To Equity Share Capital A/c 3,97,00
0
(Being final call money received for ` 20 per
share being made as per Board’s resolution
No…. dated ……)
Note: Here, securities premium on forfeited shares has not been realised, so
Securities Premium Account will be debited at the time of forfeiture of these
shares.
Also, alternatively Calls in arrears A/c could have been used in which case
following entries would have been passed in place of the entry (given above) for
forfeiture:
On non- receipt of allotment money:
Calls in Arrears A/c Dr. 7,500
To Equity Share Allotment A/c 7,500
(Being allotment money on 150 shares @ ` 50 not
received transferred to calls in arrears.)

On non - receipt of Call money:

Calls in Arrears A/c Dr. 3,000
To Equity Share Final Call A/c 3,000
(Being final call on 150 shares @ ` 20 not received
transferred to calls in arrears)

On Forfeiture:
Share Capital A/c (150 x ` 100) 15,000
Securities Premium A/c (150 x 3,000
` 20) 10,500
To Calls in Arrears 7,500
A/c To Share
Forfeiture A/c
(Being forfeiture of 150 shares for non-payment of
allotment money and final call money as per Board’s
Resolution No….dated…)

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