ABSTRACT

Paper aims is to describe, analyse and to increase the knowledge on share

capital, issue of share capital, different types of sources to raise the fund of
company, manner of collecting share price from the public& disclosure of
share capital in positional statement or balance-sheet of company. Share
capital will play a vital role to raise the fund of a company. The procedure
of raising fund will be explained in a significant manner with a practical
example. The funds of company will be received in different instalments
and transfer to share capital account. At the end of year, the balance of
share capital account will be disclosed in the liabilities side of companies
positional statement.

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 INDEX

SI. No. Title of the work Page No.

1 Introduction of Joint stock company 3

2 Definition 3

3 Characteristics of company 3

4 Books of accounts 4
5 Issue of share 4

6 Practical Question 7

7 Solution 8

8 Disclosure of Share capital in positional 9

statement
9 Conclusion 10

10 Bibliography 11

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 Introduction of Joint stock company: -
A company is a voluntary and autonomous association of certain persons with
capital divided into numerous transferable shares formed to carry out a particular purpose in
common. It is an artificial person created by law to achieve the object for which it is
formed. Section 2(20) of the Companies Act, 2013 defines a company as “Company formed
and registered under this Act or an existing company.” An existing company means a
company formed and registered under any of the former Companies Acts. Thus, it is an
abstract person, invisible, intangible and existing only in contemplation of law. It can hold,
purchase or sell both movable and immovable property, incur and pay debts, open a bank
account in its own name and sue and be sued in the same manner as an individual. Law
creates it and law only can dissolve it. Its existence is altogether independent of the life of
its members. Members may come and go but the company would go on forever.
Transferability of shares has given perpetual succession to a company. Death, insanity or
insolvency of a member or any member will not affect the existence of the company at all.
A company is a legal entity quite distinct and separate from the persons who are its
members. A company cannot ordinarily buy its own shares. A shareholder is not the agent
of the company. He cannot incur any debt so as to bind the company. They cannot bind the
company by their acts. The same person can be a shareholder and a creditor of the company.
The ownership is divorced from management because a joint stock company is’ managed by
a Board of Directors elected by the shareholders (i.e. owners).

Definition: -
According to the Section 2(20) of the Companies Act, 2013, “Company means
a company incorporated under this Act or under any previous company law.”

Characteristics of a Company: -
The main characteristics of a company are:

i. It is a distinct legal person existing independent of its members

ii. Liability of the members is limited to the extent of the face value of shares held by them.
iii. It has a perpetual succession, i.e. the members of the company may keep on
changing from time to time, but this does not affect the company’s continuity.
iv. The shares of a company are freely transferable except in case of a Private limited Company.
v. A company being a legal person is capable of owing, enjoying and disposing of
the property in its own name.
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 vi. A company, being a separate body can sue and be sued in its own name.
vii. Though a company is an artificial person, yet it acts through human beings who are called
directors of the company. There is a divorce between ownership and the management.
viii. It is a voluntary association of persons usually for profit.

Books of Account
Every company is required to keep at its registered office books of account.
These books are to be maintained in such a way to disclose
a) The sums of money received and expended by the company and the matter
in respect of which the receipt and expenditure has taken place.
b) All sales and purchases of goods of the company.
c) All assets and liabilities of the company.

Long term Sources of Finance: -

a. Issue of shares
➢ Equity
• Initial Public Offering
• Right issue
• ESOS/ESOP
➢ Preference
b. Debenture
c. Loans
d. Ploughing back of profit

ISSUE OF SHARE: -
SHARE CAPITAL No trading concern can run without capital. The divisions of share capital
are: -
(i) Nominal or Authorized Capital. The amount of capital with which the company
intends to be registered is called registered capital. It is the maximum amount which
the company is authorized to raise by way of public subscription. There is no legal
limit on the extent of the amount of authorized capital.
(ii) Issued Capital. That part of the authorized capital which is offered to the public for
subscription is called issued capital.
(iii) Subscribed Capital. That part of the issued capital for which applications are received
from the public is called the subscribed capital.
(iv) Called up Capital. The amount on the shares which is actually demanded by the
company to be paid is known as called up capital.
(v) Paid up Capital. The part of the called-up capital which is offered and is actually paid
by the members is known as paid up capital. The sum which is still to be paid is
known as calls in arrears.

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 Publication of Authorized, Subscribed and Paid-Up Capital [Section 60]: -

a) Where any notice, advertisement or other official publication, or any business letter,
billhead or letter paper of a company contains a statement of the amount of the
authorised capital of the company, such notice, advertisement or other official
publication, or such letter, billhead or letter paper shall also contain a statement, in an
equally prominent position and in equally conspicuous characters, of the amount of
the capital which has been subscribed and the amount paid-up.
b) If any default is made in complying with the requirements of sub-section (1), the
company shall be liable to pay a penalty of ten thousand rupees and every officer of
the company who is in default shall be liable to pay a penalty of five thousand rupees,
for each default.

Issue of Application Forms for Securities [Section 33]: -

(1) No form of application for the purchase of any of the securities of a company shall be
issued unless such form is accompanied by an abridged prospectus.
(2) Provided that nothing in this sub-section shall apply if it is shown that the form of
application was issued—
(3) In connection with a bona fide invitation to a person to enter into an underwriting
agreement with respect to such securities; or
(4) In relation to securities which were not offered to the public.
(5) A copy of the prospectus shall, on a request being made by any person before the
closing of the subscription list and the offer, be furnished to him.
(6) If a company makes any default in complying with the provisions of this section, it
shall be liable to a penalty of fifty thousand rupees for each default.

Refund of Application Money: -

(1) If the stated minimum amount has not been subscribed and the sum payable on application
is not received within the period specified therein, then the application money shall be
repaid within a period of fifteen days from the closure of the issue and if any such money is
not so repaid within such period, the directors of the company who are officers in default
shall jointly and severally be liable to repay that money with interest at the rate of fifteen
per cent per annum.
(2) The application money to be refunded shall be credited only to the bank account from
which the subscription was remitted.

Allotment of Securities by Company [Section 39]: -

(1) No allotment of any securities of a company offered to the public for subscription shall be
made unless the amount stated in the prospectus as the minimum amount has been subscribed
and the sums payable on application for the amount so stated have been paid to and received
by the company by cheque or other instrument.
(2) The amount payable on application on every security shall not be less than five per cent. of
the nominal amount of the security or such other percentage or amount, as may be specified by
the Securities and Exchange Board by making regulations in this behalf.
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 (3) If the stated minimum amount has not been subscribed and the sum payable on application
is not received within a period of thirty days from the date of issue of the prospectus, or such
other period as may be specified by the Securities and Exchange Board, the amount received
under sub-section (1) Shall be returned within such time and manner as may be prescribed.
(4) Whenever a company having a share capital makes any allotment of securities, it shall file
with the Registrar a return of allotment in such manner as may be prescribed.
(5) In case of any default under sub-section
(3) or sub-section
(4), the company and its officer who is in default shall be liable to a penalty, for each default, of
one thousand rupees for each day during which such default continues or one lakh rupees,
whichever is less.
Calls on Shares: -
Out of the face value of the shares, 5% is payable with application, some money will be
paid on allotment and rest money will be paid as and when calls are made by the company.
Generally, the prospectus gives the dates of different calls along with the amount of the calls
by shareholders. In case it is not given in the prospectus, the directors have the discretion to
call it in one call or more than one call. For this a resolution of the Board of Directors must be
passed and a notice is sent to the shareholders with a request to pay the amount of the call. As
soon as a call notice is sent, its particulars are entered in a separate book known as Share Call
Book, a specimen of which is given on the next page.
Journal Entries for Issue of Shares
(1) On Receipt of Application Money
Bank A/c Dr.
To Share Application A/c
(2) For excess share application money refunded:
Share Application A/c Dr.
To Bank A/c
(3) For Share application money transferred to share capital
Share Application A/c Dr.
To Share Capital A/c To Securities Premium A/c
(if application money includes premium)
(4) For Share allotment Money due:
Share Allotment A/c Dr.
To Share Capital A/c
To Securities Premium (if issued at a premium)
(5) For Share allotment money received:
Bank A/c Dr.
Calls-in-Arrear A/c Dr. (if allotment money not received)
To Share Allotment A/c
To Calls-in-Advance A/c
(if call money received in advance along with allotment)
(6) For Share Call money due:
Share Call A/c Dr.
To Share Capital A/c
(7) For Call money received:
Bank A/c Dr. Call-in-Arrear A/c Dr. (if call money not received)
Calls-in-Advance A/c Dr. (adjustment of share call money received earlier)
To Share Call A/c

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Practical Question: -
Priyanka Industries Ltd. has an authorised capital ` 2,00,000 divided into shares of ` 100
each. Of these, 600 shares were issued as fully paid for payment of machinery purchased
from Z Ltd. 800 shares were subscribed for by the public and during the first year ` 50 per
share was called up payable ` 20 on application, ` 10 on allotment, ` 10 on the first call and `
10 on second call.
The amounts received in respect of these shares were as follows: -
On 600 Shares Full amounts called up
On 125 Shares ` 40 per Share
On 50 Shares ` 30 per Share
On 25 Shares ` 20 per Share
The directors forfeited the 75 shares, on which less than ` 40 per share had been paid.
Required: Give Journal Entries recording the above transactions (including cash transactions)
and show how Share Capital would appear in the Balance-Sheet of the Company, in
accordance with Part 1 of Schedule III to the Companies Act.

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Solution:

L.F Dr. Cr.

Particulars (₹) (₹)
Machinery A/c Dr. 60,000
To Z Ltd. A/c 60,000
(Being the purchase of machinery from Z Ltd. as per agreement
dated...) 60,000
Z Ltd. A/c Dr.
To Share Capital A/c 60,000
(Being the issue of 600 shares at par) 16,000
Bank A/c Dr. 16,000
To Share Application A/c
(Being the application money received) 16,000
Share Application A/c Dr. 16,000
To Share Capital A/c
(Being the application money adjusted) 8,000
Share Allotment A/c Dr. 8,000
To Share Capital A/c
(Being the allotment money due) 7,750
250
Bank A/c Dr.
Calls in Arrear A/c Dr. 8,000
To Share Allotment A/c
(Being the allotment money received on 775 shares) 8,000
Share First Call A/c Dr. 8,000
To Share Capital A/c
(Being the first call due) 7,250
750
Bank A/c Dr.
Calls in Arrear A/c Dr. 8,000
To Share First Call A/c 8,000
(Being the first call received on 725 shares)
Share Second Call A/c Dr. 8,000
To Share Capital A/c 6,000
2,000
(Being the second call due)
Bank A/c Dr.
Calls in Arrear A/c Dr. 8,000
To Share Second Call A/c 3,750
(Being the second call received on 600 shares)
2,000
Share Capital A/c Dr. 1,750

To Forfeited Share A/c [(50×30) + (25 ×20)]

To Calls in Arrear A/c [(50×30) + (25 ×20)]

(Being 75 shares forfeited as per Board’s resolution dated...)

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Disclosure of Share capital in Positional Statement: -
How is share capital disclosed in the balance sheet of a company?

Share capital is reported by a company on its balance sheet in the

shareholder's equity section. The information may be listed in separate line items depending
on the source of the funds. These usually include a line for common stock, another for
preferred stock, and a third for additional paid-in capital.

What is included in share capital?

The income statement shows a firm's revenue receipts and expense payments during a
specific period. Although capital stock is not shown on the income statement, earnings are
indirectly affected, because dividends must be shown as a reduction of earnings.

Which capital is not to be disclosed in the balance sheet of a company?

Share capital consists of all funds raised by a company in exchange for shares of either
common or preferred shares of stock. Share capital is only generated by the initial sale
of shares by the company to investors. It does not include shares being sold in a secondary
market after they've been issued. Secret reserve.

Why the capital is shown in the liabilities side of balance sheet?

The capital which is not disclosed in the balance sheet is the secret reserve. A secret reserve
is the quantity that underestimates an organization's assets or overestimates its liabilities.

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 CONCLUSION

Every company means a share in the share capital of a company and includes stock. It
represents and is not necessarily interested in taking a voting position. The
explanatory statement to be annexed to the notice of the general. According to SEBI (Issue of
Capital and Disclosure)
Various financial factors in a business as disclosed by a single set of statements and
an Investors who have purchased shares in a company need financial statements, the position
statement reflecting the assets, liabilities and capital.

From the above data it will be analysed that most of the companies are raising their
fund by issuing different types of shares& debentures. The share price may be collected from
the shareholders in instalments or in one call. After receiving all the instalment, it will be
transferred to the share capital A/c then it will show in the liabilities side of the Balance-
sheet. The calls money which are not received is known as call in arrear & the shares which
have calls in arrear is forfeited by the company. In the above case of Priyanka ltd., the 75
shares which are less than 40 rupees paid was forfeited by the directors. At last the shares
which are forfeited will be re-issued by the company.

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 BIBLIOGRAPHY

WEBSITES

❖ https://www.google.com/search?client=opera&q=Comapnies+account+issu+of
+share+capital+practical+question&sourceid=opera&ie=UTF-8&oe=UTF-8
❖ https://mycbseguide.com/blog/accounting-for-share-capital-class-12-
accountancy-extra-questions/
❖ https://www.researchgate.net/publication/273985092_The_New_Ways_to_Rais
e_Capital_An_Exploratory_Study_of_Crowdfunding

BOOKS

• C. Mohan Juneja, J.S. Arora, R.C. Chawal, P.C. Sahoo: Accounting Double-Entry Book-
Keeping: KALYANI PUBLISHERS: 2018: P. 145-156
• S.K. Sahoo, N.K. Swain, Nishan Jain: Accounting Fundamental of Accounting: NANO
PUBLISHING HOUSE: 2017: P. 58-65
• R.C. Chawal, P.C Sahoo, S.K. Sahoo: Accounting Double-Entry Book-Keeping: NANO
PUBLISHING HOUSE: 2019: P. 100-123

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