Q.(i) R.P. Ltd. forfeited 1,500 shares of Rahim of ₹ 10 each issued at a premium of ₹ 3 per share for non-payment of allotment and first call money. Rahim had applied for 3,000 shares. On these shares, amount was payable as follows : On application – ₹ 3 per share On allotment (including premium) – ₹ 5 per share On first call – ₹ 3 per share On final call – Balance Final call has not been called up. 1,000 of the forfeited shares were reissued for ₹ 8,500 as fully paid-up. Record the necessary journal entries for the above transactions in the books of R.P. Ltd.
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Start your 14-day free trial to unlock the full solution →Concept understanding — Share Capital Accounting
Let’s begin with something you already know from everyday life.
Imagine you and two friends decide to start a small business — say, a tiffin service. You each put in some money to buy utensils, a stove, and ingredients. That money you all contributed is the capital of the business. The business doesn’t own that money; it owes it back to you, the owners. In accounting, we call you the shareholders, and the money you put in is share capital.
Now scale that up to a company. A company needs huge amounts of money to build factories, buy machinery, or develop software. It raises this money by selling shares — small units of ownership. When you buy a share, you become a part-owner of that company. The total money collected from all shareholders is the company’s share capital.
Why does share capital matter in accounting?
Because the company is a separate legal person. It does not own the money — the shareholders do. So the company must record exactly how much it has collected from whom, and in what form. This affects the balance sheet (where share capital appears under Equity and Liabilities) and the cash flow (money coming in from shareholders is a financing activity).
The precise meaning (NCERT Class 12)
Share Capital is the money raised by a company by issuing shares to the public or to promoters. It is shown under the head Shareholders’ Funds in the Balance Sheet.
There are two main types of shares:
- Equity shares – ordinary shares; owners get dividends only if the company makes profit.
- Preference shares – owners get a fixed dividend before equity shareholders, but usually have no voting rights.
Accounting treatment — the journal entries
When a company issues shares, it follows a standard sequence. Let’s say a company issues 10,000 equity shares of ₹10 each at par (i.e., at face value). The money is received in two instalments: ₹4 on application, ₹6 on allotment.
Step 1: Application money received
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Bank A/c Dr. | 40,000 | ||
| To Share Application A/c | 40,000 | ||
| (Being application money received on 10,000 shares @ ₹4 each) |
Step 2: Transfer application money to Share Capital
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Share Application A/c Dr. | 40,000 | ||
| To Share Capital A/c | 40,000 | ||
| (Being application money transferred to Share Capital) |
Step 3: Allotment money due
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Share Allotment A/c Dr. | 60,000 | ||
| To Share Capital A/c | 60,000 | ||
| (Being allotment money due on 10,000 shares @ ₹6 each) |
Step 4: Allotment money received
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Bank A/c Dr. | 60,000 | ||
| To Share Allotment A/c | 60,000 | ||
| (Being allotment money received) |
If shares are issued at a premium (e.g., ₹10 face value, issued at ₹12), the extra ₹2 goes to a separate account called Securities Premium Reserve A/c. It is not part of share capital.
The Balance Sheet format (as per NCERT)
Under Equity and Liabilities, share capital appears like this:
| Particulars | Note No. | Amount (₹) |
|---|---|---|
| 1. Shareholders’ Funds | ||
| (a) Share Capital | 1 | 1,00,000 |
| (b) Reserves and Surplus | 2 | 20,000 |
| 2. Non-Current Liabilities | ... | ... |
| 3. Current Liabilities | ... | ... |
And Note 1 (Share Capital) is typically shown as:
| Particulars | Amount (₹) |
|---|---|
| Authorised Capital | |
| 1,00,000 Equity Shares of ₹10 each | 10,00,000 |
| Issued Capital | |
| 80,000 Equity Shares of ₹10 each | 8,00,000 |
| Subscribed and Paid-up Capital | |
| 80,000 Equity Shares of ₹10 each fully paid | 8,00,000 |
Part (a): R.P. Ltd → Capital Reserve ₹3,500; Max Ltd → Capital Reserve ₹1,250 (Share Forfeiture balance ₹13,750).
Part (b): Karur Ltd → Capital Reserve ₹7,200 (Share Forfeiture balance ₹10,800).
Concept and Treatment
On forfeiture, Share Capital is debited with the called-up amount, Securities Premium is debited only with premium not received, the amount received towards capital is credited to Share Forfeiture A/c, and unpaid calls are credited to their call accounts (or to Calls-in-Arrears). On reissue, any discount is debited to Share Forfeiture; the balance relating to the reissued shares is transferred to Capital Reserve (never the whole balance — only the portion for shares actually reissued). When money received is applied, capital is satisfied before premium.
(i): R.P. Ltd.
Schedule (₹10 + premium ₹3): Application 3 (capital) · Allotment 5 (capital 2 + premium 3) · First call 3 · Final call 2 (not called).
Working Notes
- Application 3,000×3 = 9,000; retained fully. Due on 1,500 = 4,500; excess 4,500 → allotment.
- Allotment due 1,500×5 = 7,500; less excess 4,500 = 3,000 unpaid. First call 1,500×3 = 4,500 unpaid.
- Of ₹9,000 received: capital = application 4,500 + allotment-capital-via-excess 3,000 = 7,500; premium = 1,500; premium not received = 4,500 − 1,500 = 3,000 (reversed).
- Called-up capital = ₹8 × 1,500 = 12,000 (final call not called).
Journal Entries
| Particulars | Dr (₹) | Cr (₹) |
|---|---|---|
| Share Capital A/c Dr | 12,000 | |
| Securities Premium A/c Dr | 3,000 | |
| To Share Forfeiture A/c | 7,500 | |
| To Share Allotment A/c | 3,000 | |
| To Share First Call A/c | 4,500 | |
| (1,500 shares forfeited) | ||
| Bank A/c Dr | 8,500 | |
| Share Forfeiture A/c Dr | 1,500 | |
| To Share Capital A/c | 10,000 | |
| (1,000 shares reissued @ ₹8,500, fully paid) | ||
| Share Forfeiture A/c Dr | 3,500 | |
| To Capital Reserve A/c | 3,500 |
Forfeited per share ₹5 → on 1,000 reissued = ₹5,000; less discount ₹1,500 → Capital Reserve ₹3,500. Balance for 500 shares = ₹2,500.
Part (a): R.P. Ltd → Capital Reserve ₹3,500; Max Ltd → Capital Reserve ₹1,250 (Share Forfeiture balance ₹13,750).
Part (b): Karur Ltd → Capital Reserve ₹7,200 (Share Forfeiture balance ₹10,800).
Concept and Treatment
On forfeiture, Share Capital is debited with the called-up amount, Securities Premium is debited only with premium not received, the amount received towards capital is credited to Share Forfeiture A/c, and unpaid calls are credited to their call accounts (or to Calls-in-Arrears). On reissue, any discount is debited to Share Forfeiture; the balance relating to the reissued shares is transferred to Capital Reserve (never the whole balance — only the portion for shares actually reissued). When money received is applied, capital is satisfied before premium.
(ii): Max Ltd.
Paid = ₹55 (application + allotment); unpaid first call ₹20 + final call ₹25.
| Particulars | Dr (₹) | Cr (₹) |
|---|---|---|
| Share Capital A/c Dr | 50,000 | |
| To Share Forfeiture A/c | 27,500 | |
| To Share First Call A/c | 10,000 | |
| To Share Final Call A/c | 12,500 | |
| Bank A/c Dr | 12,500 | |
| Share Forfeiture A/c Dr | 12,500 | |
| To Share Capital A/c | 25,000 | |
| Share Forfeiture A/c Dr | 1,250 | |
| To Capital Reserve A/c | 1,250 |
Share Forfeiture Account
| Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
| To Share Capital (discount on reissue) | 12,500 | By Share Capital (forfeiture) | 27,500 |
| To Capital Reserve | 1,250 | ||
| To Balance c/d | 13,750 | ||
| 27,500 | 27,500 |
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