Nominal share capital is : (A) That part of authorised capital which is issued by the company. (B) The amount

Question

Q. Nominal share capital is : (A) That part of authorised capital which is issued by the company. (B) The amount of capital which is actually applied by prospective shareholders. (C) The amount of capital which is paid by the shareholders. (D) The maximum amount of share capital that a company is authorised to issue.

CBSECBSE Class XII Board 2020MCQ· 1mImportance★★★★★

✓ Free question

Concept understanding — Share Capital Classification

Let’s start with something you already know. Imagine you and two friends decide to start a small business — say, a food truck. You each put in some money. That money is the capital of the business. It’s the foundation. Now, what if one friend puts in ₹50,000, another puts in ₹30,000, and you put in ₹20,000? You all own the business, but not equally. Your share of the business is proportional to the money you put in. That’s the basic idea behind Share Capital in a company — except a company can have thousands of owners (shareholders), and their ownership is divided into tiny, equal units called shares.

What is Share Capital Classification?

In a company, Share Capital is the total money raised by issuing shares. But not all shares are the same, and not all capital is treated the same way. The NCERT Class 12 Accountancy textbook classifies share capital into two main types from the company’s point of view:

Equity Share Capital – The basic ownership capital. Equity shareholders are the real owners. They get dividends only if the company makes a profit, and they bear the highest risk.
Preference Share Capital – A hybrid between equity and debt. Preference shareholders get a fixed dividend before equity shareholders, and if the company is wound up, they get their money back before equity shareholders. But they usually have no voting rights.

Within each, the capital is further classified on the Balance Sheet (the company’s financial position statement) into:

Authorised Capital – The maximum amount of share capital a company is allowed to issue, as per its Memorandum of Association. Think of it as the legal ceiling.
Issued Capital – The part of authorised capital that the company has actually offered to the public.
Subscribed Capital – The part of issued capital that investors have agreed to take (i.e., applied for and been allotted).
Called-up Capital – The portion of the face value of shares that the company has asked shareholders to pay.
Paid-up Capital – The portion of called-up capital that shareholders have actually paid. (If some haven’t paid, that’s called “calls in arrears”.)

Note

For a Class 12 exam, you are mostly dealing with Equity Share Capital and Preference Share Capital as the two main categories. The sub-classifications (Authorised, Issued, etc.) appear in the Balance Sheet format.

Why Does This Classification Matter?

Because it determines who gets what, when, and how much.

Dividend priority: Preference shareholders get their fixed dividend first. Equity shareholders get whatever is left (if anything).
Risk: Equity shareholders bear the business risk; preference shareholders have a safer, fixed return.
Control: Equity shareholders vote; preference shareholders usually don’t.
Accounting: The money received from issuing shares is not revenue — it’s capital. It goes into the Share Capital account on the liabilities side of the Balance Sheet. The company does not debit it as income.

Accounting Treatment: The Journal Entries

When a company issues shares, the accounting depends on whether the shares are issued at par (face value), at a premium (above face value), or at a discount (below face value — but this is now prohibited for equity shares in India). Let’s take the simplest case: issue at par.

Scenario: A company issues 10,000 equity shares of ₹10 each at par. The full amount is received on application.

Journal Entry:

Particulars	Debit (₹)	Credit (₹)
Bank A/c (Dr.)	1,00,000
To Equity Share Capital A/c		1,00,000
(Being 10,000 equity shares of ₹10 each issued at par, fully paid)

Explanation:

Bank A/c is debited because the company receives cash (asset increases).
Equity Share Capital A/c is credited because the company now owes this money to shareholders as capital (liability increases).

If shares are issued at a premium (say ₹12 per share, face value ₹10), the extra ₹2 goes to a separate account called Securities Premium Reserve A/c (credited). That reserve is not distributable as dividend — it’s a capital reserve.

Format: How Share Capital Appears in the Balance Sheet

As per the Companies Act, 2013, the Balance Sheet shows Share Capital under Equity and Liabilities. Here’s the relevant extract (simplified for Class 12):

Balance Sheet of XYZ Ltd. as at 31st March, 20XX (Extract)

Particulars	Note No.	Amount (₹)
EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital	1	5,00,000
(b) Reserves and Surplus	2	1,00,000
2. Non-Current Liabilities	...	...
3. Current Liabilities	...	...
TOTAL		6,00,000

Note 1: Share Capital

Particulars	Amount (₹)
Authorised Capital:
1,00,000 Equity Shares of ₹10 each	10,00,000
Issued Capital:
50,000 Equity Shares of ₹10 each	5,00,000
Subscribed and Fully Paid-up Capital:
50,000 Equity Shares of ₹10 each	5,00,000
Total	5,00,000

Watch out

Do not confuse “Share Capital” with “Reserves and Surplus”. Share Capital is the money originally invested by shareholders. Reserves are profits retained in the business. Both are part of Shareholders’ Funds, but they are separate line items.

A Key Formula (for Interest on Capital, if applicable)

If the company pays interest on capital (e.g., to partners in a partnership, or on preference shares), the formula is:

Interest on Capital = Capital × Rate of Interest × Time (in years)

For example, if a preference share of ₹100 carries 10% dividend per annum, the annual dividend per share = ₹100 × 10% × 1 = ₹10. This is not an expense — it’s an appropriation of profit (shown in the Profit and Loss Appropriation Account).

The Big Picture

Share Capital Classification is not just a list of categories. It’s the legal and financial skeleton of a company. It tells you:

How much money the company has raised from owners.
What rights those owners have.
How that money is recorded and reported.

For your exam, remember the two main types (Equity and Preference), the sub-classifications (Authorised, Issued, Subscribed, Called-up, Paid-up), and the journal entry for issue of shares. The Balance Sheet format is your friend — practice writing it neatly.

Final takeaway: Share Capital is the ownership money of a company, classified by type and stage of issue, and recorded as a liability (because the company owes it to shareholders). It is never revenue.

The question tests the precise definition of Nominal Share Capital — also called Authorised Capital in the Companies Act.

Nominal capital is the ceiling fixed in the company's Memorandum of Association. It is the maximum amount the company is legally permitted to raise by issuing shares. It is not the amount issued, applied for, or paid up.

Option	Statement	Correct?
(A)	That part of authorised capital which is issued by the company.	No — that is Issued Capital.
(B)	The amount of capital which is actually applied by prospective shareholders.	No — that is Subscribed Capital.
(C)	The amount of capital which is paid by the shareholders.	No — that is Paid-up Capital.
(D)	The maximum amount of share capital that a company is authorised to issue.	Yes — this is the definition of Nominal/Authorised Capital.

✓Final answer

The correct answer is (D) : Nominal share capital is the maximum amount of share capital that a company is authorised to issue.

Nominal share capital is the maximum amount of share capital a company is authorised to issue as per its Memorandum of Association. The correct answer is (D).

The question tests your understanding of the basic classification of share capital under the Companies Act. In Accountancy, share capital is divided into several categories based on different stages — from what a company is allowed to issue, to what it actually issues, to what is paid up.

Nominal share capital is also called Authorised capital. It is the ceiling fixed in the company's Memorandum of Association — the maximum amount of shares the company can legally issue to the public. No company can issue shares beyond this limit without first amending its memorandum and paying the required fee.

Let's see why the other options are wrong:

(A) "That part of authorised capital which is issued by the company" — this is Issued capital, not nominal capital. Issued capital is a part of authorised capital that the company actually offers for subscription.
(B) "The amount of capital which is actually applied by prospective shareholders" — this is Subscribed capital. It represents the portion of issued capital for which applications have been received.
(C) "The amount of capital which is paid by the shareholders" — this is Paid-up capital. It is the part of subscribed capital that shareholders have actually paid (excluding calls-in-arrears).

Watch out

A common mistake is confusing nominal capital with issued capital. Remember: nominal capital is the maximum limit; issued capital is the actual amount offered. Issued capital can never exceed nominal capital.

Tip

To recall the hierarchy: Nominal (Authorised) > Issued > Subscribed > Called-up > Paid-up. Each is a subset of the previous one.

✓Final answer

The correct answer is (D): Nominal share capital is the maximum amount of share capital that a company is authorised to issue.

Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

Showing the 12 most recent of 82 on this concept.

CBSE 2026Set MARCH1 markMCQ
$Q. Issued capital is a part of :$
(a) a) Reserve capital
(b) b) Unissued capital
(c) c) Authorised capital
(d) d) Subscribed capital
›Reveal solutionSolution

Issued capital is a portion of the authorised (registered) capital, so the answer is (c) Authorised capital.

Share capital is classified as authorised -> issued -> subscribed -> called-up -> paid-up. Authorised capital is the maximum amount stated in the memorandum. The company need not issue all of it at once; the part it actually offers for public subscription is the issued capital, and the balance is unissued capital. So issued capital is always a part of the authorised capital.

✓Final answer
$Correct option: (c) Authorised capital. Subscribed capital, in turn, is a part of issued capital - but issued capital itself is carved out of the authorised capital.$
CBSE 2026Set MARCH1 mark
$Q. State any one type of shares.$
›Reveal solutionSolution

One type of share is the Equity Share (the other being the Preference Share).

Under the Companies Act, a company can issue two broad classes of shares:

✓Final answer
$Equity Shares - shares that do not carry any preferential right regarding dividend or repayment of capital; equity shareholders are the real owners, carry voting rights and get dividend out of the balance of profits after preference dividend. (The other type is Preference Shares, which enjoy a preferential right to a fixed dividend and to repayment of capital on winding up.)$
CBSE 2026Set ANNUAL1 mark
$Q. Write the types of preference shares. (any four)$
›Reveal solutionSolution
Four types of preference shares are cumulative, non-cumulative, participating and non-participating.

Preference shares carry a preferential right to dividend and to repayment of capital, and are classified according to the rights attached:

Cumulative vs Non-cumulative - whether unpaid dividends accumulate.

Participating vs Non-participating - whether they share in surplus profits beyond the fixed rate.

Convertible vs Non-convertible - whether they can be converted into equity shares.

Redeemable vs Irredeemable - whether they are repayable during the company's life.

Any four of the above are acceptable.

✓Final answer
$Four types: Cumulative, Non-cumulative, Participating and Non-participating preference shares.$
CBSE 2026Set ANNUAL1 mark
$Q. State whether True or False: Shares are of two types.$
›Reveal solutionSolution

The statement is True.

As per the Companies Act, 2013, a company's share capital is divided into two kinds of shares - equity shares and preference shares. So shares are of two types, and the statement is true.

✓Final answer
$True.$
CBSE 2026Set ANNUAL1 markMCQ
$Q. The capital with which a company is registered, is called:$
(a) Authorized Capital
(b) Issued Capital
(c) Subscribed Capital
(d) Paid-up Capital
(a) Authorized Capital
(b) Issued Capital
(c) Subscribed Capital
(d) Paid-up Capital
›Reveal solutionSolution
The capital with which a company is registered is its Authorized Capital.

Share capital of a company is classified into several categories as it moves from registration to actual cash received:

Authorized Capital — the maximum amount of share capital a company is legally allowed to raise, as stated in its Memorandum of Association (Capital Clause). This is the capital 'with which the company is registered.' It can only be increased by following the procedure laid down in the Companies Act, 2013 (special resolution + approval).

Issued Capital — that part of the authorized capital which the company actually offers to the public/investors for subscription.

Subscribed Capital — that part of the issued capital which has actually been subscribed/applied for and allotted to investors.

Paid-up Capital — that part of the subscribed capital which has actually been called up and paid by the shareholders.

Since the question specifically asks about the capital figure fixed AT REGISTRATION (the ceiling), the answer is the first category.

✓Final answer
$The capital with which a company is registered is called Authorized Capital .$

CBSE 2026Set ANNUAL1 markMCQ

Q. What correct order of capitals is followed while preparing Notes to Account to find out the amount of share capital to be shown in Balance Sheet _______.

(a) Issued capital, Authorised capital, Subscribed capital

(b) Subscribed capital, Issued capital, Authorised capital

(d) Authorised capital, Subcribed capital, Issued capital

(a) Issued capital, Authorised capital, Subscribed capital

(b) Subscribed capital, Issued capital, Authorised capital

(d) Authorised capital, Subcribed capital, Issued capital

›Reveal solution

The correct order is Authorised capital → Issued capital → Subscribed capital (Option C).

Share capital is disclosed in the Notes to Accounts in a logical, descending sequence of scope:

Step	Term	Meaning
1	Authorised Capital	The maximum capital a company is permitted to raise, as stated in its Memorandum of Association.
2	Issued Capital	The part of the authorised capital that the company actually offers for subscription to the public/promoters.
3	Subscribed Capital	The part of the issued capital that has actually been taken up (applied for and allotted) by the public.

Only the Subscribed Capital (further broken into subscribed and fully paid-up / subscribed but not fully paid-up) is the figure finally shown as Share Capital in the Balance Sheet, but the note builds up to it by disclosing Authorised, then Issued, then Subscribed capital in that order.

✓Final answer

(C) Authorised capital, Issued capital, Subscribed capital.

CBSE 2026Set ANNUAL1 markMCQ
$Q. The part of authorized capital which is offered to the public is called$
(a) subscribed capital
(b) nominal capital
(c) authorized capital
(d) issued capital
›Reveal solutionSolution
"Issued Capital" is the specific portion of a company's Authorised Capital that is actually offered to the public/investors for subscription.

Share capital in company accounts moves through several well-defined stages:

Authorised (Nominal/Registered) Capital — the maximum amount of capital a company is permitted to raise, as stated in its Memorandum of Association. This is a ceiling, not an actual issue.

Issued Capital — the part of the authorised capital that the company actually offers for subscription to the public/investors. It can never exceed authorised capital.

Subscribed Capital — the part of the issued capital that has actually been subscribed (applied and allotted) by the public.

Called-up Capital — the part of subscribed capital that the company has demanded (called) from shareholders so far.

Paid-up Capital — the part of called-up capital actually received/paid by the shareholders.

Here, the question asks specifically about the capital that is "offered to the public" out of the authorized capital — that step is called Issued Capital, distinctly before subscription even happens.

✓Final answer
$Option (d) "issued capital" — this is the portion of authorized capital that a company actually offers to the public for subscription.$
CBSE 2026Set ANNUAL1 markMCQ
$Q. The Part of Authorised capital offered by the company to the public for subscription is ............................... .$
(a) Subscribed Capital
(b) Issued Capital
(c) Called up Capital
(d) Paid up Capital
›Reveal solutionSolution
The part of Authorised Capital offered to the public for subscription is called Issued Capital.

A company's share capital, as taught under "Accounting for Share Capital," has several layers, each a narrower slice of the one before:

Authorised (Nominal/Registered) Capital — the maximum capital a company is permitted to raise, as stated in its Memorandum of Association.

Issued Capital — the part of the Authorised Capital that the company actually offers to the public (or to specific persons) for subscription. It is always ≤ Authorised Capital.

Subscribed Capital — the part of the Issued Capital that is actually applied for and allotted to applicants.

Called-up Capital — the part of the Subscribed Capital that the company has demanded (called) from shareholders so far.

Paid-up Capital — the part of the Called-up Capital that shareholders have actually paid.

The question asks specifically about the portion "offered to the public for subscription" — this is, by definition, the Issued Capital, regardless of how much of it is eventually applied for, called, or paid.

✓Final answer
$Issued Capital is the part of Authorised Capital offered to the public for subscription.$
CBSE 2025Set MARCH1 markMCQ
$Q. Which of the following is not shown under the heading 'Share capital' in a balance sheet?$
(a) Authorised capital
(b) Issued capital
(c) Reserve capital
(d) Subscribed capital
›Reveal solutionSolution
Authorised, issued and subscribed capital are all shown under 'Share Capital'; reserve capital is not disclosed there. Correct option: (c).

In GSEB Class-12 Commerce Accountancy (Share Capital):

Reserve capital = the portion of uncalled capital that a company resolves to call only at the time of winding up.

Being available only on liquidation, it is not shown in the balance sheet under the Share Capital heading.

Authorised, Issued and Subscribed capital are all part of the disclosure under Share Capital.

✓Final answer
$(c) Reserve capital.$
CBSE 2025Set ANNUAL1 markMCQ
$Q. Sweat equity shares are issued to (A) Employees (B) Directors (C) Both (A) and (B) (D) None of them$
›Reveal solutionSolution
Sweat equity shares are issued to employees and directors, so the answer is (C).

Sweat equity shares are equity shares issued by a company to its employees or directors at a discount, or for consideration other than cash, in recognition of their know-how, intellectual property or value additions to the company.

They reward contribution, so both employees (A) and directors (B) can receive them.

Since both are correct, option (C) Both (A) and (B) is the right choice, and (D) None of them is wrong.

This company-accounts concept in the BSEB Inter syllabus aligns with the NCERT/CBSE treatment of share capital.

✓Final answer
$(C) Both (A) and (B)$
CBSE 2025Set ANNUAL1 markMCQ
$Q. To whom is dividend given at a fixed rate in a company ? (A) Equity shareholders (B) Preference shareholders (C) Debenture holders (D) Promoters$
›Reveal solutionSolution
Dividend at a fixed rate is given to preference shareholders, so the answer is (B).

Preference shares enjoy two preferential rights: a fixed rate of dividend paid before equity dividend, and priority in repayment of capital on winding up.

Equity shareholders (A) receive a fluctuating dividend decided each year out of remaining profits, not a fixed rate.

Debenture holders (C) receive interest, not dividend, and are creditors, not members.

Promoters (D) have no automatic right to a fixed dividend.

Hence the fixed-rate dividend belongs to (B) Preference shareholders, as per the BSEB Inter / NCERT-aligned company accounts syllabus.

✓Final answer
$(B) Preference shareholders$
CBSE 2025Set ANNUAL1 markMCQ
$Q. Which of the following is not a part of the capital structure of a company? (A) Share capital (B) Debt capital (C) General Reserve (D) Working capital.$
›Reveal solutionSolution
Working capital is not part of capital structure — option (D).

Capital structure describes how a company finances itself through its long-term sources of funds. It typically includes:

Share capital (equity and preference),

Reserves and surplus (such as General Reserve), and

Debt capital (long-term borrowings/debentures).

Working capital, on the other hand, is the excess of current assets over current liabilities. It measures a firm's short-term liquidity and day-to-day operating ability, and is therefore not a component of the capital structure.

✓Final answer
$The correct answer is (D) Working capital.$

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