Q.(a) A portion of the uncalled capital reserved by a company to be called only in the event of winding up of the company, is called : (A) Subscribed but not fully paid up capital (B) Unissued capital (C) Reserve capital (D) Subscribed capital
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🔒 Start your 14-day free trial to unlock the full solution →Part (a)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”.)
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:
| Date | Particulars | L.F. | 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 |
Part (b)Concept understanding — Share Subscription Accounting
Share Subscription Accounting – A First Look
Think of a company raising money by selling pieces of itself. When you buy a share, you're not buying a product off a shelf — you're promising to pay for a part of the business. That promise, and the money that follows, is what share subscription accounting tracks.
The Everyday Intuition
Imagine you and three friends decide to start a small café. You each agree to contribute ₹10,000. But you don't all have the cash right now. One friend says, "I'll pay ₹5,000 now and the rest next month." Another says, "I'll pay the full amount after two months."
How do you keep track of who has paid what, and who still owes? You'd need a simple record: "Amount Promised" and "Amount Received." That's exactly what share subscription accounting does — but for a company with hundreds or thousands of investors.
The Precise Meaning
Share subscription is the process by which investors (subscribers) apply for shares of a company and agree to pay for them. The company records:
- The amount called up by the board (the portion of face value demanded from shareholders)
- The amount received from shareholders
- The amount unpaid (calls in arrears)
The key accounts involved are:
| Account | Nature | When Used |
|---|---|---|
| Share Capital Account | Liability (credit) | When shares are issued |
| Share Allotment Account | Personal (temporary) | When allotment money is due |
| Share Calls Account | Personal (temporary) | When call money is due |
| Calls in Arrears Account | Personal (debit) | When shareholders fail to pay |
| Bank Account | Real (asset) | When money is actually received |
Why It Matters
Without proper subscription accounting, a company cannot:
- Know how much capital it has actually collected
- Track defaulting shareholders
- Comply with the Companies Act, 2013
- Prepare accurate financial statements
The law requires that share capital be shown separately as "Subscribed but not fully paid" and "Subscribed and fully paid" in the balance sheet.
The Accounting Treatment – Step by Step
Stage 1: Application Money Received
When investors apply for shares, they send application money (usually a part of the face value).
Journal Entry:
Bank A/c Dr. [Amount received]
To Share Application A/c [Amount received]
Stage 2: Allotment of Shares
When the company allots shares, the application money is transferred to Share Capital. The remaining allotment money becomes due.
Journal Entry (for allotment due):
Share Allotment A/c Dr. [Amount due]
To Share Capital A/c [Amount due]
Stage 3: Receiving Allotment Money
Journal Entry:
Bank A/c Dr. [Amount received]
To Share Allotment A/c [Amount received]
Stage 4: Calls Made and Received
If the company makes a first call, second call, etc.:
When call is made:
Share First Call A/c Dr. [Amount due]
To Share Capital A/c [Amount due]
When call is received:
Bank A/c Dr. [Amount received]
To Share First Call A/c [Amount received]
Stage 5: Calls in Arrears
If a shareholder fails to pay a call:
Journal Entry:
Calls in Arrears A/c Dr. [Amount unpaid]
To Share Allotment/Call A/c [Amount unpaid]
The Balance Sheet Presentation (Proforma)
As per NCERT Class 12 Accountancy, the Share Capital section in the Balance Sheet appears as:
| Particulars | Note No. | Amount (₹) |
|---|---|---|
| EQUITY AND LIABILITIES | ||
| 1. Shareholders' Funds | ||
| (a) Share Capital | 1 | XXX |
| 2. Non-Current Liabilities | ||
| 3. Current Liabilities |
Note 1: Share Capital
| Particulars | Amount (₹) |
|---|---|
| Authorised Capital | |
| ... shares of ₹ ... each | XXX |
| Issued Capital | |
| ... shares of ₹ ... each | XXX |
| Subscribed Capital | |
| Subscribed but not fully paid: | |
| ... shares of ₹ ... each, ₹ ... called up | XXX |
| Less: Calls in Arrears | (XXX) |
| Subscribed and fully paid: | |
| ... shares of ₹ ... each | XXX |
| Total Share Capital | XXX |
Part (a)
The portion of uncalled capital that a company decides, by special resolution (Section 65, Companies Act 2013), shall be called up only in the event of winding up is Reserve Capital. It is a cushion reserved for creditors and cannot be called during the company's normal life.
- (A) Subscribed but not fully paid-up capital — uncalled amount that can be called anytime.
- (B) Unissued capital — authorised capital not yet offered. …
Part (a): (C) Reserve Capital — uncalled capital callable only on winding up. Part (b): (A) Over subscription — applications exceed shares offered.
Part (a)
A company's authorised capital splits into issued and unissued portions; issued capital may be partly called, leaving an uncalled portion. Under Section 65 of the Companies Act, 2013, a company may, by special resolution, resolve that a part of this uncalled capital shall not be called except in the event of winding up. This ring-fenced portion is Reserve Capital — a permanent security for creditors.
| Option | Meaning |
|---|---|
| (A) Subscribed but not fully paid-up | Issued capital with some amount still callable at any time |
| (B) Unissued capital | Authorised capital never offered to the public |
| (C) Reserve capital | Uncalled capital reserved to be called only on winding up |
| (D) Subscribed capital | Face value of shares actually subscribed |
Showing the 12 most recent of 113 on this concept.
- CBSE 2026Set MARCH1 markMCQQ.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 …
- CBSE 2026Set MARCH1 markQ.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:
…
- CBSE 2026Set ANNUAL1 markQ.If applicants for 15000 equity shares were alloted 13500 shares on pro-rata basis, the types of subscription will be __________.
›Reveal solutionSolution
Allotting fewer shares (13,500) than applied for (15,000) on a pro-rata basis indicates over-subscription.
Pro-rata allotment is used only when a company receives applications for MORE shares than it offers. Here applicants for 15,000 shares were given 13,500 shares proportionately, so the issue attracted more applications th …
- CBSE 2026Set ANNUAL1 markQ.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. …
- CBSE 2026Set ANNUAL1 markMCQQ.Share Application A/c is(a) Personal A/c(b) Real A/c(c) Nominal A/c(d) None of these
›Reveal solutionSolution
The Share Application A/c is a Personal Account - option (a).
The Share Application Account records the money received from and due to the applicants for shares; since it represents a group of persons (the applicants/shareholders), it is classified as a personal account under the traditional classific …
- CBSE 2026Set ANNUAL1 markQ.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 …
- CBSE 2026Set ANNUAL1 markMCQQ.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. …
- CBSE 2026Set ANNUAL1 markMCQQ.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(c) Authorised capital, Issued capital, Subscribed capital(d) Authorised capital, Subcribed capital, Issued capital(a) Issued capital, Authorised capital, Subscribed capital(b) Subscribed capital, Issued capital, Authorised capital(c) Authorised capital, Issued capital, Subscribed capital(d) Authorised capital, Subcribed capital, Issued capital
›Reveal solutionSolution
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. … - CBSE 2026Set ANNUAL1 markQ.A company sent letter of regret for 200 shares and allotment letters for 25,000 shares to its applicants. Application money was ₹ 20 per share. Calculate the amount of Application money which company is refunding?
›Reveal solutionSolution
Amount of Application money refunded = ₹ 4,000.
The company sent a letter of regret (full rejection) for 200 shares and allotment letters for 25,000 shares. This means the company received applications for a total of 200 + 25,000 = 25,200 shares, but only 25,000 of these applications are being allotted shares; the remaining 200 shares' worth of applications are being entirely rejected.
Since application money was ₹20 per share, the refund due on the fully-rejected applications is:
Refund = 200 shares × ₹20 = ₹4,000
…
- CBSE 2026Set ANNUAL1 markMCQQ.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. …
- CBSE 2026Set ANNUAL1 markMCQQ.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. …
- CBSE 2025Set 67/6/11 markMCQQ.(a) A portion of the uncalled capital reserved by a company to be called only in the event of winding up of the company, is called : (A) Subscribed but not fully paid up capital (B) Unissued capital (C) Reserve capital (D) Subscribed capital(OR)(b) When applications for more shares of a company are received than the number of shares offered to the public for subscription, it is known as : (A) Over subscription (B) Full subscription (C) Subscription at premium (D) Under subscription
›Reveal solutionSolution
Part (a): (C) Reserve Capital — uncalled capital callable only on winding up. Part (b): (A) Over subscription — applications exceed shares offered.
Part (a)
A company's authorised capital splits into issued and unissued portions; issued capital may be partly called, leaving an uncalled portion. Under Section 65 of the Companies Act, 2013, a company may, by special resolution, resolve that a part of this uncalled capital shall not be called except in the event of winding up. This ring-fenced portion is Reserve Capital — a permanent security for creditors.
Option Meaning (A) Subscribed but not fully paid-up Issued capital with some amount still callable at any time (B) Unissued capital Authorised capital never offered to the public (C) Reserve capital Uncalled capital reserved to be called only on winding up (D) Subscribed capital Face value of shares actually subscribed
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