Himalaya Company Limited issued for public subscription of 1,20,000 equity shares of Rs. 10 each at a premium

Numerical Questions · Q15

Himalaya Company Limited issued for public subscription of 1,20,000 equity shares of Rs. 10 each at a premium of Rs. 2 per share payable as under:

Particulars	Amount (₹)
With Application	3
On Allotment (including premium)	5
On First Call	2
On Second and Final Call	2

Applications were received for 1,60,000 shares. Allotment was made on pro-rata basis. Excess money on application was adjusted against the amount due on allotment. Rohan, to whom 4,800 shares were allotted, failed to pay for the two calls. These shares were subsequently forfeited after the second call was made. All the shares forfeited were reissued to Teena as fully paid at Rs. 7 per share. Record journal entries and show the transactions relating to share capital in the company's balance sheet.

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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)

Note

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

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A company issued 1,20,000 shares of ₹10 each at a premium of ₹2 (Application ₹3, Allotment ₹5 including ₹2 premium, First Call ₹2, Second & Final Call ₹2). Applications for 1,60,000 shares were received and allotted pro-rata. Rohan, allotted 4,800 shares, paid application and allotment but failed to pay both calls. His shares were forfeited and reissued to Teena at ₹7 fully paid.

Forfeiture treatment: Rohan paid the ₹2 premium (part of allotment), so it stays in Securities Premium and is not written back. Share Forfeiture is credited with capital received only: Application ₹3 + Allotment-capital ₹3 = ₹6 per share.

Share Forfeiture on 4,800 shares = 4,800 × ₹6 = ₹28,800
Reissue at ₹7 (face ₹10): discount = ₹3 × 4,800 = ₹14,400
Capital Reserve = ₹28,800 − ₹14,400 = ₹14,400

Journal Entries

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr. (1,60,000 × ₹3)	4,80,000
To Share Application A/c		4,80,000
Share Application A/c Dr.	4,80,000
To Share Capital A/c (1,20,000 × ₹3)		3,60,000
To Share Allotment A/c (excess adjusted)		1,20,000
Share Allotment A/c Dr. (1,20,000 × ₹5)	6,00,000
To Share Capital A/c (1,20,000 × ₹3)		3,60,000
To Securities Premium A/c (1,20,000 × ₹2)		2,40,000
Bank A/c Dr. (6,00,000 − 1,20,000 adjusted)	4,80,000
To Share Allotment A/c		4,80,000
Share First Call A/c Dr. (1,20,000 × ₹2)	2,40,000
To Share Capital A/c		2,40,000
Bank A/c Dr. (except Rohan's 4,800 × ₹2)	2,30,400
To Share First Call A/c		2,30,400
Share Second & Final Call A/c Dr. (1,20,000 × ₹2)	2,40,000
To Share Capital A/c		2,40,000
Bank A/c Dr. (except Rohan's 4,800 × ₹2)	2,30,400
To Share Second & Final Call A/c		2,30,400
Share Capital A/c Dr. (4,800 × ₹10)	48,000
To Share Forfeiture A/c (4,800 × ₹6)		28,800

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Rohan's 4,800 shares (allotted on a pro-rata basis) are forfeited for non-payment of both calls and reissued to Teena as fully paid at ₹7 per share. Capital Reserve = ₹14,400. In the Balance Sheet, Share Capital is ₹12,00,000, Securities Premium Reserve ₹2,40,000 and Capital Reserve ₹14,400.

Pro-rata and amounts received

Applications for 1,60,000 shares were allotted 1,20,000 shares (ratio 4:3), so Rohan, allotted 4,800 shares, had applied for 4,800 × 4/3 = 6,400 shares. His excess application money was adjusted against allotment, so he had paid application and allotment in full and defaulted only on the two calls. Amount received from him towards face value = application ₹3 + allotment (face) ₹3 = ₹6 per share, i.e. 4,800 × ₹6 = ₹28,800. The ₹2 premium was received on allotment and is not disturbed.

Journal Entries in the Books of Himalaya Company Ltd.

Particulars	Debit (₹)	Credit (₹)
Bank A/c (1,60,000 x ₹3) Dr.	4,80,000
To Share Application A/c		4,80,000
Share Application A/c Dr.	4,80,000
To Share Capital A/c (1,20,000 x ₹3)		3,60,000
To Share Allotment A/c (excess on 40,000 shares)		1,20,000
Share Allotment A/c (1,20,000 x ₹5) Dr.	6,00,000
To Share Capital A/c (1,20,000 x ₹3)		3,60,000
To Securities Premium Reserve A/c (1,20,000 x ₹2)		2,40,000
Bank A/c (6,00,000 - 1,20,000) Dr.	4,80,000
To Share Allotment A/c		4,80,000
Share First Call A/c (1,20,000 x ₹2) Dr.	2,40,000
To Share Capital A/c		2,40,000
Bank A/c (1,15,200 x ₹2) Dr.	2,30,400
To Share First Call A/c		2,30,400
Share Second and Final Call A/c (1,20,000 x ₹2) Dr.	2,40,000
To Share Capital A/c		2,40,000
Bank A/c (1,15,200 x ₹2) Dr.	2,30,400
To Share Second and Final Call A/c		2,30,400
Forfeiture of Rohan's 4,800 shares
Share Capital A/c (4,800 x ₹10) Dr.	48,000
To Share Forfeiture A/c (4,800 x ₹6)		28,800
To Calls-in-Arrears A/c (4,800 x ₹4)		19,200
Reissue to Teena at ₹7, fully paid
Bank A/c (4,800 x ₹7) Dr.	33,600
Share Forfeiture A/c (4,800 x ₹3) Dr.	14,400
To Share Capital A/c (4,800 x ₹10)		48,000
Transfer to Capital Reserve

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Pro-rata and amounts received

Journal Entries in the Books of Himalaya Company Ltd.

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