Mohit Glass Ltd. issued 20,000 shares of Rs. 100 each at Rs. 110 per share, payable: | Particulars | Amount (₹) | |---|---| | On Application | 30 | | On Allotment (including Premium) | 40 | | On First Call | 20 | | On Final Call | 20 | The applications were received for 24,000 shares and allotted 20,000 shares and rejected 4,000 shares and amount returned thereon. The money was duly received. Give journal entries.

Mohit Glass Ltd. issued 20,000 shares of Rs. 100 e – Class 12 Accountancy

Numerical Questions · Q5

Mohit Glass Ltd. issued 20,000 shares of Rs. 100 each at Rs. 110 per share, payable:

Particulars	Amount (₹)
On Application	30
On Allotment (including Premium)	40
On First Call	20
On Final Call	20

The applications were received for 24,000 shares and allotted 20,000 shares and rejected 4,000 shares and amount returned thereon. The money was duly received. Give journal entries.

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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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We will record the transactions step by step. The key point: the share is issued at a premium of ₹10 (₹110 – ₹100 face value). The premium is collected on allotment, as stated.

Step 1 – Application money received

Applications for 24,000 shares × ₹30 = ₹7,20,000 received.

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	7,20,000
To Share Application A/c		7,20,000
(Being application money received on 24,000 shares @ ₹30 each)

Step 2 – Transfer of application money to share capital (for allotted shares)

20,000 shares allotted × ₹30 = ₹6,00,000 transferred to Share Capital.

Particulars	Debit (₹)	Credit (₹)
Share Application A/c Dr.	7,20,000
To Share Capital A/c		6,00,000
To Bank A/c		1,20,000
(Being application money on 20,000 shares transferred to Share Capital; balance on 4,000 shares refunded)

Step 3 – Allotment money due

Allotment is ₹40 per share (including ₹10 premium).

Total due: 20,000 × ₹40 = ₹8,00,000.

Of this, ₹30 per share (₹6,00,000) is capital, ₹10 per share (₹2,00,000) is Securities Premium.

Particulars	Debit (₹)	Credit (₹)
Share Allotment A/c Dr.	8,00,000
To Share Capital A/c		6,00,000
To Securities Premium Reserve A/c		2,00,000
(Being allotment money due on 20,000 shares @ ₹40 each including premium)

Step 4 – Allotment money received

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	8,00,000
To Share Allotment A/c		8,00,000
(Being allotment money received)

Step 5 – First call money due

First call: ₹20 per share × 20,000 shares = ₹4,00,000.

Particulars	Debit (₹)	Credit (₹)
Share First Call A/c Dr.	4,00,000
To Share Capital A/c		4,00,000
(Being first call money due on 20,000 shares @ ₹20 each)

Step 6 – First call money received

|------|-------------|------|-----------|------------| …

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The company issued 20,000 shares at a 10% premium (₹10 per share). Applications for 24,000 shares were received; 4,000 were rejected and money refunded. All calls were fully received. The journal entries record application, allotment (including premium), calls, and refund of excess application money.

Concept and Accounting Treatment

When a company issues shares at a premium, the premium amount is credited to a separate account called Securities Premium Reserve Account (not to the Share Capital account). This is because the premium represents an amount received over and above the face value of the share, and it belongs to the company's reserves, not to the capital.

The key rule: Share Capital Account is always credited with the face value (₹100 per share). The premium (₹10 per share) is credited to Securities Premium Reserve Account at the time of allotment, since the allotment money includes the premium.

For the application money: When applications exceed shares offered, the excess application money can either be refunded or adjusted against allotment. Here, the company rejected 4,000 shares and returned the money, so we record a refund.

The journal entries follow the sequential call method — each stage (application, allotment, first call, final call) is recorded separately as money becomes due and then as it is received.

Watch out

Common Pitfall

Students often credit the entire allotment amount (₹40 per share) to Share Capital. Remember: Only the face value portion (₹30 per share) goes to Share Capital; the premium portion (₹10 per share) goes to Securities Premium Reserve.

Solution: Journal Entries in the Books of Mohit Glass Ltd.

Step 1: Application Money Received

Applications for 24,000 shares × ₹30 = ₹7,20,000 received.

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	7,20,000
To Share Application A/c		7,20,000
(Being application money received on 24,000 shares @ ₹30 each)

Step 2: Transfer of Application Money to Share Capital (for allotted shares)

20,000 shares allotted × ₹30 = ₹6,00,000 transferred to Share Capital.

Particulars	Debit (₹)	Credit (₹)
Share Application A/c Dr.	6,00,000
To Share Capital A/c		6,00,000
(Being application money on 20,000 shares transferred to Share Capital)

Step 3: Refund of Excess Application Money

4,000 rejected shares × ₹30 = ₹1,20,000 refunded.

Particulars	Debit (₹)	Credit (₹)
Share Application A/c Dr.	1,20,000
To Bank A/c		1,20,000
(Being application money on 4,000 rejected shares refunded)

Step 4: Allotment Money Due

20,000 shares × ₹40 = ₹8,00,000 due. Of this, ₹30 per share (₹6,00,000) is face value, and ₹10 per share (₹2,00,000) is premium.

Particulars	Debit (₹)	Credit (₹)
Share Allotment A/c Dr.	8,00,000
To Share Capital A/c		6,00,000
To Securities Premium Reserve A/c		2,00,000
(Being allotment money due on 20,000 shares @ ₹40 each including premium of ₹10 per share)

Step 5: Allotment Money Received

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	8,00,000
To Share Allotment A/c		8,00,000
(Being allotment money received)

Step 6: First Call Money Due

20,000 shares × ₹20 = ₹4,00,000 due.

Particulars	Debit (₹)	Credit (₹)
Share First Call A/c Dr.	4,00,000
To Share Capital A/c		4,00,000
(Being first call money due on 20,000 shares @ ₹20 each)

Step 7: First Call Money Received

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	4,00,000
To Share First Call A/c		4,00,000
(Being first call money received)

Step 8: Final Call Money Due

20,000 shares × ₹20 = ₹4,00,000 due.

Particulars	Debit (₹)	Credit (₹)
Share Final Call A/c Dr.	4,00,000
To Share Capital A/c		4,00,000
(Being final call money due on 20,000 shares @ ₹20 each)

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Concept and Accounting Treatment

Solution: Journal Entries in the Books of Mohit Glass Ltd.

Step 1: Application Money Received

Step 2: Transfer of Application Money to Share Capital (for allotted shares)

Step 3: Refund of Excess Application Money

Step 4: Allotment Money Due

Step 5: Allotment Money Received

Step 6: First Call Money Due

Step 7: First Call Money Received

Step 8: Final Call Money Due

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