Summary

A company raises funds by issuing equity shares (ownership capital, no fixed dividend) and preference shares (fixed dividend, priority on repayment). The total amount raised is called share capital.

Share capital is classified as: Authorised Capital (maximum the company can issue, per MOA), Issued Capital (offered to public), Subscribed Capital (taken up by investors), Called-up Capital (amount demanded), and Paid-up Capital (actually received). Uncalled capital is the portion not yet demanded.

Shares can be issued at par (face value), premium (above face value), or discount (below face value — only allowed for certain past issues, not under current law). Premium is credited to Securities Premium Reserve (a separate reserve, not available for dividends).

Payment is collected in instalments: Application, Allotment, and one or more Calls (e.g., First Call, Final Call). Each instalment is recorded separately in the journal.

Journal entries follow a fixed pattern:

• On application: Bank A/c Dr. → To Share Application A/c
• On allotment: Share Allotment A/c Dr. → To Share Capital A/c (and To Securities Premium A/c if premium is due on allotment)
• On calls: Share Call A/c Dr. → To Share Capital A/c
• On receipt: Bank A/c Dr. → To respective instalment A/c

Calls-in-Arrears arise when a shareholder fails to pay an instalment. The company may charge interest (as per Articles) and record it as: Calls-in-Arrears A/c Dr. → To respective instalment A/c. Interest received is credited to Interest on Calls-in-Arrears A/c.

Calls-in-Advance occur when a shareholder pays before the due date. The amount is credited to Calls-in-Advance A/c (a liability) and interest is paid at the prescribed rate.

Forfeiture of shares happens when a shareholder defaults on payment. The company cancels the shares and transfers the amount already paid (excluding premium on forfeited shares) to Share Forfeiture A/c. Journal entry:

• Share Capital A/c Dr. (called-up amount)
• Securities Premium A/c Dr. (if premium was not received)
• To Share Forfeiture A/c (amount already paid)
• To Calls-in-Arrears A/c (unpaid amount)

Reissue of forfeited shares can be at par, premium, or discount (but discount cannot exceed the amount originally forfeited). The balance in Share Forfeiture A/c (after reissue) is transferred to Capital Reserve (a capital reserve, not available for dividends).

Pro-rata allotment occurs when an issue is oversubscribed. Applications are scaled down proportionally. Excess application money is either refunded or adjusted towards allotment/calls. Journal entries involve transferring the excess to Share Allotment A/c or Bank A/c. …