Alfa Company Ltd. issued 10,000 shares of ₹10 each – Class 12 Accountancy

Do It Yourself · Q2

Alfa Company Ltd. issued 10,000 shares of ₹10 each for cash payable:

Particulars	Amount (₹)
On Application	3
On Allotment	2
Balance in two equal instalments

The allotment money was payable on or before March 31, 2019; the first call money on or before June 30, 2019; and the final call money on or before August 31, 2019. Mr. 'A', to whom 600 shares were allotted, paid the entire remaining face value of the shares allotted to him on allotment. Record journal entries in the company's books and also exhibit the share capital in the balance sheet on that date.

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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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Mr. A prepays the ₹5 balance (₹3,000) on allotment to a Calls-in-Advance account; each ₹2.50 call is then received from the other 9,400 shares in cash and from A by adjusting ₹1,500 out of Calls in Advance. Final Share Capital = ₹1,00,000.

Concept

Calls in Advance arises when a shareholder pays call money before it is actually called up. It is credited to a separate Calls in Advance Account (a current liability) and adjusted against the relevant call as and when that call is made — never credited straight to Share Capital until the call falls due.

Solution — Journal

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	30,000
To Share Application A/c		30,000
Share Application A/c Dr.	30,000
To Share Capital A/c		30,000
Share Allotment A/c Dr.	20,000
To Share Capital A/c		20,000
Bank A/c Dr.	23,000
To Share Allotment A/c		20,000
To Calls in Advance A/c		3,000
Share First Call A/c Dr.	25,000
To Share Capital A/c		25,000
Bank A/c Dr.	23,500
Calls in Advance A/c Dr.	1,500
To Share First Call A/c		25,000
Share Second and Final Call A/c Dr.	25,000

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Concept

Solution — Journal

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