Q.State which of the following statements are true :

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:

1. 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.
2. 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”.)

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:

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):