Naman Ltd. issued 20,000 shares of Rs. 100 each, p – Class 12 Accountancy

Numerical Questions · Q11

Naman Ltd. issued 20,000 shares of Rs. 100 each, payable:

Particulars	Amount (₹)
On Application	25
On Allotment	30
On First Call	25
On Final Call	Balance

All money duly received except Anubha, who holding 200 shares did not pay allotment and calls money, and Kumkum, who holding 100 shares did not pay both the calls. The directors forfeited the shares of Anubha and Kumkum. 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 first calculate the amounts due and unpaid for each defaulter.

Anubha (200 shares): Did not pay allotment (₹30), first call (₹25), and final call (₹20). Total unpaid per share = ₹30 + ₹25 + ₹20 = ₹75. Total unpaid = 200 × ₹75 = ₹15,000. Amount already received from Anubha = 200 × ₹25 (application) = ₹5,000.

Kumkum (100 shares): Did not pay first call (₹25) and final call (₹20). Total unpaid per share = ₹25 + ₹20 = ₹45. Total unpaid = 100 × ₹45 = ₹4,500. Amount already received from Kumkum = 100 × (₹25 application + ₹30 allotment) = 100 × ₹55 = ₹5,500.

Total shares forfeited = 300. Total amount received on these shares before forfeiture = ₹5,000 + ₹5,500 = ₹10,500. Total calls in arrears = ₹15,000 + ₹4,500 = ₹19,500.

Journal Entries in the books of Naman Ltd.

Particulars	Debit (₹)	Credit (₹)
Forfeiture of Anubha’s shares (200 shares)
Share Capital A/c (200 × ₹100) Dr.	20,000
To Share Allotment A/c (200 × ₹30)		6,000
To Share First Call A/c (200 × ₹25)		5,000
To Share Final Call A/c (200 × ₹20)		4,000
To Share Forfeiture A/c (amount received)		5,000
(Being 200 shares of Anubha forfeited for non-payment of allotment and calls)

Forfeiture of Kumkum’s shares (100 shares)

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The journal entries record the share issue, receipt of application money, allotment and calls (with defaults by Anubha and Kumkum), and the forfeiture of their shares — transferring the paid-up amount to the Share Forfeiture Account and cancelling the unpaid calls.

Concept and Accounting Treatment

In share capital accounting, the key principle is that each stage of the issue (application, allotment, calls) is a separate transaction. The company debits the bank when money is received and credits the respective share capital account (or a separate call account) when the amount becomes due. When a shareholder defaults, the company can forfeit the shares. Forfeiture cancels the shares and transfers the amount already paid by the defaulting shareholder (i.e., the application money, plus any allotment/call money actually received) to a Share Forfeiture Account. This account is a reserve that belongs to the company. Later, if the forfeited shares are reissued, the balance in this account is used to offset the discount on reissue.

The journal entries follow the Golden Rules of Accounting:

Real Account: Debit what comes in (e.g., Bank), Credit what goes out (e.g., Share Capital).
Personal Account: Debit the receiver (e.g., Share Allotment A/c when amount is due from shareholders), Credit the giver (e.g., Shareholders when they pay).
Nominal Account: Debit all expenses and losses (e.g., Calls in Arrears), Credit all incomes and gains (e.g., Share Forfeiture A/c).

For the defaults:

Anubha (200 shares): Did not pay allotment (₹30 per share) and both calls (first call ₹25, final call ₹20). She had paid only the application money (₹25 per share).
Kumkum (100 shares): Did not pay both calls (first call ₹25, final call ₹20). She had paid application (₹25) and allotment (₹30).

When shares are forfeited, the company cancels the share capital account for the face value of the shares (₹100 each) and transfers the amount already received from the defaulting shareholder to the Share Forfeiture Account. The unpaid calls (calls in arrears) are also reversed.

Solution: Journal Entries in the Books of Naman Ltd.

Particulars	Debit (₹)	Credit (₹)
For application money received
Bank A/c Dr.	5,00,000
To Share Application A/c		5,00,000
(Being application money received on 20,000 shares @ ₹25 each)

For transfer of application money to Share Capital
Share Application A/c Dr.	5,00,000
To Share Capital A/c		5,00,000
(Being application money transferred to Share Capital)

For allotment money due
Share Allotment A/c Dr.	6,00,000
To Share Capital A/c		6,00,000
(Being allotment money due on 20,000 shares @ ₹30 each)

For allotment money received (except Anubha)
Bank A/c Dr.	5,94,000
Calls in Arrears A/c Dr.	6,000
To Share Allotment A/c		6,00,000
(Being allotment money received on 19,800 shares; Anubha's 200 shares @ ₹30 not paid)

For first call money due
Share First Call A/c Dr.	5,00,000
To Share Capital A/c		5,00,000
(Being first call money due on 20,000 shares @ ₹25 each)

For first call money received (except Anubha and Kumkum)
Bank A/c Dr.	4,92,500
Calls in Arrears A/c Dr.	7,500
To Share First Call A/c		5,00,000
(Being first call money received on 19,700 shares; Anubha's 200 shares and Kumkum's 100 shares @ ₹25 not paid)

For final call money due
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)

For final call money received (except Anubha and Kumkum)
Bank A/c Dr.	3,94,000
Calls in Arrears A/c Dr.	6,000
To Share Final Call A/c		4,00,000
(Being final call money received on 19,700 shares; Anubha's 200 shares and Kumkum's 100 shares @ ₹20 not paid)

For forfeiture of Anubha's shares (200 shares)
Share Capital A/c Dr.	20,000
To Share Forfeiture A/c		5,000
To Calls in Arrears A/c		15,000
(Being 200 shares of Anubha forfeited for non-payment of allotment and calls; amount received: ₹25 per share on application)

For forfeiture of Kumkum's shares (100 shares)
Share Capital A/c Dr.	10,000
To Share Forfeiture A/c		5,500
To Calls in Arrears A/c		4,500
(Being 100 shares of Kumkum forfeited for non-payment of both calls; amount received: ₹25 on application + ₹30 on allotment = ₹55 per share)

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Concept and Accounting Treatment

Solution: Journal Entries in the Books of Naman Ltd.

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