Kishna Ltd. issued 15,000 shares of Rs. 100 each a – Class 12 Accountancy

Numerical Questions · Q12

Kishna Ltd. issued 15,000 shares of Rs. 100 each at a premium of Rs. 10 per share, payable as follows:

Particulars	Amount (₹)
On Application	30
On Allotment (including premium)	50
On First and Final Call	30

All the shares subscribed and the company received all the money due, with the exception of the allotment and call money on 150 shares. These shares were forfeited and reissued to Neha as fully paid share at an issue price of Rs. 12 each. Give journal entries in the books of the company.

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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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Here all shares were subscribed and every instalment was received except the allotment and call on 150 shares, which were forfeited and then reissued. The figure that matters is the balance left in the Share Forfeiture Account after reissue, which becomes the Capital Reserve.

Amount received on the 150 forfeited shares

Face ₹100; per share Application ₹30, Allotment ₹50 (incl. ₹10 premium), First and final call ₹30. On these 150 shares only the application money was received: 150 × ₹30 = ₹4,500. The allotment (incl. premium) and the call were not received, so the unpaid premium of 150 × ₹10 = ₹1,500 is reversed out of Securities Premium on forfeiture.

Reissue price

A fully paid ₹100 share cannot be reissued for a total of ₹12 — that would need a discount of ₹88 per share, far above the ₹30 per share available in the forfeiture account. The only coherent reading of "issue price of ₹12 each" for a fully paid ₹100 share is a reissue at a premium of ₹12 (₹112 per share). As the reissue then carries no discount, the whole forfeited amount survives.

Capital Reserve

Since no discount is charged on reissue, the entire ₹4,500 in the Share Forfeiture Account is transferred to Capital Reserve = ₹4,500.

Journal Entries (Books of Kishna Ltd.)

Particulars	Debit (₹)	Credit (₹)
Share Capital A/c ...Dr. (150 × 100)	15,000
Securities Premium Reserve A/c ...Dr. (150 × 10)	1,500
To Share Forfeiture A/c		4,500
To Share Allotment A/c (150 × 50)		7,500
To Share First & Final Call A/c (150 × 30)		4,500

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Kishna Ltd. forfeited 150 shares on which only the application money (150 × ₹30 = ₹4,500) had been received, and reissued them to Neha as fully paid. Because the reissue is at a premium (no discount), the whole ₹4,500 is transferred to Capital Reserve = ₹4,500.

Concept and Accounting Treatment

On forfeiture, the amount actually received on the shares (excluding any premium not received) is credited to the Share Forfeiture Account, and any premium called but not received is reversed out of Securities Premium. When the shares are reissued, the discount allowed (face value minus the reissue price) is debited to the Share Forfeiture Account; whatever balance remains is a capital profit transferred to Capital Reserve. If the shares are reissued at or above face value, no discount arises and the entire forfeited amount becomes Capital Reserve.

Reading the reissue price

On the 150 forfeited shares only the application money of ₹30 per share was received; the allotment (₹50, including the ₹10 premium) and the call (₹30) were not received. So the Share Forfeiture Account holds only ₹30 per share, i.e. ₹4,500 in total. A fully paid ₹100 share cannot be reissued for a total of ₹12 — that would require writing off ₹88 per share, far more than the ₹30 available. The only coherent reading of "issue price of ₹12 each" for a fully paid ₹100 share is a reissue at a premium of ₹12 (₹112 per share); the entries below use that reading.

Working Notes

Amount forfeited: only application money was received, 150 × ₹30 = ₹4,500, credited to the Share Forfeiture Account.
Unpaid premium reversed: 150 × ₹10 = ₹1,500, debited to Securities Premium Reserve on forfeiture.
Reissue: at ₹112 per share (₹100 capital + ₹12 premium); the premium 150 × ₹12 = ₹1,800 is credited to Securities Premium Reserve.
Capital Reserve: as the reissue is at a premium, no discount is charged to Share Forfeiture, so the whole ₹4,500 is transferred to Capital Reserve.

Journal Entries in the Books of Kishna Ltd.

Particulars	L.F.	Debit (₹)	Credit (₹)
Share Capital A/c ...Dr. (150 × 100)		15,000

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Concept and Accounting Treatment

Reading the reissue price

Working Notes

Journal Entries in the Books of Kishna Ltd.

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