Amisha Ltd. invited applications for 40,000 shares of Rs. 100 each at a premium of Rs. 20 per share. Amount pa

Numerical Questions · Q24

Amisha Ltd. invited applications for 40,000 shares of Rs. 100 each at a premium of Rs. 20 per share. Amount payable:

Particulars	Amount (₹)
On Application	40
On Allotment (including premium)	40
On First Call	25
On Second and Final Call	15

Applications were received for 50,000 shares and allotment was made on pro-rata basis. Excess money on application was adjusted against the sums due on allotment. Rohit, to whom 600 shares were allotted, failed to pay the allotment money and his shares were forfeited after allotment. Ashmita, who applied for 1,000 shares, failed to pay the two calls and her shares were forfeited after the second call. Of the shares forfeited, 1,200 shares were sold to Kapil for Rs. 85 per share as fully paid, the whole of Rohit's shares being included. Record necessary 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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A company issued shares of ₹100 each at a premium of ₹20 (Application ₹40, Allotment ₹40 including ₹20 premium, First Call ₹25, Second & Final Call ₹15). Applications for 50,000 shares were received against 40,000 issued (pro-rata 4:5). Rohit (allotted 600) failed to pay allotment; Ashmita (allotted 800) failed to pay both calls. Their shares were forfeited and 1,200 shares (Rohit's 600 + 600 of Ashmita's) reissued to Kapil at ₹85 fully paid.

Forfeiture treatment:

Rohit paid only application; he did not pay allotment, so his ₹20 premium was not received and is reversed. Capital received = his application money = ₹30,000 (600 shares) → Share Forfeiture ₹30,000, i.e. ₹50 per share.
Ashmita paid application and allotment (premium received, not reversed) but not the two calls. Capital received = Application-capital ₹40 + Allotment-capital ₹20 = ₹60 per share → Share Forfeiture = 800 × ₹60 = ₹48,000.

Reissue of 1,200 shares at ₹85 (face ₹100, discount ₹15/share = ₹18,000):

Forfeited amount on the reissued shares = Rohit 600 × ₹50 + Ashmita 600 × ₹60 = ₹30,000 + ₹36,000 = ₹66,000
Capital Reserve = ₹66,000 − ₹18,000 = ₹48,000
Balance in Share Forfeiture (Ashmita's 200 shares) = 200 × ₹60 = ₹12,000

Journal Entries

Particulars	Debit (₹)	Credit (₹)
Share Capital A/c Dr. (600 × ₹60 called)	36,000
Securities Premium A/c Dr. (600 × ₹20, not received)	12,000
To Share Allotment A/c (arrears)		18,000
To Share Forfeiture A/c		30,000

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After pro-rata allotment (5 applied : 4 allotted), forfeiture of Rohit's 600 shares (unpaid allotment) and Ashmita's 800 shares (unpaid calls), and reissue of 1,200 shares to Kapil @ ₹85, the Capital Reserve = ₹48,000 and the balance in the Share Forfeiture Account = ₹12,000 (for Ashmita's 200 shares not reissued).

Working Notes

Pro-rata ratio: 50,000 applied : 40,000 allotted = 5 : 4.

Rohit (allotted 600): applied for 600 × 5/4 = 750 shares; application paid = 750 × 40 = 30,000 (all capital). Application due on 600 = 24,000; excess = 6,000 adjusted to allotment. Allotment due = 600 × 40 = 24,000; after adjusting ₹6,000, ₹18,000 stayed unpaid, so premium (₹20/sh.) was not received. Amount forfeited = 30,000.

Ashmita (applied 1,000, allotted 1,000 × 4/5 = 800): application paid = 40,000; due on 800 = 32,000; excess = 8,000 adjusted to allotment. She paid allotment (so premium of 800 × 20 = 16,000 was received). Total received = 40,000 + (32,000 - 8,000) = 64,000; capital portion = 64,000 - 16,000 = 48,000. She defaulted on both calls (800 × 25 = 20,000 and 800 × 15 = 12,000). Amount forfeited (capital) = 48,000.

Journal Entries

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	20,00,000
To Share Application A/c (50,000 x 40)		20,00,000
Share Application A/c Dr.	20,00,000
To Share Capital A/c (40,000 x 40)		16,00,000
To Share Allotment A/c (excess)		4,00,000
Share Allotment A/c Dr. (40,000 x 40)	16,00,000
To Share Capital A/c (40,000 x 20)		8,00,000
To Securities Premium Reserve A/c (40,000 x 20)		8,00,000
Bank A/c Dr.	11,82,000
To Share Allotment A/c		11,82,000
(Allotment received except Rohit; net of excess application)
Share Capital A/c Dr. (600 x 60)	36,000
Securities Premium Reserve A/c Dr. (600 x 20)	12,000
To Share Forfeiture A/c (amount received)		30,000
To Share Allotment A/c (amount unpaid)		18,000
(Rohit's 600 shares forfeited for non-payment of allotment)
Share First Call A/c Dr. (40,000 x 25)	10,00,000
To Share Capital A/c		10,00,000
Bank A/c Dr.	9,80,000
To Share First Call A/c (except Ashmita)		9,80,000
Share Second & Final Call A/c Dr. (40,000 x 15)	6,00,000
To Share Capital A/c		6,00,000
Bank A/c Dr.	5,88,000
To Share Second & Final Call A/c (except Ashmita)		5,88,000
Share Capital A/c Dr. (800 x 100)	80,000
To Share Forfeiture A/c (capital received)		48,000
To Share First Call A/c (800 x 25)		20,000
To Share Second & Final Call A/c (800 x 15)		12,000
(Ashmita's 800 shares forfeited for non-payment of calls)
Bank A/c Dr. (1,200 x 85)	1,02,000

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Working Notes

Journal Entries

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