Share Capital refers to the amount of money that a company raises by issuing shares to its shareholders. In simple terms, it's the money invested by the owners (shareholders) of a company in exchange for ownership rights (shares).
Types of Share Capital:
- Equity Share Capital: The Share which does not carry any preferential or special right on dividend and re-fund of capital on liquidation of company is called equity share capital. Dividend on such share is payable only after the payment of preferential dividend. Equity shareholders enjoy voting rights. They have right to elect directors and control of the company.
- Preference Share Capital: The part of share capital which enjoy preferential right as to payment of dividend at fixed rate and repayment of capital at liquidation is called Preference Share Capital.
Category of Shares Capital:
- Authorized share capital: Maximum capital that company is authorized to raise. It is situated in capital clause of Memorandum of Association (MOA).
- Issued share capital: Part of authorized share capital that is offer to public for subscription.
- Subscribed share capital: Part of issued share capital that has be subscribed by the public.
- Called up Share Capital: Part of subscribed share capital which has be called up by the company for payment.
- Paid up share capital: Part of called up capital which has been actually paid up by the shareholders.
- Calls in arrear: Some Shareholders might have default in payment of allotment or call money such amount in default is known as calls in arrears.
- Calls in Advance: Some shareholder’s might have paid share capital amount in advance at the time of allotment or calls it is called Calls in advance.
Meaning of Share:
Total capital of company is divided into a no. of small
indivisible units of fixed amount and each such unit is called a share. The
fixed value of share printed on the share certificate, is called nominal/ par/
Face value of shares.
While shares are issued at price equal to its face value,
the issue is known as share issue at par. There are two types of journal
entries connected with share issue they are called cash entry & transfer
entries.
As per section-29 of Company Act 2063, when a company issue
any securities at a price more then the face/ par/ nominal value it is said to
be an issue at premium. When share issued at premium, the premium amount is
credited to separate account called securities premium account because it is
not part of share capital. Rather it represents a gain of capital nature to the
company.
Securities premium can be used for:
- To issue a fully paid-up bonus share
- To right off preliminary expenses.
- To right off issue expenses (i.e. discount & commission paid on issue of debentures and securities)
- To provide premium payable on redemption of debenture and preference share capital,
Share premium may be collected
along with application or at the time of allotment/ 1st call/ final
call. If the information is not given about premium, it will be recorded at the
time of share allotment money due.
When share is issued at discount, company stands to lose
money and thus, it is recorded in the books by debiting discount on issue of
share capital. Issue of share at discount is generally recorded at the time of
allotment.
|
Date |
particulars |
L.F |
Debit |
Credit |
|
|
At the
time of Application Bank A/c Dr To Share Application A/c (Being Share
Application Money received) Share
application A/c Dr Discount on
issue of Shares A/c Dr To Share Capital A/c (Being Share application
money transfer to Share Capital) |
|
XXX XXX XXX |
XXX XXX |
|
|
At the
time of Allotment Share
allotment A/c Dr Discount on
issue of Share A/c Dr To share capital A/c (Being Share
allotment money Due) Bank A/c Dr (Being Share
allotment money received) |
|
XXX XXX XXX |
XXX XXX |
|
|
At the
time of 1st & final call Share 1st
& final call A/c Dr Discount on
issue A/c Dr To Share Capital A/c (Being Share
1st & Final Call money Due) Bank A/c Dr To Share 1st &
Final Call A/c (Being Share
1st & final Call money received) |
|
XXX XXX XXX |
XXX XXX |
Calls in arrear:
When company calls to shareholders to pay allotment/ calls
money, it has to pay by them with in specified time. If it is not paid by any
one or more shareholder. The unpaid amount is termed as calls in arrears.
Interest is charged on calls in arrears.
Journal Entries:
|
Date |
Particulars |
L.F |
Debit |
Credit |
|
|
share
Application A/c Dr Share 1st
& Final A/c Dr To Share Capital A/c (Being Share
Allotments, 1st & final Call money Due) Bank A/c Dr Calls in
Arrear A/c Dr To Share Allotment A/c To Share 1st &
Final Call A/c (Being Share
Allotments, 1st & Final Call money Received except amount on
Calls in arrear) |
|
XXX XXX XXX XXX |
XXX XXX XXX |
|
|
Shareholders
A/c Dr To interest on Calls in arrear
A/c (Being
Interest due in Calls in arrear) Bank A/c Dr To Shareholders A/c (Being
Interest due amount received) |
|
XXX XXX |
XXX XXX |
Calls in Advance:
When company receive amount in excess of amount call, such
amount is transfer to calls in advance. This is not shown as capital of
company, till such time of company makes a demand from all shareholders. Calls
in advance shown in the liability side of statement of the financial position/
balance sheet. Interest is payable on calls in advance.
Journal entries:
|
Date |
Particulars |
L.F |
Debit |
Credit |
|
|
share Application
A/c Dr Share 1st
& Final A/c Dr To Share Capital A/c (Being Share
Allotments, 1st & final Call money Due) Bank A/c Dr To Calls in Advance A/c To Share Allotment A/c To Share 1st &
Final Call A/c (Being Share
Allotments, 1st & Final Call money Received with advance of
calls) |
|
XXX XXX XXX |
XXX XXX XXX XXX |
|
|
Adjustment of
Calls in Advance Bank A/c Dr Calls in
Advance A/c To Share 1st &
final Call A/c (Being calls
in Advance is adjusted in 1st & Final Call) |
|
XXX XXX |
XXX |
|
|
Interest on
calls in advance A/c Dr To Shareholder’s A/c (Being
Interest on Calls in advance is Payable) Shareholders
A/c Dr To Bank A/c (Being
Interest payable is paid) |
|
XXX XXX |
XXX XXX |
If applied share is more then issued share is called over
subscription.
Over-subscription ca be adjusted
in followings:
- Rejection
- Pro-rata allotment
- Combination of 1 & 2
Rejection Excess share: All excess share were
rejected and re-funded
In case of over subscription, company may reject all the
excess share and it is recorded at the time of share application money received
and at the time of share application money transfer to share capital. It is
recorded as below.
|
Date |
Particulars |
L.F |
Debit |
Credit |
|
|
Bank A/c Dr To Share Application A/c (Being share
application money received) Share
Application A/c Dr To Share capital A/c To Bank A/c (Being Share
application money transfer to share capital & excess money were refunded) |
|
XXX XXX |
XXX XXX XXX |
In case of
over subscription, company does not reject excess share amount, it provides
share to all shareholders according to pro-rata allotment. Excess share amount
where transfer to share allotment/ 1st and final Call. It is
recorded at the time of share application money receipt & application money
transfer to share capital.
Journal
|
Date |
Particulars |
L.F |
Debit |
Credit |
|
|
Bank A/c Dr To
Share Application A/c (Being share application money received) Share Application A/c Dr To
Share capital A/c To
Share allotment A/c To
Share 1st & Final Call A/c (Being Share application money transfer to share
capital & excess money were transfer to allotment and calls) |
|
XXX
XXX |
XXX
XXX XXX XXX |
Forfeiture
of shares:
If the
shareholders fail to pay call amount and interest there on within time prescribed
by the company. Company may decide to cancel such non paid shares is called
forfeiture of share. The article of company usually authorized by the director
to forfeit share of member on account of non-payment of call or interest there
on after serving firm prior notice as prescribed by the article.
As per
section 53(3) of company act, 2063, whenever share is forfeited, amount paid by
shareholders shall be refunded or equivalent shares shall be issued to him/her.
Journal entries:
|
Date |
Particulars |
L.F |
Debit |
Credit |
|
|
Share Capital A/c Dr To
Share forfeiture A/c To
Calls in arrear A/c (Being, share forfeited) |
|
XXX |
XXX XXX |
|
|
Share forfeiture A/c Dr To
Bank A/c Or, To
Share Capital A/c (Equivalent Share) (Being, Forfeited Amount paid) |
|
XXX |
XXX
XXX |
When share
issued at premium are forfeited, premium on such shares shall be reverse. However,
if such premium is already received the such premium shall not be refunded as company
act 2063 prohibited to such refund.
Journal
Entries:
|
Date |
Particulars |
L.F |
Debit |
Credit |
|
|
If the premium amount is not received Share Capital A/c Dr Securities premium A/c Dr To
Share forfeiture A/c To
Calls in arrear A/c (Being, share forfeited) |
|
XXX XXX |
XXX XXX |
|
|
If the premium amount is received Share Capital A/c Dr To
Share forfeiture A/c To
Calls in arrear A/c (Being, share forfeited) |
|
XXX |
XXX XXX |
Forfeiture
of share issue issued at discount:
When Share
issued at discount are forfeited discount on issue should be reversed.
|
Date |
Particulars |
L.F |
Debit |
Credit |
|
|
Share Capital A/c Dr To
Share forfeiture A/c To
Calls in arrear A/c To
Discount on issue A/c (Being, share forfeited) |
|
XXX |
XXX XXX XXX |
Re-issue
of forfeited shares:
When
forfeited shares are re-issued, such issue is as good as fresh issue.
|
Date |
Particulars |
L/F |
Debit |
Credit |
|
|
Bank A/c Dr Discount on issue of Share A/c Dr To
share capital A/c To
Securities premium A/c (Being Shares are re-issued) |
|
XXX XXX |
XXX XXX |
