Types of Share Capital and Their Disclosure in Company Balance Sheet
Disclosure of share capital in the balance sheet is a fundamental concept in accounting. It shows the amount of money invested by shareholders and is crucial for understanding a company’s financial structure. This topic helps students excel in school and competitive exams and is also vital for anyone interested in business accounting or company law.
| Type of Share Capital | Description | Where Shown |
|---|---|---|
| Authorised Capital | Maximum capital a company can issue, as stated in its Memorandum. | Notes to Accounts |
| Issued Capital | Portion of Authorised Capital offered to the public. | Notes to Accounts |
| Subscribed Capital | Part of Issued Capital that investors have agreed to buy. | Notes to Accounts |
| Paid-up Capital | Amount of Subscribed Capital paid by shareholders. | Balance Sheet (Liabilities) |
| Reserve Capital | Portion of Uncalled Capital reserved for winding up. | Notes to Accounts |
| Calls in Arrears | Part of Called-up Capital not yet paid by shareholders. | Deducted from Paid-up Capital in Notes |
| Forfeited Shares | Shares whose paid-up value is lost due to non-payment. | Separate Line in Notes to Accounts |
Disclosure of Share Capital in the Balance Sheet
Disclosure of share capital in the balance sheet means showing each type of share capital with full details. This is compulsory under Schedule III of the Companies Act. Share capital always appears on the liabilities side under ‘Shareholders’ Funds’ and is supported by a detailed note explaining its composition.
Types of Share Capital Explained
Understanding the types of share capital is essential for exams and business practice. Each component describes a different stage or requirement for company financing.
- Authorised Capital: The limit specified in the company’s founding documents. It can be increased with legal procedures. Not all of it needs immediate issue.
- Issued Capital: The actual amount of shares issued for subscription.
- Subscribed Capital: The shares that investors agree to take.
- Paid-up Capital: Actual money received from shareholders. This amount is what counts as the company’s true equity.
- Calls in Arrears: Unpaid portion by shareholders, reducing paid-up capital for balance sheet purposes.
- Reserve Capital: A portion of capital that cannot be called except on winding up.
- Forfeited Shares: Shows lost amounts when shares are cancelled for non-payment.
Format for Disclosure of Share Capital
As per Schedule III, the disclosure must include both the main balance sheet and supporting notes. Here is the typical format used in exams:
| Balance Sheet (Extract) as at 31st March 20XX | |
|---|---|
| Liabilities | Rs. |
|
Shareholders’ Funds Share Capital (Note 1) |
XX,XXX |
| Note 1: Share Capital | ||
|---|---|---|
| Particulars | Number of shares | Amount (Rs.) |
| Authorised Capital: X shares of Rs.Y each | XX,XXX | XX,XXX |
| Issued Capital: X shares of Rs.Y each | XX,XXX | XX,XXX |
| Subscribed Capital: X shares of Rs.Y each | XX,XXX | XX,XXX |
| Paid-up Capital (after Calls in Arrears & Forfeiture) | XX,XXX | XX,XXX |
| Less: Calls in Arrears | (X,XXX) | |
| Add: Amounts forfeited | X,XXX | |
| Total Paid-up Capital | XX,XXX | |
Special Adjustments in Share Capital Disclosure
Sometimes, items like forfeited shares or unpaid capital need extra attention. These are shown as add/deduct lines in the notes, adjusting the paid-up capital that appears in the main balance sheet.
Forfeited Shares and Calls in Arrears
Forfeited shares are shares lost due to non-payment; any money already received is added to share capital. Calls in arrears are deducted, showing only the paid amount under paid-up capital. These adjustments are crucial for accuracy and are common in exam questions.
Reserve Capital and Uncalled Capital
Reserve capital is part of uncalled capital only claimable at company winding up. It must be described in the notes to accounts, never as a regular liability.
Example: Balance Sheet Disclosure of Share Capital
Here is a practical example for exam preparation:
| Balance Sheet (Extract) of Alpha Ltd. as at 31st March 2024 | |
| Equity and Liabilities | Rs. |
| Shareholders’ Funds - Share Capital (Note 1) |
8,45,000 |
| Note 1: Share Capital | ||
|---|---|---|
| Authorised: 1,00,000 Equity Shares of Rs. 10 each | 1,00,000 | 10,00,000 |
| Issued, Subscribed & Paid-up: 85,000 Shares of Rs. 10 each | 85,000 | 8,50,000 |
| Less: Calls in Arrears | (5,000) | |
| Add: Amount Forfeited (on 1,000 shares) | 2,000 | |
| Total Paid-up Capital | 8,47,000 | |
At Vedantu, we provide more solved examples in TS Grewal Accountancy solutions and DK Goel Accountancy solutions for deeper understanding.
Why the Disclosure of Share Capital Matters
Clear disclosure of share capital helps students answer exam questions confidently. It ensures transparency for company stakeholders and meets statutory legal requirements under the Companies Act. Accurate reporting aids in better business management and investment decisions for both exams and the workplace.
Students should also review types of share capital, balance sheet structure, and related concepts to fully master this topic.
In summary, disclosure of share capital in the balance sheet organizes all share-related company funds transparently. It differentiates each stage—authorised, issued, subscribed, and paid-up capital—and adjusts for unpaid or forfeited amounts. Mastery of this disclosure format is crucial for school and professional exams, as well as financial reporting in business practice.
FAQs on Disclosure of Share Capital in the Balance Sheet
1. What is the disclosure of share capital in the balance sheet?
Disclosure of share capital in the balance sheet shows how a company reports the total capital raised through shares. It details the different types and values for transparency, in accordance with Schedule III of the Companies Act. This is crucial for understanding a company's financial position and is frequently tested in Class 12 exams.
2. Where is share capital shown on a company’s balance sheet?
Share capital is shown on the liabilities side of the balance sheet under the heading 'Shareholders’ Funds'. This reflects that it represents the amount the company owes to its shareholders.
3. How are forfeited shares and calls in arrears disclosed?
Forfeited shares and calls in arrears are disclosed separately in the notes to accounts. They are adjustments to the total paid-up capital, impacting the overall shareholders' funds presented in the balance sheet. Understanding this is essential for Class 12 accounting exams.
4. How to show unpaid share capital in the balance sheet?
Unpaid share capital (calls in arrears) is typically deducted from the called-up share capital in the notes to accounts. Alternatively, it may be shown separately as a deduction. The Companies Act and Schedule III dictate the appropriate method.
5. What is the difference between authorized, issued, subscribed, and paid-up share capital?
These terms represent different stages of share capital. Authorized capital is the maximum amount a company can issue; issued capital is what's actually offered; subscribed capital is what shareholders agree to buy; and paid-up capital is the amount actually received by the company. Understanding these distinctions is crucial for interpreting balance sheet data and answering exam questions.
6. Why is share capital considered a liability for the company?
Share capital is a liability because it represents the amount owed by the company to its shareholders, the company's owners. It's a claim against the company's assets, especially relevant during liquidation.
7. How does Schedule III of the Companies Act affect disclosure?
Schedule III of the Companies Act specifies the exact format and details required for reporting share capital. This ensures standardization and transparency in financial reporting, making it easier to understand financial statements and vital for exam preparation.
8. What is reserve capital and how is it disclosed?
Reserve capital is the portion of uncalled capital that's set aside for the company's winding up. It's mentioned separately in the notes to accounts, not included in current liabilities. Knowing its treatment is important for more advanced accounting questions.
9. If shares are issued at a premium, how is this shown in the balance sheet?
The share premium is shown separately under 'Reserves and Surplus', not as part of share capital. This follows the guidelines set in Schedule III and is a common point of confusion.
10. Can preference shares be part of share capital disclosure?
Yes, the balance sheet must clearly distinguish between equity share capital and preference share capital. This distinction is vital for understanding the company's capital structure and is tested in exams.
11. What happens if issued and paid-up capital are different?
Only the paid-up capital is shown under share capital in the balance sheet. The difference (unpaid capital or calls in arrears) is shown separately in the notes to accounts to provide a complete picture. This is a key aspect for exam-style problems.
12. What is the disclosure of forfeited shares in balance sheet?
Forfeited shares represent shares whose ownership was terminated due to non-payment. They are disclosed in the notes to the accounts, often impacting the reported paid-up capital and overall shareholders' equity.
13. How to disclose unpaid share capital?
Unpaid share capital (or calls in arrears) needs to be disclosed, usually by deducting it from the called-up share capital in the notes to accounts, or showing it separately as an adjustment. This accurate disclosure is crucial for compliance and is tested in exams.
