NCERT Solutions for Class 12 Accountancy Chapter 1 - Accounting For Share Capital

Question 1 

What is a public company? 

Answer: The company which is not a private company and is different from them in various respects is known as a public company. The public companies can thus issue the shares to the general public and there are no restrictions as far as the transfer of shares is concerned. The value of the public company is determined through the daily trading of its shares. The public company uses the word ‘limited’ at the end of its name.

Question 2

What is a private company? 

Answer: A business entity that is not owned by nongovernmental organisations and which comprises few numbers of shareholders and thus can no sell or purchase the share of the concerned company is a public company A private company is a business entity that is owned by a non-governmental organisation or by a relatively smaller number of shareholders or members who do not sell purchase its shares to the general public on the stock market. Instead, the company's shares are owned, offered, exchanged, and traded privately. The total number of members is restricted to a maximum of 200 in the case of a private company. It has to incorporate the word “private limited” at the end of its name. 

Question 3

When can share be forfeited?

Answer: The forfeiture of shares occurs when the shareholders of any company fail to pay the amount of call money when it is demanded by any company. The forfeiture of shares thus amounts to the cancellation of the membership of the concerned shareholder in the company. 

Question 4

What is meant by Call in Arrears?

Answer: Calls in Arrears occur when the shareholders fail to pay the amount of the sum of the allotment and the call money and it thus becomes due. Any company that issues shares may decide to consider the payment of the amount against the full price or else may decide to consider it based on the allotment and the call money. The shareholders in the latter cases have to pay the amount of the sum in exchange for the allotment made to them. In the cases when the shareholders fail to pay the amount of the sum as and when it becomes due, the amount is considered to be the calls in arrears.

Question 5

What do you mean by a listed company?

Answer: Listed company refers to a company that is listed and recognized by the National Stock Exchange or the Bombay Stock Exchange. In other words, when the stock exchange of the country recognises the existence of the company, it is known to be listed. The listed companies have the responsibility to adhere to the requirements of the stock exchange.

Question 6

What are the uses of a securities premium?

Answer: The uses of the securities premium are as follows:

1. To write off the preliminary expense.

2. To write off the expenses such as commission, or discount allowed on the issue of shares and debentures.

3. To issue fully paid-up bonus shares

4. To provide premium payable on the redemption of preference shares and debentures 

5. To buy back the share owned by us.

Question 7 

What is meant by Calls in Advance?

Answer: During the time of the call of the shares by the company, the shareholders pay the whole or he part of the sum called by the company in advance, i.e. before even when the company calls for the amount. This amount is a liability for the company and such amount has to be adjusted towards the payment of the call as and when it becomes due. For example: A company has made a breakup of Rs. 100 per share in the following manner: Rs. 50 (On Application), Rs. 20 (On Allotment), and Rs. 30 (On 1 Call). A person may pay more than Rs. 50 during the time of the application or the allotment which results in the deposition of the additional amount in the company which is recorded as the calls in advance in the books of the account.

Question 8

Write a brief note on “Minimum Subscription”.

Answer: The ‘Minimum Subscription’ refers to the minimum amount of issue that must be subscribed to on the date of the closure by the public. The Security Exchange Board of India guidelines suggest that the minimum subscription of the share must be 90% of the size of the issue. In the case when the public fails to achieve the amount of minimum subscription then the shares by the company cannot be issued and they have to repay the money called on the application.

Question 9

What is meant by the word ‘Company’? Describe its characteristics.

Answer: A company is referred to as a legal entity which is created under the due procedure of law and has its spate legal existence under the common seal and with the perpetual succession. The characteristics of the company are as follows:

1. Artificial Person which is created by Law: A company is also known as the artificial person which is created by the law. Thus it enjoys all the rights of the natural person. 

2. Separate Legal Entity: A company is considered to be an artificial person. It is a legal entity that has a separate and distinct identity from its members. Thus the company being a separate legal entity has its own name and seal. The assets and liabilities of the company are distinct and separate from its members.

3. Perpetual Succession: The perpetual succession of the company infers that the company is not related to the life of its members and it is created by the law and thus can be dissolved by the law only. Hence the existence of the company is unaffected by the death of any of its members, or the insolvency of any of the members, or the transfer of the shares of its members.

4. Common Seal: The company being a legal entity having its separate and distinct identity has a common seal which acts as the signature of the company.

5. Limited Liability: The Limited liability feature of the company is important for any company as it provides the security of the company when anything goes wrong in the company. If anything goes wrong with the company, the risk is only to the extent of the number of his shares and nothing more. Thus it is a condition in which the shareholders of the company are liable to the company for their part of share only.

6. Transferability of Shares: The transferability of the shares infers that the shares can be transferred to another member with or without the consent of the members of the company. There can be certain limitations put upon this feature of the shares under the Articles of Association. The private companies on the other hand have more limitations than the public companies when it comes to the transfer of the shares. But it is however important to note that the transferability of shares cannot be repealed and stopped and it is done in some or the other manner.

Question 10 

Explain in brief the main categories in which the share capital of a company is divided. 

Answer: The main categories in which the share capital of the company is divided are as follows: 

1. Authorised Capital:It refers to the amount which is stated under the Memorandum of Association. The authorised capital is the maximum amount that any company can raise by issuing shares. This amount is laid down by the procedures which are stated in the Company Act.

2. Issued capital: It is referred to as the amount that is a part of authorised capital and is offered to the general public by the company in order to achieve subscription.

3. Subscribed capital: It is the part of the issued capital for which the applications are received from the public and hence the subscriptions are made.

4. Unissued Capital: It is the amount under the authorised capital that is not issued by the company but can be issued in the future to the general public

5. Unsubscribed Capital: The unsubscribed capital is the part of the issued capital that is not subscribed by the public.

6. Called-up capital: It is referred to as the part of the subscribed capital which is called by the company to pay.

7. Paid-up capital: It is the part of the subscribed capital which is paid up by the shareholders.

8. Uncalled up Capital: Uncalled up capital is the part of the subscribed capital which is not called in the routine course of the business but which may be called as the need for the winding of the company arises. 

9. Reserved capital: Any limited company may call up any proportion of the share capital which is uncalled for in the cases when the company has to wind up and pay its creditors. Thus, the amount of the uncalled capital is reserved in order to pay back the creditors and hence this amount is not used by the company to meet any other purpose. Thus, the proportion of such the amount which is reserved is known as the reserve capital. 

Question 11

What do you mean by the term ‘share’? Discuss the types of shares, which can be issued under the Companies Act, 2013 as amended to date.

Answer: Share is referred to as the amount of the capital which is divided into the definite value units. The people who hold such shares are called shareholders.

Any company issues two types of shares:

1. Preference Shares: Those shares in which the shareholders have the preference over payment of the dividend or the repayment of the capital in the case when the company winds up. The dividend to such shareholders is paid at a fixed rate

2. Equity Shares: Equity shares are the type of shares in which the shareholders have the right to participate in the profits of the organisation after the claims of the preference shareholders are settled. The rate of dividend of such shareholders is not fixed and they vary from year to year. The shareholders have the right to vote and control the affairs of the business.

Question 12

Discuss the process for the allotment of shares of a company in case of over-subscription. 

Answer: The oversubscription is referred to as the situation in which the company receives the excess of the application that is called by the company. In the case of the allotment of the shares, the allotments can be made in three cases:

i) In the case when the amount received in excess of the application is returned back to the applicants after they are refused.

Share Application A/cDr.

To Share Capital A/c

To Bank A/c (Excess application money returned)

ii) In the case when the company allots the shares on a pro-rata basis to all the applicants of shares. The excess of the amount which is received on the application of the shares is adjusted during the allotment.

Share Application A/cDr.

To Share Capital A/c

To Share Allotment A/c

(Adjustment of application money on allotment)

iii) In the case when the companies follow the combination of both the refund of the money and the adjustment through a pro-rata basis on the excess of the amount received. 

Share Application A/cDr. 

To Share Capital A/c 

To Share Allotment A/c 

To Bank A/c (Application money transferred to Share Capital Account and the balance amount is transferred to Share Allotment Account and the excess application money is refunded) 

Question 13 

What is a ‘Preference Share’? Describe the different types of preference shares. 

Answer: Preference Shares refer to the types of shares which get preferential treatment over equity shares when it comes to the payment of the dividend and the repayment of the capital in the case when the company winds up itself. The preference shares entitle the owner to get the dividend at a fixed rate. The following are the types of preference shares:

1. Callable: The companies have the right to call back such shares at the certain price on any certain date.

2. Convertible: The preference shareholders have the option of converting their shares to the company’s common stock at any conversion ratio.

3. Cumulative: The preferred shareholders which have this type of shares have the right to receive the dividend on the shares even when the company does not have the financial resources for the same. The companies are thus liable for the payment of such dividend as the dividend gets accrued.

4. Non-cumulative: The preferred shareholders do not pay the liability upon the company to pay the dividend in the future years if they fail to pay the scheduled dividend to them.

5. Participating: This is the type of preference share in which the company is required to pay an increasing amount of dividend if there is a participation clause for the same in the share agreement. 

Question 14 

Describe the provisions of laws relating to ‘Calls in Arrears’ and ‘Calls in Advance’ 

Answer: 

Calls in Arrears: The calls in arrears occur when the shareholder fails to pay the sum of the allotment and the call money when it is due. The rate of interest on call in arrears is 10% and this will have to be paid for the period from the fixed date of the payment to the time of the actual payment.

Calls in Advance: The calls in advance happen in the situation in which the shareholders pay the amount wholly or partly when the call was not yet demanded from the company. This amount is the liability for the company and the rate of interest on the calls in advance is 12% per annum. 

Question 15
Explain the terms ‘Oversubscription’ and ‘Under subscription’. How are they dealt with in accounting records?

Answer: 

Oversubscription: The situation of oversubscription occurs when the company issues more shares than are offered by the company. In the case of the oversubscription of the shares the company can opt for any of the three situations: 

i) In the case when the amount received in excess of the application is returned back to the applicants after they are refused.

Share Application A/c Dr.

To Share Capital A/c

To Bank A/c

(Excess application money

returned)

ii) In the case when the company allots the shares on a pro-rata basis to all the applicants of shares. The excess of the amount which is received on the application of the shares is adjusted during the allotment.

Share Application A/c Dr.

To Share Capital A/c

To Share Allotment A/c

(Adjustment of application money on allotment)

iii) In the case when the companies follow the combination of both the refund of the money and the adjustment through pro-rata basis on the excess of the amount received. 

Under subscription: Under subscription of the shares is the case in which the application for the shares is less than the shares issued by the company. For instance, a company issued 1,000 shares to the public and the company received applications for 900 shares only from the public. This situation is called under-subscription. 

 In such cases the allotment of the shares to the number of people who have subscribed for it is 900 shares. It is thus important to note that any company cannot be allowed to make the allotment of the shares if the minimum subscription is below at least 90%. In such cases the company is not allowed to allot the shares and they will be required to pay back the money they have received from the applicants.

Question 16

Describe the purposes for which a company can use the amount of Securities Premium.

Answer: The purposes for which the company may use the amount of the securities premium wholly or in part are as follows:

• It orders to issue the fully paid bonus shares of the company.

• It orders to write off the preliminary expenses of the company.

• It orders to write off the expenses such as discount allowed, and commission paid on the issue of any shares or debentures.

• it orders to purchase its own shares this is also termed as Buy Back.

• It orders to provide the premiums payable upon the redemption of the preference shares or debentures.

Question 17 

State clearly the conditions under which a company can issue shares at a discount. 

Answer: The issue of shares at a discount means that any company is issuing the share at a price that is lower than the face value of the share. For example: If a share of Rs 1000 is issued at Rs 850, then Rs 150 (i.e. Rs 1000-850) is the amount of discount. 

The conditions in which the shares are issued at discount are as follows: 

• The rate of discount of shares should not exceed 10%.

• The shares must belong to a class that has already been issued by the company. 

• The discount must be provided when at least one year from the date of which the company was allowed to commence its business has passed. 

• The issue of such discount is sanctioned by the Company Law Board and is authorised by the passing of the resolution passed by the company in their general meeting. 

• The court may allow the issue of such shares within the two months of the sanction by the court or within the extended time as allowed by the court.

Question 18 

Explain the term ‘Forfeiture of Shares’ and give the accounting treatment on the forfeiture. 

Answer: The forfeiture of shares happens when at the time of the allotment of the shares they fail to pay money and further fail to pay the subsequent amount of the call money by the company concerned demanded by the company. The shareholders are liable to pay the amount of the allotment money and the amount of the call when it is called by the company. Hence the failure to pay such an amount makes the companies forfeit the shares of such shareholders. 

The Accounting Treatment for Forfeiture is given below: 

Share capital A/c DR

To Share Forfeiture A/c 

To Share Allotment/Call A/c 

(Being Shares forfeited for non-payment) 

Questions 19 

Anish Limited issued 30,000 equity shares of Rs 100 each payable at Rs 30 on application, Rs 50 on allotment and Rs 20 on Ist and final call. All money was duly received. Record these transactions in the journal of the company.

Answer:

Books of Anish Limited

Question 20

The Adarsh Control Device Ltd. was registered with an authorised capital of Rs.3,00,000 divided into 30,000 shares of Rs.10 each, which were offered to the public. The amount payable as Rs.3 per share on the application, Rs.4 per share on the allotment, and Rs.3 per share on the first and final call. These shares were fully subscribed and all money was duly received. Prepare a journal and Cash Book.

Answer:

Books of Adarsh Control Device Ltd. 

Cash Book (Bank Column)

Dr.                                                      Cr.

Question 21

Software solution India Ltd invites applications for 20,000 equity shares of Rs 100 each, payable Rs 40 on application, Rs 30 on allotment and Rs 30 on call. The company received applications for 32,000 shares. Applications for 2,000 shares were rejected and money returned to Applicants. Applications for 10,000 shares were accepted in full and applicants for 20,000 shares allotted half of the number of shares applied and excess application money adjusted into allotment. All money received due on allotment and call. Prepare a journal and cash book.

Answer:

Books of Software Solution India Ltd. Journal

Cash Book (Bank Column)

Dr.                                                     Cr.

Working Note:

Question 22

Rupak Ltd. issued 10,000 shares of Rs 100 each payable Rs 20 per share on application, Rs 30 per share on allotment and balance in two calls of Rs 25 per share. The application and allotment money were duly received. On the first call all members paid their dues except one member holding 200 shares, while another member holding 500 shares paid for the balance due in full. Final call was not made.

Give journal entries and prepare a cash book.

Answer:

Books of Rupak Ltd Journal

Cash Book (Bank Column)

Dr.                                                     Cr.

Working Note:

Question 23

Mohit Glass Ltd. issued 20,000 shares of Rs 100 each at Rs 110 per share, payable Rs 30 on application, Rs 40 on the allotment (including Premium), Rs 20 on first call and Rs 20 on final call. The applications were received for 24,000 shares and allotted 20,000 shares and rejected 4,000 shares and amount returned thereon. The money was duly received.

Give journal entries. 

Answer:

Books of Mohit Glass Ltd. Journal

Question 24

A limited company offered for subscription of 1,00,000 equity shares of Rs 10 each at a premium of Rs 2 per share. 2,00,000. 10% Preference shares of Rs 10 each at par.

The amount on share was payable as under:

All the shares were fully subscribed, called-up and paid. Record these transactions in the journal and cash book of the company:

Answer:

Books of the limited company Journal

Cash Book (Bank Column)

Dr.                                                      Cr.

Questions 25

Eastern Company Limited, having an authorised capital of Rs 10,00,000 in shares of Rs 10 each, issued 50,000 shares at a premium of Rs 3 per share payable as follows:

Applications were received for 60,000 shares and the directors allotted the shares as follows:

(a) Applicants for 40,000 shares received shares, in full.

(b) Applicants for 15,000 shares received an allotment of 8,000 shares.

(c) Applicants for 500 shares received 200 shares on allotment, excess money being returned.

All amounts due on allotment were received.

The first call was duly made and the money was received with the exception of the call due on 100 shares.

Give journal and cash book entries to record these transactions of the company. Also prepare the Balance Sheet of the company.

Answer:

Note: In order to solve this question, the applicant of category C has been assumed as 5000 instead of 500 and allotment to the applicant of this category has been taken as 2000 in place of 200.

Books of Eastern Company Ltd

Cash Book (Bank Column)

Dr.                                                      Cr.

Eastern Company Limited Balance Sheet

Notes to Accounts

Question 26

Sumit Machine Ltd issued 50,000 shares of Rs 100 each at a discount of 5%. The shares were payable Rs 25 on application, Rs 40 on allotment and Rs 30 on first and final call. The issue was fully subscribed and money was duly received except the final call on 400 shares. The discount was adjusted on allotment. Give journal entries and prepare a balance sheet.

Answer:

Books of Sumit Machine Ltd.

Sumit Machine Limited 

Balance Sheet

NOTES TO ACCOUNTS

Question 27

Kumar Ltd purchases assets of Rs 6,30,000 from Bhanu Oil Ltd. Kumar Ltd. issued equity shares of Rs 100 each fully paid in consideration. What journal entries will be made, if the shares are issued, (a) at par, (b) at a discount of 10 % and (c) at a premium of 20%.

Answer:

Books of Kumar Ltd. Case (a)

No. of Shares issued at par = Amount Payable/Face Value = 630000/100 = 6300 shares

Case (b)

No. of Shares issued at discount = Amount Payable/(Face Value – Discount per Share) = 6,30,000/(100-10) = 7,00,000 shares

No. of Shares issued at Premium = Amount Payable/(Face Value + Premium Per Share) = 6,30,000/(100+20) = 52,50 Shares

Question 28

Bansal Heavy machine Ltd purchased a machine worth Rs 3,20,000 from Handa Trader. Payment was made as Rs 50,000 cash and remaining amount by issue of equity share of the face value of Rs 100 each fully paid at an issue price of Rs 90 each.

Give journal entries to record the above transaction. 

Answer:

Books of Bansal Heavy Machine Ltd

Working Notes:

1. Number of Share issued = Amount Payable / Issue Price = 2,70,000/90 = 3,000 shares

Question 29

Naman Ltd issued 20,000 shares of Rs 100 each, payable Rs 25 on application, Rs 30 on allotment, Rs 25 on first call and The balance on final call. 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 shares of Anubha and kumkum.

Give journal entries.

Answer:

Books of Naman Ltd.

Working Note:-

1. Forfeited Amount

Question 30

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

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 shares of Rs 12 each.

Give journal entries in the books of the company. 

Answer:

Books Of Krishna Ltd

Note: In the solution, the reissued price of Rs.12 has been assumed as Rs.120 per share.

Question 31

Arushi Computers Ltd issued 10,000 equity shares of Rs 100 each at a 10% discount. The net amount payable is as follows:

A shareholder holding 200 shares did not pay a final call. His shares were forfeited. Out of these 150 shares were reissued to Ms. Sonia at Rs 75 per share.

Give Journal entries in the books of the company. 

Answer:

Books of Arushi Computers Ltd.

Working Note:

Amount transferred to Capital Reserve A/c

Amount transferred to Capital Reserve Account = Balance per share after adjustment x Number of Shares reissued = 65 x 150 = Rs.9750

Question32

Raunak Cotton Ltd. issued a prospectus inviting applications for 6,000 equity shares of Rs 100 each at a premium of Rs 20 per shares, payable as follows:

Applications were received for 10,000 shares and allotment was made Pro-rata to the applicants of 8,000 shares, the remaining applications Being refused. Money received in excess on the application was adjusted toward the amount due on allotment.

Rohit, to whom 300 shares were allotted failed to pay allotment and calls money, his shares were forfeited. Itika, who applied for 600 shares, failed to pay the two calls and her shares were also forfeited. All these shares were sold to Kartika as fully paid for Rs 80 per share.

Give journal entries in the books of the company. 

Answer:

Working Note:

1. Number of share applied by Rohit = (Total number of applied shares/Total number of allotted shares) x Number of allotted shares = (8000/6000) x 300 = 400 shares

2. Call in arrears by Rohit on allotment

3. Number of share allotted to Itika = (Total number of allotted shares/Total number of applied shares) x Number of applied shares = (6000/8000) x 600 = 450

4. Share forfeiture amount

Question 33

Himalaya Company Limited issued for public subscription of 1,20,000 equity shares of Rs 10 each at a premium of Rs 2 per share payable as under:

Applications were received for 1,60,000 shares. Allotment was made on a pro-rata basis. Excess money on application was adjusted against the amount due on allotment.

Rohan, whom 4,800 shares were allotted, failed to pay for the two calls. These shares were subsequently forfeited after the second call was made. All the shares forfeited were reissued to Teena as fully paid at Rs 7 per share.

Record journal entries in the books of the company to record these transactions relating to share capital. Also show the company’s balance sheet.

Answer:

Books of Himalaya Company Ltd.

Himalaya Company Limited Balance Sheet

NOTES TO ACCOUNTS