Accounting for Shared Capital is one of the topics involved in the Accounting for Companies chapter of the 12th Accountancy Syllabus. This chapter holds 25% weightage of the overall question paper. 

To help you understand the chapter in-depth and score good marks in the exam, we have explained the important concepts. Also, we have listed few important questions asked from this chapter in previous years. 

Read through the complete post for detailed information about the topic and you can download the free revision notes PDF below. 

The capital of a company is contributed by a large number of persons known as shareholders. These shareholders are issued shares of the company. The accounting of such transactions is special and involves the share capital account.

Important Definitions of Accounting for Shared Capital

Here are few important terminologies and their definitions listed. Read them to understand the basic concept of chapter 7 company accounts-accounting for share capital. 

• Prospectus: It is an invitation to the public for the subscription of shares or debentures.
• Capital: means amount invested in the business for the purpose of earning revenue. In the case of a company, money is contributed by the public, and people who contributed money are called shareholders.
• Share Capital: Capital raised by the issue of shares is called share capital.
• Authorized Capital: Also called Nominal or registered capital. It is the maximum amount of capital a company can issue. It is stated in the Memorandum of Association.
• Issued Capital: This is part of authorized capital which is offered to the public for subscription. It cannot exceed authorized capital.
• Called Up Capital: It is the amount of nominal value of shares that have been called up by the company for payment by the subscriber towards the share.
• Paid Up Capital: It is part of called-up capital that the members of the company or shareholders have paid.
• Reserve Capital: It is part of increased capital and/or portion of the uncalled share capital of an unlimited company which can be called only in case of winding up of the company.
• Capital Reserve: It is capital profit not available for distribution as dividend. It is represented in the balance sheet of the company as Reserves and Surplus under the heading Shareholder’s Funds.
• Issues of Shares At Premium: It is the issue of share at more than face value.

Watch Video on Forfeiture & Reissue of Shares by Shah Navaz

Previous Year Exam Questions from Accounting for Shared Capital

To understand which type of questions can be asked from this chapter, we have listed questions under different categories i.e., 1 Mark, 3 Marks, 4 Marks, and 8 Marks.  During exam preparation ensure to solve as many 12th Accountancy Question Papers as possible for better preparation.

We have listed 10 questions under each category for which the answers are provided in the PDF below. You can also find more questions along with solutions below. 

1 Mark Questions

1. What is the maximum amount of discount at which forfeited shares can be re-issued?   (Delhi 2014)
2. Give any one purpose for which the amount received as ‘securities premium reserve’ may be utilised. (Compartment 2014)
3. A Ltd forfeited 100 equity shares of Rs 10 each issued at premium of 20% for the non-payment of final call of Rs 5 including premium. State the maximum amount of discount at which these shares can be re-issued.  (All India 2014)
4. What is meant by private placement of shares? (Compartment 2014)
5. Give the meaning of forfeiture of shares. (All India 2014(c), 2010)
6. What is meant by ‘calls-in-arrears’? (All India 2013)
7. What rate of interest the company pays on calls-in-advance, if it has not prepared its own Articles of Association?(Delhi 2013)
8. What is meant by’securities premium reserve’? (Delhi 2013)
9. What is meant by calls-in-advance? (All India 2012; Delhi 2008)
10. State the steps other than rejecting applications that a company can take in case of over subscription. (Delhi 2011c) or Give any two alternatives  available to a company for the allotment of shares in case of over subscription.        (Delhi 2009 c)
11. Can securities premium be used as working capital? Give reason in support of your answer.(All India 2011; HOTS)
12. What is meant by pro-rata allotment of shares? (All India 2010)

3 Marks Questions

1. Sundram Ltd purchased furniture for Rs 3,00,000 from Ravindram Ltd, Rs 1,00,000 were paid by drawing a promissory note in favour of Ravindram Ltd. The balance was paid by issue of equity shares of Rs 10 each at a premium of 25%. Pass journal entries in the books of Sundram Ltd. (All India 2012)
2. Z Ltd purchased furniture costing Rs 2,20,000 from CD Ltd. The payment was to be made by issuing of 9% preference share of Rs 100 each at a premium of Rs 10 per share.Pass necessary journal entries in the books of Z Ltd.  (Delhi 2011)
3. Goodluck Ltd purchased machinery costing Rs 10,00,000 from Fair Deals Ltd. The company paid the price by issue of equity shares of Rs 10 each at a premium of 25%. Pass necessary journal entries for above transactions in the books of Goodluck Ltd.(All India 2011)
4. SSP Ltd forfeited 300 shares of Rs 10 each issued at a premium of Rs 2 per share for the non-payment of allotment of Rs 4 per share (including premium). The first and final call of Rs 3 per share has not been made yet, 50% of forfeited shares were re-issued at Rs 8 per share fully paid-up. Pass necessary journal entries for the forfeiture and re-issue of shares.  (Delhi 2011)
5. TAG Ltd forfeited 400 shares of Rs 10 each issued at a premium of Rs 1 per share for the non-payment of allotment of Rs 4 per share (including premium). The first and final call of Rs 3 per share has not been made yet. 50% of forfeited shares were re-issued at Rs 8 per share fully paid-up. Pass necessary journal entries for the forfeiture and re-issue of shares.  (All India 2011)
6. 19. DN Ltd issued 50,000 shares of 110 each payable as Rs 2 per share on application, Rs 3 per share on allotment and Rs 5 on first and final call. Applications were received for It was decided that (i)Refuse allotment to the applicants of 10,000 shares. (ii)Allot 20,000 shares to Mohan who had applied for similar number. (iii)Allot the remaining shares on pro-rata basis. Mohan failed to pay the allotment money and Sohan who belonged to the category (iii) and was allotted 3,000 shares paid both the calls with allotment. Calculate the amount received on allotment. (All India; Delhi 2010)
7. Shanker Ltd purchased machinery for Rs 1,98,000 from Parvati Ltd. The payment of Parvati Ltd was made by issue of equity shares of Rs 100 each. Pass necessary journal entries in the books of Shanker Ltd for the above transactions when shares were issued at 10% premium.(All India 2010)
8. MCS.Ttd issued 40,000 shares of Rs 10 each payable at Rs 2 on application, Rs 4 on allotment arid’balance, in two equal instalments. Applications were received for 80,000 shares and the allotment was made as follows:   (i)Applications of 50,000 shares were allotted 30,000 shares.  (ii)Applications of 30,000 shares were allotted 10,000 shares.  Neeraj to whom 600 shares were allotted from category (i), failed to pay the allotment money. Pass the necessary journal entries upto allotment only. (Delhi 2010c; All India 2009)
9. SSS Ltd has a paid-up share capital of % 60,00,000 and a balance of Rs 15,00,000 in the securities premium account. The companies management do not want to carry over this balance. State the purpose for which this balance can be utilised. (Delhi 2010; HOTS)  or  State the purposes for which the securities premium can be utilised under Section 52 (2) of the Companies Act, 2013.    (All India 2009)
10. The directors of a company forfeited 200 shares of Rs 10 each issued at a premium of Rs 3 per share, for the non-payment of the first call money of Rs 3 per share. The final call of Rs 2 per share has not been made. Half the forfeited shares were re-issued at Rs 1,000 fully paid. Record the journal entries for the forfeited shares and re-issue of (Delhi 2009)

4 Marks Questions

1. Pass necessary journal entries for the following transactions in the books of Gopal Ltd (i)Purchased furniture for Rs 2,50,000 from M/s Furniture Mart. The payment to M/s Furniture Mart was made by issuing equity shares of Rs 10 each at a premium of 25%.  (ii)Purchased a running business from Aman Ltd for a sum of Rs 15,00,000. The payment of Rs 12,00,000 was made by issue of fully paid equity shares of Rs 10 each and balance by a bank draft. The assets and liabilities consisted of the following plant Rs 3,50,000; stock Rs 4,50,000; land and building Rs 6,00,000; sundry creditors Rs 1,00,000. (All India 2014)
2. On 1st April, 2012, Vishwas Ltd was formed with an authorised capital of Rs 10,00,000 divided into 1,00,000 equity shares of Rs 10 each. The company issued prospectus inviting applications for 90,000 equity shares. The company received applications for 85,000 equity shares. During the first year, Rs 8 per share were called. Ram holding 1,000 shares and Shyam holding 2,000 shares did not pay the first call of Rs 2 per share. Shyam’s shares were forfeited after the first call and later on 1,500 of the forfeited shares were re-issued at Rs 6 per share, Rs 8 called up. Show the following (i)Share capital in the balance sheet of the company as per Revised Schedule VI Part I of the Companies Act, 1956.  (ii)Also prepare ‘notes to accounts’ for the same. (All India 2014)
3. Nikhil Ltd purchased a running business from Sonia Ltd for a sum of Rs 22,00,000 by issuing 20,000 fully paid equity shares of Rs 100 each at a premium of 10%. The assets and liabilities consisted of the following Machinery Rs 7,00,000, debtors Rs 2,50,000, stock Rs 5,00,000, budding Rs 11,50,000 and bills payable Rs 2,50,000.Pass necessary journal entries in the books of Nikhil Ltd for the above transactions.       (All India 2013)
4. The authorised capital of Suhas Ltd is Rs 50,00,000 divided into 25,000 shares of Rs 200 each. Out of these, the company issued 12,000 shares of Rs 200 each at a premium of 10%. The amount per share was payable as follows Rs 60 on application Rs 60 on allotment (including premium) Rs 30 on first call and balance on final call.Public applied for 11,000 shares. All the money was duly received.Prepare an extract of balance sheet of Suhas Ltd as per Revised Schedule VI, Part I of the Companies Act, 1956 disclosing the above information. Also prepare ‘notes to accounts’ for the same.   (All India 2013)
5. S Ltd registered with an authorised capital of Rs 4,00,000 divided into 40,000 equity shares of Rs 10 each. The company offered to the public for subscription 30,000 equity shares. Applications for 28,000 equity shares were received and allotment was made to all the applicants. All calls were made and were duly received except the final call of Rs 2 per share on 200 shares. Prepare the balance sheet of the company showing the different categories of share capital. (Delhi 2008)
6. Sagar Ltd was registered with an authorised capital of Rs 1,00,00,000 divided into Rs 1,00,000 equity shares of Rs 100 each. The company offered for public subscription 60,000 equity shares. Applications for 56,000 equity shares were received and allotment was made to all the applicants. All calls were made and were duly received except the second and final call of Rs 20 per share on 700 shares. Prepare the balance sheet of the company showing the different types of share capital.
7. Poonam Ltd was registered with an authorised capital of Rs 4,00,00,000 divided into 4,00,000 equity shares of Rs 100 each. The company offered for public subscription 3,00,000 equity shares. The public applied for 2,80,000 shares and all were allotted. The company did not make the second and final call of Rs 10 per share. The first call of Rs 20 per share was not received on 1,000 shares. Prepare the balance sheet of the company showing the different types of share capital.     (All India 2008)

Watch Video on Issue of Shares by Shah Navaz

8 Marks Questions

1. X Ltd invited applications for issuing 75,000 equity shares of Rs 10 each at a premium of Rs 5 per share. The amount was payable as follows On application and allotment — Rs 9 per share (including premium) On first and final call — Balance amount.  Applications for 3,00,000 shares were received. Applications for 2,00,000 shares were rejected and money refunded. Shares were allotted on pro-rata basis to the remaining applicants. The first and final call was made. The amount was duly received except on 1,500 shares applied by Ravi. His shares were forfeited. The forfeited shares were re-issued at a discount of Rs 4 per share. Pass necessary journal entries for the above transactions in the books of X Ltd.        (All India 2014)
2. L Ltd forfeited 470 equity shares of Rs 20 each issues at a premium of Rs 3 per share for the non-payment of allotment money of Rs 8 (including premium Rs 3) and first call of Rs 5 per share. Final call of Rs 5 per share was not made. Out of these 235 shares were reissued at Rs 19 each fully paid. Pass necessary journal entries for the above transactions in the books of L Ltd. (Compartment 2014)
3. (i)A company forfeited 200 shares of Rs 20 each, Rs 15 per share called-up on which Rs 10 per share had been paid. Directors reissued all the forfeited shares to B as Rs 15 per share paid up for a payment of Rs 10 each. Give journal entries in the books of the company for forfeiture and re-issue of shares. (ii)A Ltd forfeited 100 equity shares of the face value of Rs 10 each, for the non-payment of first call of Rs 2 per share Rs 6 per share had already been called and paid. These shares were subsequently re-issued as fully paid at the rate of Rs 7 per share. Give journal entries in the books of the company for forfeiture and re-issue of shares.(Compartment 2014)
4. Bhagwati Ltd invited applications for issuing 2,00,000 equity shares of Rs 10 each. The amounts were payable as follows: On application — Rs 3 per share; On allotment — Rs 5 per share;  On first and final call — Rs 2 per share.  Applications were received for 3,00,000 shares and pro-rata allotment was made to all the applicants. Money overpaid on application was adjusted towards allotment. B, who was allotted 3,000 shares, failed to pay the first and final call money. His shares were forfeited. Out of the forfeited shares, 2,500 shares were re-issued as fully paid up @ Rs 8 per share.Pass necessary journal entries to record the above transactions in the books of Bhagwati Ltd.    (Compartment 2014)
5. A Ltd purchased running business from B Ltd for a sum of Rs 1,50,000 payable by issue of 10,000 equity shares of Rs 10 each at a premium of Rs 2 per share and balance in cash. The assets and liabilities taken over were: Plant — Rs 40,000; building — Rs 40,000; debtors — Rs 30,000 ;Stock — Rs 50,000; furniture — Rs 20,000; creditors — Rs 20,000.  You are required to pass necessary journal entries for the above transactions in the books of A Ltd. (Compartment 2014)
6. A Ltd was registered with an authorised capital of Rs 10,00,000 divided into equity shares of Rs 10 each. The company invited applications for the issue of 50,000 shares. Applications for 48,000 shares were received. All calls were made and were duly received except the final call of Rs 2 per share on 1,000 shares. All these shares were forfeited and later on re-issued at Rs 9,000 as fully paid.  (i)Show how ‘share capital’ will appear in the balance sheet of A Ltd. as per Schedule VI, Part I of the Companies Act, 1956.  (Compartment 2014).  (ii)Also prepare ‘notes to accounts’ for the same.
7. 44.Record the journal entries for forfeiture and re-issue in the following cases:  (i)X Ltd forfeited 200 shares of Rs 100 each, Rs 70 called up, on which the shareholders had paid application and allotment money of Rs 50 per share. Out of these, 150 shares were re-issued to Naresh as Rs 70 paid-up for Rs 80 per share.  (ii)Y Ltd forfeited 180 shares of Rs 10 each, Rs 8 called-up, issued at a premium of Rs 2 per.  share to R for non-payment of allotment money of Rs 5 per share (including premium). Out of these, 160 shares were re-issued to Sanjay as Rs 8 called up for 110 per share fully paid-up.(All India 2013)
8. Record the journal entries for forfeiture and re-issue of shares in the following cases:  (i) X Ltd forfeited 20 shares of Rs 10 each,Rs 7 called up on which the shareholder had paid application and allotment money of Rs 5 per share. Out of these, 15 shares were re-issued to Naresh as Rs 7 per share paid up for Rs 8 per share.  (ii) Y Ltd forfeited 90 shares of Rs 10 each, Rs 8 called up issued at a premium of Rs 2 per share to ’R’ for non-payment of allotment money of Rs 5 per share (including premium). Out of these, 80 shares were re-issued to Sanjay as Rs 8 called up for Rs 10 per share.(Delhi 2013]
9. RK Ltd invited applications for issuing 70,000 equity shares of Rs 10 each at a premium of Rs 35 per share. The amount was payable as follows On application – Rs 15 per share (including Rs 12 premium). On Allotment – Rs 10 per share (including Rs 8 premium).  On first and final call – Balance. Applications for 65,000 shares were received and allotment was made to all applicants. A shareholder Ram, who was allotted 2,000 shares, failed to pay the allotment money. His shares were forfeited immediately after allotment. Afterwards the first and final call was made. Sohan, who had 3,000 shares, failed to pay the first and final call. His shares were also forfeited. Out of the forfeited shares 4,000 shares were re-issued @ Rs 50 per share fully paid-up. The re-issued shares included all the shares of Ram.Pass necessary journal entries for the above transactions in the books of RK Ltd.(All India 2012)
10. Give journal entries to record the following transactions of forfeiture and re-issue of shares and open share forfeiture account in the books of the respective companies.L Ltd forfeited 470 equity shares of Rs 10 each issued at premium of Rs 5 per share for non-payment of allotment money Rs 8 per share (including share premium Rs 5 per share) and the first and final call of Rs 5 per share. Out of these, 60 equity shares were subsequently re-issued @ Rs 14 per shares.   (Delhi 2011)

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