Share capital refers to the total value of shares issued by a company and held by its shareholders. It represents the initial or subsequent investment made by individuals, institutions, or other companies in exchange for ownership in the business.
Types of share capital
Here are the types of share capital:
- Authorized Share Capital: The maximum amount of share capital that a company is legally allowed to issue as per its constitutional documents.
- Issued Share Capital: The portion of authorized share capital that a company has actually offered and allotted to shareholders.
- Subscribed Share Capital: The portion of issued share capital that shareholders have agreed to purchase or subscribe to.
- Called-up Capital : Called-up Capital is that part of the subscribed capital for which the company actually demanded from the shareholders.
- Paid-up Share Capital: Paid-up capital is that part of called up share capital which has been paid by the shareholders. The amount of share capital that shareholders have fully paid for. It represents the actual funds received by the company from shareholders.
- Reserve Capital : Reserve Capital is that portion of the subscribed capital which has not been already called up, and the company has, by special resolution, resolved that it can be called up in the event of the winding up of the company.
Issue Of Shares
Issue of shares involves inviting offers from the public to subscribe to the share capital of a company. The share capital of a public company is raised by issue of either - equity shares or both equity and preference shares.
Equity share capital
Equity share capital refers to the portion of a company's capital structure that is raised through the issuance of equity shares. Equity shares, also known as common shares or ordinary shares, represent ownership in the company and give shareholders voting rights and a share in the company's profits.
Preference shares capital
Preference share capital refers to a type of share capital issued by a company that carries certain preferential rights
- as regards the payment of dividend either as a fixed amount or at a fixed rate.
- to the payment of the paid up capital.
Various accounting stages in the process of issue of shares
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For receipt of application money Bank……………….Dr To Share Application |
For receipt of allotment money Bank……………….Dr To Share Allotement |
|
For allotment of shares Share Application……………….Dr To Share Capital |
For making share call money due Share Call……………….Dr To Share Capital |
|
For making the allotment money due Share Allotment……………….Dr To Share Capital |
For receipt of share call money Bank……………….Dr To Share Call |
Issue of Shares at Par
Issue of shares at par means issue of share at face value. It means that the total amount collected for each share is equal to the nominal value or face value of shares.
Issue of share at premium
Issue of share at premium means issue of shares at a price higher than its face or nominal value. Premium is the excess of issue price over face value of the security.
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When premium money is payable on application |
When premium money is payable on allotment |
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On receipt of application money Bank...........Dr To Share Application |
When the allotment money along with premium becomes due Share Allotment...........Dr To Share Capital To Securities Premium |
|
On transfer of share application money Share Application...........Dr To Share Capital To Securities Premimum |
For receipt of the allotment money Bank...........Dr To Share Allotment |
Issue of Shares at a Discount
When the share of a company are issued at a price which is lower then its face value or nominal value, the issue is said to be 'at a discount'. In other words, the excess of the nominal value of shares over the issue price represents discount on the issue of shares. Accounting entry for recording discount on issue of shares :
Share Allotment...........Dr
Discount on the issue of shares...........Dr
To Share Capital
Calls-in-Arrears
After allotment of shares, the company asks the shareholders to pay their allotment money and call money. Sometimes some shareholders may fail to pay the amount due on allotment or calls for various reasons. In such a case, the respective allotment or call accounts will show debit balance. From the point of view of company, the total unpaid amount on one or more installments is termed as Calls-in-Arrears. Accounting entry for recording Calls-in-Arrears on issue of shares :
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If the money due on allotment remains unpaid |
If the money due on call remains unpaid |
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Calls-in-Arrears...........Dr To Share Allotment |
Calls-in-Arrears...........Dr To Share Call |
Interest on Calls-in-Arrears
The directors of the company are usually authorized by the Articles of Association to charge interest at a stipulated rate on calls-in-arrears. It refers to the additional amount charged by a company to a shareholder who has not fully paid for their subscribed shares within the specified timeframe.
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For receipt of interest |
For transfer of interest to P/L account |
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Bank..........Dr To Interest on Calls-in-arrears |
Interest on Calls-in-arrears..........Dr To Profit and Loss |
Interest on Calls-in-Advance
The articles of the company usually provide for the rate at which interest is payable on calls-in-advance. But in case the articles are silent on the rate of interest, Table A is applicable which leaves the matter to the Board subject to a maximum rate of 6% p.a. Since the Interest on Calls-in-Advance is a type of advance received by the company, according to Table A, the company may pay interest at the rate not exceeding 6 per cent on such advance call money. The accounting treatment of interest on Interest on Calls-in-Advance is as under :
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On payment of interest on Calls-in-advance |
On transfer of interest to P/L account |
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Interest on Calls-in-advance.......Dr To Bank |
Profit and Loss.......Dr To Interest on Calls-in-advance |
Forfeiture of Share
Forfeiture of shares refers to the cancellation or loss of ownership rights and privileges associated with a particular shareholding. It typically occurs when a shareholder fails to fulfill certain obligations or breaches the terms and conditions set by the company or relevant regulatory bodies. The accounting treatment relating to forfeiture of shares are :
- Forfeiture of shares originally issued at par : When shares are forfeited that were originally issued at par value, the accounting treatment involves:
| Where the paid amount was transferred to calls in arrear account |
Where the unpaid amount has not been transferred to calls in arrear account |
| Share Capital…………..Dr To Calls in Arrear To Forfeited Shares |
Share Capital…………..Dr To Respective Calls To Forfeited Shares |
- Forfeiture of shares originally issued at discount : When shares are forfeited that were originally issued at a discount, the accounting treatment involves :
| Share Capital…………..Dr To Discount on issue on shares To Calls in Arrear To Forfeited Shares |
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