COMPANY ACCOUNTS: ISSUE OF SHARES

Introduction
Capital is the life blood of any business organisation. A sole trader introduces capital out of
his own pocket. Similarly the partners also bring capital from their own pockets. But is
case of company form of business organisation, the capital is raised through the issue of
shares.
Industrial Revolution brought significant changes in the size of business-structure. Joint
Stock Company as a modern form of business organisation emerged to meet the
requirements of large sized business to remove the main defects or limitation of the
partnership form of organisation. i.e. unlimited liability and shortage of funds. It was
therefore felt necessary to collect the capital from the public at large and to encourage the
public to contribute capital, here the principal of limited liability was adopted.

Share and Share Capital

Meaning
Share is a unit in the capital of a company and includes stock as well.” ‘Share Capital’
means the capital raised by a company by issue of shares. In case of Company is divided
into small parts known as shares. This is why it is known as ‘Share Capital’.
-According to Companies Act, Company can issue two types of shares namely Equity
Shares and Preference Shares.
1. Equity Shares - A share which is not a preference share is an equity share. It means
that if the shareholder is not entitled to a fixed dividend or have priority at the time of
repayment of capital will be treated as Equity Share Capital. Equity shareholders
participate in profits of a company after all preferential rights have been satisfied. Equity
shareholders are the risk bearers and therefore the real owners of the company and can get
dividend after payment of all expenses and dividend to preference shareholders.
2. Preference Shares - Preference shares are those shares which have right with respect to
payment of dividend and repayment of capital of winding of the company. Thus preference
shareholders enjoy preferential rights in case of payment of dividend and repayment of
Capital. Preference shareholders get fixed rate of dividend before giving dividend to equity
shareholders. On the basis of additional rights or benefits preference shares can be further
classified as follows -
a) Cumulative and Non-cumulative Preference Shares
b) Redeemable and Irredeemable Preference Shares
c) Participative and Non-participative Preference Shares
d) Convertible and Non-convertible Preference shares

Types of Share Capital

The different types of share capital are as follows -
i) Authorised Capital
The Authorised Capital is the amount of share Capital which a company is authorised to
issue by its Memorandum of Association. The amount of Authorised capital is determined
after taking into consideration the future requirements of capital of the company. This
capital is also known as “Nominal Capital” or “Registered Capital”. This is the maximum
amount which a company is authorised to raise by the issue of shares. The Authorised
Capital can be increased or decreased by adopting the prescribed legal procedure.
ii) Issued Capital
Issued Capital is that part of the Authorised Capital which is offered to the public for
subscription. If the company issue all its shares, Issued Capital will be equal to
Authorised Capital. Generally, company issues such number of shares which are sufficient
to meet the requirements of the company at the time of their issue. The part of Authorised
capital which is not issued to the public is known as Unissued Capital.
iii) Subscribed Capital
Subscribed Capital is that part of Issued Capital which is actually sub-scribed by the
public. When the shares issued for subscription are wholly subscribed, issued capital
would be the same as the subscribed capital. The part of issued capital which is not sub-
scribed by the public are known as unsubscribed capital.

iv) Called up Capital

It is that part of the subscribed capital which is actually called up from the shareholders.
The company demands only that portion of the value of the shares which it considers
sufficient for the time being. It should be noted that Called up Capital may be equal to
Subscribed Capital. The part of subscribed capital which is not called up by the company
are known as Un-Called Capital.
v) Paid up Capital
It is that portion of the Called up Capital which has actually been paid by the
shareholders, as it is likely that some shareholders may not pay all the amount demanded
and due on their shares. Paid up capital can be equal or lesser than the Called up Capital but
it cannot be more than the Called up Capital. The difference between Called up Capital and
Paid up Capital is known as Calls-in-Arrears.
vi) Reserve Capital
It is that portion of Subscribed Capital which has been called up and which the company by
special resolution had decided not to called up except in the event of and for the purpose
of winding up.

Treatment of Share Capital in Balance Sheet

Example - A company was formed with an Authorised Capital of 1,000,000 divided into
10,000 equity shares of 100 each. It issued to the public 7,500 equity shares payable as 30
on application, 30 on allotment and balance on Final call. Applications were received for
6,000 equity shares. The amount of allotment was duly received except one shareholder
holding 500 equity shares did not pay allotment money. The company did not make final
call.

How will you show the different categories of share capital in Balance Sheet?
Solution:
In the Books of A Company Balance Sheet as at......
Liabilities Amount ` Assets Amount `
Authorised Capital : Cash at Bank 345,000
10000 equity shares of 100 each 1,000,000
Issued Capital :
7500 equity shares of 100 each 750,000
Subscribed Capital :
6000 equity shares of 100 each 600,000
Called-up Capital :
6000 equity shares of 100 each, ` 60 360,000
per share called-up
Paid-up Capital : 6000 equity
shares of ` 100 each ` 60 per share
called-up 360000
Less Calls in 15,000
arrears ( 500 x 30) 345,000

Total 345,000 Total345,000

Types/Methods of Issue of Share Capital -
1. Right Issue to equity shareholders.
2. Employee Stock option scheme
3. Any person
a) i) Private placement of shares
ii) Preferential Allotment of shares to shareholders only.
b) Public Issue of shares
c) Sweat Equity Shares issued to Directors or employees.
4. Issue of Bonus shares to members/shareholders

Public Issue of Shares: It is the most common and popular practice of Public Limited
Companies to raise the share capital by issuing its shares to public in Primary Market.
Following procedure is followed by the company to issue its shares to the Public.
1. Issue of Prospectus: The Company issues a Prospectus which provides complete
information about the company to the prospective investors. The Prospectus specifies
the number of shares offered to the Public, the face value of shares and the amount to
be paid on Application, Allotment and Calls.
2. Receipt of Applications: The intending subscriber to the shares are required to
send their application form together with the application money by the specified date.
The company makes its application forms available to the public through its brokers
and banks.
3 Allotment of Shares - No allotment of any shares of a company offered to the public
for subscription shall be made unless the amount stated in the Prospectus as the
minimum amount has been subscribed and the sums payable on application for the
amount so stated have been paid to and received by the company by cheque or other
instrument complying all the legal requirements the Directors of the Company
proceeds for the allotment procedure. Allotment letters are send to those who are
allotted certain number of share, while regret letter is sent to those who have not
allotted any share and their application money is refunded. On shares being allotted,
the second installment is demanded it is called Allotment Money.

4. Calls on Shares - After receiving allotment, the company makes the call due. If the
calls are more than one, they are serially numbered as First call, Second call etc.
and the last call as Final call. A call is a demand by the company to pay remaining
amount other than application and allotment money on a share. At least 14 days
notice must be given to shareholders for payment of the call.

Basic Accounting Entries for Issue of shares -

The procedure for accounting for the issue of equity and preference shares is the same.
However the words Equity or Preference is prefixed to the shares installments in order to
differentiate between the two.

Accounting Entries :
1. On receipt of Share Application money
Bank A/c.......................................................................Dr.
To Share Application A/c .......................................................................Cr.
 (Being application money on ... shares @.... Per share received)
Share Application money is part of share capital of the company, so it is to be
transferred to share capital account.
2. On transfer of application money to share capital
Share Application A/c ..................................................Dr.
To Share Capital A/c .......................................................................Cr.
(Being share application money on .... Shares @ .... capital A/c)
3. On Share Allotment due
Share Allotment A/c .....................................................Dr.
To Share Capital A/c.......................................................................Cr.
(Being share allotment money on Shares @ .... per share due)
4. On Allotment money received
Bank A/c.......................................................................Dr.
To Share Allotment A/c.......................................................................Cr.
(Being share allotment money on .... Shares @ .... per share received)
5. On first call due
Share first call A/c........................................................Dr.
To Share capital A/c.......................................................................Cr.
(Being share first call money on .... Shares @.... per share due)
6. On first call money received
Bank A/c.......................................................................Dr.
To Share first call A/c.......................................................................Cr.
(Being share first call money on .... Shares @.... per share received)
7. On second call due
Share second call A/c ...................................................Dr.
To Share capital A/c .......................................................................Cr.
(Being share second call money on .... Shares @ .... per share due)
8. On second call money received
Bank A/c.......................................................................Dr.
To Share second call A/c.......................................................................Cr.
(Being share second call money on .... Shares @ .... per share received)
9. On Third& Final call due
Share Third & Final call A/c........................................Dr.
To Share Capital A/c.......................................................................Cr.
(Being Share Third & Final call money on .... Shares @ .... per share due)
10. On Third & Final call money received
Bank A/c.......................................................................Dr.
To Share Third & Final Call A/c.......................................................................Cr.
(Being share Third & Final call money on .... Shares @.... per share received)
Illustration 1

ABC Ltd. Issued 60,000 equity shares of 10 each payable as Application 2, 3 on Allotment,
3 on First Call, 2 on final call. The shares subscribed and the entire amount due was
received.

Required: Pass necessary Journal the book of ABC Ltd.

Solution:
Date Particulars Debit ` Credit `
1. Bank A/c .............................................................Dr. 120,000
To Equity Share Application A/c .....................Cr. 120,000
(Being equity share application money on 60,000
share @ 2 per share received)
2. Equity Share Application A/c .............................Dr. 120,000
To Equity Share Capital A/c .....................Cr. 120,000
(Being application money on 60,000 equity shares
@ 2 per share transferred to equity share capital)
3. Equity Share Allotment A/c................................Dr. 180,000
To Equity Share Capital A/c ..........................Cr. 180,000
(Being allotment money on 60,000 equity shares @
3 due)
4. Bank A/c .............................................................Dr. 180,000
To Equity Share Allotment A/c........................Cr. 180,000
(Being Equity share Allotment money on 60,000
shares @ 3 received)
Equity Share First Call A/c.................................Dr. 180,000
To Equity share capital A/c ...........................Cr.
5 180,000
(Being Equity share first call money on 60000 shares
@ 3 due)
6 Bank A/c .............................................................Dr. 180,000
To Equity Share First call A/c ........................Cr.
(Being Equity share first call money on 60,000 equity 180,000
shares @ 3 received)
7 Equity share Second & Final call A/c ................Dr. 120,000
To Equity Share Capital A/c ...........................Cr.
120,000
(Being final call money on 60,000 equity shares @ `
2 per share due
8 Bank A/c .............................................................Dr. 120,000
To Equity share Second & Final call A/c.........Cr.
120,000
(Being Final Call money on 60,000 equity shares @
` 2 per share received)
Illustration 2
Honesty Ltd, Issued 20,000 Preference shares of 10 each payable 4 on Application 2
on Allotment, 4 on 1st and Final call. Shares were fully subscribed and all amount
were received.
Required: Pass necessary Journal Entries in the Books of Honesty Ltd.

Solution:
Journal Entries in the Books of Honesty Ltd.
Date Particulars 316 Debit ` Credit `
1. Bank A/c .............................................................Dr. 80,000
To Preference Share Application A/c ................Cr. 80,000
(Being application money on 20,000 Preference shares
@ 4 per share received)
2. Preference Share Application A/c.......................Dr. 80,000
To Preference Share Capital A/c ......................Cr. 80,000
(Being application money on 20,000 Preference shares
@ 4 per share transferred to preference share capital
account)
3. Preference Share Allotment A/c..........................Dr. 40,000
To Preference Share Capital A/cv.....................Cr. 40,000
(Being allotment money on 20,000 Preference shares
@ 2 per share due)
4. Bank A/c .............................................................Dr. 40,000
To Preference Share Allotment A/c ..................Cr. 40,000
(Being Allotment money on 20,000 Preference shares
@ 2 per share received)
5 Preference Share First & Final Call A/c.............Dr. 80,000
To Preference Share Capital A/c ......................Cr. 80,000
(Being 1st & final call money on 20,000 Preference
shares @ 4 per share due)
6 Bank A/c .............................................................Dr. 80,000
To Preference Share First & Final call A/c......Cr.
(Being First & Final call money on 20,000 equity 80,000
shares @ 4 per share received)
Issue of Shares at a Premium
A company can issue its shares at more than its face value. Excess of issue price of share
over its face value is termed as Share Premium. If a share of 10 is issued at 13 per share
the excess of 3 i.e. 13 - 10 will be termed as Share Premium or Securities Premium. The
amount of premium received is credited to a separate account known as Share Premium
Account which is shown on the liability side of the Balance Sheet as a separate item.
Share Premium Account should be treated to be on share allotment unless otherwise
mentioned. Share Premium Account may be credited at the time of making allotment due or
receiving allotment money.
Journal entry
Share Allotment A/c.............................Dr
To Share Capital A/c .................................................Cr
To Share Premium / Securities Premium A/c ............Cr

Illustration 3

. Anita Ltd. Offered for public 10,000 equity shares of 10 each at a premium of 12 per share
payable as under
On Application - 4
On Allotment - 4 (including premium)
On First & Final - Balance amount
call
Company received all the money. The issue was fully subscribed.
Required: Journal entries to record the above transactions and also show Balance Sheet.
Solution:
Journal Entires in the Books of Anita Ltd
Date Particulars Debit Credit
1. Bank A/c .............................................................Dr. 40,000
To Equity Share Application A/c ......................Cr. 40,000
(Being application money on 10,000 Equity shares @
4 per share received)
2. Equity Share Application A/c .............................Dr. 40,000
To Equity Share Capital A/c .............................Cr. 40,000
(Being application money on 10,000 Equity shares @
4 per share transferred to preference share capital)

3. Equity Share Allotment A/c................................Dr. 40,000

To Equity Share Capital A/c 20,000
To Share Premium A/c 20,000
(Being allotment money on 10,000 equity shares @ 4
per share due)
4. Bank A/c .............................................................Dr. 40,000
To Equity Share Allotment A/c 40,000
(Being allotment money on 10,000 equity shares @ 4
per share received)
5. Equity Share First & Final Call A/c ...................Dr. 40,000
To Equity Share Capital A/c 40,000
(Being Equity share first & final call money on 10,000
equity shares @ 4 per share due)
6. Bank A/c .............................................................Dr. 40,000
To Equity Share First & Final call A/c 40,000
(Being Equity share 1st & Final call money on 10,000
equity shares @ 4 per share received)

Balance Sheet in the Books of Anita Ltd.

Liabilities Amount ` Assets Amount
Share Capital Bank 120,000
10,000 Eq. shares of 10 each 100,000
Share Premium / Securities 20,000
Premium A/c

120,000 120,000

Balance Sheet of Ankita Ltd.

Issue of Shares at Discount
When a company issues shares at a price less than the face value of the shares, it is known
as issue of shares at discount. Normally, shares are not issued at discount by a company
because the discount allowed is a loss to the company which no company would like to
incur. The loss on issue of shares is to be debited to ‘Discount on Issue of shares Account/
The amount of discount will be shown on the asset side of Balance Sheet till it is
completely written off. The entry for discount should be passed at the time of allotment
along with the transfer entry for allotment because the loss on account of discount is
incurred as soon as the shares have been allotted.

Journal entry:
Share Allotment A/c..................................... Dr.
Discount on Issue of Shares A/c .................. Dr.
To Share Capital A/c

Illustration 4

Kedenko Ltd invited applications from the public for subscribing for 10,000 equity shares
of 15 each at a discount of 1 per share payable, 5 on application, 9 Allotment. All the
shares were applied and allotted. Money due on allotment was received.

Required: Pass Journal Entries in the Books of Kedenko Ltd. and prepare Balance Sheet.

Journal Entries in the Books of Kedenko Ltd

Date Particulars Debit ` Credit `
1. Bank A/c .............................................................Dr. 50,000
To Equity Share Application A/c 50,000
(Being application money on 10,000 Equity shares
@ 5 per share received)
2. Equity Share Application A/c .............................Dr. 50,000
To Equity Share Capital A/c 50,000
(Being application money on 10,000 Equity shares
@ 5 per share transferred to equity share capital)
3. Equity Share Allotment A/c................................Dr. 90,000
Discount on Issue of Shares A/c .........................Dr. 10,000
To Equity Share Capital A/c 100,000
(Being allotment money on 10,000 equity shares @
9 per share, after allowing discount of 1 per share
due)
4. Bank A/c .............................................................Dr. 90,000
To Equity Share Allotment A/c 90,000
(Being allotment money on 10,000 equity shares @
9 per share received)
Balance Sheet of Kedenko Ltd
Liabilities Amount ` Assets Amount `
Share Capital Bank 140,000
10,000 Equity 150,000 Discount on Issue of Shares 10,000
shares of 15 each
150,000 150,000

Over subscription and Under subscription of Shares

(A) Over subscription of Shares -
When the number of shares applied for is more than the number of shares the
company has offered / issued to the public it is known as ‘Over subscription’.
In the case of Over subscription there may be three possibilities-
1. Some applicants may be allotted the full number of shares they have applied which is
known as ‘Full Allotment’. In this case there is no excess application money received.
2. Some applicants may not be allotted shares in which case their applications are
treated as rejected. In such a case the whole amount will have to be refunded to the
applicants.
Journal entry:
Share Application A/c Dr
To Bank A/c .
3. Some applicants may be allotted less number of snares than they have applied for,
which is known as ‘Partial Allotment’. In this case the excess amount received on
application may be utilised towards the money due on allotment by transferring the
excess amount from the Share Application Account to Share Allotment Account.
Illustration 5

XYZ Ltd. Issued 10,000 equity shares of 10 each at par payable 3 on Application, 4 on
Allotment and 3 on First and Final call. The company received applications for 15,000
shares.
The Board of Directors rejected 5,000 applications and application money was refunded.
All the money was duly received.
Required: Show Journal Entries in the Books of XYZ Ltd.
Solution:
Journal Entries in the Books of XYZ Ltd
Dat Particulars Debit ` Credit `
e 1. Bank A/c .............................................................Dr. 45,000
To Equity Share Application A/c 45,000
(Being application money on 15,000 Equity shares @
3 per share received)
2. Equity Share Application A/c ............................Dr. 30,000
To Equity Share Capital A/c 30,000
(Being application money on 10,000 Equity shares @
3 per share transferred to preference share capital)
3. Equity Share Application A/c ............................Dr. 15,000
To Bank A/c 15,000
(Being application money on 5,000 equity shares @
3 per share refunded)
4. To Equity Share Allotment A/c...........................Dr. 40,000
To Equity Share Capital A/c 40,000
(Being allotment money on 10,000 equity shares @ 4
per share due)
5. Bank A/c ............................................................Dr. 40,000
To Equity Share Allotment A/c 40,000
(Being allotment money on 10,000 equity shares @ 4
per share due)
6. Equity share First and Final call A/c..................Dr. 30,000
To Equity Share Capital A/c 30,000
(Being Equity share first & Final call on 10,000
equity shares @ 3 per share due)

7. Bank A/c ............................................................Dr. 30,000

To Equity share First and Final call A/c 30,000
(Being equity share first & final call money on 10,000
equity shares @ 4 per share due)

Pro-rata/Proportionate Allotment
When the application received for shares is more than the number of shares that can be
issued, the Directors may reduce the number of shares to be alloted each applicant
proportionately on the basis of total application received and the number of shares issued.
Thus under this case each applicant gets the shares but less than those demanded applied by
him.
Alternatively it can reject certain applications and refund the application money,
allow full shares to some applicants and make pro-rata allotment to others. In case of
pro-rata allotment company will adjust excess application money received against
allotment money demanded from the shareholders.
Journal Entry:
a) Share Application A/c Dr.
To share Allotment A/c or
b) Share Application A/c Dr.
To Share Capital A/c
To Share allotment A/c
(Being extras application money adjusted with allotment money)
Illustration 6
PLC Ltd issued 10,000 equity shares to the public of 10 each. Payable as: 2 on
Application, 5 on Allotment, and 3 on 1st and Final Call. All the calls were made and money
received.
Company received applications for 20,000 shares. Directors decided to allot shares to all
applicants on pro-rata basis.
Required: Pass Journal Entries in the Books of PLC Ltd.
Solution:
Journal Entries in the Books of PLC Ltd
Date Particulars Debit ` Credit `
1. Bank A/c .............................................................Dr. 40,000
To Equity Share Application A/c 40,000
(Being application money on 20,000 Equity shares
@ 2 per share received)
2. Equity Share Application A/c .............................Dr. 40,000
To Equity Share Capital A/c 20,000
To Equity Share Allotment A/c 20,000
(Being application money on 10,000 Equity shares
transferred to equity share capital and application
money on 10000 equity shares adjusted against share
allotment A/c)
3. Equity Share Allotment A/c................................Dr. 50,000
To Equity Share Capital A/c 50,000
(Being allotment money on 10,000 equity shares @
5 per share due)
4. Bank A/c .............................................................Dr. 30,000
To Equity Share Allotment A/c 30,000
(Being share allotment money on 10,000 equity
shares after adjusting excess application money)
5. Equity share First and Final Call A/c.................Dr. 30,000
To Equity Share Capital A/c 30,000
(Being Equity share first & Final Call on 10,000
shares @ 3 per share due)
6. Bank A/c .............................................................Dr. 30,000
To Equity Share First & Final Call A/c 30,000
(Being Equity share first & Final call Money
received)
Note - Company has issued 10,000 shares to the public, but applications were received
for 20,000 shares i.e. excess applications for 10,000 shares.
Working Note No. 1
Total Application money received 20,000 shares @ 2 40,000
Less : Application money on 10,000 share @ 2 which
were issued to public
(20,000)
Excess Application money received 20,000
Therefore, excess application money received on 10,000 equity shares @ 2 per share
adjusted with allotment money.
Working Note No. 2
Allotment money received = Allotment money demanded
 excess application money
= 50,000 - 20,000
` 30,000
=
(B) Under Subscription of Shares
When number of shares applied by the public is less than the number of shares issued or
offered to the public it is called as under subscription of shares. In this case journal entries
are made on the number of shares applied and allotted only.

Illustration 7
XYZ & Company Ltd. issued 4,000 shares of 100 each payable as follows -
25 on Application
60 on Allotment
15 on first and final call
The public applied for 3,000 shares. All the money on allotment and call were received.
Required: Give necessary Journal Entries
Solution:
Journal Entries in the Books of XYZ & Co. Ltd
Date Particulars Debit ` Credit `
1. Bank A/c .............................................................Dr. 75,000
To Equity Share Application A/c 75,000
(Being application money on 3000 Equity shares @
25 per share received)
2. Equity Share Application A/c .............................Dr. 75,000
To Equity Share Capital A/c 75,000
(Being application money on 3000 shares @ 25 per
share transferred to share capital A/c)
3. Equity Share Allotment A/c................................Dr. 180,000
To Equity Share Capital A/c 180,000
(Being allotment money on 3000 equity shares @ 60
per share due)
4. Bank A/c .............................................................Dr. 180,000
To Equity Share Allotment A/c 180,000
(Being share allotment money on 3000 equity shares
@ 60 per share received)
5. Equity share First and Final Call A/c.................Dr. 45,000
To Equity Share Capital A/c 45,000
(Being Equity share 1st & Final Call on 3000 shares
@ ` 15 per share due)
6. Bank A/c .............................................................Dr. 45,000
To Equity Share First & Final Call A/c 45,000
(Being share first & Final call on 3000 shares @ ` 15
per share received)

Calls in Arrears & Calls in Advance

(A) Call in Arrears
If the company accept the application and allots the shares to the person he becomes the
shareholder and the shareholder is liable to pay the entire amount of shares. In case he
fails to pay the allotment and calls on shares held by him the unpaid amount is known as
Calls in Arrears.
The unpaid amount on allotment and calls may be kept in their respective accounts for the
balance not received or may be transferred to a new account i.e. Calls in Arrears Account.
The Calls in Arrears Account has debit balance which is shown as a deduction from the
Paid up Share Capital on liabilities side of Balance sheet.
Illustration 8
ABC Ltd. Invited applications for 25,000 equity shares of 10 each payable as 2.50
on Application
5 on Allotment
2.50 on First & Final call
Applications were received for 30,000 equity shares and pro-rata allotments were
made to all. All the money was duly received except First and Final call on 2,500
equity shares.
Enter the above transactions in the books of a company and show the Balance sheet.
Solution:
Journal Entries in the books of ABC Ltd.
Date Particulars Debit ` Credit `
1. Bank A/c ............................................................Dr. 75,000
To Equity Share Application A/c 75,000
(Being application money on 30,000 Equity shares
@ 2.5 per share received)
2. Equity Share Application A/c ........................Dr. 75,000
To Equity Share Capital A/c 62,500
To Share Allotment A/c 12,500
(Being application money on 25,000 shares @ 2.50
per share transferred to share capital A/c and
excess application money on 5,000 shares @ 2.50
per share adjusted)
3. Equity Share Allotment A/c................................Dr. 125,000
To Equity Share Capital A/c 125,000
(Being allotment money on25,000 equity shares @
5 per share due)
4. Bank A/c ............................................................Dr. 112,500
To Equity Share Allotment A/c 112,500
(Being share allotment money on 25,000 equity
shares @ 5 per share received)
5. Equity share First and Final Call A/c.................Dr. 62,500
To Equity Share Capital A/c 62,500
(Being Equity share 1st & Final Call Money on
25,000 shares @ 2.50 per share due)
6. Bank A/c ............................................................Dr. 56,250
Calls in Arreas A/c..............................................Dr. 6,250
To Equity Share First & Final Call A/c 62,500
(Being share first & Final call on 22,500 shares @
` 2.50 per share received)
Balance sheet
Liabilities Amount Amount Assets Amount
` ` `
Share Capital 250,000 Bank 243,750
Less : Calls in Arrears 6,250 243,750

243,750 243,750

Note - Entry for the receipt of First & Final Call can also be made as follows -
Bank A/c Dr. 56,250
To Equity Share First & Final call A/c 56,250

(B) Calls in Advance

Company may receive Call in Advance. The amount paid by the shareholder of a
company before the particular call is made is known as Calls in Advance. It is the liability
of the company and should be transferred to Calls in Advance Account. It is adjusted with
the respective call made in future, till then it is shown as a liability in the Balance Sheet.

Illustration 9
Kedenko Ltd. issued 10,000 shares of 10 each at 12 payable as
→ 3 on Application
→ 5 on Allotment (with premium)
→ 4 on First Final Call
Applications were received for 8,000 shares only. Omar, a holder of 400 shares made the
full payment at the time of Allotment.
Record the above transactions in the Books of Kedenko Ltd.

Dat Particulars L.F. Debit ` Credit `

e
1. Bank A/c ............................................................Dr. 24,000
To Share Application A/c 24,000
(Being application money on 8,000 shares @ 3 per
share received)
2. Share Application A/c.........................................Dr. 24,000
To Share Capital A/c 24,000
(Being application money on 8,000 shares @ 3 per
share transferred to share capital A/c)
3. Share Allotment A/c............................................Dr. 40,000
To Share Capital A/c 24,000
To Share Premium A/c 16,000
(Being allotment money on 8,000 shares @ 5 per
share due)
4. Bank A/c ............................................................Dr. 41,600
To Share Allotment A/c 40,000
To Calls in Advance A/c 1,600
(Being share allotment money on 8,000 equity shares
@ 5 per share & share First & Final call money on
400 shares @ 4 per share received)
5. Share First and Final Call A/c............................Dr. 32,000
To Share Capital A/c 32,000
(Being share First & Final Call Money on 8000
shares @ ` 4 per share due)
6. Bank A/c ............................................................Dr. 30,400
Calls in Advance A/c ..........................................Dr. 1,600
To Share First & Final Call A/c 32,000
(Being share First & Final call on 7600 shares @ ` 4
per share received & on 400 shares adjusted)
ISSUE OF SHARES FOR CONSIDERATION OTHER THAN CASH
A company can issue its shares for cash or for consideration other than cash. Such as
against purchase of Land & Buildings, Plant & Machinery etc. The company purchase
certain assets from vendors (sellers or suppliers) on credit. Instead of making payment to
vendors in cash, the company issues them certain agreed number of shares at the agreed rate
at a consideration of assets purchased.
Journal Entries-
1. Purchase of Asset on
Credit A/c
Assets Dr.
To Vendor A/c
(Being Asset purchase from the vendor)

2. Allotment of share to
Vendor A/c Dr
To Share Capital A/c .
(Being allotment of.... shares of ... each fully paid to vendors)
Sometimes a company rewards its promoters for their services by issuing shares to
them without any payment. Such an issue of shares also comes under the issue of shares
for consideration other than cash. The full amount of the shares issued to promoters for
their services is regarded on the cost of goodwill and the entry shall be just the same on
the purchase of any asset. The entry is
Goodwill A/c Dr. ...
To Share Capital A/c
(Allotment of ... shares of ... each fully paid to promoters)

FORFEITURE OF SHARES
If the shareholder fails to pay allotment or call money or both, the company send
reminder to the shareholders to make the payment of calls in arrears. If Shareholder does
not respond to remind- ers and fails to pay money then, the Directors can forfeit his shares
as per the provisions of Articles of Association of a company.
When shares are forfeited the share capital is debited with the amount called upto the
date of forfeiture in respect of shares forfeited and credit will be given to
i) Share Forfeiture Account with the amount already received and
ii) The respective unpaid calls in account (or calls in arrears account, if unpaid calls have
already been transferred to Calls in Arrears Account) in respect of such shares. It should be
noted that capital account should be debited only with the amount called in respect
the share
of such share; and not with their total nominal value unless full amount per share has
been called.
Journal Entry
Share Capital A/c Dr.
To Share Forfeitted A/c
To Calls in Arrears A/c
(A) When shares were Originally issued at a Premium
Where the forfeited shares are originally been issued at Premium and premium on
forfeited shares has already been received, the Share Premium Account will not be
debited because once the premium is received law does not allow to refund or cancel the
premium, but if the pre mium on shares has not been received because it formed part of the
installment which remain unpaid, then premium on shares will be debited. The Journal
Entry for forfeiture will be -
a) If premium is already received
Share Capital A/c Dr
To Forfeitted Shares A/c / Share forfeiture A/c .
To Calls in Arrears
b) A/c Premium in not
received Share Capital Dr
A/c .
Share Premium/ Securities Premium Dr
A/c To Calls in Arrears A/c

Illustration 10
Suman Ltd. issued equity shares of 10 each at a Premium of 3 per share, Payable as
follows-
` 3 on application
` 5 on Allotment (including
` Premium)
` 2.50 on 1st call
2.50 onMr.
One shareholder finalAshok
call failed to pay Allotment money and 1st call money on 200
shares. Directors forfeited his share after first call. While another shareholder Mr. Atul
failed to pay 1st call and final call money on 100 shares and his shares were forfeited after
final call.

Required: Journal Entries for forfeiture of shares of Mr. Ashok & Mr, AtuI
Solution: Journal entries
Date Particulars L.F. Debit ` Credit `
1. Share Capital A/c...............................................Dr. 1,500
Share Premium A/c.............................................Dr. 600
To Share Allotment 1,000
A/c To Share First call 500
A/c To Share 600
Forfeiture A/c
(Being forfeiture of 200 equity share due to non(
2. payment of Allotment
Share Capital money on first call money)
A/c................................................Dr. 1,000
To Share First Call A/c 250
To Share Final Call A/c 250
To Share Forfeiture A/c 500
(Being forfeiture of 100 equity shares due to non(
payment of first call and final call money)

Share Capital = No of forfeited shares × Called up value including premium

No. of forfeited shares = 200

Working Note No. 1

Shares Forfeited & Premium not collected 200 × 7.5 = 1,500
Security premium = 200 × 3 = 600 (No. of shares premium per share)
Share allotment = 200 × 5 = 1,000 (No. of share Allotment money)
1st Call = 200 × 2.5 = 500 (No. of share Call Money)
Forfeited shares = Bal. Amount

Working Note No. 2

Share forfeited premium is collected
Share Capital = No. of shares × called up value (including
premium) = 100 × 10 = 1,000
First Call = No. of shares × Call
Money = 100 × 2.5 = 250

Second Call = No. of shares ×

Call = 100 × 2.5 =
250
Forfeited Shares = Balance Amount

Illustration 11

Shraddha Ltd. issued 100,000 equity shares of 10 each at a premium of 2 per share payable
as-
→ 3 on Application
→ 5 on Allotment
→ 4 on first& final call

Applications were received for 120,000 equity shares and pro-rata allotment was made to
all the applicants. The excess application money was adjusted with allotment.
Vinita who was allotted 200 shares failed to pay First & Final call and her shares were
forfeited.
Pass Journal Entries in the books of Shraddha Ltd. and show the Balance Sheet

Journal Entries in the Books of Shraddha Ltd

Date Particulars L.F. Debit ` Credit `
1. Bank A/c .............................................................Dr. 360,000
To Equity Share Application A/c 360,000
(Being application money on 1,20,000 Equity
shares @ ` 3 per share received)
2. Equity Share Application A/c .............................Dr. 360,000
To Equity Share Capital A/c 300,000
To Equity Share Allotment 60,000
A/c
(Being application money on 1,00,000 shares
transferred to share capital A/cand remaining
3. money adjusted A/c............................................Dr.
Share Allotment against allotment) 500,000
To Share Capital A/c 300,000
To Share Premium 200,000
A/c
(Being allotment money on 1,00,000 equity shares
4. @
Bank` 5A/c
per.............................................................Dr.
share including premium due) 440,000
To Equity Share Allotment A/c 440,000
(Being share allotment money received after
adjusting excess application money received)
5. Equity Share First and Final Call A/c ................Dr. 400,000
To Equity Share Capital A/c 400,000
(Being Equity share first & Final Call Money on
1,00,000 shares @ ` 4 per share due)
6. Bank A/c .............................................................Dr. 399,200
To Share First & Final Call A/c 399,200
(Being share first & Final call on 99800 shares @ `
4 per share received )
7. Equity Share Capital A/c....................................Dr. 2,000
To Equity Share First & Final call 800
A/c To Share Forfeiture A/c 1,200
(Being forfeiture of 200 equity shares due to non(
payment of first & final call)
 Balance Sheet of Shraddha Ltd

Liabilities Amount ` Assets Amount `

Share Capital 9,98,000 Bank 11,99,200
Share Premium Allotment 2,00,000
Share Forfeiture Allotment 1200
11,99,200 11,99,200
(B) When shares were originally issued at discount
When the forfeited shares originally been issued at a discount. The Discount on issue of
shares amount should be credited.
Journal Entry -
Share Capital A/c Dr
To Calls in Arrears
A/c
To Discount on Issue of Shares A/c
To Share forfeiture A/c
Illustration 12
Subhash Ltd. issued equity share of 10 each at 10% discount to the public payable, 3 on
Application, 2 on Allotment, 2 on lstcall and balance 2 on final call.
Neeta who was allotted 300 equity shares paid only application money and her shares
were forfeited after First call.
Sanjay who was allotted 400 equity shares paid application and allotment money only
his shares were forfeited after final call.
Show the Journal entries in the books of the company regarding forfeiture of shares
of Neeta and Sanjay.

Solution:
Journal Entries
Date Particulars L.F. Debit ` Credit `
1. Equity Share Capital A/c...................................Dr. 2,400
To Equity Share Allotment A/c 600
To Equity Share First Call A/c 600
To Discount on Issue of Shares 300
A/c To Share Forfeiture A/c 900
(Being forfeiture of 300 equity share due to non(
payment of Allotment money, first call money)
 Equity Share Capital A/c....................................Dr.
To Equity Share First Call A/c
To Equity Share Final Call A/c
To Discount on Issue of Shares 800
A/c To Share Forfeiture A/c 800
(Being forfeiture of 400 equity shares due to non( 400
2. payment of first call and final call money) 4,000 2,000
Working Note No. 1
Neeta
Capital = No. of Shares Called up value including discount 300 × 8 = 2,400
Allotment A/c = 300 × 2 = 600
First call = 300 × 2 = 600
Discount = 300 × 1 = 300
Working Note No. 2
Sanjay
Discount = 400 × 1 = 400
First call = 400 × 2 = 800
Final call = 400 × 2 = 800
Capital = 400 × 10 = 4,000
Reissue of forfeited shares
The directors can re-issue the forfeited shares either at par, premium or at discount, usually
re-issued as fully paid and they are issued at a discount. However the amount of discount
allowed on reissue should not exceed the amount which has already been received (the
forfeited amount) in respect of these shares on their original issue and the same should be
debited to Share Forfeiture Account. In case of all the forfeited shares are re-issued
balance of share forfeiture account is transferred to Capital Reserve Account.
Illustration 13
A Company forfeited 1,000 share of 10 each for non-payment of final call of 2. All the
forfeited shares were issued at 6 per share fully paid.
Required: Journal Entries in the Books of a company for forfeiture and re-issue of shares.

Solution:
Journal Entries in the Books of a Company
Date Particulars L.F. Debit ` Credit `
1. Equity Share Capital A/c...................................Dr. 10,000
To Share Forfeiture 8,000
A/c To Calls in 2,000
Arrears A/c
(Being forfeiture of 1,000 Equity shares 10 for
non-payment of final call of 2 per share)
 Bank A/c .............................................................Dr.
Share Forfeiture A/c
To Share Capital A/c
(Being re-issue of 1000 Forfeiture shares @ ` 6
2. per share) 6,000 10,000
Share Forfeiture A/c............................................Dr. 4,000
To Capital Reserve A/c
(Being balance of Share Forfeiture Account
Account transferred to Capital Reserve Account) 4,000
3. 4,000
Illustration 14
Preeti Company Limited invited applications for 50,000 Equity Shares of 100 each at par,
payable as follows
 On Application 30, On Allotment 40 and On First & Final Call 30
The public applied for 35,000 shares and all these were allotted. All money due were
collected with an exception of first & final call on 4000 shares, these were forfeited. All
forfeited shares were re-issued by the Directors at 80 per share.
Pass Journal Entries in the Books of Preeti Company Limited.
Solution: Journal Entries in the Books of Preeti Company Limited
3. Equity Share Allotment A/c................................Dr. 14,00,000
To Equity Share Capital A/c 1,400,000
(Being equity share allotment money on 35000
shares ` 40 per share due )
4. Bank A/c .............................................................Dr. 1,400,000
To Equity Share Allotment A/c 1,400,000
(Being equity share allotment money on 35000
shares ` 40 per share received )
5. Equity Share First & Final Call A/c ...................Dr. 1,050,000
To Equity Share Capital A/c 1,050,000
(Being equity share allotment money on 35000
shares ` 30 per share due )
6. Bank A/c ............................................................Dr. 930,000
To Equity Share First & Final Call A/c 930,000
(Being equity share first & final call money on
31000 shares @ ` 30 per share received)
7. Equity Share Capital A/c....................................Dr. 400,000
To Equity Share First & Final Call 120,000
A/c To Share Forfeiture A/c 280,000
(Being forfeiture of 4000 equity shares due to
non-payment of first & final call)
 Bank A/c ............................................................Dr.
Share Forfeiture A/c............................................Dr.
To Equity Share Capital A/c
(Being re-issue for 4000 forfeited shares @ ` 80
8. per share) 320,000 400,000
Share Forfeiture A/c............................................Dr. 80,000
To Capital Reserve A/c
(Being balance on share forfeiture A/c transferred
to capital reserve A/c 200,000
9.
Date Particulars L.F. 200,000
Debit ` Credit `
1. Bank A/c ...........................................................Dr. 1,050,000
To Share Application A/c 1,050,000
(Being Application money on 35000 Equity shares
` 30 per share received)
2. Equity Share Application A/c .............................Dr. 1,050,000
To Equity Share Capital A/c 1,050,000
(Being equity share application money on 35000
shares transferred to Equity share Capital)
Illustration 15
The Subscribed Capital of Parag Limited is 30,000 Equity Shares of 100 each and 50,000
Preference shares of 100 each. On both of these shares 80 per share were called-up. The
Directors forfeited 500 equity shares held by Ashish who failed to pay First and Second Call
of each 20 per share. They also forfeited 500 preference shares of Ashok who failed to pay
20 per share on allotment, 20 per share on First call and 20 per share on Second call.
The Director re-issued these forfeited shares of Ashish at 60 per share 80 paid up and those
of Ashok at 72 per share 80 paid up All re-issued shares were taken up by Anagha.
Pass Journal Entries to record the forfeiture and re-issue of shares in the books of Parag
Ltd.

Journal Entries In the Books of Parag Ltd

Date Particulars L.F. Debit ` Credit `
1. Equity Share Capital A/c....................................Dr. 40,000
To Equity Share First Call A/c 10,000
To Equity Share Second Call 10,000
A/c To Equity Share forfeiture 20,000
A/c
(Being forfeiture of 500 equity share for failure to
pay First and Second Call )
 Preference Share Capital A/c..............................Dr.
To Preference Share Allotment A/c
To Preference Share First Call A/c
To Preference Share Second Call 10,000
A/c To Preference Share Forfeiture 10,000
2. A/c 40,000 10,000
(Being forfeiture of 500 Preference shares due to 10,000
non( payment of Allotment money, First call &
Bank A/c .............................................................Dr.
Equity Share Forfeiture A/c................................Dr.
To Equity Share Capital A/c
(Being re-issue of 500 forfeited shares ` 60 per
share due ) 40,000
3. Bank A/c ............................................................Dr. 30,000
Preference Share Forfeiture A/c..........................Dr. 10,000
To Preference Share Capital A/c
(Being re-issued 500 forfeited preference shares `
72 per share) 40,000
4. Equity Share Forfeiture A/c................................Dr. 36,000
Preference Share Forfeiture A/c..........................Dr. 4,000
To Capital Reserve A/c
(Being Balance of share forfeiture account
transferred to capital reserve ) 16,000
5. 10,000

Illustration 16
Rakesh Ltd. issued 2000 equity shares of 100 each at a premium of 20 per share payable as
follows:
On Application 20
On Allotment 50 (including
Premium) On first Call 20
On final Call 30
Applications were received for 3,000 shares, 2,000 shares allotted to the applicants for
2,400 shares. The remaining applications for 600 shares being refused and application
money there on was refund- ed. Excess money received on application was adjusted against
allotment.
All amounts were duly received except Mr. Mandar to whom 80 shares were alloted.
Mandar fails to pay First and Final call. His shares were forfeited and were reissued to Mr.
Ketan as fully paid at ` 80 per share.
Journalise the transactions in the books of the company.
 Journal Entries In the Books of Rakesh Ltd
Date Particulars L.F. Debit ` Credit `
1. Bank A/c ............................................................Dr. 60,000
To Equity Share Application A/c 60,000
(Being equity share application money on 3000
equity shares @ ` 20 per share received)
2. Equity Share Application A/c ............................Dr. 40,000
To Equity Share Capital A/c 40,000
(Being application money on 2,000 shares @ ` 20
per share transferred to capital A/c)
3. Equity Share Application A/c ............................Dr. 20,000
To Equity Share Allotment 8,000
A/c To Bank A/c 12,000
(Being excess application money on 400 shares
adjusted against allotment and on 600 shares
refunded)
4. Equity Share Allotment A/c...............................Dr. 1,00,000
To Equity Share Capital A/c 60,000\
To Share Premium A/c 40,000
(Being Allotment money on 2,000 equity shares @
` 50 per share including premium due)
5. Bank A/c .............................................................Dr. 92,000
To Equity Share Allotment A/c. 92,000
(Being equity share allotment money received )
6. Equity Share First Call A/c................................Dr. 40,000
To Equity Share Capital A/c 40,000
(Being share first call money on 2,000 shares @ `
20 per share due)
7. Bank A/c .............................................................Dr. 38,400
To Equity Share First Call A/c 38,400
(Being equity share first call money on 1920 shares
@ ` 20 per share received)
8. Equity Share Final Call A/c...............................Dr. 60,000
To Equity Share Capital A/c 60,000
(Being equity share final call money on 2,000
shares @ ` 30 per share due)
9. Bank A/c .............................................................Dr. 57,600
To Equity Share Final Call A/c 57,600
(Being share first call money on 1920 shares @ `
30 per share received)
 10. Equity Share Capital A/c...................................Dr. 8,000
To Equity Share First Call A/c 1,600
To Equity Share Final Call A/c 2,400
To Share Forfeiture A/c 4,000
(Being forfeiture of 80 shares due to non-payment
of first & final call)
11. Bank A/c ............................................................Dr. 6,400
Share Forfeiture A/c 1,600
To Equity Shares Capital A/c 8,000
(Being reissue of 80 forfeited shares @ ` 80 per
12. share)
Share Forfeiture A/c............................................Dr. 2,400
To Capital Reserve A/c 2,400
(Being balance on Share Forfeiture A/c transfer to
Capital Reserve A/c)

Illustration 17
(a) Prashant Trading Company Ltd. Forfeited 100 equity shares of 100 each due to
nonpayment of Final Call of 30 and the same were re-issued at 50 per share fully paid.
(b) Swanand Trading Company Ltd. forfeited 1000 equity shares of ` 10 each on which
ap- plication money ` 2 and allotment money of ` 4 per share was paid. The first call
money of 2 per share remained unpaid. The company re-issued all the forfeited shares
@ 5 per share, 8 paid-up.

A. Solution
Journal Entries
Date Particulars L.F. Debit ` Credit `
1. Equity Share Capital A/c...................................Dr. 10,000
To Equity Share Final A/c 3,000
To Share Forfeiture A/c 7,000
(Being forfeiture of 100 equity shares due to non(
payment of final call of ` 30 per share)
2. Bank A/c ............................................................Dr. 5,000
Share Forfeiture A/c...........................................Dr. 5,000
To Equity Share Capital A/c 10,000
(Being re-issue of 100 forfeited shares @ ` 50 per
share fully paid)
3. Share Forfeiture A/c...........................................Dr. 2,000
To Capital Reserve A/c 2,000
(Being balance on share forfeiture A/c transferred
to Capital Reserve)
(b) A. Solution

Date Particulars L.F. Debit ` Credit `

1. Equity Share Capital A/c...................................Dr. 8,000
To Share Forfeiture A/c 6,000
To Equity Share First Call 2,000
A/c
(Being forfeiture of 1000 equity shares due to non(
2. payment
Bank A/cof............................................................Dr.
first call of ` 20 per share) 5,000
Share Forfeiture A/c...........................................Dr. 3,000
To Equity Share Capital A/c 8,000
(Being re-issue of 1000 forfeited shares @`5 per
share, @ ` 8 per share called-up)
3. Share Forfeiture A/c...........................................Dr. 3,000
To Capital Reserve A/c 3,000
(Being balance on share forfeiture A/c transferred
to Capital Reserve)

Illustration 18
Dhananjay Electronic Caompany Ltd. Forfeited 500 equity shares of 10 each on which 6 per
share were received. Show journal entries regarding re-issue of all these shares if -
(a) Shares are re-issued at 8 per share fully paid-up
(b) Share are re-issued at 7, 8 called up
(c) Shares are re-issued at 5.50, 7 celled up
Solution: a
Date Particulars L.F. Debit ` Credit `
1. Equity Share Capital A/c....................................Dr. 5,000
To Calls in Arrears A/c 2,000
To Share Forfeiture A/c 3,000
(Being forfeiture of 500 equity shares due to non(
payment of first call of ` 5 per share)
Date Particulars L.F. Debit ` Credit `
1. Bank A/c ..........................................................Dr. 4,000
Share Forfeiture A/c............................................Dr. 1,000
To Equity Share Capital A/c 5,000
(Being re-issue of 500 forfeited shares @ ` 8 per
share fully paid)
2. Share Forfeiture A/c...........................................Dr. 2,000
To Capital Reserve A/c 2,000
(Being balance on share forfeiture A/c transferred
to Capital Reserve)
 (b)
Date Particulars L.F. Debit ` Credit `
1. Bank A/c ............................................................Dr. 3,500
Share Forfeiture A/c............................................Dr. 500
To Equity Share Capital A/c 4,000
(Being re-issue of 500 equity shares @ ` 7 per
share, @ ` 8 per share called-up)
2. Share Forfeiture A/c.......... Dr. 2,500
To Capital Reserve A/c 2,500
(Being balance on share forfeiture A/c transferred
to Capital Reserve)
(c)

Date Particulars L.F. Debit ` Credit `

1. Bank A/c ............................................................Dr. 2,750
Share Forfeiture A/c............................................Dr. 750
To Equity Share Capital A/c 3,500
(Being re-issue of 500 equity shares @`5.50 per
share, @ 8 per share called-up)
2. Share Forfeiture A/c...........................................Dr. 2,250
To Capital Reserve A/c 2,250
(Being balance on share forfeiture A/c transferred
to Capital Reserve)