CBSE Class 12 Accountancy: Accounting for Share Capital NCERT Solutions

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NCERT Solutions PDF Class 12 PDF

This section provides comprehensive NCERT Solutions for Class 12 Accountancy, Chapter 1: Accounting for Share Capital. It covers fundamental concepts related to the issuance of shares, including application, allotment, and calls. The solutions explain how to record these transactions in the company's books of accounts through journal entries. Key topics include authorized capital, issued capital, called-up capital, and paid-up capital. It also addresses scenarios involving non-payment of allotment and call money, and the preparation of a company's balance sheet. These solutions are designed to help students understand the intricacies of share capital accounting and prepare effectively for their examinations by offering clear, step-by-step explanations.

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Quick info

BoardCBSE
ClassClass 12
SubjectAccountancy
Session2026
LanguageEnglish
TypeNCERT Solutions
ChapterPart 2 - 1. Accounting for Share Capital

Chapter summary

This chapter focuses on the accounting treatment of share capital in a company. It details the process of issuing shares, receiving applications, making allotments, and collecting call money. The solutions provide practical guidance on recording these financial events using journal entries and preparing the balance sheet. It covers scenarios like oversubscription, undersubscription, and calls in arrears, ensuring a thorough understanding of share capital transactions.

Learning outcomes

  • Understand the concept of share capital and its different types.
  • Learn to record the issuance of shares, including application and allotment.
  • Master the accounting entries for calls on shares and calls in arrears.
  • Prepare journal entries for various share capital transactions.
  • Understand the structure of a company's balance sheet concerning share capital.

Topics covered

Paper topics

  • Share Capital
  • Types of Share Capital
  • Issue of Shares
  • Application Money
  • Allotment of Shares
  • Calls on Shares
  • Calls in Arrears
  • Journal Entries for Share Capital
  • Balance Sheet of a Company
  • Share Premium
  • Forfeiture of Shares (implied by discount mention)
  • Discount on Issue of Shares (implied by re-issue mention)

Important topics

  • Accounting for Share Issue
  • Journal Entries for Calls and Allotment
  • Treatment of Calls in Arrears
  • Balance Sheet Presentation of Share Capital
  • Understanding Different Types of Capital

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Questions and Solutions

Test Your Understanding I

State which of the following statements are true or false:

  1. A company is formed according to the provisions of Indian Companies Act, 1932.
  2. Shareholders of a company are liable for the acts of the company.
  3. Every member of a company is entitled to take part in its management.
  4. Company's shares are generally transferable.
  5. Share application account is a personal account.
  6. The director of a company must be a shareholder.
  7. Application money should not be less than 25% of the face value of shares.
  8. Paid-up capital can exceed called-up capital.
  9. Capital reserves are created from capital profits.
  10. Securities premium account is shown on the assets side of the balance sheet.
  11. Premium on issue of shares is a capital loss.
  12. At the time of issue of shares, the maximum rate of securities premium is 10%.
  13. The part of capital which is called-up only on winding up is called reserve capital.
  14. Forfeited shares can not be issued at a discount.
  15. The shares originally issued at discount may be re-issued at a premium.
Solution:

Here are the true/false statements with explanations:

  1. False. Companies in India are primarily governed by the Companies Act, 2013. While the 1932 Act was historical, it has been superseded.
  2. False. A company is a separate legal entity. Shareholders have limited liability, meaning they are generally not personally liable for the company's debts or actions beyond the amount unpaid on their shares.
  3. False. While members (shareholders) are owners, the management is typically handled by the Board of Directors. Not every member is entitled to directly participate in day-to-day management.
  4. True. A fundamental characteristic of shares in a public limited company is their free transferability, subject to any restrictions in the company's articles.
  5. True. Share application is a temporary account that represents money received from applicants for shares. It is a personal account as it represents a liability to refund or allot shares.
  6. True. In many companies, particularly private ones, directors are required to hold a minimum number of shares as a qualification.
  7. True. As per Section 30(1) of the Companies Act, 2013, the amount received on application for shares must be at least 25% of the nominal value of the share.
  8. False. Paid-up capital can never exceed called-up capital. Paid-up capital is the portion of the called-up capital that shareholders have actually paid.
  9. True. Capital profits, which arise from capital transactions (like the sale of fixed assets), are used to create capital reserves.
  10. False. The Securities Premium Account is a part of 'Reserves and Surplus' and is shown on the liabilities side of the Balance Sheet, not the assets side.
  11. False. Premium on issue of shares is considered a capital gain or profit, not a capital loss. It increases the company's reserves.
  12. False. The Companies Act, 2013, does not specify a maximum rate for securities premium. It can be any amount decided by the company, subject to legal provisions. The 10% figure might relate to other contexts or older regulations.
  13. True. Reserve capital is that portion of the company's capital that the company has resolved not to call up except in the event of winding up.
  14. False. Forfeited shares can be re-issued at a discount, but the discount allowed on re-issue cannot exceed the amount forfeited on those shares.
  15. True. Shares that were originally issued at a discount can be re-issued at a premium. The premium received on re-issue is transferred to the Capital Reserve account.

Do it Yourself I

On January 01, 2006, a limited company was incorporated with an authorised capital of Rs.40,000 divided into shares of Rs.10 each. It offered to the public for subscription of 3,000 shares payable as follows: Rs. On Application 3 per share; On Allotment 2 per share; On First Call (One month after allotment) 2.50 per share; On Second and Final Call 2.50 per share. The shares were fully subscribed for by the public and application money duly received on January 15, 2006. The directors made the allotment on February 1, 2006. How will you record the share capital transactions in the books of a company if the amounts due have been duly received, and the company maintains the combined account for application and allotment.

Solution:

The company maintains a combined account for Share Application and Allotment. The total amount per share is Rs. 3 (Application) + Rs. 2 (Allotment) + Rs. 2.50 (First Call) + Rs. 2.50 (Final Call) = Rs. 10. The company received application money for 3,000 shares.

Journal Entries:

Date Particulars LF Amount (Dr.) Amount (Cr.)
2006 Jan 15 Bank A/c Dr. 15,000
To Share Application and Allotment A/c 15,000
(Being application money received on 3,000 shares @ Rs. 5 each [3+2])
Jan 15 Share Application and Allotment A/c Dr. 15,000
To Share Capital A/c 15,000
(Being application and allotment money transferred to Share Capital A/c)
Mar 1 Share First Call A/c Dr. 7,500
To Share Capital A/c 7,500
(Being first call money due on 3,000 shares @ Rs. 2.50 each)
Mar 1 Bank A/c Dr. 7,500
To Share First Call A/c 7,500
(Being first call money received)
Mar 1 Share Second and Final Call A/c Dr. 7,500
To Share Capital A/c 7,500
(Being second and final call money due on 3,000 shares @ Rs. 2.50 each)
Mar 1 Bank A/c Dr. 7,500
To Share Second and Final Call A/c 7,500
(Being final call money received)

Note: The question specified maintaining a combined account for application and allotment. The total amount received on application and allotment is Rs. 5 per share (Rs. 3 + Rs. 2). This amount is first credited to the Bank account and debited to the Share Application and Allotment account. Subsequently, the entire amount is transferred to the Share Capital account.

Do it Yourself II

A company issued 20,000 equity shares of Rs.10 each payable as Rs.3 on application, Rs.3 on allotment, Rs.2 on first call and Rs.2 on second and the final call. The allotment money was payable on or before May 01, 2005; first call money on or before August 1st, 2005; and the second and final call on or before October 1st, 2005. 'X', to whom 1,000 shares were allotted, did not pay the allotment and call money; 'Y', an allottee of 600 shares, did not pay the two calls; and 'Z', to whom 400 shares were allotted, did not pay the final call. Pass journal entries and prepare the Balance Sheet of the company as on December 31, 2005.

Solution:

1. Calculation of Amounts Due and Received:

Total Shares Issued: 20,000

Face Value per Share: Rs. 10

Application: Rs. 3 per share

Allotment: Rs. 3 per share

First Call: Rs. 2 per share

Second and Final Call: Rs. 2 per share

Total Calls: Rs. 3 + Rs. 3 + Rs. 2 + Rs. 2 = Rs. 10

Shareholder-wise Details:

  • X: 1,000 shares. Did not pay allotment and call money.
  • Y: 600 shares. Did not pay the two calls (First and Final).
  • Z: 400 shares. Did not pay the final call.

Calculations:

  • Application Money Received: 20,000 shares * Rs. 3 = Rs. 60,000
  • Allotment Due: 20,000 shares * Rs. 3 = Rs. 60,000
  • Allotment Due from X: 1,000 shares * Rs. 3 = Rs. 3,000
  • Allotment Received: Rs. 60,000 - Rs. 3,000 = Rs. 57,000
  • First Call Due: 20,000 shares * Rs. 2 = Rs. 40,000
  • First Call Due from X: 1,000 shares * Rs. 2 = Rs. 2,000
  • First Call Due from Y: 600 shares * Rs. 2 = Rs. 1,200
  • Total First Call Arrears: Rs. 2,000 + Rs. 1,200 = Rs. 3,200
  • First Call Received: Rs. 40,000 - Rs. 3,200 = Rs. 36,800
  • Second and Final Call Due: 20,000 shares * Rs. 2 = Rs. 40,000
  • Final Call Due from X: 1,000 shares * Rs. 2 = Rs. 2,000
  • Final Call Due from Y: 600 shares * Rs. 2 = Rs. 1,200
  • Final Call Due from Z: 400 shares * Rs. 2 = Rs. 800
  • Total Final Call Arrears: Rs. 2,000 + Rs. 1,200 + Rs. 800 = Rs. 4,000
  • Final Call Received: Rs. 40,000 - Rs. 4,000 = Rs. 36,000

Total Calls in Arrears:

  • Allotment: Rs. 3,000 (from X)
  • First Call: Rs. 3,200 (from X and Y)
  • Final Call: Rs. 4,000 (from X, Y, and Z)
  • Total Arrears = Rs. 3,000 + Rs. 3,200 + Rs. 4,000 = Rs. 10,200

Total Amount Received by Bank:

  • Application: Rs. 60,000
  • Allotment: Rs. 57,000
  • First Call: Rs. 36,800
  • Final Call: Rs. 36,000
  • Total = Rs. 60,000 + Rs. 57,000 + Rs. 36,800 + Rs. 36,000 = Rs. 189,800

Journal Entries:

Date Particulars LF Amount (Dr.) Amount (Cr.)
Bank A/c Dr. 60,000
To Share Application A/c 60,000
(Being application money received on 20,000 shares @ Rs. 3 each)
Share Application A/c Dr. 60,000
To Share Capital A/c 60,000
(Being application money transferred to Share Capital A/c)
2005 May 1 Share Allotment A/c Dr. 60,000
To Share Capital A/c 60,000
(Being allotment money due on 20,000 shares @ Rs. 3 each)
May 1 Bank A/c Dr. 57,000
Calls in Arrears A/c Dr. 3,000
To Share Allotment A/c 60,000
(Being allotment money received except for 1,000 shares from X)
Aug 1 Share First Call A/c Dr. 40,000
To Share Capital A/c 40,000
(Being first call money due on 20,000 shares @ Rs. 2 each)
Aug 1 Bank A/c Dr. 36,800
Calls in Arrears A/c Dr. 3,200
To Share First Call A/c 40,000
(Being first call money received except for 1,000 shares from X and 600 shares from Y)
Oct 1 Share Second and Final Call A/c Dr. 40,000
To Share Capital A/c 40,000
(Being second and final call money due on 20,000 shares @ Rs. 2 each)
Oct 1 Bank A/c Dr. 36,000
Calls in Arrears A/c Dr. 4,000
To Share Second and Final Call A/c 40,000
(Being final call money received except for 1,000 shares from X, 600 shares from Y, and 400 shares from Z)

Balance Sheet as at December 31, 2005

Liabilities Assets
Share Capital
Authorised Capital:
20,000 Equity Shares of Rs. 10 each 40,000 Fixed Assets (Assuming no fixed assets are mentioned or relevant for this problem)
Issued Capital:
20,000 Equity Shares of Rs. 10 each, fully called-up 2,00,000 Current Assets:
Less: Calls in Arrears (10,200) Cash and Bank Balance 1,89,800
Subscribed Capital:
20,000 Equity Shares of Rs. 10 each, called-up 2,00,000
Less: Calls in Arrears (10,200)
Paid-up Capital: 1,89,800 1,89,800
Reserves and Surplus:
Securities Premium (if any, not applicable here) 0
General Reserve (if any) 0
Total Liabilities 1,89,800 Total Assets 1,89,800

Explanation of Balance Sheet:

  • Authorised Capital: This is the maximum capital the company is authorized to issue, as stated in its Memorandum of Association.
  • Issued Capital: This is the portion of the authorized capital that the company has issued to the public.
  • Called-up Capital: This is the amount of the nominal value of shares that the company has called upon shareholders to pay.
  • Paid-up Capital: This is the amount of called-up capital that has actually been paid by the shareholders. It is calculated as Called-up Capital minus Calls in Arrears.
  • Calls in Arrears: This represents the total amount due from shareholders that has not been paid as of the balance sheet date. It is shown as a deduction from the called-up capital on the liabilities side.
  • Cash and Bank Balance: This reflects the total cash received by the company from all sources (application, allotment, and calls) as per the bank entries.

Common mistakes

  • Incorrectly distinguishing between called-up and paid-up capital.
  • Errors in calculating amounts for calls in arrears.
  • Confusing personal accounts with share capital accounts.
  • Improper journal entries for share issue at a discount or premium (though not explicitly in these examples, it's a common area).

Revision tips

  • Review the definitions of authorized, issued, called-up, and paid-up capital.
  • Practice writing journal entries for each stage of share issuance.
  • Pay close attention to the treatment of calls in arrears and how it affects the balance sheet.
  • Understand the combined account for application and allotment when specified.

Practice MCQs

Q1. What is the minimum percentage of application money relative to the face value of shares as per company law?

Q2. In the context of share capital, what does 'paid-up capital' represent?

Q3. When shares are issued at a premium, where is the premium amount typically accounted for?

Q4. What does the 'Calls in Arrears' account represent?

Q5. Which of the following statements about a company is generally true?

Frequently asked questions

What is the main purpose of these NCERT Solutions for Class 12 Accountancy?

These solutions provide clear, step-by-step explanations and journal entries for accounting for share capital, helping students understand the concepts and prepare for their CBSE exams.

How are journal entries for share application and allotment handled?

Typically, separate entries are made for application and allotment. However, if the question specifies, a combined account for 'Share Application and Allotment' can be used, as shown in 'Do it Yourself I'.

What is 'Calls in Arrears' and how is it treated?

Calls in Arrears represents the amount due from shareholders that has not been paid. It is debited in the journal entry when the call is made and reduces the amount received in the bank entry for that call. It is shown as a deduction from called-up capital on the liabilities side of the balance sheet.

Are shares always issued at face value?

No, shares can be issued at par (face value), at a premium (above face value), or at a discount (below face value), although issuing at a discount has specific legal restrictions.

How does the company law address the minimum application money?

Company law requires that the application money received must be at least 25% of the nominal value (face value) of the shares.

What is the significance of 'Reserve Capital'?

Reserve capital is a portion of the authorized capital that a company has resolved by special resolution not to call except in the event of winding up of the company.

Important links

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