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ISSUE, FORFEITURE & REISSUE OF SHARES

SHARE CAPITAL OF A COMPANY
A company, being an artificial person, cannot generate its own capital which has necessarily to
be collected from several persons. These persons are known as shareholders and the amount
contributed by them is called share capital.
Since the number of shareholders is very large, a separate capital account cannot be opened for
each one of them. Hence all the capital contributions are pooled together in a common capital
account called as ‘Share Capital Account’.
A share is a share in the share capital of the company.

TYPES/CLASSES OF SHARE CAPITAL:

1. Preference Shares: These are the shares that carry two rights - preferential right as to
dividend and preferential right as to repayment on winding up.
2. Equity Shares: These are those that do not carry and preferential right. They are
subordinate to preference shares in respect of dividend and repayment.

TYPES OF PREFERENCE SHARES

Preference shares can be of various types, which are as follows:

(a) Cumulative Preference Shares: A cumulative preference share is one that carries the right
to a fixed amount of dividend or dividend at a fixed rate. Such a dividend is payable even
out of future profit if current year’s profits are insufficient for the purpose. This means that
dividend on these shares accumulates unless it is paid in full and, therefore, the shares are
called Cumulative Preference Shares. The companies are required to disclose the arrears of
fixed cumulative dividends on preference shares separately in the financial statement. In
case, the dividend remains in arrears for a period of not less than two years, holders of such
shares will be entitled to take part and vote on every resolution on every matter in the
general body meeting of the shareholders.

(b) Non-cumulative Preference Shares: A non-cumulative preference share carries with it the
right to a fixed amount of dividend. In case no dividend is declared in a year due to any
reason, the right to receive such dividend for that year expires. It implies that holder of such
a share is not entitled to arrears of dividend in future.

(c) Participating Preference Shares: Notwithstanding the right to a fixed dividend, this
category of preference share confers on the holder the right to participate in the surplus
profits, if any, after the equity shareholders have been paid dividend at a stipulated rate.
Similarly, in the event of winding up of the company, this type of share carries the right to
receive a pre-determined proportion of surplus as well once the equity shareholders have
been paid off.

(d) Non-participating Preference Shares: A share on which only a fixed rate of dividend is
paid every year, without any accompanying additional rights in profits and in the surplus on
winding-up, is called ‘Non-participating Preference Shares.’ Unless otherwise specified, the
preference shares are generally nonparticipating.

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(e) Redeemable Preference Shares: These are shares that a company may issue on the
condition that the company will repay after the fixed period or even earlier at company’s
discretion. The repayment on these shares is called redemption and is governed by Section
55 of the Companies Act, 2013.

(f) Non-redeemable Preference Shares: The preference shares, which do not carry with them
the arrangement regarding redemption, are called Nonredeemable Preference Shares.
According to Section 55, no company limited by shares shall issue irredeemable preference
shares or preference shares redeemable after the expiry of 20 years from the date of issue.
However, a Company may issue preference shares redeemable after 20 years for such
infrastructure projects as may be specified, under the Companies Act, 2013.

(g) Convertible Preference Shares: These shares give the right to the holder to get them
converted into equity shares at their option according to the terms and conditions of their
issue.

(h) Non-convertible Preference Shares: When the holder of a preference share has not been
conferred the right to get his holding converted into equity share, it is called Non-convertible
Preference Shares. Preference shares are nonconvertible unless otherwise stated.

Note: Unless mentioned otherwise Preference Shares are Non-Cumulative, Non-Participating, Non-
Convertible and Redeemable in nature.

CATEGORIES OF SHARE CAPITAL

1. Authorized Capital: Authorized capital is the amount of share capital which a company
is Authorized to issue by its Memorandum of Association. The company cannot raise
more than the amount of capital as specified in the Memorandum of Association. It is
also called nominal or registered capital. It should be noted that the company need not
issue the entire Authorized capital for public subscription at a time. It should not be more
than the amount of Authorized capital.
2. Issued Capital: It is that part of the Authorized capital which is actually issued to the
public for subscription including the shares allotted to vendors and the signatories to the
company’s memorandum. The Authorized capital which is not offered for public
subscription is known as ‘unissued capital’. Unissued capital may be offered for public
subscription at a later date.
3. Subscribed Capital: It is that part of the issued capital which has been actually subscribed
by the public. It may be noted that ultimately, the subscribed capital and issued capital
are the same because if the number of shares, subscribed is less than what is offered, the
company can allot only the number of shares for which subscription has been received.
4. Called-up Capital: It is that part of the subscribed capital which has been called up on
the shares. The company may decide to call the entire amount or part of the face value of
the shares. For example, if the face value (also called nominal value) of a share allotted is
₹ 10 and the company has called up only ₹ 7 per share, in that scenario, the called up
capital is ₹ 7 per share. The remaining ₹ 3 may be collected from its shareholders as and
when needed.
5. Paid-up Capital: It is that portion of the called up capital which has been actually
received from the shareholders. When the shareholders have paid the entire call amount,
the called-up capital is the same to the paid-up capital. If any of the shareholders has not
paid amount on calls, such an amount may be called as ‘calls in arrears’. Therefore, paid-
up capital is equal to the called-up capital minus call-in-arrears.

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6. Uncalled Capital: That portion of the subscribed capital which has not yet been called-
up. As stated earlier, the company may collect this amount any time when it needs
further funds.
7. Reserve Capital: A company may reserve a portion of its uncalled capital to be called
only in the event of winding up of the company. Such uncalled amount is called ‘Reserve
Capital’ of the company. It is available only for the creditors on winding up of the
company.

Authorized Capital

Issued Capital Unissued Capital

Subscribed Capital Unsubscribed Capital

Called Up Capital Uncalled Capital

Paid Up Capital Calls in Arrear Unreserved Capital Reserved Capital

PROCESS FOR ISSUE OF ISSUE OF SHARES FOR CASH

1. To issue shares, private companies depend upon ‘Private Placement’ of shares.

2. Public companies issue a ‘Prospectus’ and invite general public to subscribe for shares.
3. Based on prospectus, applications are deposited in a scheduled bank by the interested parties
along with the amount payable at the time of application, in cash.
4. First instalment paid along with application is called ‘Application Money’. As per Section
39 of the Companies Act, 2013, application money must be at least 5% of the face value of
shares. However, as per SEBI Regulations, the minimum application moneys to be paid by
an applicant along with the application money shall not be less than 25% of the issue price.
5. After the closing date of the issue (the last date for filing applications), company decides
about allotment of shares in consultation with the SEBI and stock exchange concerned.
6. According to the Companies Act, 2013, a company cannot proceed to allot shares unless
minimum subscription is received by the company.
7. The company reserves the right to reject or accept an application fully or partially.
8. Successful applicants become shareholders of the company and are required to pay the
second instalment which is known as ‘Allotment Money’ and unsuccessful applicants get
back their money.
9. However, in case of delay in refunding the money, the Company becomes liable to pay
interest on the amount of refund. Subsequent instalments, if any, to be called by the
company are known as ‘Calls’.
10. The issue price of shares is generally received by the company in instalments and these
instalments are known as: Application Money, Allotment Money, First Call Money, Second
Call Money, and so on followed by a Final Call Money being the last instalment of Share
money.

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MINIMUM SUBSCRIPTION

Minimum Subscription is the minimum amount stated in the Prospectus, which must be raised
by the issue of Share Capital to start with.
If the Company does not receive the Minimum Subscription of 90% of the issue, the entire
subscription shall be refunded to the applicants within prescribed time period (15 days of closure
of issue in case of non-underwritten issue & 70 days in case of underwritten issue).
As per Section 39 of the Companies Act 2013, application money must be atleast 5% of the face
value of shares. However, as per SEBI Regulations, minimum application money shall not be
less than 25% of the issue price.
According to Section 24 of the Companies Act, 2013 matters related to issue and transfer of
securities will be administered by the SEBI and not by the Company Law Board.

SHARE ISSUE PRICE

Shares of a company are issued either at par, at a premium.

Shares are said to have been issued at par when their issue price is exactly equal to their
nominal value/par value according to the terms and conditions of issue.
When the shares of a company are issued more than its nominal value (face value), the excess
amount is called premium and the issue is said to have been made at a premium.
When the shares are issued at a price less than the face value of the share, it is known as shares
issued at a discount. A company cannot issue shares at a discount except issue of shares to
employees as ESOP or sweat equity shares.

MARKET RESPONSE TO INVITATION OF SHARE ISSUE

When a company invites application from public for subscription of its shares, the response to
such issue depends on number of macro/micro economic factors like- economy trend, political
scenario, company image/reputation, share issue price, industry situations etc.

As a result of all these factors the response to such issue can be classified into 3 situations:
1. Full subscription – It is a situation when the number of shares applied for by the public is
exactly equal to the number of shares the company intends to issue. In this case the
company goes on to allot the applied shares to each and every applicant in exactly the same
numbers applied by them.

2. Under subscription – It is a situation when the number of shares applied by the public falls
short of the number of share the company intends to issue. Unless 90% of issue is
subscribed, the company cannot go ahead with allotment of shares.

3. Over subscription - It is a situation when the number of shares applied for by the public
exceeds the number of shares the company intends to issue. It is a favorable situation for the
company as it shows the huge number of interested investors. However the company cannot
allot shares to each and every shareholder as the company can allot only those number of
shares for which it has invited applications.
Here the company has to make choice (without prejudice to any applicant) as to how the
allotment of limited shares to be made. Some of the alternative strategies are:
a. Pro-rata allotment to all
b. Outright rejection for excess share applications
c. Some rejections and pro-rata allotment to others
d. Some rejections, some full allotments and pro-rata allotment to remaining
e. Or any other combination of above.

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CALLS IN ARREAR AND CALLS IN ADVANCE

Calls in arrear: It often happens that shareholders do not pay the call amount when it becomes
due. When any shareholder fails to pay the amount due on allotment or on any of the calls, such
amount is known as ‘Calls-in-Arrears’/‘Unpaid Calls’. Calls-in- Arrears represent the debit
balance of all the calls account and are shown as a deduction from the paid-up capital on the
liabilities side of the balance sheet.
The Articles of Association of a company usually empower the directors to change interest at a
stipulated rate on calls in arrears. In case the articles are silent in this regard, the rule contained
in Table F shall be applicable which states that the interest at a rate not exceeding 10% p.a.
shall have to be paid on all unpaid amounts on shares for the period intervening between the day
fixed for payment and the time of actual payment thereon.

Calls in Advance: Sometimes some shareholders pay a part or the whole of the amount of the
calls not yet made. The amount so received from the shareholders is known as “Calls in
Advance”. The amount received in advance is a liability of the company and should be credited
to ‘Call-in-Advance Account.” The amount received will be adjusted towards the payment of
calls as and when they become due. Table F of the Companies Act provides for the payment of
interest on calls in advance at a rate not exceeding 12% per annum.

Issue of shares (At a Glance)

Issue of shares for cash Issue of shares other than for cash ESOP

At Par At Premium Purchase of Asset Business Purchase

At Par At Premium

Full Subscription Over Subscription Under Subscription

All Monies Received (No default) Forfeiture of Share (For default in payment)

Reissue of Shares Shares held in Forfeiture and not yet reissued

At Par At Premium At Discount

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ISSUE OF SHARES AT PREMIUM (SECTION 52)

When a share of the nominal value of ₹ 100 is issued at ₹ 105, it is said to have been issued at a
premium of 5 per cent.
When the issue of shares is at a premium, the amount of premium may technically be called at
any stage of the issue of shares. However, premium is generally called with the amount due on
allotment, sometimes with the application money and rarely with the call money. The premium
amount is credited to a separate account called ‘Securities Premium Account’ and is shown on
the liabilities side of the company’s balance sheet under the heading ‘Reserves and Surpluses’.

It can be used only for the following purposes as laid down by Section 52 of The Companies
Act 2013:
(a) to issue fully paid bonus shares to an extent not exceeding unissued share capital of the
company;
(b) to write-off preliminary expenses of the company;
(c) to write-off share/debenture/securities issue expenses or commission paid, or discount
allowed on any of the shares or debentures of the company; and
(d) to pay premium on the redemption of preference shares or debentures of the company.
(e) in buy-back of its own shares by the company.

ISSUE OF SHARES AT DISCOUNT (SECTION 53, 54)

A company shall not issue shares at a discount and any share issued by a company at a
discounted price shall be void. However, issued of sweat equity shares is permitted as provided
in Section 54.
When a share of the nominal value of ₹ 100 is issued at ₹ 98, it is said to have been issued at a
discount of two per cent.
A company cannot ordinarily issue shares at a discount. It can do so only in cases such as
‘reissue of forfeited shares’ and in accordance with the provisions of section 54 of The
Companies Act 2013 for issue of Sweat Equity Shares.
It states that, a company is permitted to issue shares at a discount provided the following
conditions are satisfied:

a) The issue is authorized by a special resolution passed by the company.

b) The resolution specifies the number of shares, the current market price, consideration, if
any, and the class or classes of directors or employees to whom such equity shares are to
be issued.
c) Not less than one year has, at the date of such issue, elapsed since the date on which the
company had commenced business.
d) Where the equity shares of the company are listed on a recognized stock exchange, the
sweat equity shares are issued in accordance with the regulations made by the Securities
and Exchange Board in this behalf and if they are not so listed, the sweat equity shares
are issued in accordance with such rules as may be prescribed.
e) The rights, limitations, restrictions and provisions as are for the time being applicable to
equity shares shall be applicable to the sweat equity shares issued under this section and
the holders of such shares shall rank pari passu with other equity shareholders.

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ACCOUNTING ENTRIES FOR ISSUE OF SHARES

Following are the journal entries in respect of issue of share capital in different situation:

I. Issue of shares at Par (Situation of Full subscription)

a. At the time of Application

Bank A/c Dr.

To Share Application A/c

b. On Allotment (transfer of application money to capital)

Share Application A/c Dr.

To Share Capital A/c

c. On Allotment money due

Share Allotment A/c Dr.

To Share Capital A/c
d. On receipt of allotment money

Bank A/c Dr.

To Share Allotment A/c
e. On making amount due on 1st call

Share 1st Call A/c Dr.

To Share Capital A/c

f. On receipt of call money

Bank A/c Dr.

To Share 1st Call A/c

g. On making amount due on 2nd & Final call

Share 2nd & Final Call A/c Dr.

To Share Capital A/c

h. On receipt of call money

Bank A/c Dr.

To Share 2nd & Final Call A/c

II. Issue of shares at Premium (Situation of Full subscription)

a. At the time of Application

Bank A/c Dr.

To Share Application A/c

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b. On Allotment (transfer of application money to capital)

Share Application A/c Dr.

To Share Capital A/c

c. On Allotment money due

Share Allotment A/c Dr.

To Share Capital A/c
To Securities Premium A/c

Note: Generally premium is adjusted at the time of allotment unless otherwise specified

d. On receipt of allotment money

Bank A/c Dr.

To Share Allotment A/c

e. On making amount due on 1st call

Share 1st Call A/c Dr.

To Share Capital A/c

f. On receipt of call money

Bank A/c Dr.

To Share 1st Call A/c

g. On making amount due on 2nd & Final call

Share 2nd & Final Call A/c Dr.

To Share Capital A/c

h. On receipt of call money

Bank A/c Dr.

To Share 2nd & Final Call A/c

III. Issue of shares at Par/Premium (Situation of under subscription)

Same set of entries as given under case I & II above are done in a situation of under subscription.
The only difference lies in the fact that the number of shares applied for by the public is used in
all calculation in place of shares issued by company.

IV. Issue of shares at Par/Premium (Situation of Over subscription)

In a situation of over subscription, the company goes ahead with allotment of share in a way
that the shares allotted does not exceed the shares issued. Certainly the excess applications are
dealt with either through rejections or pro-rata allotment or full allotment to some applicants or
a combination of all these alternate ways.

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a. At the time of Application

Bank A/c Dr.

To Share Application A/c

b. On Allotment (transfer of application money to capital/Excess money to future calls)

Share Application A/c Dr. A statement of excess

To Share Capital A/c amount received on applied
To Share Allotment A/c shares vis-à-vis allotted
To Share 1st Call A/c shares is made to find out
To Share 2nd & Final Call A/c excess amount available for
adjustment against future
c. On Allotment money due calls

Share Allotment A/c Dr.

To Share Capital A/c

d. On receipt of allotment money Amount received on

allotment is calculated after
Bank A/c Dr. taking into consideration
To Share Allotment A/c excess adjusted in entry no-b
above
e. On making amount due on 1st call

Share 1st Call A/c Dr.

To Share Capital A/c
Amount received on call is
f. On receipt of call money calculated after taking into
consideration excess
Bank A/c Dr. adjusted in entry no-b above
To Share 1st Call A/c

g. On making amount due on 2nd & Final call

Share 2nd & Final Call A/c Dr.

To Share Capital A/c

h. On receipt of call money

Amount received on call is
Bank A/c Dr. calculated after taking into
To Share 2nd & Final Call A/c consideration excess
adjusted in entry no-b above

Note: The above entries are done in the same manner even in case of shares issued at premium.
However, adjustment of premium has to be made as done in case II earlier.

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FORFEITURE OF SHARES

Sometimes it may happen that some shareholders fail to pay one or more installments, viz.
allotment money and/or call money. In such circumstances, the company can forfeit their
shares, i.e. cancel their allotment and treat the amount already received thereon as forfeited to
the company within the framework of the provisions in its articles. The directors can forfeit the
shares for nonpayment of calls made. For this purpose, they have to strictly follow the
procedure laid down in this regard under the Act.

When shares are forfeited all entries relating to the shares forfeited, except those relating to
premium, already received and recorded, must be reversed. Accordingly, the journal entry will
be as follows:
Case-I: When shares were originally issued at Par

Share Capital A/c Dr.

To Share Allotment A/c
To Share 1st Call A/c
To Share 2nd & Final Call A/c
To Forfeited Shares A/c

Note: Share capital is debited and closed with the amount already called up till the stage of forfeiture.
Allotment & calls are credited and closed with the amount not received (defaulted amount).

Case-II: When shares were originally issued at Premium

Share Capital A/c Dr.

Securities Premium A/c Dr.
To Share Allotment A/c
To Share 1st Call A/c
To Share 2nd & Final Call A/c
To Forfeited Shares A/c

Note: Share capital is debited and closed with the amount already called up till the stage of forfeiture.
Allotment & calls are credited and closed with the amount not received (defaulted amount). Securities
Premium account is debited and closed for only such amount of premium which has not been received.
The premium which has been already paid by the shareholder cannot be reversed as this will be in
violation of section 52 of the Act.

RE-ISSUE OF FORFEITED SHARES

The directors can either cancel or re-issue the forfeited shares. In most cases, however, they
reissue such shares which may be at par, at premium or at a discount. Re-issue of forfeited shares
is not allotment but only a sale or auction of shares.

When the forfeited shares are reissued at par or at premium, the amount available in share
forfeiture account is not utilized as no discount has been offered to the new shareholder against
the face value of such shares. As a result, the amount of share forfeiture represents the capital
profits and hence transferred to capital reserve account on completion of reissue.
The forfeited shares can be reissued at a discount. However, this discount so offered cannot
exceed the amount forfeited on such shares.
This implies that:
Discount on reissue of forfeited share ≤ Amount of forfeiture

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The following journal entries are made:

1. Reissue at par
Bank A/c Dr.
To Share Capital A/c

Forfeited Shares A/c Dr.

To Capital Reserve

2. Reissue at premium
Bank A/c Dr.
To Share Capital A/c
To Securities Premium A/c

Forfeited Shares A/c Dr.

To Capital Reserve

3. Reissue at Discount

Bank A/c Dr.

Forfeited Shares A/c Dr.
To Share Capital A/c

Forfeited Shares A/c Dr.

To Capital Reserve

It is to be noted in this context is that the capital profit arises only in respect of the forfeited share
reissued, and not on all forfeited shares. Hence, when only a part of the forfeited shares is reissued, the
whole balance of Share Forfeited Account cannot be transferred to the capital reserve. In such a
situation, it is only the proportionate amount that relates to the forfeited shares reissued which should
be transferred to capital reserve, ensuring that the remaining balance in Share forfeited Account is
equal to the amount forfeited on shares not yet reissued.

ISSUE OF SHARES OTHER THAN FOR CASH

Sometimes the company can issue shares not for cash but in satisfaction of its liability towards
vendor for any purchase of asset or in such cases where it acquires the business of another
entity. Shares can also be issued to promoters as payment in lieu of their services.
The shares so issued can be at par or premium as per the arrangement b/w the company and
vendor.
No: of shares issue = Total amount payable / Issue price per share

Case-I: Issue of share for purchase of an asset

Asset A/c Dr.

To Vendor A/c

Vendor A/c Dr.

To Securities Premium A/c
To Share Capital A/c

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Case-II: Issue of share for purchase of Business

Sundry Assets A/c Dr.

Goodwill A/c Dr. * (Any One)
To Sundry Liabilities A/c
To Vendor A/c
To Capital Reserve A/c *

Vendor A/c Dr.

To Securities Premium A/c
To Share Capital A/c

Balance Sheet Extract (Disclosure of Share Capital)

S.No Particulars Note Current Year Previous Year

No. Amount (₹) Amount (₹)
(A) EQUITY & LIABILITIES
1. Shareholders’ funds
(a) Share Capital I
(b) Reserves & Surplus II

Schedules forming part of the Balance Sheet:

I. Share Capital:
Particulars Current Year Previous Year
Amount (₹) Amount (₹)
Authorized Capital
XXXX Shares of ₹ XX/- each xxx xxx
Issued & Subscribed Capital
XXX Shares of ₹ XX/- each xxx xxx
Paid-up Capital
XXX Shares of ₹ XX/- each fully called-up xxx xxx
Less: Calls-in arrear xxx xxx
Add: Shares Forfeited xxx xxx

II. Reserves & Surplus:

Particulars Current Year Previous Year
Amount (₹) Amount (₹)
Revenue Reserve xxx xxx
General Reserve xxx xxx
Capital Reserve xxx xxx
Securities Premium xxx xxx
Shares Options Outstanding Account xxx xxx

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Test Your Knowledge & Practice

1. A company issued 2,50,000 Equity Shares of ₹ 10 each to public. All amounts have been
received in lump sum. Pass necessary Journal entries in the books of the company.

2. A company invited applications for 10,000 equity shares of ₹ 50 each payable on application
₹ 15, on Allotment ₹ 20, on first and final call ₹15. Applications are received for 10,000
shares and all the applicants are allotted the number of shares they have applied for and
instalment money was duly received by the company. Show Journal entries in the books of
the company. (ICAI Module)

3. B Ltd. was registered with a capital of ₹ 6,00,000 in shares of ₹ 10 each. It issued a

prospectus inviting applications for 6,000 shares at par payable as ₹ 4 on Application, ₹ 2 on
Allotment, ₹ 2 on First Call and ₹ 2 on Second Call. Applications were received for 5,400
shares. All money was duly received. Pass the necessary Journal entries.

4. On 1st April, 2021, A Ltd. issued 43,000 shares of ₹ 100 each payable as ₹ 20 on application;
₹ 30 on allotment; ₹ 25 on 1st October, 2021; and ₹ 25 on 1st February, 2022.
By 20th May, 40,000 shares were applied for and all applications were accepted. Allotment
was made on 1st June. All sums due on allotment were received on 15th July; those on 1st
call were received on 20th October. Journalize the transactions when accounts were closed
on 31st March, 2022. (ICAI Module)

5. Y Ltd. invited applications for 6,000 Equity Shares of ₹ 10 each issued at par. The whole
amount was payable on application. The issue was oversubscribed by 1,200 shares. Pass the
necessary Journal entries.

6. Pant Ltd. invited applications for 50,000 equity shares at ₹ 50 each, which are payable as on
application ₹ 20, on allotment ₹ 10 and on first and final call ₹ 20. The company received
applications for 60,000 shares. The directors accepted application for 50,000 shares and
rejected the rest. Show Journal entries if company refunded the application money to
rejected applicants and allotment money was received for 45,000 shares. (ICAI Module)

7. X Ltd. invited applications for 10,000 Equity Shares of ₹ 10 each issued at par. The whole
amount was payable on application. The issue was oversubscribed by 2,000 shares and
allotment was made on pro rata basis. Pass necessary Journal entries.

8. Star Cycle Ltd. was registered with a capital of ₹ 5,00,000 divided into 20,000 shares of ₹ 25
each. The company offered to public for subscription 10,000 shares payable ₹ 5 per share on
application, ₹ 5 per share on allotment and the balance in two calls of ₹ 7.50 each. The
company received applications for 11,600 shares. Applications for 1,000 shares were rejected
and application money was refunded to the applicants. A person who applied for 1,000
shares was allotted only 400 shares and excess of his application money was carried forward
towards the payment of allotment and calls. Give Journal entries.

9. The Delhi Artware Ltd. issued 50,000 equity shares of ₹ 100 each and 1,00,000 preference
shares of ₹ 100 each. The Share Capital was to be collected as under:
Particulars Equity Shares (₹) Preference Shares (₹)
On Application 25 20
On Allotment 20 30
First Call 30 20
Final Call 25 30

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All these shares were subscribed. Final call was received on 42,000 equity shares and 88,000
preference shares. Prepare the cash book and journalize the remaining transactions in the
books of the company. (ICAI Module)

10. S Ltd. issued 1,00,000 Equity Shares of ₹ 10 each at a premium of ₹ 5 per share. The whole
amount was payable on application. The issue was fully subscribed. Pass necessary Journal
entries.

11. X Ltd. invited applications for 11,000 Equity Shares of ₹ 10 each issued at 20% premium.
The whole amount was payable on application. The issue was undersubscribed by 1,000
shares. Pass necessary Journal entries.

12. On 1st October, 2022 Pioneer Equipment Limited received applications for 2,50,000 Equity
Shares of ₹ 100 each to be issued at a premium of 25 per cent payable as:
On Application ₹ 25
On Allotment ₹ 75 (including premium)
Balance Amount on Shares As and when required
The shares were allotted by the Company on October 20, 2022 and the allotment money was
duly received on October 31, 2022. Record journal entries in the books of the company to
record the transactions in connection with the issue of shares. (ICAI Module)

13. M Ltd. issued 10,000 shares of ₹ 10 each at a premium of ₹ 2 per share. The amount of share
was payable as ₹ 4 on application, ₹ 4 on allotment (including premium), and balance on first
and final call. Applications for 15,000 shares were received and allotment was made to all
the applicants on pro rata basis. Directors decided to adjust excess application money
towards allotment only. Give journal entries assuming all money due was received.

14. JHP Limited is a company with an authorized share capital of ₹10,00,000 in equity shares of
₹10 each, of which 6,00,000 shares had been issued and fully paid on 30th June, 2021. The
company proposed to make a further issue of 1,00,000 of these ₹10 shares at a price of ₹14
each, the arrangements for payment being:
(a) ₹ 2 per share payable on application, to be received by 1st July, 2021;
(b) Allotment to be made on 10th July, 2021 and a further ₹ 5 per share (including the premium)
to be payable;
(c) The final call for the balance to be made, and the money received by 30th April, 2022
Applications were received for 3,55,000 shares and were dealt with as follows:
(i) Applicants for 5,000 shares received allotment in full;
(ii) Applicants for 30,000 shares received an allotment of one share for every two applied for;
no money was returned to these applicants, the surplus on application being used to
reduce the amount due on allotment;
(iii) Applicants for 3,20,000 shares received an allotment of one share for every four applied
for; the money due on allotment was retained by the company, the excess being returned
to the applicants; and
(iv) The money due on final call was received on the due date.
You are required to record these transactions in the Journal of JHP Limited. (ICAI Module)

15. Shreyas Ltd. did not receive the first call on 10,000 equity shares @ ₹ 3 per share which was
due on 1.7.2021. This amount was received on 1.4.2022. Open Calls in arrears account and
journalize the entries in the books of the company on 1.7.2021 and 1.4.2022. (ICAI Module)

16. ABC Ltd. made the second and final call on its 50,000 Equity Shares @ ₹ 2 per share on 1st
January, 2023. The entire amount was received on 15th January, 2023 except on 100 shares
allotted to Amit. Pass necessary Journal entries by opening Calls-in-Arrears Account.

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17. On 1.1.2023 X Ltd. received in advance the first call of ₹ 2 per share on 10,000 equity shares.
The first call was due on 15.2.2023. Journalize the above transactions and transfer the
advance to first call account by opening a Calls-in-Advance account.

18. A limited Company, with an authorized capital of ₹ 20,00,000 divided into shares of ₹ 100
each, issued for subscription 10,000 shares payable at ₹ 25 per share on application, ₹ 30 per
share on allotment, ₹ 20 per share on first call three months after allotment and the balance
as and when required.
The subscription list closed on January 31, 2022 when application money on 10,000 shares
was duly received and allotment was made on March 1, 2022. All amounts due were
received within one month of the date they were called.
The allotment amount was received in full but, when the first call was made, one shareholder
failed to pay the amount on 1,000 shares held by him and another shareholder with 500
shares paid the entire amount on his shares.
Give journal entries in the books of the Company. (ICAI Module)

19. Rashmi Limited issued at par 1,00,000 Equity shares of ₹10 each payable ₹2.50 on
application; ₹3 on allotment; ₹ 2 on first call and balance on the final call. All the shares were
fully subscribed. Mr. Nair who held 10,000 shares paid full remaining amount on first call
itself. The final call which was made after 3 months from first call was fully paid except a
shareholder having 1000 shares who paid his due amount after 2 months along with interest
on calls in arrears. Company also paid interest on calls in advance to Mr. Nair.
Give journal entries to record these transactions. (ICAI Module)

20. X Ltd. invited applications for 10 lakhs shares of ₹ 100 each payable as follows:
Particulars Amount
On Application 20
On Allotment (on 1st May, 2022) 30
On First Call (on 1st Oct., 2022) 30
On Final Call (on 1st Feb., 2023) 20
All the shares were applied for and allotted. A shareholder holding 20,000 shares paid the whole
of the amount due along with allotment. Journalize the transactions, assuming all sums due were
received. Interest was paid to the shareholder concerned on 1st February, 2023. (ICAI Module)

21. A Limited issued 20,000 Equity shares of ₹ 10 each at a premium of 10%, payable ₹ 2 on
application; ₹ 4 on allotment (including premium); ₹ 2 on first call and balance on the final
call. All the shares were fully subscribed. Mr. M who held 2000 shares paid full remaining
amount on first call itself. The final call which was made after 4 months from the first call
was fully paid except a shareholder having 200 shares and one another shareholder having
100 shares. They paid their due amount after 3 months and 4 months respectively along with
interest on calls in arrears, Company also paid interest on calls in advance to Mr. M. The
Company maintains Calls in Arrear and Calls in Advance A/c. Give journal entries to
record these transactions. Show workings of Interest calculation. (May’ 2022)

22. A Ltd forfeited 30,000 equity shares of ₹ 10 fully called-up, held by Mr. X for non-payment
of final call @ ₹ 4 each. However, he paid application money @ ₹ 2 per share and allotment
money @ ₹ 4 per share. These shares were originally issued at par. Give Journal Entry for
the forfeiture. (ICAI Module)

23. A Ltd. forfeits 100 shares of ₹ 10 each fully called upon. The shareholder failed to pay the
first call money of ₹ 4 per share and the second and final Call Money of ₹ 4 per share. Give
journal entry to show the effect of this transaction. (ICAI Module)

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24. X Ltd forfeited 20,000 equity shares of ₹ 10 each, ₹ 8 called-up, for non-payment of first call
money @ ₹ 2 each. Application money @ ₹ 2 per share and allotment money @ ₹ 4 per share
have already been received by the company. Give Journal Entry for the forfeiture (assume
that all money due is transferred to Calls-in-Arrears Account). (ICAI Module)

25. Y Ltd. forfeited 100 shares of ₹ 10 each issued at 20% premium (to be paid at the time of
allotment) on which first call money of ₹ 3 was not received; the final call money of ₹ 2 is not
yet called.

26. X Ltd. forfeited 5,000 equity shares of ₹ 100 each fully called-up; issued at a premium of
20%. Amount payable on shares were: on application ₹ 20; on allotment ₹ 50 (including
premium); on First and Final call ₹ 50. Only application money was paid by the shareholders
in respect of these shares. Pass Journal Entries for the forfeiture. (ICAI Module)

27. Mr. Shami has applied for 1,000 shares of Company XYZ Ltd. paying application money @
₹ 2 per share but has been allotted only 600 shares. The shares have a face value of ₹ 10 and
a premium of ₹ 2 per share, which are payable as: on Allotment- ₹ 5 (including premium)
and on final call ₹ 5. Now in case Mr. Shami doesn't pay allotment money and final call and
his shares are forfeited, then following entry will be passed on forfeiture. (ICAI Module)

28. B Ltd. issued 20,000 equity shares of ₹ 100 each at a premium of ₹ 20 per share payable as
follows: on application ₹ 50; on allotment ₹ 50 (including premium); on final call ₹ 20.
Applications were received for 24,000 shares. Letters of regret were issued to applicants for
4,000 shares and shares were allotted to all the other applicants. Mr. A, the holder of 150
shares, failed to pay the allotment and call money, the shares were forfeited. Show the
Journal Entries and Cash Book in the books of B Ltd. (ICAI Module)

29. Mr. Long who was the holder of 2,000 preference shares of ₹ 100 each, on which ₹ 75 per
share has been called up could not pay his dues on Allotment and First call each at ₹ 25 per
share. The Directors forfeited the above shares and reissued 1500 of such shares to Mr. Short
at ₹ 65 per share paid-up as ₹ 75 per share. Give Journal Entries to record the above
forfeiture and re-issue in the books of the company. (ICAI Module)

30. Fashion Garments Ltd invited applications for issuing 10,000 Equity Shares of ₹ 10 each.
The amount was payable on Application ₹ 1 per share, on Allotment ₹ 2 per share, on First call ₹ 3
per share, on Second and final Call ₹ 4 per share.
The issue was fully subscribed. Ram to whom 100 shares were allotted, failed to pay the allotment
money and his shares were forfeited immediately after the allotment. Shyam to whom 150 shares
were allotted, failed to pay the first call. His shares were also forfeited after the first call. Afterwards
the second and final call was made. Mohan to whom 50 shares were allotted failed to pay the second
and final call. His shares were also forfeited. Al the forfeited shares were re-issued at ₹ 9 per share
fully paid-up. Pass necessary Journal entries in the books of Fashion Garments Ltd. (Dec’ 2021)

31. Beautiful Co. Ltd issued 30,000 equity shares of ₹ 10 each payable as ₹ 3 per share on
application, ₹ 5 per share (including ₹ 2 as premium) on allotment and ₹ 4 per share on call.
All the shares were subscribed. Money due on all shares was fully received except from Ram,
holding 500 shares, who failed to pay the Allotment and Call money and Shyam, holding
1,000 shares, who failed to pay the Call Money. All those 1,500 shares were forfeited. Of the
shares forfeited, 1,250 shares (including whole of Ram’s shares) were subsequently re-issued
to Jadu as fully paid up at a discount of ₹ 2 per share. (ICAI Module)

32. A holds 2,000 shares of ₹ 10 each on which he has paid ₹ 2 as application money. B holds
4,000 shares of ₹ 10 each on which he has paid ₹ 2 per share as application money and ₹ 3
per share as allotment money. C holds 3,000 shares of ₹ 10 each and has paid ₹ 2 on

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application, ₹ 3 on allotment and ₹ 3 for the first call. They all fail to pay their arrears on the
second and final call and the directors, therefore, forfeited their shares. The shares are re-
issued subsequently for ₹ 12 per share fully paid-up. Journalize the transactions relating to
the forfeiture and re-issue. (ICAI Module)

33. Y. Ltd issued 20,000 shares of ₹ 10 each at premium of 20% per share. Payables as following:
On Application ₹ 2 Per share
On Allotment ₹ 5 per share (including premium)
On First Call ₹ 3 per share
On Final Call ₹ 2 per share
Applications were received for 30,000 shares and pro-rata allotment was made to the
application for 24,000 shares. Any excess money paid on application was employed on
account of sum due on allotment.
Kamal, to whom 400 shares were allotted, failed to pay the allotment money and on his
subsequent failure to pay the first call his shares were forfeited.
Tamal, the holder of 600 shares, failed to pay the two calls, and his shares were forfeited after
the final call. Out of the shares forfeited, 800 shares were issued to Ramesh Credited as fully
paid for ₹ 9 per share, the whole of Kamal’s shares being included.
Pass the necessary journal entries to record the above transactions. (RTP, June’ 2024)

34. BP Limited issued a prospectus inviting applications for 1,20,000 equity shares of ₹ 10 each
at a premium of ₹ 2 per share payable as follows:
On Application- ₹ 3 per share
On Allotment- ₹ 5 per share (including premium)
On First and Final Call- ₹ 4 per share
Applications were received for 3,60,000 equity shares. Applications for 80,000 shares were
rejected and the money refunded. Shares allotted to remaining applications as follows:
Category No. of shares Applied No. of shares Allotted
I 1,60,000 80,000
II 1,20,000 40,000
Excess money received with applications was adjusted towards sums due on Allotment and
the balance amount returned to the applicants. All calls were made duly received except the
final call by a shareholder belonging to Category I who has applied for 680 shares. His shares
were forfeited. The forfeited shares were reissued at ₹ 13 per share fully paid-up.
Pass necessary journal entries for the above transactions in the books of BP Ltd, Open calls
in arrear account whenever required. (June’ 2023)

35. 2,000 Equity Shares of ₹ 10 each were issued to X Limited from whom assets of ₹ 25,000
were acquired. Pass Journal entry.

36. A limited company issued 800 Equity Shares of ₹ 100 each at a premium of 25% as fully
paid-up in consideration of the purchase of plant and machinery worth ₹ 1,00,000. Pass
entries in company's Journal.

37. N Ltd. purchased furniture costing ₹ 1,59,000 from S Ltd. Payment was made as ₹ 59,000 in
cash and balance was payable by way of issuing equity shares of ₹ 100 each at par.
Journalize.

38. N Ltd. purchased furniture costing ₹ 1,59,000 from S Ltd. Payment was made as ₹ 69,000 in
cash and balance was payable by way of issuing equity shares of ₹ 100 each at a premium of
₹ 20. Journalize.
39. ABC Ltd. issued ₹ 4,00,000 fully paid-up equity share of ₹ 100 each at par for the purchase of
the following assets and liabilities from XYZ Ltd.

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Furniture ₹ 1,50,000 Debtors ₹ 1,60,000

Computer ₹ 80,000 Creditors ₹ 70,000
Pass necessary entries in the books of ABC Ltd.

40. A company purchased a running business from Joy Brothers for a sum of ₹ 15,00,000
payable ₹ 12,00,000 in fully paid shares of ₹ 10 each and balance through cheque. The assets
and liabilities consisted of the following:
Plant and Machinery ₹ 4,00,000 Stock ₹ 4,00,000
Building ₹ 4,00,000 Cash ₹ 3,00,000
Sundry Debtors ₹ 3,00,000 Sundry Creditors ₹ 2,00,000
You are required to pass necessary Journal entries in the company's books.

41. X Co. Ltd. was incorporated with an authorized share capital of 90,000 equity shares of ₹ 10
each. The company purchased land and buildings from Y Co. Ltd for ₹ 4,00,000 payable in
fully paid-up shares of the company. The balance of the shares was issued to the public,
which were fully subscribed and paid for. You are required to pass Journal Entries and to
prepare the Balance Sheet. (ICAI Module)

42. A company had an authorized capital of ₹ 10,00,000 divided into 1,00,000 equity shares of ₹
10 each. It decided to issue 60,000 shares for subscription and received applications for
70,000 shares. It allotted 60,000 shares and rejected remaining applications. Upto 31-3-2022,
it has demanded or called ₹ 9 per share. All shareholders have duly paid the amount called,
except one shareholder, holding 5,000 shares who has paid only ₹ 7 per share.
Prepare a balance sheet assuming there are no other details. (ICAI Module)

43. PQR Limited issued 2,00,000 equity shares of, 10 each payable as ₹ 3 per share on
application & ₹ 5 per share (including ₹ 2 as premium) on allotment and ₹ 4 per share on
call. All these shares were subscribed. Money due on all shares was fully received except
from Mr. J, holding 5,000 shares who failed to pay ·the allotment and call money and Mr. K,
holding 10,000 shares, who failed to pay the call money. All these 15,000 shares were
forfeited. Out of the forfeited shares, 10,000 shares (including whole of J's shares) were
subsequently re-issued to Mr. L as fully paid up at a discount of ₹ 1 per share.
Pass necessary journal entries in the books of PQR Limited. Also prepare Balance Sheet and
notes to accounts of the company. (Dec’ 2022)

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True and False (ICAI Module)

1. Liability of a holder of shares is limited to the face value of shares acquired by them.
2. Authorized capital appears in the balance sheet at face value.
3. The rate of dividend on preference shares may vary from year to year.
4. A company may issue shares at a discount to the public in general.
5. Sweat equity shares are those which are issued to employees & directors at a discount.
6. As per table F, rate of interest on calls in arrears is 12%.
7. As per Table F, rate of interest on calls in advance is 10%.
8. Non-participating preference shareholders enjoy voting rights.
9. Forfeited shares are available to the company for the purpose of resale.
10. Loss on reissue should exceed the forfeited amount.

(Answers)

1. False: Liability of the holder of shares is limited to the issue price of shares acquired by
them.
2. True: Authorised capital is the amount of capital mentioned in ‘capital clause’ of the
‘Memorandum of Association’. Authorised capital is considered only as presentation and
not considered in total of balance sheet.
3. False: Rate of preference dividend is always fixed.
4. False: According to Section 53 of the Companies Act, 2013, a Company cannot issue shares
at a discount except in the case of issue of sweat equity shares (issued to employees and
directors). Thus any issue of shares at discount shall be void.
5. True: According to Section 53 of the Companies Act, 2013, a Company cannot issue shares
at a discount except in the case of issue of sweat equity shares (issued to employees and
directors).
6. False: As per table F, rate of interest on calls in arrears is 10%.
7. False: As per Table F, rate of interest on calls in advance is 12%.
8. False: A share on which only a fixed rate of dividend is paid every year, without any
accompanying additional rights in profits and in the surplus on winding-up, is called 'Non-
participating Preference Shares. Non-participating preference shareholders do not enjoy
voting rights.
9. True: Reissue of forfeited shares is not allotment of shares but only a sale.
10. False: Loss on re-issue should not exceed the forfeited amount.

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Multiple Choice Question (ICAI Module)

1. The excess price received over the par value of shares, should be credited to __________.
(a) Calls-in-advance account
(b) Share capital account
(c) Securities premium account

2. The Securities Premium amount may be utilized by a company for __________.

(a) Writing off any loss on sale of fixed asset
(b) Writing off any loss of revenue nature
(c) Writing off the expenses/discount on the issue of debentures

3. When shares are forfeited, the share capital account is debited with ________ and the share
forfeiture account is credited with __________.
(a) Paid-up capital of shares forfeited; Called up capital of shares forfeited
(b) Called up capital of shares forfeited; Calls in arrear of shares forfeited
(c) Called up capital of shares forfeited; Amount received on shares forfeited

4. T Ltd. proposed to issue 6,000 equity shares of ₹ 100 each at a premium of 40%. The
minimum amount of application money to be collected per share as per CA, 2013:
(a) ₹ 5.00
(b) ₹ 6.00
(c) ₹ 7.00

5. Dividends are usually paid as a percentage of ______.

(a) Authorized share capital
(b) Net profit
(c) Paid-up capital

6. As per the SEBI guidelines, on issue of shares, the application money should not be less
than:
(a) 2.5% of the nominal value of shares
(b) 2.5% of the issue price of shares
(c) 25.0% of the issue price of share

7. G Ltd. acquired assets worth ₹ 7,50,000 from H Ltd. by issue of shares of ₹ 100 at a
premium of 25%. The number of shares to be issued by G Ltd. to settle the purchase
consideration are:
(a) 6,000 shares
(b) 7,500 shares
(c) 9,375 shares

8. Securities Premium is presented as a part of:

(a) Reserves & Surplus
(b) Share Capital
(c) Liabilities

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9. Schedule III of Companies Act 2013 prescribes the format for:

(a) Financial statements
(b) Directors’ Report
(c) Auditors' Report

10. Dividend on _____________ shares have to be paid before dividend on ___________shares.

(a) Equity, Preference
(b) Preference, Equity
(c) Convertible, Non-Cumulative

11. Preference shares are ______________ unless expressly stated otherwise.

(a) Non-participating
(b) Convertible
(c) Interest-bearing

(Answers: 1. (c) 2. (c) 3. (c) 4. (a) 5. (c) 6. (c) 7 (a) 8. (a) 9. (a) 10. (b) 11. (a))

CA Manish Mahajan