NCERT Solutions for Class 12 Accountancy Chapter 1, Accounting for share capital

NCERT Solutions Class 12 Accounting for Share Capital: This article brings to you complete NCERT Solutions for CBSE Class 12 Accountancy Part 2, Chapter 1, Accounting for share capital. Students can find easy, appropriate, and stepwise solutions for all NCERT Solutions of Accounting for share capital. A free PDF download link has been attached at the bottom of the article for students to get free access to complete NCERT Solutions.

The solutions prepared here have been designed according to the type of question and marks associated with it. Short-answer questions have been explained briefly and detailed lengthy answers have been provided for long answer questions. The length of numerical problems depends on the question.

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NCERT Solutions for Class 12 Accountancy 2023-2024

NCERT Solutions for Class 12 Accountancy Chapter Accounting for share capital are:

Short Answer Questions

1. What is a public company?

Answer. A company that is not private and is not a subsidiary of a private company is called a public company. In a public company, shares and debentures are shared among the general public via free trade.

2. What is a private company?

Answer. A company whose shares aren’t available for trade with the general public is called a private company. A private company has a limitation on the number of its members, excluding its employees. It runs on strict legal procedures and regulations.

3. When can shares be Forfeited?

Answer. Shares can be forfeited only if the allotment payment is not made by the shareholder, even after receiving the notice period.

4. What is meant by Calls in Arrears?

Answer. 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. It is also referred to as unpaid calls.

5. What do you mean by a listed company?

Answer. The companies whose shares are listed with a recognized stock exchange for free trade are called listed companies. Only public companies can be listed companies.

6. What are the uses of securities premiums?

Answer. The uses of securities premiums are listed down below:

• Writing off preliminary expenses of the company.
• Paying a premium on redemption of preference shares
• To buy back its own shares
• Issuing fully paid bonus shares to existing shareholders
• For writing off the expenses of any issue of shares or debentures of the company

7. What is meant by Calls in Advance?

Answer. The amounts received from shareholders in advance or without the issue of calls are called Calls in Advance. It acts as a liability for the company.

8. Write a brief note on “Minimum Subscription”.

Answer. The minimum amount required for a company for its preliminary functions, as per the Companies Act is called the minimum subscription. 90% of the issue of the size is the limit of the minimum subscription. Without this companies cannot proceed with the allotment of shares. This helps companies from commencing business with inadequate resources.

Long Answer Questions

1. What is meant by the word ‘Company’? Describe its characteristics.

Answer. A company is a legal body comprising authorized people for carrying out certain tasks. The capital of the company is contributed by multiple partners known as shareholders. But it is impossible for every shareholder to take part in the decision-making process and management of the business. Thus, a set of people known as the board of directors are responsible for carrying out the smooth functioning of the company.

Characteristics of a company are as follows:

• It has to function with the rules and regulations set by the governing body. A company is formed on the basis of provisions of law enforced with time.
• A company holds the opportunity of a separate legal entity. Through this, they can hold a property, enter into contracts and even open a bank account in the company’s name.
• A company possesses limited liability. The only amount of liability it has is from the unpaid amount of shares held by them.
• The company does not get affected by its members or memberships. It continues until and unless it is terminated lawfully.
• A company has to have a common seal that acts as its signature.
• The public company allows easy transfer of shares without any requirement of permission. But the manner of transfer of shares is accountable under the Articles of Association.
• A company can sue and be sued through lawful provisions.

2. Explain in brief the main categories in which the share capital of a company is divided.

Answer. Categories of the share capital of a company are as follows:

• Authorized Capital- The amount of share capital that a company is authorized to issue by a Memorandrum of Association is called authorized capital. It is also called Nominal or Registered capital. A company should not issue all of its authorized capital for public subscription at a time.
• Issued Capital- The part of authorized capital that is issued to the public for subscription is called issued capital. The authorized capital which is not offered for public subscription is known as unissued capital.
• Subscribed Capital- The subscribed part of the authorized capital is called subscribed capital. It is actually subscribed to by the public. When the shares offered for public subscription are subscribed fully by the public the issued capital and subscribed capital would be the same.
• Called-up capital- It is that part of the subscribed capital which has been called up on the shares, i.e., what the company has asked the shareholders to pay.
• 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 all the called amounts, the called-up capital is the same as the paid-up capital.
• Uncalled capital- The amount of subscribed capital that is not yet called up is called uncalled capital.
• Reserve Capital- The amount of uncalled capital that is reserved by a company at the time of unwinding of the company is called reserved capital.

3. What do you mean by the term ‘share’? Discuss the type of shares, which can be issued under the Companies Act, 2013 as amended to date.

Answer. Share refers to a part or unit of equity ownership for the capital stock of the company. Shares of a company are offered to the general public for sale. People interested in becoming joint owners or shareholders of the company buy these shares at the cost of fulfilling capital stock for a company.

As per the Companies Act, 2013, companies can issue the following types of shares to the public:

• Preference Share- The type of share where the holder has a fixed dividend is called a preference share. In this type of share, on the winding up of the business, the preferential right to the repayment of capital before anything is paid to equity shareholders. As per the Memorandrum or Articles of the company, the shareholder has the right to participate fully or to a limited extent in the surpluses of the company.
• Equity Share- The type of share that does not enjoy any preferential right in the dividend of payment or repayment of capital is called an equity share. Any share that is not a preference share would be an equity share. They are also termed ordinary shares. The dividend on equity shares varies from year to year. Such shareholders should share the distributable profits of the company after satisfying the dividend rights.

4. Discuss the process for the allotment of shares of a company in case of over-subscription.

Answer. Over-subscription can occur under the following three circumstances. The process of allotment of shares of a company in case of these circumstances of oversubscription is:

• When some applications are fully accepted and others are totally rejected. The journal entries according to this allotment are as follows:

(i) Bank A/C                            Dr.

To Share Application A/c

(Money received on the application for 25,000

shares @ Rs. _ per share)

 (ii) Share Application A/c          Dr.

To Share Capital A/c

To Bank A/c

(Transfer of application for money 20,000 for

shares allotted and money refunded on

applications for 5,000 shares rejected)

(iii) Share Allotment A/c            Dr.

To Share Capital A/c

(Amount due on the allotment of 20,000

shares @ Rs. _ per share)

(iv) Bank A/c                        Dr.

To Share Allotment A/c

(Allotment money received)

• When proportionate allotment is made to all applicants. The journal entries in this case will be as follows:

(i) Bank A/c             Dr.

To Share Application A/c

(Application money received on 25,000

shares @ Rs. _ per Share)

(ii) Share Application A/c       Dr.

To Share Capital A/c

To Share Allotment A/c

(Transfer of application money to share

capital and the excess application money

on 5,000 shares credited to share

allotment account)

(iii) Share Allotment A/c         Dr.

To Share Capital A/c

(Amount due on allotment of

(iv)25,000 share @ Rs. _ per share)

 Bank A/c                    Dr.

To Share Allotment A/c

(Allotment money received after

adjusting the amount already received

as excess application money) 

• When applications for shares are rejected and remaining applicants get the pro-rata allotment

(i) Bank A/c                         Dr.

To Share Application A/c

(Money received on application for

15,000 shares @ Rs. _ per share)

(ii) Share Application A/c                      Dr.

To Share Capital A/c

To Share Allotment A/c

To Bank A/c

(Transfer of application money to

share capital, and the excess application

amount of pro-rata allottees credited to

Share allotment and the amount rejected

applications refunded)

(iii) Share Allotment A/c                      Dr.

To Share Capital A/c

(Amount due on the Allotment of

10,000 shares @ Rs. _ per share)

(iv) Bank A/c                                   Dr.

To Share Allotment A/c

(Allotment money received after

adjusting the amount already

received as excess application money)

5. What is a ‘Preference Share’? Describe the different types of preference shares.

Answer. The type of share where the holder has a fixed dividend is called a preference share. In this type of share, on the winding up of the business, the preferential right to the repayment of capital before anything is paid to equity shareholders. As per the Memorandrum or Articles of the company, the shareholder has the right to participate fully or to a limited extent in the surpluses of the company.

Different types of preference shares are:

• Cumulative- In this type of share, shareholders receive a cumulative dividend amount even if the company is not under profit.
• Non-cumulative- These shares are of the type where cumulative can be canceled if the company does not gain profit.
• Redeemable- The shares that can be redeemed by the owner is called redeemable preference share.
• Non-redeemable- The shares that cannot be redeemed in the lifetime of a company are called non-redeemable shares.

6. Describe the provisions of law relating to ‘Calls in Arrears’ and ‘Calls in Advance’.

Answer. Calls in Arrears or unpaid calls refer to those calls where the shareholders fail to pay the due amount. The provision of law relating to ‘Calls in Arrears’ are:

• The debit balance and unpaid balance will be noted down as ‘Note to Accounts’.
• If the Calls in Arrears account is maintained by a company, then the following journal entry has to be passed.

Calls in Arrears A/c                       Dr.

To Share First Call Account A/c

To Share Second and Final Call Account A/c

(Calls in arrears brought into account)

• A stipulated interest rate is charged upon the unpaid calls. This interest rate must not be greater than 10% interest rate p.a.
• After the interest is collected, it will go to the interest account and the original sum will go to the respective account.

Calls in advance refer to the amount paid by shareholders before a call has been declared. It acts as a liability to the company.The provisions of law in this regard are:

• The amount should be credited to the Calls in Advance account.
• This amount is accompanied by an interest rate of not more than 12% p. a.
• The amount is shown as separate under the title Equity and Liabilities.

7. Explain the terms ‘Over subscription’ and ‘Under subscription’. How are they dealt with in accounting records?

Answer. When the number of applications for subscription of shares exceeds the number of shares allotted for subscription, it is called an Over Subscription. This generally happens with string financing and reputed companies. The accounts are written under the following three circumstances in the below-mentioned methods:

• When some applications are fully accepted and others are totally rejected. The journal entries according to this allotment are as follows:

(i) Bank A/c                    Dr.

To Share Application A/c

(Money received on the application for 25,000

shares @ Rs. _ per share)

(ii) Share Application A/c          Dr.

To Share Capital A/c

To Bank A/c

(Transfer of application for money 20,000 for

shares allotted and money refunded on

applications for 5,000 shares rejected)

(iii) Share Allotment A/c            Dr.

To Share Capital A/c

(Amount due on the allotment of 20,000

(iv) shares @ Rs. _ per share)

Bank A/c                        Dr.

To Share Allotment A/c

(Allotment money received)

• When proportionate allotment is made to all applicants.The journal entries in this case will be as follows:

(i) Bank A/c                   Dr.

To Share Application A/c

(Application money received on 25,000

shares @ Rs. _ per Share)

(ii) Share Application A/c       Dr.

To Share Capital A/c

To Share Allotment A/c

(Transfer of application money to share

capital and the excess application money

on 5,000 shares credited to share

allotment account)

(iii) Share Allotment A/c         Dr.

To Share Capital A/c

(Amount due on allotment of

25,000 share @ Rs. _ per share)

(iv) Bank A/c                    Dr.

To Share Allotment A/c

(Allotment money received after

adjusting the amount already received

as excess application money) 

• When application for shares are rejected and remaining applicants get the pro-rata allotment

(i) Bank A/c                         Dr.

To Share Application A/c

(Money received on application for

15,000 shares @ Rs. _ per share)

(ii) Share Application A/c                      Dr.

To Share Capital A/c

To Share Allotment A/c

To Bank A/c

(Transfer of application money to

share capital, and the excess application

amount of pro-rata allottees credited to

share allotment and the amount on rejected

applications refunded)

(iii) Share Allotment A/c                      Dr.

To Share Capital A/c

(Amount due on the Allotment of

10,000 shares @ Rs. _ per share)

(iv) Bank A/c                                   Dr.

To Share Allotment A/c

(Allotment money received after

adjusting the amount already

received as excess application money)

When the number of shares offered for subscription is more in numbers than the application received, it is called under subscription.

8. Describe the purposes for which a company can use the amount of Securities Premium.

Answer. The purposes for which a company can use the amount of Securities premium are as follows:

• to issue fully paid bonus shares to the extent not exceeding the unissued share capital of the company
• to write off preliminary expenses of the company
• to write off the expenses of, or commission paid, or discount allowed on any securities of the company and
• to pay a premium on the redemption of preference shares or debentures of the company.
• Purchase of its own shares (i.e., buyback of shares)

9. State clearly the conditions under which a company can issue shares at a discount.

Answer. A company can issue shares at a discount only under the following circumstances:

• reissue of forfeited shares- the amount of discount allowed cannot exceed the amount that had been received on forfeited shares at the time of initial issue, and the discount allowed on the reissue of forfeited shares should be debited to the ‘Forfeited Share Account
• issue of sweat equity shares

 10. Explain the term ‘Forfeiture of Shares’ and give the accounting treatment on forfeiture.

Answer. When shareholders fail to pay one or more installments, the company can forfeit their shares. Accounting treatment on forfeiture is as follows:

Forfeiture of Shares issued at Par:

Share Capital A/c..........(Called up amount)                Dr.

To Share Forfeiture A/c...........(Paid up amount)

To Share Allotment A/c

To Share Calls A/c (individually)

(..... shares forfeited for non-payment

of allotment money and calls made)

Numerical Questions

1. Anish Limited issued 30,000 equity shares of Rs.100 each payable at Rs.30 on application, Rs.50 on allotment and Rs.20 on Ist and final call. All money was duly received. Record these transactions in the journal of the company.

Solution:

2. The Adarsh Control Device Ltd. was registered with the authorised capital of Rs.3,00,000 divided into 30,000 shares of Rs.10 each, which were offered to the public. Amount payable as Rs.3 per share on application, Rs.4 per share on the allotment and Rs.3 per share on first and final call. These shares were fully subscribed and all money was duly received. Prepare journal and Cash Book.

Solution:

Cash Book

3. Software Solution India Ltd. invited applications for 20,000 equity shares of Rs.100 each, payable Rs.40 on application, Rs.30 on allotment and Rs.30 on first and final call. The company received applications for 32,000 shares. Application for 2,000 shares were rejected and money returned to applicants. Applications for 10,000 shares were accepted in full and applicants for 20,000 shares allotted half of the number of shares applied and excess application money adjusted into allotment. All money due on allotment and call was received. Prepare journal and cash book.

Solution:

Cash Book

Working Note:

Amount due on Allotment for 20,000 shares @ 30 per share= 6,00,000

Money adjusted on application 10,000 shares @ Rs 40 each = 4,00,000

Money to be received on allotment= 2,00,000

4. Rupak Ltd. issued 10,000 shares of Rs.100 each payable Rs.20 per share on application, Rs.30 per share on allotment and balance in two calls of Rs.25 per share. The application and allotment money were duly received. On first call, all members paid their dues except one member holding 200 shares, while another member holding 500 shares paid for the balance due in full. Final call was not made. Give journal entries and prepare cash book.

Solution:

Cash Book

Working Note:

Money due on first call for 10,000 shares @25 each= 2,50,000

Less: Calls in arrears for 200 shares @ 25 per share= (5,000)

Money received on first call= 2,45,000

Add: Calls received in advance on 500 shares @ 25 per share= 12,500

                                                           = 2,57,500

5. Mohit Glass Ltd. issued 20,000 shares of Rs.100 each at Rs.110 per share, payable Rs.30 on application, Rs.40 on allotment (including Premium), Rs.20 on first call and Rs.20 on final call. The applications were received for 24,000 shares and allotted 20,000 shares and rejected 4,000 shares and amount returned thereon. The money was duly received. Give journal entries.

Solution:

6. A limited company offered for subscription of 1,00,000 equity shares of Rs.10 each at a premium of Rs.2 per share, and 2,00,000 10% Preference shares of Rs.10 each at par. The amount on share was payable as under : Equity Shares Preference Shares On Application Rs.3 per share Rs.3 per share On Allotment Rs.5 per share Rs.4 per share (including premium) On First Call Rs.4 per share Rs.3 per share All the shares were fully subscribed, called-up and paid. Record these transactions in the journal and cash book of the company:

Solution:

Cash Book

7. Eastern Company Limited, with an authorised capital of Rs.10,00,000 is divided into equity shares of Rs.10 each, issued 50,000 equity shares at a premium of Rs.3 per share payable as follows: On Application Rs.3 per share On Allotment (including premium) Rs.5 per share On first call (due three months after allotment) Rs.3 per share and the balance as and when required. Applications were received for 60,000 shares and the directors allotted the shares as follows :

• Applicants for 40,000 shares received in full.
• Applicants for 15,000 shares received an allotment of 8,000 shares.
• Applicants for 5000 shares received on allotment of 2000 shares, excess money being returned. All amounts due on allotment were received. The first call was duly made and the money was received with the exception of the call due on 100 shares.

Give journal and cash book entries to record these transactions of the company. Also prepare the Balance Sheet of the company.

Solution:

Cash Book

Working Notes:

• The amount transferred to share capital on application:

Category A= 40,000 x 3= Rs 1,20,000

Category B= 8,000 x 3= Rs 24,000

Category C= 2,000 x 3= Rs 6,000

                     = Rs 1,50,000

• Amount transferred to share allotment on application:

Category B excess shares= 7,000 x 3= 21,000

Category C excess shares= 3000 x 3= 9,000

                                  = 30,000

• Amount received on the allotment:

8. Sumit Machine Ltd. issued 50,000 shares of Rs.100 each at premium of 5%. The shares were payable Rs.25 on application, Rs. 50 on allotment and Rs.30 on first and final call. The issue was fully subscribed and money was duly received except the final call on 400 shares. The premium was adjusted on allotment. Give journal entries and prepare the balance sheet.

Solution: 

9. Kumar Ltd. purchased assets of Rs.6,30,000 from Bhanu Oil Ltd. Kumar Ltd. issued equity share of Rs.100 each fully paid in consideration. What journal entries will be made, if the shares are issued, (a) at par, and (b) at premium of 20%. (Answer: Numbers of shares issued (a) 6,300 (b) 5,250)

Solution:

 No of shares issued at par= Amount payable/ face value

               6300 shares = 6,30,000 / 100

 No of shares issued at premium= Amt payable/( face value+ premium per share)

                               = 5250/(100+2)

10. Bansal Heavy Machine Ltd. purchased machine worth Rs.3,80,000 from Handa Trader. Payment was made as Rs.50,000 cash and remaining amount by issue of equity shares of the face value of Rs. 100 each fully paid at an issue price of Rs.110 each. Give journal entries to record the above transaction. (Answer: Numbers of shares issued = 3,000 shares)

Solution:

Number of shares issued= Amount payable/ issue price

                       = 2,70,000/90

                       = 3000 shares

11. Naman Ltd. issued 20,000 shares of Rs.100 each, payable Rs.25 on application, Rs.30 on allotment, Rs.25 on first call and the balance on final call. All money duly received except Anubha, who holding 200 shares did not pay allotment and calls money and Kumkum, who holding 100 shares did not pay both the calls. The directors forfeited the shares of Anubha and Kumkum. Give journal entries.

Solution: 

The exercise is not completed here. Complete NCERT Solutions for the chapter mentioned above will be updated very soon. By that time, students can practise Questions and Answers along with important Numerical Problems. The rest of the Numerical problems will be available soon.

To find the complete NCERT Solutions for Class 12 Accounting for Share Capital, click on the link below.

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CBSE Class 12 Syllabus 2023-24 (All Subjects)

CBSE Class 12 Sample Papers 2023-24 (All Subjects)

NCERT Books for Class 12 (All Subjects)

NCERT Solutions for Class 12 (All Subjects)