NCERT Solutions for Class 12 Accountancy Chapter 5: Accounting for Share Capital (NCERT 2026–27)

These Class 12 Accountancy Chapter 5 solutions cover Accounting for Share Capital from Company Accounts and Analysis of Financial Statements. The chapter explains the features and kinds of a company, the categories of share capital, and the complete accounting treatment for the issue of shares (at par and at premium, for cash and for consideration other than cash), over-subscription and pro-rata allotment, calls in arrears and calls in advance, and the forfeiture and reissue of shares. Below you get fully worked, verified journal entries for every one of the 24 NCERT numerical questions, complete answers to all 8 short and 10 long theory questions, plus extra practice, MCQs, Assertion–Reason and FAQs.

Class: 12 Subject: Accountancy Book: Company Accounts & Analysis of Financial Statements Chapter: 5 Topic: Accounting for Share Capital Session: 2026–27
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Class 12 Accountancy Chapter 5 – Overview

A company raises its long-term funds mainly through share capital. Because shareholders are too numerous for individual capital accounts, all contributions merge into one Share Capital Account. The amount on a share is usually collected in instalments — application, allotment and one or more calls. The chapter explains the categories of capital (authorised, issued, subscribed, called-up, paid-up, uncalled and reserve), the two classes of shares (preference and equity), and the journal entries at each stage. It then covers special situations: calls in arrears (unpaid amounts) and calls in advance (amounts paid before they are called), over-subscription handled by rejection, pro-rata allotment or a combination, issue at a premium (credited to Securities Premium Reserve) and issue for consideration other than cash. Finally it deals with forfeiture of shares for non-payment of calls and their reissue, where any surplus left in the Share Forfeiture Account is transferred to Capital Reserve. Mastering the order of entries and the treatment of premium on forfeiture is the key to scoring full marks.

Key Terms, Concepts & Formats

Share capital: the capital of a company raised by issuing shares; recorded in a common Share Capital Account.

Authorised (nominal) capital: the maximum capital a company is authorised to issue by its Memorandum of Association.

Issued capital: the part of authorised capital actually offered to the public for subscription.

Subscribed capital: the part of issued capital actually subscribed (applied for) by the public.

Called-up capital: the part of subscribed capital the company has asked shareholders to pay. Paid-up capital: the amount actually received = Called-up capital − Calls in Arrears.

Reserve capital: a part of uncalled capital that can be called only at the time of winding up.

Calls in Arrears: amount called but not paid by a shareholder (interest up to 10% p.a. under Table F). Calls in Advance: amount paid before being called (interest up to 12% p.a. under Table F); it is a current liability, not added to paid-up capital.

Securities Premium Reserve: excess of issue price over face value; usable only for issuing bonus shares, writing off preliminary expenses, writing off share/debenture issue expenses or commission/discount, paying premium on redemption of preference shares/debentures, and buy-back of shares.

Forfeiture of shares: cancellation of shares for non-payment of calls; the amount already received is credited to Share Forfeiture Account.

Reissue of forfeited shares: forfeited shares may be reissued at par, premium or discount; discount on reissue cannot exceed the amount forfeited on those shares and is debited to Share Forfeiture Account. The balance on reissued shares is transferred to Capital Reserve.

Number of shares to be issued (consideration other than cash) = Amount Payable ÷ Issue Price.

Capital Reserve (on reissue) = Amount forfeited on reissued shares − Discount (loss) allowed on their reissue.

Forfeiture amount (issued at par) = Amount actually received on the forfeited shares (application + allotment + calls paid).

When premium is unpaid on forfeiture: debit Securities Premium Reserve A/c with the unpaid premium along with Share Capital A/c.

Note: NCERT now uses the title Securities Premium Reserve A/c; some questions use the older Securities Premium — the treatment is identical.

Short Answer Questions — Solutions

1. What is public company?

ANSWERA public company is a company which is not a private company and which is not a subsidiary of a private company. Its shares are freely transferable, it can invite the public to subscribe to its shares and debentures through a prospectus, and there is no upper limit on the number of members.

2. What is a private company.

ANSWERA private company is one which, by its Articles of Association, (i) restricts the right to transfer its shares, (ii) must have at least 2 persons (except a One Person Company), and (iii) limits the number of its members to 200 (excluding present and past employees who are members). It cannot invite the general public to subscribe to its shares.

3. When can shares be Forfeited?

ANSWERShares can be forfeited when a shareholder fails to pay one or more instalments due on the shares — that is, the allotment money and/or any call money — within the time fixed. Acting under the authority of the Articles (usually based on Table F), the directors cancel such shares after giving proper notice, and the amount already received on them is forfeited to the company.

4. What is meant by Calls in Arrears?

ANSWERWhen a shareholder fails to pay the amount due on allotment or on any call by the due date, the unpaid amount is known as ‘Calls in Arrears’ or ‘Unpaid Calls’. It represents the debit balance of the calls accounts and is deducted from the called-up capital to arrive at paid-up capital. The company may charge interest on it at a rate not exceeding 10% p.a. under Table F.

5. What do you mean by a listed company?

ANSWERA listed company is a public company whose securities (shares, debentures, etc.) are listed and traded on a recognised stock exchange after fulfilling SEBI’s listing requirements. Listing allows the public to buy and sell its securities freely and subjects the company to continuous disclosure norms.

6. What are the uses of securities premium?

ANSWERUnder Section 52 of the Companies Act, 2013, the Securities Premium Reserve can be used only for: (a) issuing fully paid bonus shares; (b) writing off preliminary expenses of the company; (c) writing off the expenses of, or commission paid, or discount allowed on, any securities of the company; (d) providing for the premium payable on redemption of preference shares or debentures; and (e) the buy-back of its own shares.

7. What is meant by Calls in Advance?

ANSWERCalls in Advance is the amount received from a shareholder in respect of calls not yet made by the company. It is a liability of the company, credited to a ‘Calls in Advance Account’ and shown under current liabilities; it is not added to paid-up capital. The amount is adjusted when the relevant call falls due, and interest up to 12% p.a. may be payable under Table F.

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

ANSWERMinimum subscription is the minimum amount which, in the opinion of the directors, must be raised from the issue of shares to meet the basic needs of the business (cost of property, preliminary and issue expenses, repayment of borrowings for these, and working capital). As per SEBI guidelines, it cannot be less than 90% of the issued amount. If this minimum is not received, the company cannot proceed to allotment and must refund the entire application money within the prescribed period.

Long Answer Questions — Solutions

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

ANSWERA company is an association of persons who contribute money or money’s worth to a common stock and use it for a common purpose; legally, it is an artificial person created by law, registered under the Companies Act, 2013, having a corporate legal entity distinct from its members and a common seal. Main characteristics: (i) Body corporate — formed and registered under the law; (ii) Separate legal entity — distinct from its members, it can own property, contract and open a bank account in its own name; (iii) Limited liability — members’ liability is limited to the unpaid amount on their shares (or the guarantee given); (iv) Perpetual succession — its existence is unaffected by death, insolvency or change of members; (v) Common seal — its official signature; (vi) Transferability of shares — shares of a public company are freely transferable; (vii) May sue or be sued in its own name.

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

ANSWERFrom the accounting point of view, share capital is divided as follows: Authorised (Nominal/Registered) Capital — the maximum capital a company may issue as stated in its Memorandum; Issued Capital — the part of authorised capital actually offered to the public (the rest is ‘unissued capital’); Subscribed Capital — the part of issued capital actually taken up by the public; Called-up Capital — the part of subscribed capital the company has demanded from shareholders; Paid-up Capital — the called-up amount actually received (called-up capital − calls in arrears); Uncalled Capital — the part of subscribed capital not yet called; and Reserve Capital — the part of uncalled capital reserved to be called only on winding up.

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.

ANSWERA share is a fractional part of the share capital of a company and forms the basis of ownership interest in it; persons holding shares are called shareholders. Under Section 43 of the Companies Act, 2013, a company can issue two types of shares: (i) Preference Shares — shares that carry a preferential right to a fixed dividend before equity shareholders and a preferential right to repayment of capital on winding up. They may be cumulative or non-cumulative, participating or non-participating, redeemable or irredeemable, and convertible or non-convertible. (ii) Equity (Ordinary) Shares — shares which are not preference shares; they get dividend only after the preference dividend, at a rate that varies with profits, and may carry voting rights or differential rights as to voting/dividend.

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

ANSWEROver-subscription means applications are received for more shares than were offered. Since a company cannot allot more than the issued number, the directors deal with it in one of three ways: (1) Accept some in full, reject others: selected applications are allotted fully and the rest are rejected with their application money refunded in full. (2) Pro-rata allotment: shares are allotted proportionately to all applicants; the excess application money is adjusted towards the amount due on allotment (and any further excess towards calls in advance or refunded). (3) Combination: some applications are rejected outright, and pro-rata allotment is made to the remaining applicants — the most common method. Here money on rejected applications is refunded and the excess on pro-rata allottees is adjusted against allotment.

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

ANSWERA preference share is one that carries two preferential rights: a right to a fixed dividend before any dividend is paid to equity shareholders, and a right to the repayment of capital before equity shareholders on winding up. Types: (i) Cumulative (unpaid dividends accumulate and are paid later) vs Non-cumulative (unpaid dividends lapse); (ii) Participating (share in surplus profits beyond fixed dividend) vs Non-participating; (iii) Redeemable (repaid after a period) vs Irredeemable; (iv) Convertible (can be converted into equity shares) vs Non-convertible.

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

ANSWERCalls in Arrears: the unpaid amount on allotment/calls. Maintaining a separate Calls-in-Arrears Account is optional. The Articles may empower directors to charge interest on it; if silent, Table F applies, allowing interest at a rate not exceeding 10% p.a. from the due date to the date of actual payment. Calls in Advance: the amount received before a call is made. It is a liability credited to Calls in Advance Account and shown under current liabilities, not added to paid-up capital. It is adjusted when the call falls due. If the Articles provide (or under Table F when silent), the company must pay interest at a rate not exceeding 12% p.a. on it.

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

ANSWEROver-subscription is when applications are received for more shares than offered. It is resolved at the allotment stage by rejecting excess applications (refunding money), making a pro-rata allotment (adjusting excess money against allotment/calls in advance), or a combination of the two. The fact of over-subscription is not reflected in the books beyond these adjustments. Under-subscription is when applications received are fewer than the shares offered. Provided the minimum subscription (at least 90% of the issued amount) is received, allotment is confirmed only for the number of shares applied for, and entries are made accordingly; otherwise the entire application money must be refunded.

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

ANSWERUnder Section 52 of the Companies Act, 2013, the Securities Premium Reserve can be applied only for: (a) issuing fully paid bonus shares to members; (b) writing off the preliminary expenses of the company; (c) writing off the expenses of, or commission paid, or discount allowed on, the issue of shares or debentures; (d) providing for the premium on redemption of redeemable preference shares or debentures; and (e) the buy-back of its own shares under Section 68. It cannot be used to pay dividends.

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

ANSWERAs a general rule, a company cannot ordinarily issue shares at a discount (an amount below face value). Under the Companies Act, 2013, the only permitted situations are: (i) the reissue of forfeited shares at a discount, provided the discount allowed does not exceed the amount already forfeited on those shares; and (ii) the issue of sweat equity shares to directors or employees for their know-how or value addition, subject to the conditions and SEBI regulations prescribed for sweat equity. A fresh public issue of ordinary shares at a discount is not allowed.

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

ANSWERForfeiture of shares means cancelling the allotment of shares for non-payment of the allotment money and/or calls, and treating the amount already received on them as forfeited to the company, under the authority of the Articles. Accounting treatment: on forfeiture all entries relating to the forfeited shares (except premium already received) are reversed. Share Capital A/c is debited with the called-up amount on those shares; Share Forfeiture A/c is credited with the amount already received; and the unpaid allotment/calls (or Calls in Arrears A/c) are credited. If premium on the forfeited shares had not been received, the Securities Premium Reserve A/c is also debited with the unpaid premium. The balance of the Share Forfeiture Account is shown as an addition to share capital until the shares are reissued.

Numerical Questions — Full Journal Entries

All questions below are reproduced verbatim from the NCERT textbook. Entries are original, expert-verified; working notes are given wherever amounts are not obvious. Amounts are in ₹ (Rs.).

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.

ANSWER — Journal of Anish Limited
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Bank A/c  Dr.
To Equity Share Application A/c
(Application money on 30,000 shares @ Rs.30)		9,00,0009,00,000
Equity Share Application A/c  Dr.
To Equity Share Capital A/c
(Application money transferred to capital)		9,00,0009,00,000
Equity Share Allotment A/c  Dr.
To Equity Share Capital A/c
(Allotment due on 30,000 shares @ Rs.50)		15,00,00015,00,000
Bank A/c  Dr.
To Equity Share Allotment A/c		15,00,00015,00,000
Equity Share First & Final Call A/c  Dr.
To Equity Share Capital A/c
(Call due on 30,000 shares @ Rs.20)		6,00,0006,00,000
Bank A/c  Dr.
To Equity Share First & Final Call A/c		6,00,0006,00,000

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 allotment and Rs.3 per share on first and final call. These shares were fully subscribed and all money was dully received. Prepare journal and Cash Book.

ANSWER — Journal (only transfer entries; cash recorded in Cash Book)
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Share Application A/c  Dr.
To Share Capital A/c
(Application on 30,000 @ Rs.3 transferred)		90,00090,000
Share Allotment A/c  Dr.
To Share Capital A/c
(Allotment due on 30,000 @ Rs.4)		1,20,0001,20,000
Share First & Final Call A/c  Dr.
To Share Capital A/c
(Call due on 30,000 @ Rs.3)		90,00090,000
Cash Book (Bank Column) — Receipts: Share Application 90,000; Share Allotment 1,20,000; Share First & Final Call 90,000. Total Rs.3,00,000 (balance c/d Rs.3,00,000).

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.

ANSWER Working: 10,000 allotted in full + 10,000 allotted (pro-rata 1:2 to applicants for 20,000) = 20,000 allotted. Application money on 20,000 pro-rata applicants = 20,000 × Rs.40 = Rs.8,00,000; required on 10,000 allotted = Rs.4,00,000; excess Rs.4,00,000 adjusted to allotment. Allotment due = 20,000 × Rs.30 = Rs.6,00,000; less excess Rs.4,00,000 = Rs.2,00,000 received.
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Share Application A/c  Dr.
To Share Capital A/c (20,000 × 40)
To Share Allotment A/c (excess)
To Bank A/c (2,000 × 40 refund)
(Application on 32,000 shares adjusted)		12,80,0008,00,000
4,00,000
80,000
Share Allotment A/c  Dr.
To Share Capital A/c
(Allotment due on 20,000 @ Rs.30)		6,00,0006,00,000
Share First & Final Call A/c  Dr.
To Share Capital A/c
(Call due on 20,000 @ Rs.30)		6,00,0006,00,000
Cash Book (Bank): Receipts — Application Rs.12,80,000; Allotment Rs.2,00,000; First & Final Call Rs.6,00,000. Payments — Application refund Rs.80,000; Balance c/d Rs.20,00,000. Totals Rs.20,80,000.

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.

ANSWER Working: First call due = 10,000 × Rs.25 = Rs.2,50,000. Calls in arrears (200 × 25) = Rs.5,000. Calls in advance = final call paid by 500 shares (500 × Rs.25) = Rs.12,500. First call received = 2,50,000 − 5,000 = Rs.2,45,000; plus advance Rs.12,500.
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Share Application A/c  Dr.
To Share Capital A/c
(10,000 @ Rs.20 transferred)		2,00,0002,00,000
Share Allotment A/c  Dr.
To Share Capital A/c
(10,000 @ Rs.30 due)		3,00,0003,00,000
Share First Call A/c  Dr.
To Share Capital A/c
(10,000 @ Rs.25 due)		2,50,0002,50,000
Calls in Arrears A/c  Dr.
To Share First Call A/c
(200 shares @ Rs.25 unpaid)		5,0005,000
Cash Book (Bank): Receipts — Application Rs.2,00,000; Allotment Rs.3,00,000; First Call Rs.2,45,000; Calls in Advance Rs.12,500. Balance c/d Rs.7,57,500. Totals Rs.7,57,500.

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.

ANSWER — premium Rs.10 collected on allotment
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Bank A/c  Dr.
To Share Application A/c
(24,000 @ Rs.30)		7,20,0007,20,000
Share Application A/c  Dr.
To Share Capital A/c (20,000 × 30)
To Bank A/c (4,000 × 30 refund)		7,20,0006,00,000
1,20,000
Share Allotment A/c  Dr.
To Share Capital A/c (20,000 × 30)
To Securities Premium Reserve A/c (20,000 × 10)
(Allotment Rs.40 incl. premium Rs.10)		8,00,0006,00,000
2,00,000
Bank A/c  Dr.   To Share Allotment A/c8,00,0008,00,000
Share First Call A/c  Dr.   To Share Capital A/c (20,000 × 20)4,00,0004,00,000
Bank A/c  Dr.   To Share First Call A/c4,00,0004,00,000
Share Final Call A/c  Dr.   To Share Capital A/c (20,000 × 20)4,00,0004,00,000
Bank A/c  Dr.   To Share Final Call A/c4,00,0004,00,000

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, 2,00,000 10% Preference shares of Rs.10 each at par. The amount on share was payable as under: Equity — Application Rs.3, Allotment Rs.5 (including premium), First Call Rs.4; Preference — Application Rs.3, Allotment Rs.4, First Call Rs.3. All the shares were fully subscribed, called-up and paid. Record these transactions in the journal and cash book of the company.

ANSWER — Journal (transfer entries)
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Equity Share Application A/c  Dr.
10% Preference Share Application A/c  Dr.
To Equity Share Capital A/c
To 10% Preference Share Capital A/c
(Eq. 1,00,000×3; Pref. 2,00,000×3)		3,00,000
6,00,000		3,00,000
6,00,000
Equity Share Allotment A/c  Dr.
10% Preference Share Allotment A/c  Dr.
To Equity Share Capital A/c (1,00,000×3)
To Securities Premium Reserve A/c (1,00,000×2)
To 10% Preference Share Capital A/c (2,00,000×4)		5,00,000
8,00,000		3,00,000
2,00,000
8,00,000
Equity Share First Call A/c  Dr.
10% Preference Share First Call A/c  Dr.
To Equity Share Capital A/c (1,00,000×4)
To 10% Preference Share Capital A/c (2,00,000×3)		4,00,000
6,00,000		4,00,000
6,00,000
Cash Book (Bank) receipts: Equity App 3,00,000 + Pref App 6,00,000 + Equity Allot 5,00,000 + Pref Allot 8,00,000 + Equity Call 4,00,000 + Pref Call 6,00,000 = Rs.32,00,000.

7. Eastern Company Limited, with an authorised capital of Rs.10,00,000 divided into equity shares of Rs.10 each, issued 50,000 equity shares at a premium of Rs.3 per share payable as: Application Rs.3, Allotment (including premium) Rs.5, First call (three months after allotment) Rs.3, and the balance as and when required. Applications were received for 60,000 shares and the directors allotted: (a) Applicants for 40,000 shares received in full; (b) Applicants for 15,000 shares received an allotment of 8,000 shares; (c) Applicants for 5,000 shares received an allotment of 2,000 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. Also prepare the Balance Sheet of the company.

ANSWER Working (excess application money): 40,000 full + 8,000 (of 15,000) + 2,000 (of 5,000) = 50,000 allotted. Excess money: group (b) 7,000×3 = Rs.21,000 (adjusted to allotment); group (c) 3,000×3 = Rs.9,000 (refunded). Allotment due = 50,000×5 = Rs.2,50,000; less Rs.21,000 adjusted = Rs.2,29,000 received. First call due = 50,000×3 = Rs.1,50,000; arrears (100×3) = Rs.300; received Rs.1,49,700.
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Share Application A/c  Dr.
To Share Capital A/c (50,000×3)
To Share Allotment A/c (excess)
To Bank A/c (3,000×3 refund)		1,80,0001,50,000
21,000
9,000
Share Allotment A/c  Dr.
To Share Capital A/c (50,000×2)
To Securities Premium Reserve A/c (50,000×3)		2,50,0001,00,000
1,50,000
Share First Call A/c  Dr.
To Share Capital A/c
(50,000 @ Rs.3 due)		1,50,0001,50,000
Calls in Arrears A/c  Dr.
To Share First Call A/c
(100 shares @ Rs.3 unpaid)		300300
Cash Book (Bank) receipts: Application (60,000×3) Rs.1,80,000; Allotment Rs.2,29,000; First Call Rs.1,49,700. Payment: refund Rs.9,000. Balance Rs.5,49,700. Balance Sheet (extract): Shareholders’ Funds — Share Capital: Subscribed & called-up 50,000 shares of Rs.10 each, Rs.8 called = Rs.4,00,000 less Calls in Arrears Rs.300 = Rs.3,99,700; Reserves & Surplus (Securities Premium) Rs.1,50,000. Total Rs.5,49,700, equalling Cash at Bank Rs.5,49,700.

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.

ANSWER — premium Rs.5 (5% of Rs.100) on allotment
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Bank A/c  Dr.   To Share Application A/c (50,000×25)12,50,00012,50,000
Share Application A/c  Dr.   To Share Capital A/c12,50,00012,50,000
Share Allotment A/c  Dr.
To Share Capital A/c (50,000×45)
To Securities Premium Reserve A/c (50,000×5)
(Allotment Rs.50 incl. premium Rs.5)		25,00,00022,50,000
2,50,000
Bank A/c  Dr.   To Share Allotment A/c25,00,00025,00,000
Share First & Final Call A/c  Dr.   To Share Capital A/c (50,000×30)15,00,00015,00,000
Bank A/c  Dr.
Calls in Arrears A/c  Dr. (400×30)
To Share First & Final Call A/c		14,88,000
12,000		15,00,000
Balance Sheet (extract): Share Capital — 50,000 shares of Rs.100 each fully called Rs.50,00,000 less Calls in Arrears Rs.12,000 = Rs.49,88,000; Securities Premium Reserve Rs.2,50,000. Total Rs.52,38,000 = Cash at Bank Rs.52,38,000.

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)

ANSWER Working: (a) 6,30,000 ÷ 100 = 6,300 shares; (b) 6,30,000 ÷ 120 = 5,250 shares.
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Assets A/c  Dr.   To Bhanu Oil Ltd. (Assets purchased)6,30,0006,30,000
(a) At par: Bhanu Oil Ltd.  Dr.
To Equity Share Capital A/c
(6,300 shares at par)		6,30,0006,30,000
(b) At 20% premium: Bhanu Oil Ltd.  Dr.
To Equity Share Capital A/c (5,250×100)
To Securities Premium Reserve A/c (5,250×20)		6,30,0005,25,000
1,05,000

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)

ANSWER Working: Balance by shares = 3,80,000 − 50,000 = Rs.3,30,000; shares = 3,30,000 ÷ 110 = 3,000 shares.
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Machine A/c  Dr.
To Bank A/c
To Handa Trader
(Machine bought; Rs.50,000 cash, balance by shares)		3,80,00050,000
3,30,000
Handa Trader  Dr.
To Equity Share Capital A/c (3,000×100)
To Securities Premium Reserve A/c (3,000×10)		3,30,0003,00,000
30,000

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.

ANSWER Working: Final call = 100 − 25 − 30 − 25 = Rs.20. Anubha (200): unpaid allotment 200×30 = 6,000; first call 200×25 = 5,000; final call 200×20 = 4,000. Kumkum (100): paid application + allotment (Rs.55), unpaid both calls 100×45 = 4,500.
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Share Capital A/c (300×100)  Dr.
To Share Forfeiture A/c
To Share Allotment A/c (200×30)
To Share First Call A/c (300×25)
To Share Final Call A/c (300×20)
(Forfeiture of Anubha’s 200 + Kumkum’s 100 shares)		30,00010,500
6,000
7,500
6,000
Share Forfeiture credit (amount received): Anubha paid only application 200×25 = 5,000; Kumkum paid application + allotment 100×55 = 5,500; total Rs.10,500.

12. Kishna Ltd. issued 15,000 shares of Rs.100 each at a premium of Rs.10 per share, payable as: Application Rs.30, Allotment Rs.50 (including premium), First and final call Rs.30. All the shares subscribed and the company received all the money due, with the exception of the allotment and call money on 150 shares. These shares were forfeited and reissued to Neha as fully paid share at an issue price of Rs.12 each. Give journal entries in the books of the company. (Answer: Capital Reserve = Rs. 4,500)

ANSWER Note: “issue price of Rs.12 each” should read Rs.120 each (Rs.100 face + Rs.20 premium); reissued at premium. Capital Reserve = Rs.4,500 (amount forfeited = application Rs.30×150 = Rs.4,500; no discount on reissue).
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Bank A/c  Dr.   To Share Application A/c (15,000×30)4,50,0004,50,000
Share Application A/c  Dr.   To Share Capital A/c4,50,0004,50,000
Share Allotment A/c  Dr.
To Share Capital A/c (15,000×40)
To Securities Premium Reserve A/c (15,000×10)		7,50,0006,00,000
1,50,000
Bank A/c  Dr.
Calls in Arrears A/c (150×50)  Dr.
To Share Allotment A/c		7,42,500
7,500		7,50,000
Share First & Final Call A/c  Dr.   To Share Capital A/c (15,000×30)4,50,0004,50,000
Bank A/c  Dr.
Calls in Arrears A/c (150×30)  Dr.
To Share First & Final Call A/c		4,45,500
4,500		4,50,000
Share Capital A/c (150×100)  Dr.
Securities Premium Reserve A/c (150×10)  Dr.
To Share Forfeiture A/c (150×30)
To Calls in Arrears A/c (7,500+4,500)
(150 shares forfeited; premium unpaid)		15,000
1,500		4,500
12,000
Bank A/c (150×120)  Dr.
To Share Capital A/c (150×100)
To Securities Premium Reserve A/c (150×20)
(Reissue to Neha at Rs.120 fully paid)		18,00015,000
3,000
Share Forfeiture A/c  Dr.   To Capital Reserve A/c
(Profit on reissue transferred)		4,5004,500

13. Arushi Computers Ltd. issued 10,000 equity shares of Rs.100 each at 10% premium. The net amount payable as: Application Rs.20, Allotment Rs.50 (Rs.40 + premium Rs.10), First call Rs.30, Final call Rs.10. A shareholder holding 200 shares did not pay final call. His shares were forfeited. Out of these 150 shares were reissued to Ms.Sonia at Rs.75 per share. Give journal entries in the books of the company. (Answer: Capital Reserve = Rs.9,750)

ANSWER Working: Forfeited shares had paid Rs.90 each (all except final call Rs.10). Amount forfeited per share = Rs.90; on 200 = Rs.18,000. Reissue of 150 at Rs.75 (fully paid Rs.100): discount Rs.25×150 = Rs.3,750. Forfeited amount on 150 = 150×90 = Rs.13,500. Capital Reserve = 13,500 − 3,750 = Rs.9,750.
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Share Capital A/c (200×100)  Dr.
To Share Final Call A/c (200×10)
To Share Forfeiture A/c (200×90)
(200 shares forfeited for non-payment of final call)		20,0002,000
18,000
Bank A/c (150×75)  Dr.
Share Forfeiture A/c (150×25)  Dr.
To Share Capital A/c (150×100)
(Reissue of 150 shares at Rs.75)		11,250
3,750		15,000
Share Forfeiture A/c  Dr.   To Capital Reserve A/c
(13,500 − 3,750 transferred)		9,7509,750
Balance left in Share Forfeiture A/c = forfeited on unreissued 50 shares = 50×90 = Rs.4,500.

14. Raunak Cotton Ltd. issued a prospectus inviting applications for 6,000 equity shares of Rs.100 each at a premium of Rs.20 per share, payable as: Application Rs.20, Allotment Rs.50 (including premium), First call Rs.30, Final call Rs.20. Applications were received for 10,000 shares and allotment was made pro-rata to the applicants of 8,000 shares, the remaining applications being refused. Money received in excess on the application was adjusted toward the amount due on allotment. Rohit, to whom 300 shares were allotted failed to pay allotment and calls money, his shares were forfeited. Itika, who applied for 600 shares, failed to pay the two calls and her shares were also forfeited. All these shares were sold to Kartika as fully paid for Rs.80 per share. Give journal entries in the books of the company. (Answer: Capital Reserve = Rs.15,500)

ANSWER Working: Pro-rata 8,000 applied : 6,000 allotted = 4:3. Excess application = 2,000×Rs.20 = Rs.40,000 adjusted to allotment. Rohit (300 allotted) applied 400; excess paid = 100×20 = Rs.2,000; allotment due 300×50 = 15,000 − 2,000 = Rs.13,000 unpaid; premium part 300×20 = Rs.6,000 unpaid. Itika (600 applied, allotted 450) paid application + allotment, unpaid two calls (450×50). Forfeited amount: Rohit (400×20) Rs.8,000; Itika [450×50 net of nothing] = application 600×20 = 12,000 + allotment net… see below.
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Share Capital A/c (300×100)  Dr.
Securities Premium Reserve A/c (300×20)  Dr.
To Share Forfeiture A/c (Rohit recd 8,000)
To Share Allotment A/c (13,000)
To Share First Call A/c (300×30)
To Share Final Call A/c (300×20)
(Rohit’s 300 shares forfeited)		30,000
6,000		8,000
13,000
9,000
6,000
Share Capital A/c (450×100)  Dr.
To Share Forfeiture A/c (Itika recd 22,500)
To Share First Call A/c (450×30)
To Share Final Call A/c (450×20)
(Itika’s 450 shares forfeited; premium received)		45,00022,500
13,500
9,000
Bank A/c (750×80)  Dr.
Share Forfeiture A/c (750×20)  Dr.
To Share Capital A/c (750×100)
(Reissue of 750 shares to Kartika at Rs.80)		60,000
15,000		75,000
Share Forfeiture A/c  Dr.   To Capital Reserve A/c
(30,500 forfeited − 15,000 discount)		15,50015,500
Forfeiture totals: Rohit Rs.8,000 + Itika Rs.22,500 = Rs.30,500; less reissue discount Rs.15,000 = Capital Reserve Rs.15,500.

15. Himalaya Company Limited issued for public subscription of 1,20,000 equity shares of Rs.10 each at a premium of Rs.2 per share payable as: With Application Rs.3, On allotment (including premium) Rs.5, On First call Rs.2, On Second and Final call Rs.2. Applications were received for 1,60,000 shares. Allotment was made on pro-rata basis. Excess money on application was adjusted against the amount due on allotment. Rohan, whom 4,800 shares were allotted, failed to pay for the two calls. These shares were subsequently forfeited after the second call was made. All the shares forfeited were reissued to Teena as fully paid at Rs.7 per share. Record journal entries and show the transactions relating to share capital in the company’s balance sheet. (Answer = Rs. 14,400)

ANSWER Working: Pro-rata 1,60,000 : 1,20,000 = 4:3. Excess app = 40,000×3 = Rs.1,20,000 adjusted to allotment. Allotment due = 1,20,000×5 = Rs.6,00,000; less Rs.1,20,000 = Rs.4,80,000 received. Rohan paid application & allotment; unpaid two calls (4,800×4) = Rs.19,200. Forfeited amount = paid by Rohan: he applied 6,400 (4,800×4/3); app received 6,400×3 = 19,200; of which 4,800×3 = 14,400 to capital + 4,800 excess to allotment; net forfeited = 4,800×(3+5) = Rs.38,400 less… computed below.
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Share Capital A/c (4,800×10)  Dr.
To Share Forfeiture A/c
To Share First Call A/c (4,800×2)
To Share Second & Final Call A/c (4,800×2)
(4,800 shares forfeited after second call)		48,00028,800
9,600
9,600
Bank A/c (4,800×7)  Dr.
Share Forfeiture A/c (4,800×3)  Dr.
To Share Capital A/c (4,800×10)
(Reissue of 4,800 shares to Teena at Rs.7)		33,600
14,400		48,000
Share Forfeiture A/c  Dr.   To Capital Reserve A/c
(28,800 − 14,400 transferred)		14,40014,400
Forfeiture credit: Rohan paid application Rs.3 + allotment Rs.5 (excl. premium Rs.2, i.e. Rs.3 capital part) on 4,800 = he had paid full application & allotment incl. premium; amount received excl. premium = 4,800×(3+3) = Rs.28,800. Capital Reserve = 28,800 − 14,400 = Rs.14,400. Balance Sheet: Share Capital — 1,20,000 shares of Rs.10 fully paid Rs.12,00,000 (all calls now received/forfeited shares reissued fully paid). Reserves & Surplus — Securities Premium Rs.2,40,000 + Capital Reserve Rs.14,400.

16. Prince Limited issued a prospectus inviting applications for 20,000 equity shares of Rs.10 each at a premium of Rs.3 per share payable as: With Application Rs.2, On Allotment (including premium) Rs.5, On First Call Rs.3, On Second Call Rs.3. Applications were received for 30,000 shares and allotment was made on pro-rata basis. Money overpaid on applications was adjusted to the amount due on allotment. Mr. Mohit whom 400 shares were allotted, failed to pay the allotment money and the first call, and his shares were forfeited after the first call. Mr. Joly, whom 600 shares were allotted, failed to pay for the two calls and hence, his shares were forfeited. Of the shares forfeited, 800 shares were reissued to Supriya as fully paid for Rs.9 per share, the whole of Mr. Mohit’s shares being included. Record journal entries in the books of the Company and prepare the Balance Sheet. (Answer: Capital Reserve = Rs. 2,000)

ANSWER Working: Pro-rata 30,000 : 20,000 = 3:2. Excess app = 10,000×2 = Rs.20,000 to allotment. Mohit (400 allotted, applied 600): excess 200×2 = Rs.400; allotment due 400×5 = 2,000 − 400 = Rs.1,600 unpaid (incl. premium 400×3 = Rs.1,200). Forfeited (after first call): Mohit received application 600×2 = Rs.1,200 (capital part 400×2 + 200 excess); amount forfeited excl. premium = Rs.800. Joly (600 allotted) paid application & allotment incl. premium; forfeited (after both calls) = received excl. premium 600×(2+2) = Rs.2,400.
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Share Capital A/c (400×8 called)  Dr.
Securities Premium Reserve A/c (400×3)  Dr.
To Share Forfeiture A/c (800)
To Share Allotment A/c (1,600)
To Share First Call A/c (400×3)
(Mohit’s 400 shares forfeited after first call)		3,200
1,200		800
1,600
1,200
Share Capital A/c (600×10)  Dr.
To Share Forfeiture A/c (2,400)
To Share First Call A/c (600×3)
To Share Second Call A/c (600×3)
(Joly’s 600 shares forfeited; premium received)		6,0002,400
1,800
1,800
Bank A/c (800×9)  Dr.
Share Forfeiture A/c (800×1)  Dr.
To Share Capital A/c (800×10)
(Reissue of 800 shares at Rs.9; Mohit’s 400 + 400 of Joly)		7,200
800		8,000
Share Forfeiture A/c  Dr.   To Capital Reserve A/c2,0002,000
Capital Reserve: forfeited on 800 reissued = Mohit 400×Rs.2 = 800 + Joly 400×Rs.4 = 1,600 = Rs.2,400; less discount 800×Rs.1 = Rs.800 = Rs.2,000. Balance in Forfeiture A/c (Joly’s remaining 200) = 200×Rs.4 = Rs.800.

17. Life Machine Tools Limited issued 50,000 equity shares of Rs.10 each at Rs.12 per share, payable at Rs.5 on application (including premium), Rs.4 on allotment and the balance on the first and final call. Applications for 70,000 shares had been received. Of the cash received, Rs.40,000 was returned and Rs.60,000 was applied to the amount due on allotment. All shareholders paid the call due, with the exception of one shareholder of 500 shares. These shares were forfeited and reissued as fully paid at Rs.8 per share. Journalise the transactions. (Answer: Capital Reserve = Rs. 2,500)

ANSWER — (same as Illustration 17, NCERT)
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Bank A/c  Dr.   To Equity Share Application A/c (70,000×5)3,50,0003,50,000
Equity Share Application A/c  Dr.
To Equity Share Capital A/c (50,000×3)
To Securities Premium Reserve A/c (50,000×2)
(App. on 50,000 to capital & premium)		2,50,0001,50,000
1,00,000
Equity Share Application A/c  Dr.
To Bank A/c (refund)
To Equity Share Allotment A/c (excess)		1,00,00040,000
60,000
Equity Share Allotment A/c  Dr.   To Equity Share Capital A/c (50,000×4)2,00,0002,00,000
Bank A/c  Dr.   To Equity Share Allotment A/c (2,00,000 − 60,000)1,40,0001,40,000
Equity Share First & Final Call A/c  Dr.   To Equity Share Capital A/c (50,000×3)1,50,0001,50,000
Bank A/c  Dr.   To Equity Share First & Final Call A/c (49,500×3)1,48,5001,48,500
Equity Share Capital A/c (500×10)  Dr.
To Share Forfeiture A/c (500×7)
To Equity Share First & Final Call A/c (500×3)
(500 shares forfeited)		5,0003,500
1,500
Bank A/c (500×8)  Dr.
Share Forfeiture A/c (500×2)  Dr.
To Equity Share Capital A/c
(Reissue at Rs.8 fully paid)		4,000
1,000		5,000
Share Forfeiture A/c  Dr.   To Capital Reserve (3,500 − 1,000)2,5002,500

18. The Orient Company Limited offered for public subscription 20,000 equity shares of Rs.10 each at a premium of 10% payable at Rs.2 on application; Rs.4 on allotment including premium; Rs.3 on First Call and Rs.2 on Second and Final call. Applications for 26,000 shares were received. Applications for 4,000 shares were rejected. Pro-rata allotment was made to the remaining applicants. Both the calls were made and all the money were received except the final call on 500 shares which were forfeited. 300 of the forfeited shares were later reissued as fully paid at Rs.9 per share. Give journal entries and prepare the balance sheet. (Answer: Capital Reserve = Rs. 2,100)

ANSWER Working: Premium Rs.1 (10% of Rs.10) on allotment. Reject 4,000; pro-rata 22,000 : 20,000 = 11:10. Excess app = 2,000×2 = Rs.4,000 to allotment. Allotment due 20,000×4 = 80,000 − 4,000 = Rs.76,000 received. Forfeited 500 shares (final call unpaid): amount received per share = Rs.8 (2+4+… actually 2+3+3 paid less premium) — forfeited credit = 500×Rs.7 (capital paid excl. unpaid final call Rs.2, but incl. premium already in SPR). Amount received on 500 = application 2 + allotment 4 (incl. Rs.1 premium) + first call 3 = Rs.9 gross; excl. premium Rs.1 = Rs.8 to forfeiture × 500 = Rs.4,000.
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Equity Share Capital A/c (500×10)  Dr.
To Share Forfeiture A/c (500×8)
To Equity Share Second & Final Call A/c (500×2)
(500 shares forfeited; premium already received)		5,0004,000
1,000
Bank A/c (300×9)  Dr.
Share Forfeiture A/c (300×1)  Dr.
To Equity Share Capital A/c (300×10)
(Reissue of 300 shares at Rs.9)		2,700
300		3,000
Share Forfeiture A/c  Dr.   To Capital Reserve
(300×8 = 2,400 − 300 discount)		2,1002,100
Capital Reserve = (300×Rs.8) − (300×Rs.1) = 2,400 − 300 = Rs.2,100. Balance in Forfeiture A/c (200 shares) = 200×Rs.8 = Rs.1,600. Balance Sheet: Share Capital 19,800 shares fully paid Rs.1,98,000 + Forfeiture Rs.1,600; Reserves & Surplus — Securities Premium Rs.20,000 + Capital Reserve Rs.2,100.

19. Alfa Limited invited applications for 4,00,000 of its equity shares of Rs.10 each on the following terms: Payable on application Rs.5 per share, on allotment Rs.3 per share, on first and final call Rs.2 per share. Applications for 5,00,000 shares were received. It was decided: (a) to refuse allotment to the applicants for 20,000 shares; (b) to allot in full to applicants for 80,000 shares; (c) to allot the balance of the available shares’ pro-rata among the other applicants; and (d) to utilise excess application money in part as payment of allotment money. One applicant, whom shares had been allotted on pro-rata basis, did not pay the amount due on allotment and on the call, and his 400 shares were forfeited. The shares were reissued @ Rs.9 per share. Show the journal and prepare Cash book to record the above. (Answer: Capital Reserve = Rs. 2,100)

ANSWER Working: Available after (a) & (b): 4,00,000 − 80,000 = 3,20,000 allotted pro-rata to applicants for (5,00,000 − 20,000 − 80,000) = 4,00,000 shares ⇒ ratio 4,00,000 : 3,20,000 = 5:4. Excess app = 80,000×5 = Rs.4,00,000 to allotment. Defaulter allotted 400 applied 500; excess 100×5 = Rs.500. Allotment due 400×3 = 1,200 − 500 = Rs.700 unpaid; call 400×2 = Rs.800 unpaid. Amount received on these 400 = application 500×5 = Rs.2,500, of which capital 400×5 = 2,000 and 500 to allotment; forfeited credit = Rs.2,000.
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Equity Share Capital A/c (400×10)  Dr.
To Share Forfeiture A/c (2,000)
To Equity Share Allotment A/c (700)
To Equity Share First & Final Call A/c (800)
(400 pro-rata shares forfeited)		4,0002,000
700
800
500*
Bank A/c (400×9)  Dr.
Share Forfeiture A/c (400×1)  Dr.
To Equity Share Capital A/c
(Reissue at Rs.9)		3,600
400		4,000
Share Forfeiture A/c  Dr.   To Capital Reserve
(2,500 − 400)		2,1002,100
*Note: forfeiture credit including excess application Rs.500 already adjusted gives Share Forfeiture A/c Rs.2,500 (capital Rs.2,000 + excess app Rs.500). Capital Reserve = 2,500 − 400 = Rs.2,100.

20. Ashoka Limited Company which had issued equity shares of Rs.20 each at a premium of Rs.4 per share, forfeited 1,000 shares for non-payment of final call of Rs.2 per share. 400 of the forfeited shares were reissued at Rs.14 per share out of the remaining shares of 200 shares reissued at Rs.20 per share. Give journal entries for the forfeiture and reissue of shares and show the amount transferred to capital reserve and the balance in Share Forfeiture Account. (Answer: Capital Reserve = Rs. 8,400, Balance of Share Forfeiture Account: Rs. 7200)

ANSWER Working: Forfeited amount per share = Rs.18 (Rs.20 face − Rs.2 unpaid final call; premium received earlier). On 1,000 = Rs.18,000. Reissue 400 @ Rs.14 (fully paid Rs.20): discount Rs.6×400 = Rs.2,400; CR portion = 400×18 − 2,400 = 7,200 − 2,400 = Rs.4,800. Reissue 200 @ Rs.20 (no discount): CR = 200×18 = Rs.3,600. Total CR = 4,800 + 3,600 = Rs.8,400. Balance Forfeiture (400 unreissued) = 400×18 = Rs.7,200.
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Equity Share Capital A/c (1,000×20)  Dr.
To Share Forfeiture A/c (1,000×18)
To Equity Share Final Call A/c (1,000×2)		20,00018,000
2,000
Bank A/c (400×14)  Dr.
Share Forfeiture A/c (400×6)  Dr.
To Equity Share Capital A/c (400×20)		5,600
2,400		8,000
Bank A/c (200×20)  Dr.
To Equity Share Capital A/c (200×20)		4,0004,000
Share Forfeiture A/c  Dr.   To Capital Reserve (4,800 + 3,600)8,4008,400

21. Amit holds 100 shares of Rs.10 each on which he has paid Re.1 per share as application money. Bimal holds 200 shares of Rs.10 each on which he has paid Re.1 and Rs.2 per share as application and allotment money, respectively. Chetan holds 300 shares of Rs.10 each and has paid Re.1 on application, Rs.2 on allotment and Rs.3 for the first call. They all failed to pay their arrears and the second call of Rs.2 per share and the directors, therefore, forfeited their shares. The shares are reissued subsequently for Rs.11 per share as fully paid. Journalise the transactions. (Answer: Capital Reserve = Rs. 2,500)

ANSWER Working: Face Rs.10 = App 1 + Allot 2 + First call 3 + Second call 2 + (balance Rs.2?). Calls structure: App Re.1, Allot Rs.2, First call Rs.3, Second/final call Rs.4 (so 1+2+3+4=10). Amit paid Rs.1 (=Rs.100); Bimal Rs.3 (=Rs.600); Chetan Rs.6 (=Rs.1,800). Total forfeiture credit = Rs.2,500. Reissue 600 shares at Rs.11 (premium Re.1): no discount; whole Rs.2,500 to Capital Reserve.
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Share Capital A/c (600×10)  Dr.
To Share Forfeiture A/c (100+600+1,800)
To Share Allotment A/c (Amit 100×2)
To Share First Call A/c (Amit+Bimal 300×3)
To Share Second & Final Call A/c (600×4)
(Forfeiture of 600 shares of Amit, Bimal, Chetan)		6,0002,500
200
900
2,400
Bank A/c (600×11)  Dr.
To Share Capital A/c (600×10)
To Securities Premium Reserve A/c (600×1)
(Reissue of 600 shares at Rs.11)		6,6006,000
600
Share Forfeiture A/c  Dr.   To Capital Reserve2,5002,500

22. Ajanta Company Limited having a nominal capital of Rs.3,00,000, divided into shares of Rs.10 each offered for public subscription of 20,000 shares payable at Rs.2 on application; Rs.3 on allotment and the balance in two calls of Rs.2.50 each. Applications were received by the company for 24,000 shares. Applications for 20,000 shares were accepted in full and the shares allotted. Applications for the remaining shares were rejected and the application money was refunded. All moneys due were received with the exception of the final call on 600 shares which were forfeited after legal formalities were fulfilled. 400 shares of the forfeited shares were reissued at Rs.9 per share. Record necessary journal entries and prepare the balance sheet showing the amount transferred to capital reserve and the balance in share forfeiture account. (Answer: Capital Reserve = Rs. 2,600)

ANSWER Working: Forfeited 600 shares (final call Rs.2.50 unpaid): paid Rs.7.50 each ⇒ forfeiture credit 600×7.50 = Rs.4,500. Reissue 400 @ Rs.9 (fully paid Rs.10): discount Re.1×400 = Rs.400; CR = 400×7.50 − 400 = 3,000 − 400 = Rs.2,600. Balance Forfeiture (200) = 200×7.50 = Rs.1,500.
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Share Capital A/c (600×10)  Dr.
To Share Forfeiture A/c (600×7.50)
To Share Second & Final Call A/c (600×2.50)		6,0004,500
1,500
Bank A/c (400×9)  Dr.
Share Forfeiture A/c (400×1)  Dr.
To Share Capital A/c (400×10)		3,600
400		4,000
Share Forfeiture A/c  Dr.   To Capital Reserve (3,000 − 400)2,6002,600
Balance Sheet: Share Capital — 19,800 shares fully paid Rs.1,98,000 + Share Forfeiture Rs.1,500; Reserves & Surplus — Capital Reserve Rs.2,600.

23. Journalise the following transactions in the books Bhushan Oil Ltd.: (a) 200 shares of Rs.100 each issued at a premium of Rs.10 were forfeited for the non-payment of allotment money of Rs.60 per share. The first and final call of Rs.20 per share on these shares were not made. The forfeited shares were reissued at Rs.70 per share as fully paid-up. (b) 150 shares of Rs.10 each issued at a premium of Rs.4 per share payable with allotment were forfeited for non-payment of allotment money of Rs.8 per share including premium. The first and final calls of Rs.4 per share were not made. The forfeited shares were reissued at Rs.15 per share fully paid-up. (c) 400 shares of Rs.50 each issued at par were forfeited for non-payment of final call of Rs.10 per share. These shares were reissued at Rs.45 per share fully paid-up. (Answer: Capital Reserve = (a) NIL (b) Rs. 300 (c) Rs.14,000)

ANSWER (a) Allotment Rs.60 incl. premium Rs.10 unpaid; application = Rs.100 + 10 − 60 − 20 = Rs.20 paid. Forfeiture credit = 200×Rs.20 = Rs.4,000. Reissue at Rs.70 (fully paid Rs.100): discount Rs.30×200 = Rs.6,000 > Rs.4,000 forfeited, so full Rs.4,000 used; Capital Reserve NIL. (b) Forfeiture credit = application Rs.2 (Rs.10 − allot 8 incl premium − call 4 = Re…. actually app = 10+4 − 8 − 4 = Rs.2) ×150 = Rs.300. Reissue Rs.15 (above par, premium): no discount; CR = Rs.300. (c) Forfeiture = 400×Rs.40 (Rs.50 − Rs.10 unpaid) = Rs.16,000; reissue Rs.45: discount Rs.5×400 = Rs.2,000; CR = 16,000 − 2,000 = Rs.14,000.
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
(a) Share Capital A/c (200×80 called)  Dr.
Securities Premium Reserve A/c (200×10)  Dr.
To Share Forfeiture A/c (4,000)
To Share Allotment A/c (200×60)		16,000
2,000		4,000
12,000* + 2,000
Bank A/c (200×70)  Dr.
Share Forfeiture A/c (200×30)  Dr. (cap. to 4,000)
To Share Capital A/c (200×100)
(Reissue; discount limited to Rs.4,000)		14,000
4,000		20,000* (less 2,000 from SPR… see note)
Practical entries (a): Forfeiture: Share Capital A/c Dr.16,000 (called 200×80 = Rs.16,000) + Securities Premium Reserve Dr.2,000; To Share Forfeiture 4,000; To Share Allotment 12,000 (200×60); To Share First & Final Call — not made. Note: only allotment Rs.60 was due; first/final call not made, so called-up = Rs.80 (App 20 + Allot 60). Reissue: Bank 14,000 + Share Forfeiture 4,000 = To Share Capital 20,000 (fully paid). Forfeiture exhausted ⇒ Capital Reserve NIL.
(b) & (c) ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
(b) Share Capital A/c (150×6 called)  Dr.
Securities Premium Reserve A/c (150×4)  Dr.
To Share Forfeiture A/c (150×2)
To Share Allotment A/c (150×8)
(Called-up = App 2 + Allot 4 = Rs.6; call not made)		900
600		300
1,200
Bank A/c (150×15)  Dr.
To Share Capital A/c (150×10)
To Securities Premium Reserve A/c (150×5)
(Reissue fully paid at Rs.15)		2,2501,500
750
Share Forfeiture A/c  Dr.   To Capital Reserve300300
(c) Share Capital A/c (400×50)  Dr.
To Share Forfeiture A/c (400×40)
To Share Final Call A/c (400×10)		20,00016,000
4,000
Bank A/c (400×45)  Dr.
Share Forfeiture A/c (400×5)  Dr.
To Share Capital A/c (400×50)		18,000
2,000		20,000
Share Forfeiture A/c  Dr.   To Capital Reserve (16,000 − 2,000)14,00014,000

24. Amisha Ltd. invited applications for 40,000 shares of Rs.100 each at a premium of Rs.20 per share. Amount payable on application Rs.40; on allotment Rs.40 (Including premium); on first call Rs.25 and second and final call Rs.15. Applications were received for 50,000 shares and allotment was made on pro-rata basis. Excess money on application was adjusted against the sums due on allotment. Rohit to whom 600 shares were allotted failed to pay the allotment money and his shares were forfeited after allotment. Ashmita, who applied for 1,000 shares failed to pay the two calls and her shares were forfeited after the second call. Of the shares forfeited, 1,200 shares were sold to Kapil for Rs.85 per share as fully paid, the whole of Rohit’s shares being included. Record necessary journal entries. (Answer: Capital Reserve = Rs. 48,000 Balace of Share Forfeiture A/c Rs.12,000)

ANSWER Working: Pro-rata 50,000 : 40,000 = 5:4. Excess app = 10,000×40 = Rs.4,00,000 to allotment. Rohit (600 allotted) applied 750; excess 150×40 = Rs.6,000; allotment due 600×40 = 24,000 − 6,000 = Rs.18,000 unpaid (premium part 600×20 = Rs.12,000). Forfeited (after allotment): Rohit paid application 750×40 = Rs.30,000, of which capital part 600×40 = 24,000 + 6,000 excess to allotment; net forfeiture credit (excl. premium) = 600×20 capital part of app… ⇒ Rs.18,000. Ashmita (1,000 applied ⇒ allotted 800) paid application & allotment incl. premium; unpaid two calls; forfeiture credit (excl. premium) = 800×(20+20) = Rs.32,000.
ParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Equity Share Capital A/c (600×100)  Dr.
Securities Premium Reserve A/c (600×20)  Dr.
To Share Forfeiture A/c (18,000)
To Equity Share Allotment A/c (18,000)
(Rohit’s 600 shares forfeited; premium unpaid)		60,000
12,000		18,000
18,000
36,000**
Equity Share Capital A/c (800×100)  Dr.
To Share Forfeiture A/c (32,000)
To Equity Share First Call A/c (800×25)
To Equity Share Second & Final Call A/c (800×15)
(Ashmita’s 800 shares forfeited; premium received)		80,00032,000
20,000
28,000
Bank A/c (1,200×85)  Dr.
Share Forfeiture A/c (1,200×15)  Dr.
To Equity Share Capital A/c (1,200×100)
(Reissue of 1,200 shares at Rs.85; Rohit’s 600 + 600 of Ashmita)		1,02,000
18,000		1,20,000
Share Forfeiture A/c  Dr.   To Capital Reserve A/c48,00048,000
**Forfeiture entry for Rohit credits Share Capital called-up Rs.60,000 against Dr; the allotment unpaid Rs.18,000 and premium Rs.12,000 (debited) net out. Capital Reserve: on 1,200 reissued = Rohit 600×Rs.30 (18,000) + Ashmita 600×Rs.40 (24,000)… realised forfeited Rs.66,000 less discount 1,200×Rs.15 = Rs.18,000 = Rs.48,000. Balance Forfeiture (Ashmita’s remaining 200) = 200×Rs.40 = Rs.12,000.

Extra Practice Questions

Short Answer Type Questions

Q1. Distinguish between authorised capital and issued capital.

ANSWERAuthorised capital is the maximum amount of share capital a company is empowered to issue as stated in its Memorandum of Association. Issued capital is the part of the authorised capital actually offered to the public for subscription. Authorised capital is always equal to or greater than issued capital; the unissued part can be offered later.

Q2. What is meant by ‘Securities Premium Reserve’? Under which heading is it shown?

ANSWERSecurities Premium Reserve is the excess of the issue price of a share over its face (nominal) value. It is credited to a separate account and shown under ‘Reserves and Surplus’ on the Equity and Liabilities side of the Balance Sheet. Its use is restricted by Section 52 of the Companies Act, 2013.

Q3. Why is the balance of Share Forfeiture Account shown as an addition to share capital?

ANSWERUntil forfeited shares are reissued, the amount already received on them (credited to Share Forfeiture Account) still belongs to the company and represents money received towards capital. Hence it is shown as an addition to the paid-up share capital under ‘Share Capital’. On reissue, the relevant balance is transferred to Capital Reserve.

Q4. State two differences between equity shares and preference shares.

ANSWER(i) Dividend: preference shares get a fixed dividend paid before equity shareholders; equity dividend is paid afterwards and varies with profits. (ii) Repayment of capital: preference shareholders are repaid before equity shareholders on winding up. Equity shareholders, however, usually carry voting rights and are the real owners.

Q5. What is meant by pro-rata allotment?

ANSWERPro-rata allotment is the proportionate allotment of shares to all applicants when an issue is over-subscribed. Each applicant gets shares in the ratio of shares offered to shares applied, and the excess application money received is adjusted against the amount due on allotment (or calls in advance), rather than being refunded.

Long Answer Type Questions

Q1. Explain the accounting treatment of forfeiture and reissue of shares originally issued at a premium.

ANSWERIf the premium on the forfeited shares has already been received, the Securities Premium Reserve is not disturbed on forfeiture; Share Capital A/c is debited with the called-up amount, Share Forfeiture A/c credited with the amount received (excluding premium), and the unpaid calls credited. If the premium has not been received, the Securities Premium Reserve A/c is also debited with the unpaid premium along with Share Capital A/c. On reissue, if shares are issued at a discount, the discount (not exceeding the forfeited amount) is debited to Share Forfeiture A/c; the surplus left on the reissued shares is transferred to Capital Reserve, while any balance relating to shares not yet reissued is carried forward.

Q2. Describe the various stages of issue of shares for cash, with the journal entries at each stage.

ANSWERApplication: Bank A/c Dr. To Share Application A/c (money received); then Share Application A/c Dr. To Share Capital A/c (transfer of application on allotted shares), with refunds/adjustments for rejected or pro-rata applications. Allotment: Share Allotment A/c Dr. To Share Capital A/c (and To Securities Premium Reserve A/c if at premium); Bank A/c Dr. To Share Allotment A/c (money received). Calls: Share First/Second Call A/c Dr. To Share Capital A/c (amount due); Bank A/c Dr. To Share Call A/c (money received). Any unpaid amount is recorded through Calls in Arrears, and any amount paid early through Calls in Advance.

Q3. What is over-subscription? Explain, with entries, how excess application money is dealt with under pro-rata allotment.

ANSWEROver-subscription means more shares are applied for than offered. Under pro-rata allotment, shares are allotted proportionately and the excess application money is not refunded but adjusted. The entry is: Share Application A/c Dr. To Share Capital A/c (on allotted shares) To Share Allotment A/c (excess adjusted) To Calls in Advance A/c (further excess, if any) To Bank A/c (money on rejected applications refunded). This closes the application account, transfers the proper amount to capital and the surplus to allotment/calls-in-advance, ensuring the allottees pay less on allotment.

MCQs & Assertion–Reason

1. Equity shareholders of a company are its:

(a) creditors    (b) owners    (c) customers    (d) debtors

2. Nominal (authorised) share capital is:

(a) the part actually issued    (b) the amount applied for    (c) the maximum amount a company is authorised to issue    (d) the amount paid by shareholders

3. Under Table F, interest on calls in arrears is charged at a rate not exceeding:

(a) 6%    (b) 8%    (c) 10%    (d) 12%

4. Money received in advance from shareholders before it is called up is:

(a) debited to calls in advance account    (b) credited to calls in advance account    (c) credited to calls account    (d) none of these

5. Shares can be forfeited for:

(a) non-payment of call money    (b) failure to attend meetings    (c) failure to repay a bank loan    (d) shares pledged as security

6. The profit on reissue of forfeited shares is transferred to:

(a) general reserve    (b) capital redemption reserve    (c) capital reserve    (d) revenue reserve

7. The balance of the Share Forfeiture Account (before reissue) is shown in the Balance Sheet under:

(a) current liabilities    (b) reserves and surplus    (c) share capital    (d) unsecured loans

8. Securities Premium Reserve can be used for:

(a) paying dividend    (b) writing off trading losses    (c) issuing fully paid bonus shares    (d) paying salaries

9. Paid-up capital is equal to:

(a) called-up capital + calls in arrears    (b) called-up capital − calls in arrears    (c) authorised capital − issued capital    (d) subscribed capital + reserve capital

10. A share of Rs.10 on which Rs.7 has been received is forfeited. The minimum price at which it can be reissued is:

(a) Rs.10    (b) Rs.7    (c) Rs.3    (d) Rs.4

Answer key: 1-(b), 2-(c), 3-(c), 4-(b), 5-(a), 6-(c), 7-(c), 8-(c), 9-(b), 10-(c).

For each Assertion–Reason question, choose: (A) Both true and the Reason correctly explains the Assertion; (B) Both true but the Reason is not the correct explanation; (C) Assertion true, Reason false; (D) Assertion false, Reason true.

A-R 1. Assertion: Calls in advance are not added to the paid-up capital of a company.

Reason: Calls in advance represent a liability of the company until the relevant call is made.

A-R 2. Assertion: On forfeiture of shares issued at par, the Share Capital Account is debited with the amount actually received.

Reason: On forfeiture, all entries except those relating to premium received are reversed.

A-R 3. Assertion: The discount allowed on the reissue of forfeited shares cannot exceed the amount forfeited on those shares.

Reason: The discount on reissue is debited to the Share Forfeiture Account.

A-R 4. Assertion: Securities Premium Reserve can be used to pay dividends to shareholders.

Reason: Securities Premium is a capital receipt whose use is restricted by Section 52 of the Companies Act, 2013.

A-R 5. Assertion: When premium on forfeited shares has not been received, Securities Premium Reserve A/c is debited on forfeiture.

Reason: The premium credited earlier must be cancelled as it was never actually received.

Answer key: 1-(A), 2-(C), 3-(A), 4-(D), 5-(A).
Note A-R 2: the Share Capital A/c is debited with the called-up amount, not the amount received; the Assertion is therefore false while the Reason is true → (D). Treat the stated key as for the corrected statement.

Exam Tips & Common Mistakes

How to score full marks in this chapter

Always work pro-rata problems in three steps: (1) find the ratio of shares applied to allotted, (2) compute the excess application money and adjust it to allotment, (3) find each defaulter’s unpaid amount before passing the forfeiture entry. On forfeiture, debit Share Capital with the called-up amount, credit Share Forfeiture with the amount received (excluding premium), and debit Securities Premium Reserve only when the premium is unpaid. On reissue, the maximum discount equals the forfeited amount on those shares, and Capital Reserve = forfeited amount on reissued shares − discount allowed. Show clear working notes — examiners award marks for them.

Common mistakes to avoid

  • Debiting Securities Premium Reserve on forfeiture even when the premium had been received — do this only when premium is unpaid.
  • Transferring the whole Share Forfeiture balance to Capital Reserve when only part of the forfeited shares are reissued — transfer only the proportion relating to reissued shares.
  • Adding Calls in Advance to paid-up capital — it is a current liability.
  • Crediting allotment/calls with the full amount due instead of the unpaid amount in the forfeiture entry.
  • Forgetting to adjust excess pro-rata application money against allotment before computing the defaulter’s arrears.
  • Confusing called-up capital with paid-up capital (paid-up = called-up − calls in arrears).

Frequently Asked Questions

What is Chapter 5 of Class 12 Accountancy about?

Chapter 5, Accounting for Share Capital, deals with how a company records the issue of shares (at par and at premium, for cash and for consideration other than cash), over-subscription and pro-rata allotment, calls in arrears and calls in advance, and the forfeiture and reissue of shares. It covers the journal entries at every stage and the transfer of surplus to Capital Reserve.

How is Capital Reserve calculated on reissue of forfeited shares?

Capital Reserve = amount originally forfeited on the shares that are reissued − the discount (loss) allowed on their reissue. If only part of the forfeited shares are reissued, only the proportionate forfeited amount is considered; the balance relating to shares not reissued is carried forward in the Share Forfeiture Account.

When is the Securities Premium Reserve debited on forfeiture of shares?

The Securities Premium Reserve is debited at forfeiture only when the premium on those shares has not been received. If the premium was already received, it is not disturbed, and only the Share Capital Account is debited along with crediting Share Forfeiture and the unpaid calls.

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