Chapter accounting-for-share-capital: Accounting for Share Capital Short Questions | accountancy Class 12 CBSE

Chapter accounting-for-share-capital: Accounting for Share Capital Short Questions | accountancy Class 12 CBSE | ByteNotes.in

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Question 1

Quick Recall

What is meant by 'Authorised Capital' of a company?

Authorised Capital is the maximum amount of share capital a company is permitted to issue as specified in its Memorandum of Association.
It is also called Nominal or Registered Capital and can be increased or decreased as per the procedure laid down in the Companies Act.
The company need not issue the entire authorised capital at once; it may issue shares in parts, but the amount issued can never exceed the authorised capital.

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Medium

Question 2

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Distinguish between 'Calls in Arrears' and 'Calls in Advance'.

Calls in Arrears is the amount that has been called up by the company but has not been paid by the shareholders on the due date, whereas Calls in Advance is the amount paid by shareholders before the call is officially made.
Interest on Calls in Arrears is charged to shareholders at a rate not exceeding 10% p.a. as per Table F, whereas interest on Calls in Advance is paid by the company to shareholders at a rate not exceeding 12% p.a.
Calls in Arrears is shown as a deduction from called-up capital in Notes to Accounts, whereas Calls in Advance is shown as a current liability in the balance sheet and is not added to paid-up capital.

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Question 3

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What is 'Reserve Capital'? How is it different from 'Capital Reserve'?

Reserve Capital is the portion of uncalled capital that a company resolves to call only in the event of winding up; it is not available for normal business purposes.
Capital Reserve, on the other hand, is a reserve created out of capital profits (such as profit on reissue of forfeited shares) and is available for specific purposes like issuing bonus shares.
Reserve Capital is a part of share capital (uncalled) and appears in Notes to Accounts, whereas Capital Reserve appears on the liabilities side of the balance sheet under Reserves and Surplus.

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Question 4

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State any two conditions that must be fulfilled for a preference share under Section 43 of the Companies Act, 2013.

A preference share must carry a preferential right to dividend, payable either as a fixed amount or at a fixed rate of the nominal value, before any dividend is paid to equity shareholders.
With respect to capital, a preference share must carry a preferential right to the repayment of capital before anything is paid to equity shareholders upon winding up of the company.
Despite these two preferential rights, preference shareholders may also have a right to participate in the surplus profits of the company if so specified in the Memorandum or Articles of the company.

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Question 5

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What journal entry is passed when shares applied for are fewer than shares offered (under subscription)?

Under subscription means the number of shares applied for by the public is less than the number offered; allotment is restricted to only those shares for which applications have been received.
The journal entry on allotment debits Share Application Account and credits Share Capital Account only for the number of shares actually subscribed, not for the full offered amount.
Before proceeding with allotment, the company must ensure that minimum subscription (at least 90% of issued amount) has been received; if not, the entire subscription amount must be refunded to applicants.

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Question 6

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What is 'minimum subscription'? What are the consequences of not receiving it?

Minimum subscription is the minimum amount that, in the opinion of directors, must be raised to meet the needs of business operations; it cannot be less than 90% of the issued amount as per SEBI guidelines.
If minimum subscription is not received within 120 days of the issue of the prospectus, the company cannot proceed with the allotment of shares.
In such a case, the application money must be refunded within 130 days of the date of issue of the prospectus; if delayed beyond 8 days from closure of subscription list, the company must pay interest at 15%.

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Question 7

Quick Recall

For what five purposes can the Securities Premium Reserve Account be utilised?

Securities Premium can be used to issue fully paid bonus shares to the extent not exceeding the unissued share capital, and to write off preliminary expenses of the company.
It can also be used to write off the expenses of, or commission paid, or discount allowed on any securities of the company.
Additionally, it may be used to pay premium on the redemption of preference shares or debentures, and for the purchase of its own shares (buy-back of shares).

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Question 8

Quick Recall

What are the two important rules regarding calls on shares as per Table A?

The amount of any single call should not exceed 25% of the face value of the shares; this ensures that shareholders are not burdened with large payment demands at one time.
There must be an interval of at least one month between the making of two consecutive calls, unless otherwise provided by the articles of association of the company.
Additionally, calls must be made on a uniform basis on all shares falling within the same class, and shareholders must be given a minimum of 14 days' notice to pay the call amount.

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Question 9

Quick Recall

What is 'forfeiture of shares' and under what circumstances can shares be forfeited?

Forfeiture of shares means the cancellation of a shareholder's allotment due to non-payment of calls (allotment money or call money), with the amount already received being retained by the company.
Shares can be forfeited when a shareholder fails to pay one or more instalments such as allotment money or call money; the authority to forfeit is based on the provisions in the Articles of Association, usually modelled on Table F.
The company cannot forfeit shares for failure to attend meetings, failure to repay bank loans, or other non-payment reasons unrelated to share call obligations.

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Question 10

Quick Recall

Pass the journal entry for forfeiture of 500 equity shares of Rs. 10 each issued at par, on which Rs. 6 per share has been received and Rs. 4 per share (final call) remains unpaid.

Equity Share Capital Account is debited with Rs. 5,000 (500 shares × Rs. 10, the called-up amount per share).
Share Final Call Account is credited with Rs. 2,000 (500 shares × Rs. 4, the amount unpaid on the final call).
Share Forfeiture Account is credited with Rs. 3,000 (500 shares × Rs. 6, the amount already received on the forfeited shares).

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Question 11

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When are forfeited shares reissued at a discount, and what is the maximum discount permitted?

Forfeited shares may be reissued at a discount (i.e., below their nominal value) because this is one of the permitted exceptions to the general rule against issuing shares at a discount.
The maximum discount allowed on reissue of forfeited shares cannot exceed the total amount that had been received on those forfeited shares at the time of their original issue.
The discount allowed on reissue is debited to the Share Forfeiture Account, and any remaining balance in that account after adjusting the discount is transferred to Capital Reserve Account.

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Question 12

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What is meant by 'perpetual succession' as a feature of a company?

Perpetual succession means that a company continues to exist as a legal entity irrespective of any changes in its membership, such as the death, insolvency, or insanity of any member.
A company, being an artificial person created by law, can only be terminated through a legal process; the phrase 'members may come and go but the company continues' captures this concept.
This feature gives a company stability and permanence that partnerships and sole proprietorships lack, making it a reliable entity for long-term business operations and contracts.

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Hard

Question 13

Quick Recall

What is the accounting treatment when Securities Premium has NOT been received at the time of forfeiture of shares issued at a premium?

When shares are forfeited and the premium has not been received (typically because allotment money including premium was not paid), the Securities Premium Reserve Account must also be debited at the time of forfeiture.
The journal entry debits both Share Capital Account (with the called-up amount excluding premium) and Securities Premium Reserve Account (with the premium amount not received).
This is in contrast to the situation where premium has already been received—in that case, Securities Premium Reserve is not touched at the time of forfeiture, only Share Capital is debited.

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Chapter accounting-for-share-capital: Accounting for Share Capital | Short Questions

What is meant by 'Authorised Capital' of a company?

Distinguish between 'Calls in Arrears' and 'Calls in Advance'.

What is 'Reserve Capital'? How is it different from 'Capital Reserve'?

State any two conditions that must be fulfilled for a preference share under Section 43 of the Companies Act, 2013.

What journal entry is passed when shares applied for are fewer than shares offered (under subscription)?

What is 'minimum subscription'? What are the consequences of not receiving it?

For what five purposes can the Securities Premium Reserve Account be utilised?

What are the two important rules regarding calls on shares as per Table A?

What is 'forfeiture of shares' and under what circumstances can shares be forfeited?

Pass the journal entry for forfeiture of 500 equity shares of Rs. 10 each issued at par, on which Rs. 6 per share has been received and Rs. 4 per share (final call) remains unpaid.

When are forfeited shares reissued at a discount, and what is the maximum discount permitted?

What is meant by 'perpetual succession' as a feature of a company?

What is the accounting treatment when Securities Premium has NOT been received at the time of forfeiture of shares issued at a premium?

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