Accounting for share Capital Test - 53

Nominal value is the value of a share decided by a company which remains the same throughout the working of that company.

The $$SEBI$$ has allotted a minimum of 5% of the nominal value for the amount to be charged as the share application money. This means that a company can demand minimum of 5%   of the value when the shareholders apply for the issue of shares.

Discount on shares means that shares issued by the company have a market value at a discounted rate which is always less than the face value decided by the company.The government, in order to maintain the discount on shares at a standard level, has prescribed a limit of 10% and every company is bound to have a discount on shares up to 10%. If a company discounts it shares more than 10%, it means that it is violating the government rules.

Equity shares are issued in three ways:

At Par

Above Par (Premium)

Below Par (Discount)

When shares are issued at par it means that they are issued at the face value decided by the company. When shares are issued below par it means that they are issued at a value less than the face value of shares decided by the company. This refers to the issue of shares at a discounted price. For example, the face value of share is Rs 100 and if it issues at par that means that market value of share is Rs 100 but if it issued below pat at Rs 80 then the discount on shares is Rs 100-Rs800 =Rs20. Thus the difference between the par value Rs100 and below par value Rs80 is discount on shares Rs20

Hence, the difference between the two is the discount on issue of shares. 

The preference shares are issued along with the equity shares. There are four types of preference shares:

Redeemable/Non-Redeemable preference shares

Participating/Non-Participating preference shares

Cumulative/Non-Cumulative preference shares

Convertible/Non-Convertible preference shares

As per the section under the companies act, the redeemable preference shares can be redeemed after 20 years of issue of such shares. Once 20 years are completed theses preference shares cannot be redeemed back to the shareholders, Moreover, only redeemedable preference shares are considered while doing any redemption procedure.

Called up amount is the money which a company demands from its shareholders either on application, allotment or calls.

$$Called\quad up\quad amount =No.\quad of\quad shares \times  Called\quad up\quad value$$

Substitute the values in above equation

$$Called\quad up\quad amount\quad on\quad application=9,00,000\times 3 = Rs27,00,000$$

$$Called\quad up\quad amount\quad on\quad allotment$$ = $$9,00,000\times 3 = Rs 27,00,000$$ 

$$Called\quad up\quad amount\quad on\quad Ist\quad call =9,00,000\times  2 = Rs18,00,000$$

$$Total\quad called\quad up\quad amount = Rs 27,00,000 + Rs 27,00,000 + Rs 18,00,000 = Rs 72,00,000$$

Hence, the total called up amount is Rs $$72,00,000$$.

Forfeiture amount per share is the amount to be received by the company on forfeiture of each share.

$$Forfeiture\quad Amount=Application\quad Amount\quad +\quad Allotment\quad Amount$$

Substitute the values in the above equation

$$Forfeiture\quad Amount=Rs20+ Rs30= Rs50$$

Forfeiture amount is the money received by the company on forfeiture (cancellation of share) or on the reissue of share.

$$Forfeiture\quad Amount= No.\quad of\quad shares \times Forfeiture\quad Amount$$ 

Substitute the values in the above equation

$$Forfeiture\quad Amount=50 \times50= Rs2500$$ 

$$Forfeiture\quad Amount\quad for\quad 20\quad shares= 200\times  50= Rs1000$$

$$Forfeiture\quad Amount\quad for\quad reissued\quad shares=20\times 0= Rs0$$  

Profit on the reissue is the profit earned by the company when the forfeited shares are reissued

$$Profit\quad on\quad reissue=Forfeited\quad Amount\quad on\quad forfeiture- Forfeited\quad amount\quad on\quad reissue\\$$

Substitute the values in the above equation

$$Profit\quad on\quad reissue=Rs\quad 1000- Rs\quad 0= Rs 1000$$

Hence,  the profit earned on the reissue of shares is Rs $$1000$$.

Forfeiture amount per share is the amount to be received by the company on forfeiture of each share.

$$Forfeiture\quad Amount=Application\quad Amount$$

Substitute the values in above equation

$$Forfeiture\quad Amount=Rs30$$

Forfeiture amount is the money received by company on forfeiture (cancellation of share) or on the reissue of share.

$$Forfeiture\quad Amount= No.\quad of\quad shares \times Forfeiture\quad Amount$$ 

Substitute the values in the above equation

$$Forfeiture\quad Amount=50shares \times  Rs30= Rs1,500$$

$$Forfeiture\quad Amount\quad for\quad 20share= 20shares \times Rs30= Rs600$$

$$Forfeiture\quad amount\quad on\quad reissue=20shares \times Rs10=200$$

 Profit on the reissue is the profit earned by the company when the forfeited shares are reissued

$$Profit\quad on\quad reissue=Forfeited\quad Amount\quad on\quad forfeiture-Forfeited\quad amount\quad on\quad reissue $$

Substitute the values in the above equation

$$Profit\quad on\quad reissue= Rs600-Rs200= Rs400$$

Hence,  the profit earned on the reissue of shares is Rs $$400$$.

Share Forfeiture a/c  Dr. Rs400

 To capital reserve a/c Rs400.