Accounting for share Capital Test - 5

A company can sell its shares only through stock exchange. Company should be listed in the stock exchange to sell its shares.

A company is not a natural person. Following three points are correct about a company:

1.Company is an Artificial Person

2.Company has separate entity

3.Company has a common seal

The amount of Calls in Arrears should be deducted from Subscribe but not fully paid up under share capital, while preparing notes to accounts for share capital.

Company may issue shares to the vendor as a consideration for amount payable on purchase of fixed asset or running business.  Company may issue such shares at par,  premium or discount.

A company can reissue its shares (forfeited shares) at a discount but discount should not exceed the forfeited amount.

Situations at the time over subscriptions are:

1.Rejecting Excess Applications

2.Pro-rata allotment

3.Both Rejecting some applications and pro-rata allotment to remaining applicants

Note: Under subscription is a different situation, it is not concerned with over subscription

Bank account is debited because money comes in the company and share application account is credited,  it is a temporary account opened to know how many applications received.

 A company cannot issue its shares at discount.It can only issue shares at par and premium.

At the time of forfeiture of shares, share capital account should be debited with the called up amount and not with the face value or paid up amount etc.(i.e. number of shares forfeited x called up amount per share)

There is no limit of securities premium on issue of shares. Share of a company whose face value is Rs.10 can be issued at a price of 300 Rupees (including premium 290).

A company cannot use securities premium reserve as working capital. It can use securities premium for the following purpose:

•Writing off preliminary expenses

•Issuing fully paid bonus shares to the shareholders

•Buy back of shares

Authorised capital is to be stated in the Memorandum of association of a company. Authorized capital is also known as nominal capital of the company.

When the public company does not have its own Articles of Association, in such a case Table F will be applicable. For private company it is compulsory to have articles of association.

Total amount should be 10 + 30% i.e. 10 + 3 = 13
On Application Rs.4
On Allotment Rs.4
On First call Rs.2
Second & final call Rs.3

The Correct order is:

(a) Promotion-idea developed in the mind of promotors

(b) Incorporation- completion of documentation and legal formalities to start a company

(c) Capital Subscription- issue of shares for public subscription

(d) Commencement of business- on successful completion of all the requirements and subscription of share capital by public,  company finally gets certificate of commencement of business

Sweat equity shares” are such equity shares, which are issued by a Company to its directors or employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

Share Capital account will be debited with ₹16

i.e. Called up price on Share is 16.

Share capital account should be debited with the called up amount and not with the face value or paid up amount

When a company reject some applications and refund the money received on the same, following journal entry will take place:

Share Applications A/c

To Bank A/c

(Being Application money refunded)

Equity Shareholders have voting rights in all circumstances. Preference shareholders have voting rights only in special situations.

Bank account is debited with the amount received on reissue.  Share capital is credited with face value of shares reissued and share forfeiture account is debited with the amount of loss on reissue.

When a company buy fixed assets or a running business and make payment through equity shares in such a case number of shares to be issued to the vendor should be calculated as follows:

Purchase Consideration/ Issue Price of share

Correct order of Share Capital is:

•Authorised Capital- it is the total amount of capital that the company is authorised to issue during its lifetime.
•Issued Capital- it is that part of authorised capital that has been issued or offered by company for public subscription.
•Subscribed and Fully paid-up- it is that part of issued capital which has been subscribed by public and fully called up by company and paid up by public.
•Subscribed but not fully paid-up- it is that part of issued capital which is subscribed by public by either not fully called up by company or not fully paid up by some of the shareholders and there are calls in arrears.

If a company receives any excess amount on application and pro-rata allotment is made to such applicants, in such a case, excess money received should be adjusted on the allotment first.

Share capital is shown in the balance sheet under the heading of Shareholders’ Funds because share capital is that amount of capital which is contributed by the shareholders.