Accounting for share Capital Test - 7

A company cannot its shares at discount as per the section 53 of the Companies Act, 2013. But Sweat Equity Shares can be issued at discount.

The amount received as premium on issue of equity shares will be shown in the balance sheet under the heading of reserves and surplus.

When a company gets excess applications than the shares offered for subscription, it is known as oversubscription. In this situation a company may allot shares on pro-rata basis i.e. an applicant gets less shares than the shares applied by him.

Under subscription is a situation where number of shares applied are less than the shares offered for the subscription. In this case normally companies do not reject any application.

It is compulsory for a company to issues its shares through stock exchange. A company can issue its shares in any of the following ways:
•By private placement
•By public subscription
•By Consideration other than cash

If nothing is mentioned in the question about the adjustment of excess money received on applications, in such a case excess money should be adjusted on the allotment and remaining amount (if any) should be refunded.

An initial public offering, or IPO, is the very first sale of stock issued by a company to the public. Prior to an IPO the company is considered private. with a relatively small number of shareholders made up primarily of early investors (such as the founders, their families and friends) and professional investors (such as venture capitalists  or angel investors. 

When a company issue shares to the promoters for their services to the company, following journal entry is recorded in the books of accounts:
Incorporation Expenses A/c Dr.
To Share Capital A/c

Irredeemable preference shares are little different from other types of preference shares. It does not have any maturity date which makes this instrument very similar to equity except that the dividend of these shares is fixed and they enjoy priority in payment of both dividend and capital over the equity shares. Since there is an absence of maturity, they are also known as perpetual preference share capital. Companies are not allowed to issue such type of shares as per Indian companies Act 2013.

Any capital gain earned by the company will be transferred to the capital reserve. Gain on forfeiture of shares which are reissued, should be transferred to the capital reserve at the time of reissue of shares.

Only preference shares have right of dividend to be paid as fixed amount or an amount calculated at a fixed rate. Preference shares can be of two types in this category i.e. cumulative preference shares and non-cumulative preference shares.

When a company reissue its forfeited shares which were originally issued at premium and on which premium was received, should not be cancelled or debit the same at the time of reissue of shares.

When a shareholder returns back his shares to the company, it is known as surrender of shares and not forfeiture of shares.

Share Application Account and Share Allotment Account is personal account. Share application account  is personal account of applicants who have applied for shares and share allotment account is a personal account of allottees to whom the shares have been alloted.

Share Application Account and Share Allotment Account both are personal accounts because both accounts represent the amount of capital received through issue of shares.

Subscribed share capital is a part of issued share capital that is subscribed.

It is mandatory for every company to follow the rules and regulations or guidelines issued by SEBI. Thus, a company follows the rules regarding premium issued by SEBI.

A dividend is paid to the shareholders.
Interest is paid to the Debenture holders

The Statement given as ‘Company is managed by all the members’ is not correct because it is not mandatory for all the members to run the company.

If the Articles of the Company are silent about the rate of interest on calls-in-advance, then rate of interest is 6% p.a. Such an interest is a charge on profits and has to be paid to the concerned shareholder even if there is no profit. 

As per the section 52 of the Companies Act, 2013 restricts the use of securities premium received, it can be used for the following purposes:
(i) To write off the preliminary expenses
(ii) To issue fully paid bonus shares to promoters
(iii) To purchase own shares
(iv) To write off the expenses

Securities Premium Account is Personal Account. It is shown under in the balance sheet under the heading Reserves and Surplus.

Forfeited shares can be reissued at par, premium or discount. Directors of the company have authority to reissue forfeited shares at par, premium or discount.

When shares are issued, it will be a better choice to record all cash transactions in the cash book and other non-cash transaction in journal.

When shares are issued, it will be a better choice to record all cash transactions in the cash book and other non-cash transaction in journal.