This Chapter on Accounting for Share Capital mostly explains the formation, types, accounting treatment of shares in a Joint Stock Compnay
Introduction to CBSE Class 12 Accountancy Chapter "Accounting-for-Share-Capital"
The chapter delves into various aspects of share capital, starting from the issuance of shares to the accounting treatment of calls-in-arrears, calls-in-advance, and forfeiture of shares. Key topics covered include:
- Types of Companies: Public and private companies, their characteristics, and distinctions.
- Share Capital: Different categories like authorized capital, issued capital, subscribed capital, called-up capital, and paid-up capital.
- Share Issuance: The process and accounting entries for issuing shares at par, at a premium, and at a discount.
- Calls-in-Arrears and Calls-in-Advance: Accounting treatment and implications.
- Forfeiture of Shares: Conditions, procedures, and accounting treatment for forfeiture of shares.
Assignments for CBSE Class 12 Accountancy Chapter “Accounting-for-Share-Capital”
- Case Study Analysis: Analyze a real-life example of a company’s share issuance process, including its accounting treatments.
- Research Project: Investigate the impact of different types of share capital on a company’s financial statements.
- Debate Preparation: Debate on the advantages and disadvantages of issuing shares at a premium versus at par.
- Chart Creation: Create a flowchart detailing the steps involved in the share issuance process and the corresponding accounting entries.
- Role Play: Conduct a mock scenario where students role-play as a company issuing shares, including dealing with calls-in-arrears and forfeiture of shares.
Conclusion
The chapter “Accounting-for-Share-Capital” equips students with essential knowledge of how companies raise capital through share issuance and manage various related accounting transactions. Understanding these concepts is crucial for comprehending a company’s financial structure and operations.
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Questions and Answers for CBSE Class 12 Accountancy Chapter "Accounting-for-Share-Capital"
Q1: What is a public company?
- ANS: A public company is a company that is not a private company, has a minimum paid-up share capital as prescribed by law, and its stock can be acquired by any individual through IPO or stock market trading.
Q2: What is a private limited company?
- ANS: A private limited company restricts the transfer of shares, does not have a minimum paid-up capital requirement, has a limited number of members, and its shares are not traded on stock exchanges.
Q3: When can shares be forfeited?
- ANS: Shares can be forfeited when a shareholder fails to pay allotment or call money within the specified period after a notice is served.
Q4: What is meant by Calls-in-Arrears?
- ANS: Calls-in-Arrears refers to the amount of call money that remains unpaid by shareholders by the due date.
Q5: What do you mean by a listed company?
- ANS: A listed company is a public company whose shares are listed on recognized stock exchanges for public trading.
Q6: What are the uses of securities premium?
- ANS: Securities premium can be used for issuing bonus shares, writing off preliminary expenses, buying back shares, and paying premium on redemption of debentures.
Q7: What is meant by Calls-in-Advance?
- ANS: Calls-in-Advance refers to the amount paid by a shareholder before the company calls for it.
Q8: Write a brief note on ‘Minimum Subscription’.
- ANS: Minimum Subscription is the minimum amount of shares that must be subscribed by the public to allot shares to the applicants, which should not be less than 90% of the issued amount.
Q9: What is meant by the word ‘Company’? Describe its characteristics.
- ANS: A company is an artificial person created by law with a separate legal entity, perpetual succession, limited liability, and a common seal. It can enter into contracts, own property, and sue or be sued in its name.
Q10: Explain the process for the allotment of shares in case of over-subscription.
- ANS: In case of over-subscription, shares are allotted proportionately, excess applications may be rejected or refunded, or the excess application money may be adjusted towards allotment.
Q11: What is a ‘Preference Share’? Describe the different types of preference shares.
- ANS: Preference shares entitle the holder to receive dividends before equity shareholders and the return of capital upon winding up before equity shareholders. Types include cumulative, non-cumulative, participating, non-participating, convertible, non-convertible, redeemable, and guaranteed preference shares.
Q12: Explain the terms ‘Over-subscription’ and ‘Under-subscription’.
- ANS: Over-subscription occurs when applications exceed the available shares; under-subscription occurs when applications are less than the issued shares. Over-subscription is managed by proportionate allotment or refunds, while under-subscription may require refunding the entire amount if the minimum subscription is not met.
Q13: Describe the provision of law relating to ‘Calls-in-Arrears’ and ‘Calls-in-Advance’.
- ANS: Calls-in-Arrears can attract interest charges and lead to forfeiture of shares. Calls-in-Advance may earn interest for shareholders and are shown as a liability until called upon.
Q14: State the conditions under which a company can issue shares at a discount.
- ANS: Shares can be issued at a discount if they belong to a class already issued, one year has passed since business commencement, a resolution is passed, and approval is obtained from the Company Law Board. The discount rate must not exceed 10% of the face value.
Q15: Explain the term ‘Forfeiture of Shares’ and give the accounting treatment.
- ANS: Forfeiture of shares occurs when a shareholder fails to pay due amounts. The accounting treatment involves debiting share capital and crediting forfeited shares account.
