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AccountancyClass-12

Accountancy | Accounting for Share Capital

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”

  1. Case Study Analysis: Analyze a real-life example of a company’s share issuance process, including its accounting treatments.
  2. Research Project: Investigate the impact of different types of share capital on a company’s financial statements.
  3. Debate Preparation: Debate on the advantages and disadvantages of issuing shares at a premium versus at par.
  4. Chart Creation: Create a flowchart detailing the steps involved in the share issuance process and the corresponding accounting entries.
  5. 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.

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