Chapter 7 — Company Accounts: Exercise Solutions Guide
Use this page alongside the official Samacheer Kalvi textbook. Solve each exercise on your own first, then verify your answers and methods here. Every numerical answer includes complete journal entries and calculations.
How to Use This Page
1. Read the Key Concepts section for a quick recap of theory and formulas. 2. Attempt textbook problems before looking at the solutions. 3. For journal entry problems, follow every step — marks are awarded for correct entries and calculations. 4. Review Common Mistakes before your exam to avoid frequent errors.
Key Concepts (Quick Recap)
- Share Capital: The capital raised by a company by issuing shares. It includes Authorised Capital, Issued Capital, Subscribed Capital, Called-up Capital, and Paid-up Capital.
- Types of Shares: Equity shares and Preference shares.
- Issue of Shares at Par: Shares issued at their face value.
- Issue of Shares at Premium: Shares issued above face value; the excess is credited to Securities Premium Account.
- Issue of Shares at Discount: Shares issued below face value (max 10% discount allowed under Companies Act).
- Oversubscription: When applications received exceed shares offered. Pro-rata allotment or rejection is done.
- Calls in Arrears: Amount not paid by shareholders on allotment or calls. Interest is charged as per Articles (usually 5% p.a.).
- Calls in Advance: Amount paid by shareholders before the call is made. Interest is paid at 6% p.a. as per Table F.
- Share Forfeiture: Cancellation of shares for non-payment of allotment or call money. The amount already paid by the shareholder is forfeited.
- Reissue of Forfeited Shares: Forfeited shares can be reissued at par, premium, or discount. Maximum discount on reissue = amount forfeited on those shares.
- Transfer to Capital Reserve: The net gain on reissue of forfeited shares (Forfeited amount − Discount on reissue) is transferred to Capital Reserve Account.
Key Formulas
- Amount forfeited per share = Application money + Allotment money (paid) + Call money (paid) on forfeited shares
- Discount on reissue = Face value − Reissue price (for shares reissued at discount)
- Net gain on reissue = Amount forfeited − Discount on reissue
- Capital Reserve = Total net gain on all reissued forfeited shares
- Calls in Arrears = Total amount due − Total amount received
- Interest on Calls in Arrears = Arrears × Rate × Time / 12
I. Choose the Best Answer (MCQs)
1. Securities Premium Reserve is shown on the Balance Sheet under: (a) Current Liabilities (b) Non-Current Liabilities (c) Shareholders' Funds (Reserves and Surplus) (d) Contingent Liabilities
Answer(c) Shareholders' Funds (Reserves and Surplus) Explanation: Securities Premium is a reserve that forms part of shareholders' funds. It is shown under "Reserves and Surplus" on the liabilities side of the Balance Sheet.
2. The maximum rate of interest on calls in arrears as per Table F is: (a) 5% p.a. (b) 6% p.a. (c) 10% p.a. (d) 12% p.a.
Answer(a) 5% p.a. (Wait — as per Table F of the Companies Act, interest on calls in arrears is at 5% p.a. unless otherwise specified in Articles.)
3. When shares are forfeited, the share capital account is: (a) Debited with called-up amount (b) Credited with called-up amount (c) Debited with paid-up amount (d) Credited with face value
Answer(a) Debited with called-up amount Explanation: When shares are forfeited, the Share Capital Account is debited with the called-up amount (to cancel the liability), and the Forfeited Shares Account is credited with the amount already paid by the shareholder.
4. Interest on calls in advance as per Table F is payable at: (a) 5% p.a. (b) 6% p.a. (c) 10% p.a. (d) 12% p.a.
Answer(b) 6% p.a. Explanation: As per Table F of the Companies Act, interest on calls in advance is payable at 6% p.a., unless the Articles provide otherwise.
5. The balance in the Forfeited Shares Account after reissue is transferred to: (a) General Reserve (b) Capital Reserve (c) Share Capital (d) Profit & Loss Account
Answer(b) Capital Reserve Explanation: The net gain on reissue of forfeited shares (amount forfeited minus discount on reissue) is a capital profit and is transferred to Capital Reserve Account.
6. Oversubscription means: (a) Shares issued are more than applied for (b) Shares applied for are more than shares offered (c) Shares are issued at a premium (d) Shares are issued at a discount
Answer(b) Shares applied for are more than shares offered Explanation: Oversubscription occurs when the number of shares applied for exceeds the number of shares offered by the company.
7. The maximum discount on reissue of forfeited shares cannot exceed: (a) 10% of face value (b) 5% of face value (c) Amount forfeited on those shares (d) 20% of face value
Answer(c) Amount forfeited on those shares Explanation: The maximum discount on reissue of forfeited shares is limited to the amount forfeited on those shares. If the discount exceeds the forfeited amount, the excess is a loss to the company.
8. Shares issued at a discount means: (a) Issue price > face value (b) Issue price = face value (c) Issue price < face value (d) Issue price = market value
Answer(c) Issue price < face value Explanation: When shares are issued at a discount, the issue price is less than the face value. The difference is called discount on issue of shares.
9. Authorised Capital is also known as: (a) Issued Capital (b) Subscribed Capital (c) Registered Capital or Nominal Capital (d) Paid-up Capital
Answer(c) Registered Capital or Nominal Capital Explanation: Authorised Capital is the maximum capital a company is authorised to raise, as stated in the Memorandum of Association. It is also called Registered Capital or Nominal Capital.
10. A company issued 10,000 shares of ₹10 each at a premium of ₹2 per share. The total amount received on application is: (a) ₹1,00,000 (b) ₹1,20,000 (c) Depends on the application amount called (d) ₹80,000
Answer(c) Depends on the application amount called Explanation: The total amount received on application depends on how much the company has called on application. If the full amount (including premium) is called on application, it would be ₹1,20,000, but typically only a portion is called.
II. Fill in the Blanks
1. The capital which a company is authorised to raise is called Authorised Capital.
2. The amount called by the company on shares but not yet paid by shareholders is called Calls in Arrears.
3. The excess of issue price over face value of shares is credited to Securities Premium Account.
4. Forfeited shares can be reissued at par, at a premium, or at a discount.
5. The net gain on reissue of forfeited shares is transferred to Capital Reserve Account.
6. Interest on calls in arrears is a charge against profits.
7. When shares are forfeited, the Share Capital Account is debited with the called-up amount.
8. A company can issue shares at a discount of maximum 10% of the face value.
9. Shares allotted on a pro-rata basis in case of oversubscription is called pro-rata allotment.
10. The difference between the called-up amount and the paid-up amount is called calls in arrears.
III. True or False
1. Shares can be issued at a discount only if the company has been in existence for at least one year. True. As per Section 79 of the Companies Act, a company can issue shares at a discount only after at least one year has elapsed since the company was entitled to commence business.
2. Securities Premium can be used to declare dividends. False. Securities Premium cannot be used to declare dividends. It can only be used for purposes specified in Section 78 of the Companies Act, such as issuing fully paid bonus shares, writing off preliminary expenses, etc.
3. Calls in advance carry interest at 6% p.a. as per Table F. True. As per Table F, interest on calls in advance is payable at 6% p.a.
4. Forfeited shares can be reissued at a price lower than face value. True. Forfeited shares can be reissued at par, at a premium, or at a discount. However, the maximum discount cannot exceed the amount forfeited on those shares.
5. Authorised capital is always equal to issued capital. False. Authorised capital is the maximum capital a company can raise, while issued capital is the portion of authorised capital that the company has actually offered to the public. Issued capital can be less than or equal to authorised capital.
6. Oversubscription occurs when applications received are less than shares offered. False. Oversubscription occurs when applications received exceed the number of shares offered by the company.
7. Share forfeiture results in cancellation of membership of the shareholder. True. When shares are forfeited, the shareholder loses membership and all amounts previously paid on those shares are forfeited to the company.
8. Discount on reissue of forfeited shares cannot exceed the amount forfeited. True. The maximum discount on reissue of forfeited shares is limited to the amount forfeited on those shares. If the discount is less than the forfeited amount, the balance is transferred to Capital Reserve.
IV. Match the Following
| Column A | Column B |
|---|
| Authorised Capital | Maximum capital a company can raise |
| Called-up Capital | Amount demanded by the company on shares |
| Securities Premium | Excess of issue price over face value |
| Calls in Arrears | Amount not paid by shareholders |
| Calls in Advance | Amount paid before the call is made |
| Capital Reserve | Transfer of net gain on reissue of forfeited shares |
| Forfeited Shares Account | Amount already paid by the shareholder on forfeited shares |
V. Answer Briefly
1. Distinguish between Authorised Capital and Issued Capital.
Answer
| Basis | Authorised Capital | Issued Capital | |---|---|---| | Meaning | Maximum capital a company can raise as per Memorandum | Portion of authorised capital offered to the public | | Limit | Fixed by the Memorandum of Association | Cannot exceed authorised capital | | Can it change? | Only by altering the Memorandum | Can be increased up to authorised capital | | Disclosed in | Memorandum of Association | Balance Sheet |
2. What is oversubscription? How is it dealt with?
Answer
Oversubscription occurs when the number of shares applied for exceeds the number of shares offered by the company. It can be dealt with in three ways: 1. Rejection of excess applications: Some applications are rejected and the application money is refunded. 2. Pro-rata allotment: Shares are allotted proportionally to all applicants. 3. Combination: Some applications are rejected and the remaining are given pro-rata allotment. In pro-rata allotment, excess application money received may be adjusted towards allotment and call money.
3. What are calls in arrears and calls in advance?
Answer
Calls in Arrears: When shareholders do not pay the amount due on allotment or calls on the due date, the unpaid amount is called calls in arrears. Interest is charged on calls in arrears at a rate specified in the Articles (5% p.a. as per Table F). Calls in Advance: When shareholders pay the amount due on calls before the call is actually made by the company, the amount is called calls in advance. Interest is paid on calls in advance at 6% p.a. as per Table F.
4. State any four purposes for which Securities Premium can be utilised.
Answer
As per Section 78 of the Companies Act, Securities Premium can be utilised for: 1. Issuing fully paid bonus shares to existing shareholders 2. Writing off preliminary expenses of the company 3. Writing off expenses on, or commission paid for, the issue of shares or debentures 4. Providing for the premium payable on redemption of debentures
5. What entries are passed for share forfeiture?
Answer
When shares are forfeited, the following entry is passed: Share Capital A/c Dr. (with called-up amount on forfeited shares) To Forfeited Shares A/c (with amount already paid by the shareholder) To Calls in Arrears A/c (with amount not paid by the shareholder) This entry cancels the share capital liability and records the forfeiture.
6. What is pro-rata allotment? Give an example.
Answer
Pro-rata allotment means allotting shares to applicants in proportion to the shares applied for, when the company is oversubscribed. Example: A company offers 10,000 shares and receives applications for 15,000 shares. If the company makes a pro-rata allotment, each applicant gets 10,000/15,000 = 2/3 of the shares applied for. An applicant who applied for 300 shares receives 200 shares.
7. How is the amount forfeited on reissue of shares calculated?
Answer
When forfeited shares are reissued: - If reissued at par: No adjustment needed; the full forfeited amount is transferred to Capital Reserve. - If reissued at premium: The premium is credited to Securities Premium Account; the full forfeited amount is transferred to Capital Reserve. - If reissued at discount: The discount is debited to Forfeited Shares Account (maximum discount = amount forfeited). The net forfeited amount (Forfeited amount − Discount) is transferred to Capital Reserve.
VI. Answer in Detail
1. A company issued 50,000 shares of ₹10 each at a premium of ₹2 per share, payable as: Application ₹4, Allotment ₹5 (including premium), and First & Final Call ₹3. All amounts were received except the first and final call on 2,000 shares. Pass journal entries and prepare the Balance Sheet.
Answer
Journal Entries: | Particulars | Debit (₹) | Credit (₹) | |---|---|---| | Bank A/c Dr. | 2,00,000 | | | To Equity Share Application A/c | | 2,00,000 | | (Being application money received on 50,000 shares @ ₹4) | | | | Equity Share Application A/c Dr. | 2,00,000 | | | To Equity Share Capital A/c | | 2,00,000 | | (Being application money transferred to share capital) | | | | Equity Share Allotment A/c Dr. | 2,50,000 | | | To Equity Share Capital A/c | | 1,50,000 | | To Securities Premium A/c | | 1,00,000 | | (Being allotment money due: ₹3 per share capital + ₹2 per share premium) | | | | Bank A/c Dr. | 2,50,000 | | | To Equity Share Allotment A/c | | 2,50,000 | | (Being allotment money received on all shares) | | | | Equity Share First & Final Call A/c Dr. | 1,50,000 | | | To Equity Share Capital A/c | | 1,50,000 | | (Being first & final call due on 50,000 shares @ ₹3) | | | | Bank A/c Dr. | 1,44,000 | | | Calls in Arrears A/c Dr. | 6,000 | | | To Equity Share First & Final Call A/c | | 1,50,000 | | (Being call money received on 48,000 shares; arrears on 2,000 shares @ ₹3) | | | Balance Sheet Extract: | Liabilities | ₹ | Assets | ₹ | |---|---|---|---| | Share Capital: | | Bank | 5,94,000 | | Called-up: 50,000 × ₹10 = 5,00,000 | | | | | Less: Calls in Arrears (2,000 × ₹3) = 6,000 | | | | | Paid-up Capital = 4,94,000 | | | | | Reserves & Surplus: | | | | | Securities Premium = 1,00,000 | | | |
2. X Ltd. issued 10,000 shares of ₹10 each at a premium of ₹3 per share, payable as: Application ₹5 (including premium ₹2), Allotment ₹5 (including premium ₹1), and First & Final Call ₹3. The company was oversubscribed by 2,000 shares. Excess application money was adjusted towards allotment. All money was received. Pass journal entries.
Answer
Calculations: Shares issued: 10,000; Applications received: 12,000 Pro-rata ratio = 10,000/12,000 = 5/6 Application money received: 12,000 × ₹5 = ₹60,000 Application money adjusted: 10,000 × ₹5 = ₹50,000 Excess application money = ₹10,000 Allotment money due: 10,000 × ₹5 = ₹50,000 Less: Excess application money adjusted = ₹10,000 Net allotment money to be received = ₹40,000 Journal Entries: | Particulars | Debit (₹) | Credit (₹) | |---|---|---| | Bank A/c Dr. | 60,000 | | | To Equity Share Application A/c | | 60,000 | | (Being application money received on 12,000 shares @ ₹5) | | | | Equity Share Application A/c Dr. | 60,000 | | | To Equity Share Capital A/c (10,000 × ₹3) | | 30,000 | | To Securities Premium A/c (10,000 × ₹2) | | 20,000 | | To Equity Share Allotment A/c | | 10,000 | | (Being application money adjusted towards capital, premium, and allotment) | | | | Equity Share Allotment A/c Dr. | 50,000 | | | To Equity Share Capital A/c (10,000 × ₹4) | | 40,000 | | To Securities Premium A/c (10,000 × ₹1) | | 10,000 | | (Being allotment money due) | | | | Bank A/c Dr. | 40,000 | | | To Equity Share Allotment A/c | | 40,000 | | (Being net allotment money received after adjusting excess application) | | | | Equity Share First & Final Call A/c Dr. | 30,000 | | | To Equity Share Capital A/c | | 30,000 | | (Being call money due on 10,000 shares @ ₹3) | | | | Bank A/c Dr. | 30,000 | | | To Equity Share First & Final Call A/c | | 30,000 | | (Being call money received in full) | | |
3. Y Ltd. forfeited 500 shares of ₹10 each (₹8 called up, ₹6 paid) for non-payment of allotment money. The shareholder had paid ₹6 per share (application ₹3 + allotment ₹3, but failed to pay the remaining ₹2 of allotment). These shares were reissued at ₹8 per share as fully paid. Pass journal entries for forfeiture and reissue.
Answer
Forfeiture Entry: Share Capital A/c Dr. (500 × ₹8) = ₹4,000 To Forfeited Shares A/c (500 × ₹6) = ₹3,000 To Calls in Arrears A/c (500 × ₹2) = ₹1,000 | Particulars | Debit (₹) | Credit (₹) | |---|---|---| | Equity Share Capital A/c Dr. | 4,000 | | | To Forfeited Shares A/c | | 3,000 | | To Calls in Arrears A/c | | 1,000 | | (Being 500 shares forfeited for non-payment of allotment) | | | Reissue Entry: Reissue price = ₹8 per share; Face value = ₹10 per share; Called up = ₹8; Discount on reissue = ₹0 (since reissued at ₹8, which equals called up amount) Actually, reissued as fully paid at ₹8. Face value = ₹10. Discount = ₹10 − ₹8 = ₹2 per share. But these shares were called up at ₹8, not ₹10. Let me reconsider. Since shares are reissued as fully paid at ₹8 per share, and face value is ₹10: - Discount on reissue = ₹10 − ₹8 = ₹2 per share - Amount forfeited per share = ₹6 - Net gain per share = ₹6 − ₹2 = ₹4 | Particulars | Debit (₹) | Credit (₹) | |---|---|---| | Bank A/c Dr. (500 × ₹8) | 4,000 | | | Forfeited Shares A/c Dr. (500 × ₹2) | 1,000 | | | To Equity Share Capital A/c (500 × ₹10) | | 5,000 | | (Being 500 forfeited shares reissued as fully paid at ₹8 per share) | | | Transfer to Capital Reserve: Net gain = Amount forfeited − Discount on reissue = 3,000 − 1,000 = ₹2,000 | Particulars | Debit (₹) | Credit (₹) | |---|---|---| | Forfeited Shares A/c Dr. | 2,000 | | | To Capital Reserve A/c | | 2,000 | | (Being net gain on reissue transferred to capital reserve) | | |
4. Z Ltd. issued 20,000 shares of ₹10 each at a premium of ₹1 per share, payable as: Application ₹3, Allotment ₹5 (including premium), and Call ₹3. A shareholder holding 1,000 shares failed to pay the allotment and call money. His shares were forfeited after the call. Of these, 600 shares were reissued at ₹8 per share as fully paid. Pass journal entries for forfeiture, reissue, and transfer to capital reserve.
Answer
Calculations for Forfeiture: Shares forfeited: 1,000 Amount paid: Application money = 1,000 × ₹3 = ₹3,000 Called-up amount = ₹10 × 1,000 = ₹10,000 Calls in arrears = Allotment ₹5 × 1,000 + Call ₹3 × 1,000 = ₹5,000 + ₹3,000 = ₹8,000 (Wait — allotment is ₹5 including ₹1 premium, so capital portion = ₹4 + premium ₹1) Actually: Called up = ₹10 per share. Amount paid = ₹3 (application only). Calls in arrears = ₹7 × 1,000 = ₹7,000. Hmm, let me reconsider. The shareholder paid application money ₹3 per share but failed to pay allotment and call. Forfeited amount per share = ₹3 (application money paid) Called up per share = ₹3 + ₹4 + ₹3 = ₹10 (including premium in allotment) Arrears per share = ₹4 (allotment capital portion) + ₹3 (call) = ₹7 Wait, total called up = application ₹3 + allotment ₹4 (capital portion, since ₹1 is premium) + call ₹3 = ₹10 capital + ₹1 premium. Actually the share is ₹10 face value. Application ₹3, Allotment ₹4 (capital) + ₹1 (premium), Call ₹3 = Total ₹10 capital + ₹1 premium. Forfeited per share = ₹3 (only application was paid) Arrears per share = ₹7 (allotment ₹4 capital + call ₹3) Forfeiture Entry: | Particulars | Debit (₹) | Credit (₹) | |---|---|---| | Equity Share Capital A/c Dr. (1,000 × ₹7) | 7,000 | | | (Wait — called up is ₹10, but forfeited after call, so full ₹10 is called up) | | | | Equity Share Capital A/c Dr. (1,000 × ₹10) | 10,000 | | | To Forfeited Shares A/c (1,000 × ₹3) | | 3,000 | | To Calls in Arrears A/c (1,000 × ₹7) | | 7,000 | | (Being 1,000 shares forfeited for non-payment of allotment and call) | | | Reissue of 600 shares at ₹8 per share: Discount on reissue = ₹10 − ₹8 = ₹2 per share Total discount = 600 × ₹2 = ₹1,200 Amount forfeited on 600 shares = 600 × ₹3 = ₹1,800 Bank received = 600 × ₹8 = ₹4,800 | Particulars | Debit (₹) | Credit (₹) | |---|---|---| | Bank A/c Dr. | 4,800 | | | Forfeited Shares A/c Dr. | 1,200 | | | To Equity Share Capital A/c (600 × ₹10) | | 6,000 | | (Being 600 forfeited shares reissued at ₹8 per share as fully paid) | | | Transfer to Capital Reserve: Net gain on 600 reissued shares = Forfeited amount (1,800) − Discount on reissue (1,200) = ₹600 Remaining forfeited amount on 400 shares not reissued = 400 × ₹3 = ₹1,200 | Particulars | Debit (₹) | Credit (₹) | |---|---|---| | Forfeited Shares A/c Dr. | 600 | | | To Capital Reserve A/c | | 600 | | (Being net gain on reissue of 600 forfeited shares transferred to capital reserve)* | | |
5. Explain the different categories of share capital with a numerical example.
Answer
The different categories of share capital are: Example: A company has an authorised capital of ₹10,00,000 divided into 1,00,000 shares of ₹10 each. The company issued 80,000 shares to the public. The public applied for 1,00,000 shares, but the company allotted only 80,000 shares. The company called up ₹8 per share, and shareholders paid ₹7 per share (with ₹1 in arrears). | Category | Explanation | Amount (₹) | |---|---|---| | Authorised Capital | Maximum capital the company can raise | 10,00,000 | | Issued Capital | Capital offered to the public (80,000 × ₹10) | 8,00,000 | | Subscribed Capital | Capital subscribed by the public | 8,00,000 | | Called-up Capital | Amount called by the company (80,000 × ₹8) | 6,40,000 | | Paid-up Capital | Amount actually received (80,000 × ₹7) | 5,60,000 | | Calls in Arrears | Amount not paid (80,000 × ₹1) | 80,000 | Journal Entries for Issue: | Particulars | Debit (₹) | Credit (₹) | |---|---|---| | Bank A/c Dr. | 5,60,000 | | | Calls in Arrears A/c Dr. | 80,000 | | | To Equity Share Capital A/c | | 6,40,000 | | (Being called-up capital received with arrears) | | |
6. A company issued 5,000 shares of ₹10 each at a premium of ₹2, payable as: Application ₹4, Allotment ₹5 (including premium), First Call ₹2, Final Call ₹1. A shareholder holding 200 shares did not pay the first call. His shares were forfeited after the final call. The forfeited shares were reissued at ₹9 per share as fully paid. Pass all journal entries.
Answer
Journal Entries for Issue: | Particulars | Debit (₹) | Credit (₹) | |---|---|---| | Bank A/c Dr. (5,000 × ₹4) | 20,000 | | | To Equity Share Application A/c | | 20,000 | | (Being application money received) | | | | Equity Share Application A/c Dr. | 20,000 | | | To Equity Share Capital A/c | | 20,000 | | (Being application money transferred to share capital) | | | | Equity Share Allotment A/c Dr. (5,000 × ₹5) | 25,000 | | | To Equity Share Capital A/c (5,000 × ₹3) | | 15,000 | | To Securities Premium A/c (5,000 × ₹2) | | 10,000 | | (Being allotment money due) | | | | Bank A/c Dr. | 25,000 | | | To Equity Share Allotment A/c | | 25,000 | | (Being allotment money received) | | | | Equity Share First Call A/c Dr. (5,000 × ₹2) | 10,000 | | | To Equity Share Capital A/c | | 10,000 | | (Being first call money due) | | | | Bank A/c Dr. (4,800 × ₹2) | 9,600 | | | Calls in Arrears A/c Dr. (200 × ₹2) | 400 | | | To Equity Share First Call A/c | | 10,000 | | (Being first call money received; arrears on 200 shares) | | | | Equity Share Final Call A/c Dr. (5,000 × ₹1) | 5,000 | | | To Equity Share Capital A/c | | 5,000 | | (Being final call money due) | | | | Bank A/c Dr. (4,800 × ₹1) | 4,800 | | | Calls in Arrears A/c Dr. (200 × ₹1) | 200 | | | To Equity Share Final Call A/c | | 5,000 | | (Being final call money received; arrears on 200 shares) | | | Forfeiture Entry: 200 shares forfeited. Called up = ₹10 per share. Paid = ₹4 (application) + ₹3 (allotment capital portion) = ₹7 per share. Wait: Application ₹4, Allotment capital ₹3 (since ₹2 is premium out of ₹5), so paid = ₹4 + ₹3 = ₹7. Arrears = First call ₹2 + Final call ₹1 = ₹3 per share. Total forfeiture amount = 200 × ₹7 = ₹1,400; Total arrears = 200 × ₹3 = ₹600. | Particulars | Debit (₹) | Credit (₹) | |---|---|---| | Equity Share Capital A/c Dr. (200 × ₹10) | 2,000 | | | To Forfeited Shares A/c (200 × ₹7) | | 1,400 | | To Calls in Arrears A/c (200 × ₹3) | | 600 | | (Being 200 shares forfeited for non-payment of first and final calls) | | | Reissue Entry: 200 shares reissued at ₹9 per share as fully paid. Discount = ₹10 − ₹9 = ₹1 per share. | Particulars | Debit (₹) | Credit (₹) | |---|---|---| | Bank A/c Dr. (200 × ₹9) | 1,800 | | | Forfeited Shares A/c Dr. (200 × ₹1) | 200 | | | To Equity Share Capital A/c (200 × ₹10) | | 2,000 | | (Being 200 forfeited shares reissued at ₹9 per share as fully paid) | | | Transfer to Capital Reserve: Net gain = Forfeited amount (₹1,400) − Discount on reissue (₹200) = ₹1,200 | Particulars | Debit (₹) | Credit (₹) | |---|---|---| | Forfeited Shares A/c Dr. | 1,200 | | | To Capital Reserve A/c | | 1,200 | | (Being net gain on reissue transferred to capital reserve) | | |
Common Mistakes to Avoid
1. Crediting securities premium to share capital — Securities premium must always be credited to the Securities Premium Account, never to Share Capital.
2. Forgetting to adjust excess application money in oversubscription — Excess application money must be adjusted towards allotment and calls; it cannot be simply refunded if pro-rata allotment is made.
3. Wrong calculation of forfeiture amount — Forfeited amount includes only what the shareholder has actually paid, not the called-up amount. Calls in Arrears is the difference.
4. Exceeding forfeited amount as discount on reissue — The maximum discount on reissue of forfeited shares equals the amount forfeited on those shares. A larger discount creates a loss.
5. Forgetting to transfer net gain to Capital Reserve — After reissue, the net gain (forfeited amount minus discount on reissue) must be transferred to Capital Reserve. It should not remain in the Forfeited Shares Account.
6. Confusing calls in arrears with calls in advance — Calls in arrears is money NOT paid by shareholders (debited from them); calls in advance is money paid BEFORE the call is made (credited to them with interest).
Exam Checklist
- [ ] Can you pass journal entries for issue of shares at par, premium, and discount?
- [ ] Can you handle oversubscription with pro-rata allotment and adjust excess application money?
- [ ] Can you pass journal entries for calls in arrears and calls in advance with interest calculations?
- [ ] Can you pass the forfeiture entry correctly, separating forfeited amount and calls in arrears?
- [ ] Can you pass the reissue entry for forfeited shares at par, premium, and discount?
- [ ] Can you calculate the net gain on reissue and transfer it to Capital Reserve?
- [ ] Can you prepare the Balance Sheet showing share capital with calls in arrears and securities premium?
- [ ] Can you distinguish between different categories of share capital (authorised, issued, subscribed, called-up, paid-up)?
