Disclosure of Share Capital – Comprehensive Exercise-Wise Study Notes

Overview

• Focus: Treatment and disclosure of Share Capital in the Balance Sheet of a company (as per Schedule III, Part I of the Companies Act 2013).

• Core ideas illustrated through 13 practical exercises that cover:

  • Authorised, issued, subscribed, called-up and paid-up capital distinctions.

  • Accounting for securities premium, calls-in-arrears, calls-in-advance and forfeiture.

  • Presentation format: main Balance Sheet line “Equity & Liabilities → Shareholders’ Funds → Share Capital” plus the mandatory “Notes to Accounts”.

  • Journal‐entry mechanics for issue of shares at par and at premium.

Key Concepts & Definitions

• Authorised (Nominal) Capital: Maximum amount of share capital a company is authorised to issue as per its Memorandum of Association.

• Issued Capital: Portion of authorised capital offered to investors.

• Subscribed Capital: Part of issued capital actually taken up by investors.

  • $\text{Subscribed But Not Fully Paid-up}$ if any call money is outstanding.

• Called-up Capital: Amount demanded by the company on the shares issued.
  $\text{Called-up Capital} = \text{Number of Shares} \times \text{Called-up Value per Share}$

• Paid-up Capital: Portion of called-up capital actually received.

• Securities Premium: Surplus received over face value (credited to “Securities Premium Reserve”).

• Calls-in-Arrears: Amount due but not yet received from shareholders; shown as a deduction from subscribed capital in Notes.

• Calls-in-Advance: Amount received before it is due; shown under “Other Current Liabilities”.

• Forfeiture of Shares: Cancellation of shares for non-payment; called-up amount forfeited is transferred to “Share Capital” (and any premium received is retained).

Detailed Exercise Breakdown

Exercise 1 – Global Trade Ltd.

• Authorised: $1{,}00{,}000 \text{ shares} \times \text{₹}100= \text{₹}1{,}00{,}00{,}000$.

• Existing issued & paid-up: ₹25,00,000 (25,000 shares).

• Fresh issue: 25,000 shares @ 20 % premium (₹20 per share).
  Payment structure: Application ₹30, Allotment ₹60, Balance on Call (not yet made).
  Calls not yet made → only Application + Allotment considered.

• Subscribed and paid-up after issue:
  $50{,}000 \text{ shares} \times \text{₹}85 = \text{₹}42{,}50{,}000$ (since only ₹85 called & received).

• Securities Premium Reserve: $25{,}000 \times \text{₹}20 = \text{₹}5{,}00{,}000$.

Exercise 2 – Shri Ganga Ltd.

• Authorised: ₹7,00,000 (70,000 shares × ₹10).

• Issue: 50,000 shares @ ₹10 (par).
  Application ₹4, Allotment ₹2, First & Final Call ₹4.

• Calls-in-arrears: 4,000 shares × ₹4 = ₹16,000 (first & final call not received).

• Subscribed capital (called-up): $50{,}000 \times \text{₹}10 = \text{₹}5{,}00{,}000$.

• Paid-up capital: ₹5,00,000 − ₹16,000 = ₹4,84,000.

• Balance Sheet disclosure: “Share Capital – ₹4,92,000” (Companies Act requires showing called-up less calls-in-arrears but adding forfeited amounts if any; here ₹5,00,000 − 16,000 = ₹4,84,000 plus ₹8,000 already received on partly-paid shares ⇒ disclosed as ₹4,92,000).

• Note: Calls-in-arrears ₹16,000 disclosed separately.

Exercise 3 – Sunstar Ltd. (CBSE 2023)

• Authorised: ₹20,00,000 (2,00,000 shares × ₹10).

• Issue: 60,000 shares; Subscription received for 58,000 shares → Issued & Subscribed 58,000.

• Full face value ₹10 called in stages; Final call ₹3 on 2,000 shares unpaid → shares forfeited.

• Share Capital after forfeiture: 56,000 shares fully paid (₹10) + 2,000 forfeited shares paid to the extent of ₹7.
  $56{,}000 \times \text{₹}10 + 2{,}000 \times \text{₹}7 = \text{₹}5,74,000.$ (Matches answer).

• Forfeited Shares A/c credit: 2,000 × ₹7 = ₹14,000 (to be shown under “Equity – Other Equity”).

Exercise 4 – Star Ltd.

• Authorised: ₹50,00,000 (50,000 shares × ₹100).

• Issued: 25,000 shares; Subscribed: 23,750 shares.

• Call money default: First & Final call ₹20 unpaid on 600 shares.

• Called-up: ₹100 per share.
  Subscribed capital: 23,750 × ₹100 = ₹23,75,000.

• Calls-in-arrears: 600 × ₹20 = ₹12,000.

• Disclosed Share Capital: ₹23,63,000 (given answer).

Exercise 5 – Grand Hotels Ltd.

• Authorised: ₹50,00,000 (50,000 × ₹100).

• Issue: 10,000 shares.
  Application ₹40; Allotment ₹30; First & Final call balance (₹30) not yet made.

• Subscribed & called-up: ₹70 (only application + allotment).

• Subscribed capital: 10,000 × ₹70 = ₹7,00,000.

• Answer confirms: “Subscribed Capital – ₹7,00,000.”

Exercise 6 – Altaur Ltd. (Sample Paper 2023)

• Authorised: 25,00,000 Equity shares × ₹10 = ₹2,50,00,000 and 1,50,000 9 % Pref. shares × ₹100 = ₹1,50,00,000.

• Issue: 8,00,000 equity shares @ 20 % premium (₹2).

• Oversubscription: Applications 10,00,000 – excess 2,00,000 rejected (letters of regret).

• Money structure: Application ₹3, Allotment ₹7 (incl. premium), Balance on Call.

• Allotment dues unpaid on 15,000 shares (Sanju).
  Another shareholder (Rocky) paid call money early on 25,000 shares (calls-in-advance).

• Subscribed capital (called‐up): Full face value ₹10 on 8,00,000 = ₹80,00,000; but only Application + Allotment called during year → ₹10 called? (Application 3 + Allotment 7) ⇒ yes, ₹10 called fully.

• Calls-in-arrears: 15,000 × ₹7 = ₹1,05,000.

• Calls-in-advance: 25,000 × balance call (₹?) Assume call ₹? balance (since FV ₹10 already called?)—Sample Paper answer summarises: “Subscribed Capital – ₹63,25,000.” (Detailed workings provided in class.)

• Securities Premium: 8,00,000 × ₹2 = ₹16,00,000.

Exercise 7 – Excel Ltd.

• Authorised: 50,000 shares × ₹10 = ₹5,00,000.

• Issued & Subscribed: 20,000 shares.

• Default: First & Final call ₹2 unpaid on 500 shares (Varun).

• Subscribed & fully paid: 19,500 shares (₹10) = ₹1,95,000.

• Subscribed but not fully paid: 500 shares (₹8 paid) = ₹4,000.

• Calls-in-arrears: 500 × ₹2 = ₹1,000.

Exercise 8 – Red Roses Ltd.

• Authorised: 25,000 × ₹100 = ₹25,00,000.

• Issue: 15,000 shares.

• Arrears: Allotment ₹40 unpaid on 100 shares; 1st & Final call ₹20 unpaid on 500 shares.

• Subscribed & fully paid: 14,500 shares × ₹100 = ₹14,50,000.

• Subscribed but not fully paid: 500 shares × ₹72 paid = ₹36,000.

• Calls-in-arrears: (100 × ₹40) + (500 × ₹20) = ₹14,000.

Exercise 9 – East India Hotels Ltd.

• Authorised: 2,50,000 × ₹10 = ₹25,00,000.

• Issue: 1,50,000 shares.

• Final call ₹3 not yet made.
  Paresh (5,000 shares) paid it in advance.

• Subscribed but not fully paid (since call not made): 1,50,000 × ₹7 = ₹10,50,000.

• Calls-in-advance: 5,000 × ₹3 = ₹15,000.

Exercise 10 – Shuchi Ltd.

• Authorised: 5,00,000 shares × ₹10 = ₹50,00,000.

• Issue: 20,000 shares @ ₹2 premium.

• Payments: Application ₹2, Allotment ₹5 (incl. ₹2 premium), First call ₹2, Second/final call ₹? not yet (balance ₹3) – but a shareholder paid full balance on 300 shares (calls-in-advance); another shareholder (1,000 shares) defaulted on first call.

• Calls-in-arrears: 1,000 × ₹2 = ₹2,000.

• Calls-in-advance: 300 × (₹5 still uncalled) = ₹1,500.

• Securities Premium: 20,000 × ₹2 = ₹40,000.

• Balance Sheet total as per answer: ₹1,78,900.

Exercises 11-13 – Journal Entries for Issue at Par

Exercise 11 – Nidhi Ltd.

• Issue: 2,50,000 shares × ₹10 at par, payable in full on application.
  Journal: Bank Dr ₹25,00,000
  To Equity Share Capital ₹25,00,000.

Exercise 12 – Soumya Ltd.

• Authorised 1,60,000 shares; Issue 80,000 at par, fully payable on application.
  Bank Dr ₹8,00,000
  To Equity Share Capital ₹8,00,000.

Exercise 13 – Vivan Ltd.

• Issue 10,000 shares × ₹100.
  Application: ₹30; Allotment: ₹30; First & Final Call: ₹40.
  All money received.

• Summarised Share Capital: ₹10,00,000 (fully paid). Key journal entries:

  1. Bank Dr ₹3,00,000 → Equity Share App. A/c.

  2. Equity Share App. A/c Dr → Equity Share Capital ₹3,00,000.

  3. Bank Dr ₹3,00,000 → Equity Share Allotment A/c.

  4. Equity Share Allotment Dr → Equity Share Capital ₹3,00,000.

  5. Bank Dr ₹4,00,000 → Equity Share Call A/c.

  6. Equity Share Call Dr → Equity Share Capital ₹4,00,000.

Formulas & Calculation Shortcuts

• Share Premium: $\text{Premium} = (\text{Issue Price} − \text{Face Value}) \times \text{No. of shares}$

• Calls-in-Arrears: $\text{Unpaid Calls} = \text{Shares in Default} \times \text{Call Amount per Share}$

• Calls-in-Advance: $\text{Advance} = \text{Shares} \times \text{Uncalled Amount Paid Early}$

• Share Capital Totals:
  $\text{Paid-up Capital} = \text{Called-up} − \text{Calls-in-Arrears}$

Links to Foundational Principles

• Double‐entry bookkeeping ensures every share issuance entry credits an equity account (Share Capital or Securities Premium) and debits either Bank or intermediary application/allotment accounts.

• Schedule III compliance: enhances transparency; investors can reconcile authorised vs. issued vs. paid-up amounts.

• Prudence principle: Calls-in-arrears deducted, avoiding overstated equity.

Ethical & Practical Implications

• Timely disclosure of unpaid calls protects minority shareholders by revealing collection risk.

• Securities premium must only be utilised for purposes sanctioned by Section 52 of the Act (e.g., issue of bonus shares, writing off preliminary expenses). Misuse can lead to penal consequences.

• Over-subscription handling (letters of regret, pro-rata allotment) should be fair to avoid legal disputes.

Exam-Tip Highlights

• Always reconcile figures:
  $\text{Authorised} \ge \text{Issued} \ge \text{Subscribed} \ge \text{Paid-up}.$

• Mention “Par Value” or “Face Value” in Notes; state number of shares.

• Remember separate headings in Notes:
  (a) Authorised
  (b) Issued
  (c) Subscribed & Fully Paid-up
  (d) Subscribed but Not Fully Paid-up
  (e) Calls-in-Arrears (deduction)
  (f) Calls-in-Advance (liability).

• Forfeiture: reduce Share Capital by called-up amount forfeited; show Forfeited Shares A/c under “Other Equity”.