The share capital details will be disclosed in the Notes to Accounts as follows:

The share capital details will be disclosed in the Notes to Accounts as follows:

This total amount of $\text{₹} \ 94,90,000$ will be shown on the face of the Balance Sheet under Shareholders' Funds.

Analysis of Transactions:

• Application Stage: Money received on 13,000 shares @ $\text{₹} \ 30 = \text{₹} \ 3,90,000$. Out of this, money for 12,000 shares ($\text{₹} \ 3,60,000$) will be capitalized, and money for 1,000 shares ($\text{₹} \ 30,000$) will be refunded.
• Allotment Stage: Money due on 12,000 shares @ $\text{₹} \ 40 = \text{₹} \ 4,80,000$. This was fully received.
• First Call Stage: Money due on 12,000 shares @ $\text{₹} \ 20 = \text{₹} \ 2,40,000$. Money not received on 100 shares ($100 \times \text{₹} \ 20 = \text{₹} \ 2,000$). So, money received = $\text{₹} \ 2,40,000 - \text{₹} \ 2,000 = \text{₹} \ 2,38,000$.
• Second & Final Call Stage: Money due on 12,000 shares @ $\text{₹} \ 10 = \text{₹} \ 1,20,000$. Money not received on 100 shares ($100 \times \text{₹} \ 10 = \text{₹} \ 1,000$). So, money received = $\text{₹} \ 1,20,000 - \text{₹} \ 1,000 = \text{₹} \ 1,19,000$.

Books of Mona Earth Mover Limited

Journal

In the Books of Jupiter Ltd.

Journal Entries

Method 1: Without Opening Calls in Arrears Account

Method 2: By Opening Calls in Arrears Account

Calculation of Interest on Calls in Arrears

Amount in Arrears = 1,000 shares × $\text{₹} \ 2$/share = $\text{₹} \ 2,000$.

Period of Delay = June 1 to September 1 = 3 months (June, July, August).

Interest = Amount × Rate × Period

Interest = $ \text{₹} \ 2,000 \times \frac{10}{100} \times \frac{3}{12} = \text{₹} \ 50 $.

Total Amount Received = $\text{₹} \ 2,000$ (Arrears) + $\text{₹} \ 50$ (Interest) = $\text{₹} \ 2,050$.

Journal Entry

(Note: If a Calls in Arrears account was not opened, the credit of $\text{₹} \ 2,000$ would be to 'Share First Call A/c' instead.)

Books of Konica Limited

Journal

Explanation of the last journal entry:

• To Equity Share First Call A/c (Cr. $\text{₹} \ 20,000$): This settles the total amount that was made due on the first call.
• Calls in Arrears A/c (Dr. $\text{₹} \ 2,000$): This records the unpaid amount from the shareholder holding 100 shares (100 shares × $\text{₹} \ 20$).
• To Calls in Advance A/c (Cr. $\text{₹} \ 1,250$): This records the final call money paid early by the shareholder holding 50 shares (50 shares × $\text{₹} \ 25$).
• Bank A/c (Dr. $\text{₹} \ 19,250$): This is the actual cash received, calculated as follows:
  • First Call money received: (950 shares × $\text{₹} \ 20$) = $\text{₹} \ 19,000$. (Total 1000 shares less 100 in arrears = 900, but the shareholder with 50 shares also paid the first call).
  • Advance money received: 50 shares × $\text{₹} \ 25$ = $\text{₹} \ 1,250$.
  • Total cash received from the shareholder paying advance = 50 shares * ($\text{₹} \ 20$ first call + $\text{₹} \ 25$ final call) = $\text{₹} \ 2,250$.
  • Total cash from other shareholders = 850 shares * $\text{₹} \ 20$ = $\text{₹} \ 17,000$.
  • Total cash in bank = $\text{₹} \ 17,000 + \text{₹} \ 2,250 = \text{₹} \ 19,250$.

Working Note: Calculation of Interest

Amount of Calls in Advance = 400 shares × $\text{₹} \ 20$/share = $\text{₹} \ 8,000$.

Period of Advance = From Nov 01, 2020 to May 01, 2021 = 6 months.

Interest = Amount × Rate × Period

Interest = $ \text{₹} \ 8,000 \times \frac{12}{100} \times \frac{6}{12} = \text{₹} \ 480 $.

Journal Entries

Total Application Money Received = 1,20,000 shares × $\text{₹} \ 3 = \text{₹} \ 3,60,000$.

Amount transferred to Share Capital = 1,00,000 shares × $\text{₹} \ 3 = \text{₹} \ 3,00,000$.

Amount Refunded = 20,000 shares × $\text{₹} \ 3 = \text{₹} \ 60,000$.

Total Application Money Received = 60,000 shares × $\text{₹} \ 4 = \text{₹} \ 2,40,000$.

Amount transferred to Share Capital = 50,000 shares × $\text{₹} \ 4 = \text{₹} \ 2,00,000$.

Excess Application Money to be adjusted = (60,000 - 50,000) shares × $\text{₹} \ 4 = \text{₹} \ 40,000$.

Amount Due on Allotment = 50,000 shares × $\text{₹} \ 3 = \text{₹} \ 1,50,000$. Since excess money ($\text{₹} \ 40,000$) is less than allotment due ($\text{₹} \ 1,50,000$), the entire excess will be adjusted.

Total Application Money Received = 3,00,000 shares × $\text{₹} \ 3 = \text{₹} \ 9,00,000$.

Amount Refunded (on rejected applications) = 40,000 shares × $\text{₹} \ 3 = \text{₹} \ 1,20,000$.

Pro-rata category: Applied = 2,60,000 shares; Allotted = 2,00,000 shares.

Amount transferred to Share Capital = 2,00,000 shares × $\text{₹} \ 3 = \text{₹} \ 6,00,000$.

Excess Application Money to be adjusted = (2,60,000 - 2,00,000) shares × $\text{₹} \ 3 = \text{₹} \ 1,80,000$.

Since the issue is under-subscribed but has met the minimum subscription requirement (92,000 shares is 92% of 1,00,000 shares, which is > 90%), all subsequent entries will be based on 92,000 shares.

In the Books of Crystal Ltd.

Journal Entries

Journal Entries

Calculation of Number of Shares

The Purchase Consideration (amount payable to Handa Limited) is $\text{₹} \ 5,40,000$.

(a) When shares are issued at par:

The issue price per share is its face value, i.e., $\text{₹} \ 100$.

$ \text{Number of Shares} = \frac{\text{₹} \ 5,40,000}{\text{₹} \ 100} = \textbf{5,400 shares} $

(b) When shares are issued at a 20% premium:

The issue price per share is Face Value + Premium = $\text{₹} \ 100 + (20\% \text{ of } \text{₹} \ 100) = \text{₹} \ 120$.

$ \text{Number of Shares} = \frac{\text{₹} \ 5,40,000}{\text{₹} \ 120} = \textbf{4,500 shares} $

Notice that when shares are issued at a premium, fewer shares are needed to settle the same amount of debt.

Journal Entries in the books of Rahul Limited

Step 1: Entry for the purchase of the asset (same for both cases)
This entry records the acquisition of the building and recognizes Handa Limited as a creditor.

Step 2 (Case a): Settlement by issuing shares at par
Here, 5,400 shares are issued to settle the liability of $\text{₹} \ 5,40,000$.

Step 2 (Case b): Settlement by issuing shares at a 20% premium
Here, 4,500 shares are issued. The amount credited to Share Capital will be the face value, and the premium will be credited to the Securities Premium account.

Working Note 1: Calculation of Net Assets and Goodwill

Working Note 2: Calculation of Number of Shares Issued

Total Purchase Consideration = $\text{₹} \ 30,00,000$

Less: Paid by Cheque = $\text{₹} \ 6,00,000$

Balance payable by issue of shares = $\text{₹} \ 24,00,000$

Issue price per share = Face Value + Premium = $\text{₹} \ 100 + (\text{25% of } \text{₹} \ 100) = \text{₹} \ 125$.

$ \text{Number of Shares} = \frac{\text{₹} \ 24,00,000}{\text{₹} \ 125} = \textbf{19,200 shares} $

Journal Entries in the books of Z Ltd.

Analysis:

• Called-up Amount = $\text{₹} \ 10$ per share. Total Dr. to Share Capital = 200 × $\text{₹} \ 10 = \text{₹} \ 2,000$.
• Amount Paid (Forfeited) = $\text{₹} \ 3$ (App) + $\text{₹} \ 4$ (Allot) = $\text{₹} \ 7$ per share. Total Cr. to Share Forfeiture = 200 × $\text{₹} \ 7 = \text{₹} \ 1,400$.
• Amount Unpaid = $\text{₹} \ 3$ (First & Final Call). Total Cr. to Share First & Final Call = 200 × $\text{₹} \ 3 = \text{₹} \ 600$.

Journal Entry

Analysis:

• Called-up Amount = $\text{₹} \ 10$ per share. Total Dr. to Share Capital = 300 × $\text{₹} \ 10 = \text{₹} \ 3,000$.
• Premium Status: RECEIVED. Since the premium was paid with allotment, the Securities Premium account will not be debited.
• Amount Paid (Forfeited) = Total Called-up Capital - Total Unpaid Capital = $\text{₹} \ 10 - (\text{₹} \ 2 + \text{₹} \ 2) = \text{₹} \ 6$ per share. Total Cr. to Share Forfeiture = 300 × $\text{₹} \ 6 = \text{₹} \ 1,800$.
• Amount Unpaid = $\text{₹} \ 2$ (First Call) + $\text{₹} \ 2$ (Final Call) = $\text{₹} \ 4$. Total Cr. to Calls = 300 × $\text{₹} \ 4 = \text{₹} \ 1,200$.

Journal Entry

Detailed Analysis of the Transaction:

• Total Called-up Capital per share: Since the first and final call was made, the entire face value of $\text{₹} \ 10$ is called-up.
• Premium Status: The premium of $\text{₹} \ 2$ was due on allotment, which Sunena did not pay. Therefore, the premium has not been received and must be debited.
• Unpaid Amounts:
  • Allotment: 500 shares × $\text{₹} \ 4$/share = $\text{₹} \ 2,000$.
  • First & Final Call: 500 shares × $\text{₹} \ 3$/share = $\text{₹} \ 1,500$.
• Amount Paid (to be forfeited): The only amount Sunena paid was on application. Application Money = [Total Issue Price ($\text{₹} \ 10 + \text{₹} \ 2$)] - [Unpaid Allotment ($\text{₹} \ 4$)] - [Unpaid Call ($\text{₹} \ 3$)] = $\text{₹} \ 12 - \text{₹} \ 7 = \text{₹} \ 5$. Total amount paid = 500 shares × $\text{₹} \ 5 = \text{₹} \ 2,500$.

Journal Entry for Forfeiture

Books of Poly Plastic Limited

Journal

1. Entry for Forfeiture

Analysis:

• Total shares forfeited = 200.
• Face value = $\text{₹} \ 100$. Called-up value = $\text{₹} \ 100$ (since the final call was made).
• Amount unpaid = Final Call of $\text{₹} \ 30$ per share.
• Amount paid (and therefore forfeited) = $\text{₹} \ 100 - \text{₹} \ 30 = \text{₹} \ 70$ per share.
• Total amount credited to Share Forfeiture A/c = 200 shares × $\text{₹} \ 70 = \text{₹} \ 14,000$.

2. Entry for Reissue

Analysis:

• Shares reissued = 150.
• Reissued as 'fully paid-up', so paid-up value is $\text{₹} \ 100$ per share.
• Reissue price = $\text{₹} \ 60$ per share.
• Discount on reissue = Paid-up value - Reissue price = $\text{₹} \ 100 - \text{₹} \ 60 = \text{₹} \ 40$ per share.
• Total discount = 150 shares × $\text{₹} \ 40 = \text{₹} \ 6,000$. This is absorbed by the Share Forfeiture account.

3. Entry for Transfer to Capital Reserve

Analysis:

1. Find the proportionate forfeited amount on the 150 reissued shares:

   $ \text{Proportionate Amount} = (\frac{\text{₹} \ 14,000}{200 \text{ shares}}) \times 150 \text{ shares} = \text{₹} \ 70 \text{ per share} \times 150 \text{ shares} = \text{₹} \ 10,500 $

2. Calculate the profit on reissue:

   $ \text{Profit} = \text{Proportionate Forfeited Amount} - \text{Discount on Reissue} = \text{₹} \ 10,500 - \text{₹} \ 6,000 = \text{₹} \ 4,500 $

Note: The Share Forfeiture account will still have a balance of $\text{₹} \ 3,500$ (i.e., $\text{₹} \ 14,000$ original balance - $\text{₹} \ 6,000$ discount - $\text{₹} \ 4,500$ transferred). This balance relates to the 50 forfeited shares that have not yet been reissued (50 shares × $\text{₹} \ 70 = \text{₹} \ 3,500$).

Analysis and Calculation

Step 1: Calculate Total Amount Forfeited

Total Forfeited Amount = 400 shares × $\text{₹} \ 6$ per share = $\text{₹} \ 2,400$.

Step 2: Use the Capital Reserve formula to find the discount

The formula for profit on reissue is:

Profit (Capital Reserve) = Amount Forfeited - Discount on Reissue

We are given the profit, and we have calculated the amount forfeited. We can rearrange the formula to find the total discount.

Discount on Reissue = Amount Forfeited - Profit (Capital Reserve)

Discount on Reissue = $\text{₹} \ 2,400 - \text{₹} \ 1,200 = \text{₹} \ 1,200$.

Step 3: Calculate the Total Reissue Price

The shares were reissued as fully paid-up, which means their total paid-up value is 400 shares × $\text{₹} \ 10 = \text{₹} \ 4,000$.

Total Reissue Price (Amount received in Bank) = Total Paid-up Value - Total Discount on Reissue

Total Reissue Price = $\text{₹} \ 4,000 - \text{₹} \ 1,200 = \text{₹} \ 2,800$.

Step 4: Calculate the Reissue Price per Share

Reissue Price per Share = $ \frac{\text{Total Reissue Price}}{\text{Number of Shares Reissued}} = \frac{\text{₹} \ 2,800}{400 \text{ shares}} = \textbf{$\text{₹} \ 7$ per share}$.

(a) True.

A company is created by law and is considered a separate legal entity distinct from its members. Since it does not have a physical body like a natural person, it is referred to as an artificial person.

(b) False.

A company has a separate legal identity. The company itself is liable for its acts, not its shareholders. The liability of shareholders is generally limited to the unpaid amount on the shares they hold.

(c) False.

The management of a company is vested in the hands of the Board of Directors, who are elected representatives of the members (shareholders). Members do not have a right to participate in the day-to-day management of the company.

(d) True.

A key feature of a company is the transferability of its shares. In a public company, shares are freely transferable, while in a private company, there are certain restrictions, but the shares are still transferable.

(e) True.

Share Application Account is a representative personal account. It represents the money received from share applicants, who are persons. The company is liable to either allot them shares or refund their money.

(f) False.

The Companies Act, 2013 does not require a director to be a shareholder unless the company's Articles of Association specifically mandate the holding of 'qualification shares'.

(g) False.

Paid-up capital is the portion of the called-up capital that has been paid by the shareholders. Therefore, paid-up capital can be equal to or less than the called-up capital, but it can never exceed it.

(h) True.

Capital reserves are created out of capital profits (e.g., profit on sale of fixed assets, securities premium). These reserves are not created from profits earned in the normal course of business and are generally not available for dividend distribution.

(i) False.

As per the Companies Act, 2013, there is no maximum limit prescribed for the amount of securities premium that can be charged on the issue of shares. The amount depends on the market value and reputation of the company.

(j) True.

Reserve capital is that portion of the uncalled capital that a company has resolved, by a special resolution, not to call up except in the event of its winding up.

When a company maintains a combined account for application and allotment, the initial receipt of application money and the subsequent allotment money due and received are recorded through a single "Share Application and Allotment Account".

In the Books of the Company

Journal Entries

The various types of share capital for Harsha Ltd. are determined as follows:

1. Authorised Share Capital

This is the maximum amount of share capital that the company is authorised to issue by its Memorandum of Association. It is also known as Registered or Nominal Capital.

Authorised Share Capital = 2,50,000 Equity Shares of $\textsf{₹ } \ 10$ each = $\textsf{₹ } \ 25,00,000$.

2. Issued Share Capital

This is the part of the authorised capital which is offered to the public (and promoters) for subscription.

Shares subscribed by Promoters = 25,000 shares

Shares issued to the Public = 2,00,000 shares

Total Issued Shares = 25,000 + 2,00,000 = 2,25,000 shares

Issued Share Capital = 2,25,000 Equity Shares of $\textsf{₹ } \ 10$ each = $\textsf{₹ } \ 22,50,000$.

3. Subscribed Share Capital

This is the part of the issued capital which has been actually subscribed for by the promoters and the public.

Shares subscribed by Promoters = 25,000 shares

Shares subscribed by the Public = 1,80,000 shares

Total Subscribed Shares = 25,000 + 1,80,000 = 2,05,000 shares

Subscribed Share Capital = 2,05,000 Equity Shares of $\textsf{₹ } \ 10$ each = $\textsf{₹ } \ 20,50,000$.

Working Notes: Calculation of Calls-in-Arrears

1. On Allotment:

X did not pay on 1,000 shares. Arrears = $1,000 \ \text{shares} \times \textsf{₹ } \ 3 = \textsf{₹ } \ 3,000$.

2. On First Call:

X did not pay on 1,000 shares. Arrears = $1,000 \ \text{shares} \times \textsf{₹ } \ 2 = \textsf{₹ } \ 2,000$.

Y did not pay on 600 shares. Arrears = $600 \ \text{shares} \times \textsf{₹ } \ 2 = \textsf{₹ } \ 1,200$.

Total Arrears on First Call = $\textsf{₹ } \ 3,200$.

3. On Second and Final Call:

X did not pay on 1,000 shares. Arrears = $1,000 \ \text{shares} \times \textsf{₹ } \ 2 = \textsf{₹ } \ 2,000$.

Y did not pay on 600 shares. Arrears = $600 \ \text{shares} \times \textsf{₹ } \ 2 = \textsf{₹ } \ 1,200$.

Z did not pay on 400 shares. Arrears = $400 \ \text{shares} \times \textsf{₹ } \ 2 = \textsf{₹ } \ 800$.

Total Arrears on Final Call = $\textsf{₹ } \ 4,000$.

Total Calls-in-Arrears = $3,000 + 3,200 + 4,000 = \textsf{₹ } \ 10,200$.

Journal Entries

Balance Sheet as at March 31, 2016 (Extract)

Notes to Accounts

Working Notes:

1. Instalment Details:

• Application: $\textsf{₹ } \ 3$
• Allotment: $\textsf{₹ } \ 2$
• Balance = $\textsf{₹ } \ 10 - (\textsf{₹ } \ 3 + \textsf{₹ } \ 2) = \textsf{₹ } \ 5$.
• First Call = $\textsf{₹ } \ 2.50$ (half of the balance)
• Final Call = $\textsf{₹ } \ 2.50$ (half of the balance)

2. Calls-in-Advance from Mr. A:

Mr. A paid the first and final call money along with the allotment money.

Advance on First Call = $600 \ \text{shares} \times \textsf{₹ } \ 2.50 = \textsf{₹ } \ 1,500$.

Advance on Final Call = $600 \ \text{shares} \times \textsf{₹ } \ 2.50 = \textsf{₹ } \ 1,500$.

Total Calls-in-Advance = $\textsf{₹ } \ 3,000$.

Journal Entries

Balance Sheet of Alfa Company Ltd. as at March 31, 2015 (Extract)

Notes to Accounts

The correct option is (ii) owners.

Explanation: Equity shareholders are the real owners of the company. They provide the risk capital, bear the ultimate risk of the business, and have voting rights in the company's management.

The correct option is (iii) the maximum amount of share capital which a company is authorised to issue.

Explanation: Nominal Share Capital, also known as Authorised or Registered Capital, is the maximum amount of capital that a company is legally permitted to raise through the issue of shares, as stated in its Memorandum of Association.

The correct option is (i) 10%.

Explanation: Table F of the Companies Act, 2013, which provides a model set of Articles of Association, specifies that if a company's articles are silent, the interest on calls-in-arrears can be charged at a rate not exceeding 10% per annum.

The correct option is (ii) credited to calls in advance account.

Explanation: When money is received in advance, the Bank Account is debited. Since this money is not yet due, it represents a liability for the company. This liability is recorded by crediting the "Calls-in-Advance Account".

The correct option is (i) for non-payment of call money.

Explanation: Forfeiture is the process where a company cancels the shares of a shareholder for failing to pay the allotment and/or call money that has been duly demanded. The other options are not valid grounds for forfeiture of shares.

The correct option is (iii) capital reserve.

Explanation: The profit on the reissue of forfeited shares is a capital profit because it arises from a transaction related to the company's capital structure, not from its regular business operations. Therefore, such profit must be transferred to the Capital Reserve.

The correct option is (iii) share capital.

Explanation: If forfeited shares have not been reissued by the balance sheet date, the balance in the Share Forfeiture Account is shown as an addition to the "Subscribed and Paid-up Capital" under the major head "Shareholders' Funds" and sub-head "Share Capital" in the Equity and Liabilities part of the Balance Sheet.

In the case of forfeiture of shares issued at a premium, the Securities Premium account is debited only if the premium amount has been called but not yet received by the company. In this question, the premium was due with the final call, which was not paid. Therefore, the Securities Premium account will be debited.

Working Notes:

1. Amount called-up on Share Capital:

Since the final call was made, the full face value has been called up.

Called-up Capital = $100 \ \text{shares} \ \times \ \textsf{₹ } \ 10 = \textsf{₹ } \ 1,000$

2. Amount of unpaid Securities Premium:

Premium per share = $20\% \ \text{of} \ \textsf{₹ } \ 10 = \textsf{₹ } \ 2$.

Unpaid Premium = $100 \ \text{shares} \ \times \ \textsf{₹ } \ 2 = \textsf{₹ } \ 200$

3. Amount forfeited (credited to Share Forfeiture A/c):

This is the amount paid by the shareholder towards the capital portion only.

Total amount paid per share = Total Called-up ($\textsf{₹ } \ 10 \ \text{Capital} + \textsf{₹ } \ 2 \ \text{Premium}$) - Amount Unpaid ($\textsf{₹ } \ 5$) = $\textsf{₹ } \ 12 - \textsf{₹ } \ 5 = \textsf{₹ } \ 7$.

Amount Forfeited = $100 \ \text{shares} \ \times \ \textsf{₹ } \ 7 = \textsf{₹ } \ 700$

4. Amount of Final Call in Arrears:

Unpaid Amount = $100 \ \text{shares} \ \times \ \textsf{₹ } \ 5 = \textsf{₹ } \ 500$

Journal Entry

Important Note: As per Section 53 of the Companies Act, 2013, a company is prohibited from issuing shares at a discount (except for sweat equity shares). However, for academic purposes, this question is being solved based on the premise of issue at a discount.

Calculation of Amount Forfeited

The amount forfeited is the actual amount received from the shareholder before forfeiture.

Total issue price per share = Face Value ($\textsf{₹ } \ 10$) - Discount ($\textsf{₹ } \ 1$) = $\textsf{₹ } \ 9$

Amount unpaid per share = First Call ($\textsf{₹ } \ 2$) + Final Call ($\textsf{₹ } \ 2$) = $\textsf{₹ } \ 4$

Amount paid per share = Total Issue Price - Amount Unpaid = $\textsf{₹ } \ 9 - \textsf{₹ } \ 4 = \textsf{₹ } \ 5$

Total Amount Forfeited = $800 \ \text{shares} \ \times \ \textsf{₹ } \ 5 = \textbf{\textsf{₹ } \ 4,000}$

Journal Entry

Working Notes:

1. Amount Forfeited on 400 Shares:

The shareholder 'X' paid the application and allotment money but failed to pay the call money. The amount forfeited is the amount already paid on the shares.

Amount paid per share = Application ($\textsf{₹ } \ 2.50$) + Allotment ($\textsf{₹ } \ 2.50$) = $\textsf{₹ } \ 5$

Total Amount Forfeited = 400 shares $\times$ $\textsf{₹ } \ 5$ per share = $\textsf{₹ } \ 2,000$

2. Discount on Reissue of 200 Shares:

The shares are reissued as fully paid ($\textsf{₹ } \ 10$) for $\textsf{₹ } \ 8$. The difference is the discount allowed on reissue.

Discount per share = Face Value ($\textsf{₹ } \ 10$) - Reissue Price ($\textsf{₹ } \ 8$) = $\textsf{₹ } \ 2$

Total Discount on Reissue = 200 shares $\times$ $\textsf{₹ } \ 2$ per share = $\textsf{₹ } \ 400$

This discount is adjusted from the Share Forfeiture Account.

3. Profit on Reissue transferred to Capital Reserve:

The profit is the excess of the forfeited amount on the reissued shares over the discount given on their reissue.

Forfeited amount on 200 reissued shares = 200 shares $\times$ $\textsf{₹ } \ 5$ (amount paid per share) = $\textsf{₹ } \ 1,000$

Less: Discount on reissue = $\textsf{₹ } \ 400$

Profit on Reissue = $\textsf{₹ } \ 1,000 - \textsf{₹ } \ 400 = \textsf{₹ } \ 600$

Journal Entries

Share Capital Account

Dr.Cr.

Share Forfeiture Account

Dr.Cr.

The Share Capital account will be debited with the called-up amount on the share at the time of forfeiture.

In this case, the called-up amount is $\textsf{₹ } \ 8$.

Reasoning:

When shares are forfeited, the Share Capital account is debited to cancel the capital that was originally credited when the shares were issued. The cancellation can only be for the amount that the company has actually demanded (called up) from the shareholder. The amount paid or unpaid does not affect the debit to the Share Capital account; it affects the credit to the Share Forfeiture and Calls-in-Arrears accounts, respectively.

Therefore, the Share Capital account will be debited by $\textsf{₹ } \ 8$ per share.

The minimum reissue price for the forfeited share is $\textsf{₹ } \ 4$.

Reasoning:

When forfeited shares are reissued, the maximum discount that a company can allow on reissue is limited to the amount that was originally forfeited on those shares. The total amount received for the share (original amount paid + reissue price) must not be less than the face value of the share.

Calculation:

Face Value of Share = $\textsf{₹ } \ 10$

Amount Forfeited (already paid) = $\textsf{₹ } \ 6$

This forfeited amount of $\textsf{₹ } \ 6$ is the maximum discount that can be offered on reissue.

Minimum Reissue Price = Face Value - Maximum Allowable Discount

Minimum Reissue Price = $\textsf{₹ } \ 10 \ - \ \textsf{₹ } \ 6 = \textsf{₹ } \ 4$

This transaction involves the issue of shares for a consideration other than cash. Two journal entries will be recorded in the company's books.

1. Journal Entry for the purchase of Plant and Machinery:

2. Journal Entry for the issue of shares to the vendor:

Working Notes:

1. Forfeiture Details:

• Number of shares forfeited = 200.

• Face value per share = $\textsf{₹ } \ 10$.

• Called-up value per share = $\textsf{₹ } \ 10$ (Assumed fully called as amount unpaid is less than face value).

• Amount paid (forfeited) = $\textsf{₹ } \ 800$.

• Amount unpaid (Calls-in-Arrears) = (200 shares $\times$ $\textsf{₹ } \ 10$) - $\textsf{₹ } \ 800 = \textsf{₹ } \ 1,200$.

2. Reissue Details:

• Reissued as fully paid-up (Paid-up value = 200 shares $\times$ $\textsf{₹ } \ 10$ = $\textsf{₹ } \ 2,000$).

• Amount received on reissue = $\textsf{₹ } \ 1,500$.

• Discount on reissue = $\textsf{₹ } \ 2,000 - \textsf{₹ } \ 1,500 = \textsf{₹ } \ 500$. (This is debited to Share Forfeiture A/c).

3. Transfer to Capital Reserve:

• Total amount forfeited = $\textsf{₹ } \ 800$.

• Less: Discount on reissue = $\textsf{₹ } \ 500$.

• Profit on reissue = $\textsf{₹ } \ 300$.

Journal Entries

Working Notes:

1. Amount Forfeited:

• From A (100 shares @ $\textsf{₹ } \ 1$) = $\textsf{₹ } \ 100$

• From B (200 shares @ $\textsf{₹ } \ 3$) = $\textsf{₹ } \ 600$

• From C (300 shares @ $\textsf{₹ } \ 6$) = $\textsf{₹ } \ 1,800$

• Total Amount Forfeited = $\textsf{₹ } \ 2,500$

2. Calls-in-Arrears:

• On Allotment (A only): 100 shares $\times$ $\textsf{₹ } \ 2$ = $\textsf{₹ } \ 200$

• On First Call (A & B): (100+200) shares $\times$ $\textsf{₹ } \ 3$ = $\textsf{₹ } \ 900$

• On Second Call (A, B & C): (100+200+300) shares $\times$ $\textsf{₹ } \ 4$ = $\textsf{₹ } \ 2,400$

3. Reissue & Capital Reserve:

• All 600 shares are reissued at $\textsf{₹ } \ 11$ (fully paid). This is at a premium of $\textsf{₹ } \ 1$ per share.

• Total Securities Premium on reissue = 600 shares $\times$ $\textsf{₹ } \ 1$ = $\textsf{₹ } \ 600$.

• Since there is no discount on reissue, the entire forfeited amount of $\textsf{₹ } \ 2,500$ is a capital profit and will be transferred to Capital Reserve.

Journal Entries

As per the Companies Act, 2013, a public company is a company that is not a private company. More specifically, it is a company that:

• Has a minimum of seven members and no maximum limit on the number of members.

• Offers its shares and debentures to the general public for subscription.

• Allows for the free transferability of its shares.

• Must have a minimum of three directors.

• It is required to add the word "Limited" at the end of its name.

As per the Companies Act, 2013, a private company is a company whose Articles of Association contain specific restrictions. These are:

• It restricts the right to transfer its shares.

• It has a minimum of two members and a maximum limit of 200 members (excluding employee-members).

• It is prohibited from making any invitation to the public to subscribe for its securities (shares or debentures).

• It must have a minimum of two directors.

• It is required to add the words "Private Limited" at the end of its name.

Shares can be forfeited only under specific conditions. A company can forfeit shares only if:

1. The Articles of Association of the company explicitly grant the directors the power to forfeit shares.

2. The shareholder has failed to pay the amount due on allotment and/or any call on the shares.

3. The company has given a proper notice to the defaulting shareholder, demanding payment of the unpaid amount along with any interest, and stating that the shares will be forfeited if the payment is not made by a certain date.

4. The shareholder fails to make the payment even after the notice period has expired.

Shares cannot be forfeited for any reason other than the non-payment of calls.

Calls-in-Arrears refers to the portion of the called-up capital that has been demanded by the company from its shareholders but has not yet been paid by them. When a company makes a call (allotment, first call, final call), shareholders are required to pay the amount by a specified date.

If a shareholder fails to pay the amount of allotment or any call, the unpaid amount is known as 'Calls-in-Arrears'. It represents the amount receivable by the company from its defaulting shareholders. In the Balance Sheet, it is shown as a deduction from the Subscribed Capital.

A listed company is a public company whose securities (shares and/or debentures) are officially listed and traded on at least one recognised stock exchange, such as the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE) in India.

Being listed allows the company's shares to be bought and sold freely by the general public through the stock market, providing liquidity to the investors. Listed companies are subject to strict regulations and disclosure norms laid down by the stock exchange and the Securities and Exchange Board of India (SEBI) to ensure transparency and protect investor interests.

According to Section 52(2) of the Companies Act, 2013, the amount collected as Securities Premium can be used only for the following specific purposes:

1. To issue fully paid bonus shares to the members of the company.

2. To write off the preliminary expenses of the company.

3. To write off expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company.

4. To provide for the premium payable on the redemption of any redeemable preference shares or debentures of the company.

5. For the purchase of its own shares or other securities (buy-back).

Calls-in-Advance refers to the amount received by a company from its shareholders before the company has actually made a formal call for that money. Sometimes, a shareholder may choose to pay the full amount or a part of the future call money along with the allotment or an earlier call.

This amount is not yet due, so it is treated as a current liability for the company and is shown under the head 'Other Current Liabilities' in the Balance Sheet. The company may pay interest on calls-in-advance if its Articles of Association permit.

Minimum Subscription is the minimum amount of capital that a company must raise from the public through its share issue before it can proceed with the allotment of shares. This concept is designed to protect investors from a situation where a company starts its business with inadequate funds, leading to a high risk of failure.

As per Section 39 of the Companies Act, 2013, and guidelines from SEBI, a company must receive applications for at least 90% of the total shares it has offered to the public. If the company fails to receive this minimum subscription within the specified time (usually 30 days from the date of issue of the prospectus), it cannot allot any shares. In such a case, the entire application money received must be refunded to the applicants within a prescribed period.

Meaning of a Company

A company is a legal entity formed by a group of individuals to engage in and operate a business. As defined by the Companies Act, 2013, a company is an artificial person, created by law, with a separate legal identity, perpetual succession, and a common seal. It is a form of business organisation where the capital is contributed by a large number of people, known as shareholders, who are the owners of the company.

Characteristics of a Company

The main characteristics of a company are as follows:

1. Incorporated Association: A company must be incorporated or registered under the Companies Act. It comes into existence only after it has been legally registered.

2. Separate Legal Entity: A company has a legal identity that is separate and distinct from its members (shareholders). It can own assets, incur liabilities, enter into contracts, sue, and be sued in its own name.

3. Artificial Person: A company is created by law and exists only in the eyes of the law. It does not have a physical body like a natural person, but it can perform most of the functions of a natural person through its board of directors.

4. Perpetual Succession: The life of a company is not affected by the death, insolvency, or retirement of its members. Shareholders may come and go, but the company continues to exist indefinitely until it is formally wound up through a legal process.

5. Limited Liability: The liability of the shareholders is limited to the nominal value of the shares they hold. In case of losses, their personal assets cannot be used to pay the company's debts.

6. Common Seal: As an artificial person, a company cannot sign documents itself. It has an official signature, the common seal, which is affixed to all important documents and contracts, usually in the presence of directors.

7. Transferability of Shares: The shares of a public company are freely transferable without the consent of other members. In a private company, there are certain restrictions on the transfer of shares.

8. Separation of Ownership and Management: The owners of the company are the shareholders, but the day-to-day management is in the hands of the Board of Directors, who are elected representatives of the shareholders.

The share capital of a company is divided into several categories, which are disclosed in the company's Balance Sheet to provide a clear picture of its capital structure. The main categories are:

1. Authorised Capital: This is the maximum amount of share capital that a company is legally authorised to issue, as stated in its Memorandum of Association. It is also known as Nominal Capital or Registered Capital.

2. Issued Capital: This is the part of the authorised capital that the company has offered to the public for subscription. It can be equal to or less than the authorised capital.

3. Subscribed Capital: This is the part of the issued capital that has been actually subscribed for (applied for) by the public. It can be equal to or less than the issued capital.

4. Called-up Capital: This is the portion of the subscribed capital that the company has demanded or 'called up' from the shareholders for payment. The company may decide not to call the full face value of the shares at once.

5. Paid-up Capital: This is the part of the called-up capital that the shareholders have actually paid. If any shareholder fails to pay the call amount, it is known as 'Calls-in-Arrears'. Paid-up capital is the called-up capital minus calls-in-arrears.

6. Uncalled Capital: This is the portion of the subscribed capital that has not yet been called up by the company. It can be called up by the directors at any time in the future.

7. Reserve Capital: This is a part of the uncalled capital that the company has decided, by a special resolution, not to call up except in the event of the company being wound up. It provides extra security to the creditors.

Meaning of Share

The term 'share' refers to a unit into which the total share capital of a company is divided. Each share represents a small fraction of the ownership of the company. A person who buys shares of a company is known as a shareholder and becomes a part-owner of the company. The value of each share is known as its nominal or face value.

Types of Shares

Under the Companies Act, 2013, a company can issue two main types of shares:

1. Preference Shares:

Preference shares are those that carry two preferential rights over equity shares:

• Preferential Right to Dividend: They receive a dividend at a fixed rate before any dividend is paid to equity shareholders.

• Preferential Right to Repayment of Capital: In the event of the company's winding up, their capital is repaid before the capital of equity shareholders.

Preference shareholders generally do not have voting rights, except in matters directly affecting their interests.

2. Equity Shares:

Equity shares, also known as ordinary shares, are those shares which are not preference shares. They represent the main risk-bearing capital of the company.

• Dividend: They are paid a dividend only after the preference dividend has been paid. The rate of dividend is not fixed and depends on the profits available and the decision of the directors.

• Repayment of Capital: In the event of winding up, their capital is repaid only after all other claims, including those of preference shareholders, have been settled.

• Voting Rights: Equity shareholders have full voting rights on all matters of the company, which gives them control over the management.

Over-subscription occurs when a company receives applications for more shares than the number of shares it has offered to the public. In such a situation, the company cannot allot shares to all applicants. The directors have to decide on a basis for allotment, which must be fair and reasonable. The process for allotment involves one or a combination of the following alternatives:

1. Full Allotment to Some Applicants and Rejection of Others

The company may decide to accept some applications in full and completely reject the others. The application money of the rejected applicants is refunded in full.

2. Pro-rata Allotment

Under this method, the company allots shares to all applicants on a proportionate basis. For example, if the company receives applications for 1,50,000 shares against an offer of 1,00,000 shares, it may allot shares in the ratio of 10:15 (or 2:3), meaning every applicant gets 2 shares for every 3 shares they applied for.

The excess application money received from the allottees is not refunded immediately. It is adjusted towards the amount due on allotment and, if any surplus still remains, towards future calls (if the Articles of Association permit).

3. Combination of the Above Two Methods

This is the most common approach. The company may adopt a mixed policy where:

• Some applications are accepted in full (usually for small investors).

• Some applications are completely rejected.

• The remaining applicants are allotted shares on a pro-rata basis.

Accounting Treatment: The excess application money is dealt with as follows:

• For rejected applications: Share Application A/c Dr. To Bank A/c (Refund)

• For pro-rata allotment: The excess application money is transferred from the Share Application Account to the Share Allotment Account and/or Calls-in-Advance Account. The journal entry is:

  Share Application A/c Dr.

  To Share Allotment A/c

  To Calls-in-Advance A/c

  To Bank A/c (if any balance is refunded)

A Preference Share is a type of share that carries two preferential rights over equity shares: (i) a preferential right to receive dividends at a fixed rate during the lifetime of the company, and (ii) a preferential right to the repayment of capital in the event of the company's winding up.

The different types of preference shares are as follows:

1. Cumulative Preference Shares: These shares have the right to receive arrears of dividend. If the company is unable to pay the dividend in a particular year due to insufficient profits, the unpaid dividend accumulates and is paid in subsequent years whenever profits are available.

2. Non-Cumulative Preference Shares: For these shares, the right to a dividend for a particular year is lost if the company does not have sufficient profits to pay it. The arrears of dividend do not accumulate.

3. Participating Preference Shares: These shareholders are entitled to receive their fixed dividend and also have the right to participate in the surplus profits remaining after the dividend has been paid to equity shareholders, up to a certain limit.

4. Non-Participating Preference Shares: These shareholders are entitled only to their fixed rate of dividend and do not have any right to share in the surplus profits of the company.

5. Redeemable Preference Shares: These are shares that the company can redeem (repay the capital) within a specified period, as per the terms of the issue and the provisions of the Companies Act, 2013.

6. Irredeemable Preference Shares: These are shares whose capital can only be repaid when the company is being wound up. As per the Companies Act, 2013, a company in India cannot issue irredeemable preference shares.

7. Convertible Preference Shares: These shares give the holder the right to convert them into equity shares within a specified period and according to the terms of the issue.

8. Non-Convertible Preference Shares: These shares do not carry the right to be converted into equity shares.

The provisions of law relating to 'Calls-in-Arrears' and 'Calls-in-Advance' are primarily governed by the company's Articles of Association and, in their absence, by Table F of the Companies Act, 2013.

Provisions Relating to Calls-in-Arrears

Meaning: Calls-in-Arrears is the amount that has been called up by the company on its shares but has not been paid by the defaulting shareholders.

Provisions:

1. Interest: The Articles of Association can empower the company to charge interest on the amount of calls-in-arrears. If the Articles are silent, Table F of the Companies Act, 2013 suggests charging interest at a rate not exceeding 10% per annum.

2. Right to Dividend: A shareholder who has not paid the call money may be debarred from receiving dividends until the arrears are paid.

3. Forfeiture of Shares: The most significant consequence of non-payment of calls is that the company has the right to forfeit the shares after giving due notice.

4. Disclosure in Balance Sheet: Calls-in-Arrears is shown as a deduction from the Subscribed but not fully paid-up Capital under the head 'Share Capital' in the Balance Sheet.

Provisions Relating to Calls-in-Advance

Meaning: Calls-in-Advance is the amount received from shareholders before the company has actually made the call for it.

Provisions:

1. Acceptance: A company can accept calls-in-advance only if its Articles of Association authorise it to do so.

2. Interest: The company is liable to pay interest on the amount of calls-in-advance for the period from the date of receipt to the date when the call is actually due. As per Table F, the rate of interest should not exceed 12% per annum.

3. No Dividend Rights: Shareholders are not entitled to receive any dividend on the amount of calls-in-advance, as this amount is not considered part of the paid-up capital until the call is made.

4. Disclosure in Balance Sheet: Calls-in-Advance is shown as a separate item under the head 'Current Liabilities' and sub-head 'Other Current Liabilities' in the Balance Sheet.

Over-subscription

Meaning: Over-subscription is a situation where a company receives applications for more shares than the number of shares it has offered to the public for subscription.

Dealing with it: A company cannot allot more shares than it has issued. The directors must decide on a basis for allotment, which can be:

• Rejecting the excess applications and refunding the money.

• Making a pro-rata allotment to all applicants (allotting fewer shares than applied for).

• A combination of both methods.

Accounting Treatment: The excess application money is accounted for as follows:

• The amount on rejected applications is refunded by passing the entry: Share Application A/c Dr. To Bank A/c.

• The excess money from pro-rata allottees is adjusted towards the amount due on allotment and subsequent calls. The entry is: Share Application A/c Dr. To Share Allotment A/c / To Calls-in-Advance A/c.

Under-subscription

Meaning: Under-subscription is a situation where the number of shares applied for by the public is less than the number of shares offered by the company.

Dealing with it: The allotment of shares is subject to the condition of receiving the minimum subscription. As per SEBI guidelines, the minimum subscription must be at least 90% of the size of the issue.

• If the subscription is 90% or more, the company can proceed with the allotment of shares to all the applicants in full.

• If the subscription is less than 90%, the company cannot allot any shares and must refund the entire application money to the applicants within a specified time.

Accounting Treatment: If the minimum subscription is received, all accounting entries for share issue are passed for the number of shares actually subscribed. If it is not received, the entry for the refund of application money is passed: Share Application A/c Dr. To Bank A/c.

Securities Premium is the excess amount received by a company over the face value of its shares. It is a capital receipt and is credited to a separate account called 'Securities Premium Account'. This amount is not a distributable profit.

According to Section 52(2) of the Companies Act, 2013, the amount in the Securities Premium Account can be used only for the following five specific purposes:

1. For issuing fully paid bonus shares: The company can capitalise its premium to issue free shares to its existing shareholders.

2. For writing off preliminary expenses: The expenses incurred at the time of the company's incorporation can be written off against the securities premium.

3. For writing off expenses on issue of securities: Expenses such as commission, underwriting fees, or discount allowed on the issue of shares or debentures can be written off.

4. For providing for the premium on redemption: If the company has to pay a premium when redeeming its preference shares or debentures, that premium amount can be provided for out of the Securities Premium Account.

5. For the purchase of its own shares (buy-back): The company can use this account to finance the buy-back of its own shares from the market.

According to Section 53 of the Companies Act, 2013, the issue of shares at a discount is strictly prohibited for general public issues. A company cannot issue shares at a price lower than its face value.

However, the Act provides for one specific exception:

• Issue of Sweat Equity Shares: A company is permitted to issue sweat equity shares at a discount or for consideration other than cash. Sweat equity shares are issued to directors or employees as a reward for their contribution, such as providing know-how or making available rights in the nature of intellectual property rights.

Another related area is the reissue of forfeited shares. When forfeited shares are reissued, they can be issued at a price below their face value. The difference (discount) on reissue is not treated as a "discount on issue" but is adjusted from the amount already forfeited on those shares. The discount on reissue cannot exceed the amount previously received and forfeited on those shares.

Therefore, for a fresh issue of shares to the public, a company cannot issue them at a discount under the current law.

Meaning of Forfeiture of Shares

Forfeiture of Shares is the compulsory termination of a shareholder's membership by a company due to their failure to pay the allotment and/or any call money when demanded. When shares are forfeited, the shareholder loses their ownership rights in the company, and the amount they have already paid on the shares is not refunded. This amount is 'forfeited' by the company and is transferred to a separate account called the "Share Forfeiture Account". This action can only be taken if the company's Articles of Association provide the authority to do so.

Accounting Treatment on Forfeiture

The accounting entry for forfeiture aims to cancel the share capital related to the forfeited shares and record the amount received and the amount unpaid. The treatment varies slightly depending on whether the shares were issued at par or at a premium.

1. For Shares Issued at Par:

The Share Capital account is debited with the called-up amount, the amount received is credited to the Share Forfeiture account, and the unpaid amounts are credited to the respective Calls-in-Arrears accounts.

Journal Entry:

Share Capital A/c    Dr. (With Called-up Amount)

To Share Forfeiture A/c (With Amount Paid)

To Calls-in-Arrears A/c (With Amount Unpaid)

2. For Shares Issued at Premium:

• If Premium has been received: The Securities Premium account is not touched. The entry is the same as for shares issued at par.

• If Premium has not been received: The Securities Premium account must also be debited to cancel the premium that was due but not paid.

Journal Entry (when premium is unpaid):

Share Capital A/c    Dr. (With Called-up Capital Amount)

Securities Premium A/c    Dr. (With Unpaid Premium Amount)

To Share Forfeiture A/c (With Amount Paid towards Capital)

To Calls-in-Arrears A/c (With Total Amount Unpaid)

This is a case of shares issued at par and fully subscribed. The journal entries will record the receipt of money on application, transfer to share capital, amount due on allotment and call, and subsequent receipt of the same.

Journal Entries in the books of Anish Limited

When a cash book is prepared, all transactions involving cash/bank are recorded directly in the cash book, and only non-cash/bank transactions are passed through the journal.

1. Journal Entries

2. Cash Book (Bank Column)

Dr.Cr.

1. Journal Entries

2. Cash Book (Bank Column)

Dr.Cr.

1. Journal Entries

2. Cash Book (Bank Column)

Dr.Cr.

Journal Entries in the books of Mohit Glass Ltd.

1. Journal Entries

2. Cash Book (Bank Column)

Dr.Cr.

1. Journal Entries

2. Cash Book (Bank Column)

Dr.Cr.

3. Balance Sheet

Balance Sheet of Eastern Company Limited

Working Note: Allotment = Rs. 50 (Face Value Rs. 45 + Premium Rs. 5)

1. Journal Entries

2. Balance Sheet

Balance Sheet of Sumit Machine Ltd.

This transaction involves the issue of shares for consideration other than cash, specifically for the purchase of assets. The first entry for the purchase of assets is common to both cases.

(a) When shares are issued at par:

Number of shares to be issued = $\frac{\text{Purchase Consideration}}{\text{Issue Price per Share}} = \frac{6,30,000}{100} = 6,300$ shares.

(b) When shares are issued at a premium of 20%:

Issue price per share = $\textsf{₹ } 100 + (20\% \text{ of } \textsf{₹ } 100) = \textsf{₹ } 120$.

Number of shares to be issued = $\frac{6,30,000}{120} = 5,250$ shares.

Step 1: Calculate the amount to be settled by issuing shares.

Purchase Consideration = $\textsf{₹ } 3,80,000$

Cash Paid = $\textsf{₹ } 50,000$

Amount to be settled by shares = $\textsf{₹ } 3,80,000 - \textsf{₹ } 50,000 = \textsf{₹ } 3,30,000$

Step 2: Calculate the number of shares to be issued.

Issue Price per share = $\textsf{₹ } 110$ (Face Value $\textsf{₹ }$ 100 + Premium $\textsf{₹ }$ 10)

Number of shares = $\frac{3,30,000}{110} = 3,000$ shares.

Journal Entries

This problem involves forfeiture of shares for non-payment of allotment and call money. The key is to debit the Share Capital account with the amount called-up on the forfeited shares and credit the amounts unpaid (Calls in Arrears) and the amount already paid (Share Forfeiture Account).

Balance on Final Call = $\textsf{₹ } 100 - (25+30+25) = \textsf{₹ } 20$.

Journal Entries

Journal Entries

Journal Entries

Journal Entries

1. Journal Entries