Short Introduction
This chapter explains the accounting treatment of share capital, issue of shares, securities premium, calls in arrears, calls in advance, forfeiture of shares, and reissue of forfeited shares. These concepts are highly important for CBSE Board Exams and competitive commerce examinations.
Quick Information Box
| Particular | Details |
|---|---|
| Class | 12 |
| Subject | Accountancy |
| Chapter | Accounting for Share Capital |
| Topic Type | Theory + Numerical |
| Exam Importance | Very High |
| Board | CBSE |
Concepts Used (Topics Covered)
- Meaning of Company
- Types of Share Capital
- Equity Shares
- Preference Shares
- Issue of Shares
- Oversubscription
- Under Subscription
- Securities Premium
- Calls in Arrears
- Calls in Advance
- Forfeiture of Shares
- Reissue of Forfeited Shares
- Capital Reserve
Important Formulas
Share Application Money
Application Money = Number of Shares × Application Amount per Share
Share Allotment Money
Allotment Money = Number of Shares × Allotment Amount per Share
Call Money
Call Money = Number of Shares × Call Amount per Share
Securities Premium
Premium = Number of Shares × Premium per Share
Capital Reserve on Reissue
Capital Reserve = Share Forfeiture Balance − Discount on Reissue
SHORT ANSWER QUESTIONS
Question 1: What is a Public Company?
Answer
A Public Company is a company that invites the public to subscribe to its shares or debentures. Its shares can be freely transferred and there is no restriction on the maximum number of members.
Explanation
Public companies generally raise large amounts of capital from the public through stock exchanges.
Question 2: What is a Private Company?
Answer
A Private Company is a company that restricts the transfer of shares, limits the number of members, and does not invite the public to subscribe to its securities.
Explanation
Private companies are generally owned by a small group of persons.
Question 3: When can Shares be Forfeited?
Answer
Shares can be forfeited when a shareholder fails to pay allotment money or call money within the prescribed period and the company follows the procedure specified in its Articles of Association.
Question 4: What is meant by Calls in Arrears?
Answer
Calls in Arrears refer to the amount called up by the company but not paid by shareholders on the due date.
Question 5: What is a Listed Company?
Answer
A Listed Company is a company whose shares are listed and traded on a recognized stock exchange.
Question 6: What are the Uses of Securities Premium?
Answer
Securities Premium can be utilized for:
- Issuing bonus shares.
- Writing off preliminary expenses.
- Writing off commission or discount on issue of securities.
- Premium payable on redemption of preference shares or debentures.
- Buy-back of shares under prescribed conditions.
Question 7: What is meant by Calls in Advance?
Answer
Calls in Advance means money received from shareholders before it has been formally called by the company. It is treated as a liability of the company.
Question 8: Write a Brief Note on Minimum Subscription.
Answer
Minimum Subscription is the minimum amount that must be subscribed by the public before a company can proceed with allotment of shares. It ensures adequate capital for business operations.
Common Mistakes
- Confusing Calls in Arrears with Calls in Advance.
- Debiting Securities Premium incorrectly during forfeiture.
- Ignoring excess application money adjustments.
- Incorrect calculation of Capital Reserve.
- Wrong treatment of reissued forfeited shares.
Exam Tips
✅ Learn all journal entries thoroughly.
✅ Practice forfeiture and reissue numericals daily.
✅ Memorize share capital classifications.
✅ Understand oversubscription and pro-rata allotment.
✅ Always prepare working notes in examinations.
Practice MCQs
1. Equity shareholders are:
A. Creditors
B. Owners
C. Debenture holders
D. Customers
Answer: B. Owners
2. Calls in Advance is shown under:
A. Share Capital
B. Fixed Assets
C. Liability
D. Revenue
Answer: C. Liability
3. Profit on Reissue of Forfeited Shares is transferred to:
A. General Reserve
B. Revenue Reserve
C. Capital Reserve
D. Securities Premium
Answer: C. Capital Reserve
FAQ Section
Q1. What is Share Capital?
Share Capital is the amount raised by a company through issue of shares.
Q2. What is Securities Premium?
It is the excess amount received over the face value of shares.
Q3. Can forfeited shares be reissued?
Yes, forfeited shares may be reissued at par, premium, or discount subject to legal provisions.
Q4. What is Capital Reserve?
Capital Reserve is the profit arising from capital transactions such as reissue of forfeited shares.
CTA (Call To Action)
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