Important Question & Answers - Accounting : Share Capital

 Page 1


 
Accounting for Share capital & Debentures  
Q.1 What do you mean by Private placement of shares?  
Ans. Private Placement of shares implies issue and allotment of shares to a selected  
groups of persons privately and not to public in general through public issue. In order  
to place the shares privately, a company must pass a special resolution to this effect.  
Q.2 What is Sweat Equity?  
Ans. Sweat Equity shares means easily shares issued by the company to its employees 
or  
whole time directors at a discount or for consideration other then cash for providing  
know - how or making available right in the nature of intellectual properly rights or  
valve addition by whatever name called.  
Q.3 What maximum amount of discount can be allowed on the reissue of forfeited  
shares?  
Ans. The maximum amount of discount on reissue of forfeited shares is that the amount 
of  
discount allowed cannot exceed the amount that had been received on forfeited  
shares on their original issue and that the discount allowed on re issue of forfeited  
shares should be debited to the share forfeited account.  
Q.4 State in brief, the SEBI Guidelines regarding Debenture Redemption Reserve.  
Ans. At per SEBI Guidelines, an amount equal to 50% of the debenture issue must be  
transferred to DRR before the redemption begins. In other words, before redemption,  
at least an amount equal to 50% of the debenture issue must stand to the credit of  
DRR 
Q.5 Name the head under which discount on issue of debentures appears in the Balance  
Sheet of "C" Company.  
Ans. Discount on issue of debentures will appear under the heading Miscellaneous  
Expenditure.  
Q.6 Can a company issue share of discount ? What conditions must a company comply  
with before the issue of such shares.  
Page 2


 
Accounting for Share capital & Debentures  
Q.1 What do you mean by Private placement of shares?  
Ans. Private Placement of shares implies issue and allotment of shares to a selected  
groups of persons privately and not to public in general through public issue. In order  
to place the shares privately, a company must pass a special resolution to this effect.  
Q.2 What is Sweat Equity?  
Ans. Sweat Equity shares means easily shares issued by the company to its employees 
or  
whole time directors at a discount or for consideration other then cash for providing  
know - how or making available right in the nature of intellectual properly rights or  
valve addition by whatever name called.  
Q.3 What maximum amount of discount can be allowed on the reissue of forfeited  
shares?  
Ans. The maximum amount of discount on reissue of forfeited shares is that the amount 
of  
discount allowed cannot exceed the amount that had been received on forfeited  
shares on their original issue and that the discount allowed on re issue of forfeited  
shares should be debited to the share forfeited account.  
Q.4 State in brief, the SEBI Guidelines regarding Debenture Redemption Reserve.  
Ans. At per SEBI Guidelines, an amount equal to 50% of the debenture issue must be  
transferred to DRR before the redemption begins. In other words, before redemption,  
at least an amount equal to 50% of the debenture issue must stand to the credit of  
DRR 
Q.5 Name the head under which discount on issue of debentures appears in the Balance  
Sheet of "C" Company.  
Ans. Discount on issue of debentures will appear under the heading Miscellaneous  
Expenditure.  
Q.6 Can a company issue share of discount ? What conditions must a company comply  
with before the issue of such shares.  
Ans. Section 79 of the companies Act, 1956 permits a company to issue shares at a  
discount only if the following conditions are fulfilled :  
 1) The shares are of a class already issued.  2) At least one year must have elapsed 
since the company become entitled to  
 commence business.  
 3) The issue of shares at discount is authorises by a revolution passed by the  
 company in its general meeting and sanctioned by the central Government.  
4) The resolution specifies the maximum rate of discount at which the shares are to  
be issued. The rate must not exceed 10% unless sanctioned by the central  
Government.  
Q.7 New India Ltd. forfeited 100 shares of Rs. 10 each, issued at a discount of 10%. The  
company had called up only Rs. 8 per share. Final call of Rs. 2 each has not been  
made on these shares. These shares were allotted to Ram, who did not pay the first  
call of Rs. 3. 60 shares were reissued at Rs. 7 per share, as Rs. 8 paid up. Give  
Journal entries in the books of the company, showing the working clearly.  
JOURNAL 
 Date Particulars L.F. Dr. (Rs.) Cr.(Rs)  
 Share Capital A/c (100 x Rs. 8) ...Dr. 800  
 To Forfeited Shares A/c (100 xRs. 4) 400  
 To Discount on Issue of Shares (1 00 x Re. 1 )  
 100  
 To Share First Calf A/c (100 x Rs. 3) 300  
 (Being 100 scares forfeited for non-payment of first call ...)  
 Bank A/c (60 x Rs. 7) ...Dr. 420  
 Discount on issue of Shares A/c (60 x Re. 1) ...Dr. 60  
 Forfeited Shares A/c ...Dr. 60  
 To Share Capital A/c 540  
 (Being 60 shares were reissued at Rs. 7 per share,  
 as Rs. 8 paid up)  
 Forfeited Shares A/c ...Dr. 180  
Page 3


 
Accounting for Share capital & Debentures  
Q.1 What do you mean by Private placement of shares?  
Ans. Private Placement of shares implies issue and allotment of shares to a selected  
groups of persons privately and not to public in general through public issue. In order  
to place the shares privately, a company must pass a special resolution to this effect.  
Q.2 What is Sweat Equity?  
Ans. Sweat Equity shares means easily shares issued by the company to its employees 
or  
whole time directors at a discount or for consideration other then cash for providing  
know - how or making available right in the nature of intellectual properly rights or  
valve addition by whatever name called.  
Q.3 What maximum amount of discount can be allowed on the reissue of forfeited  
shares?  
Ans. The maximum amount of discount on reissue of forfeited shares is that the amount 
of  
discount allowed cannot exceed the amount that had been received on forfeited  
shares on their original issue and that the discount allowed on re issue of forfeited  
shares should be debited to the share forfeited account.  
Q.4 State in brief, the SEBI Guidelines regarding Debenture Redemption Reserve.  
Ans. At per SEBI Guidelines, an amount equal to 50% of the debenture issue must be  
transferred to DRR before the redemption begins. In other words, before redemption,  
at least an amount equal to 50% of the debenture issue must stand to the credit of  
DRR 
Q.5 Name the head under which discount on issue of debentures appears in the Balance  
Sheet of "C" Company.  
Ans. Discount on issue of debentures will appear under the heading Miscellaneous  
Expenditure.  
Q.6 Can a company issue share of discount ? What conditions must a company comply  
with before the issue of such shares.  
Ans. Section 79 of the companies Act, 1956 permits a company to issue shares at a  
discount only if the following conditions are fulfilled :  
 1) The shares are of a class already issued.  2) At least one year must have elapsed 
since the company become entitled to  
 commence business.  
 3) The issue of shares at discount is authorises by a revolution passed by the  
 company in its general meeting and sanctioned by the central Government.  
4) The resolution specifies the maximum rate of discount at which the shares are to  
be issued. The rate must not exceed 10% unless sanctioned by the central  
Government.  
Q.7 New India Ltd. forfeited 100 shares of Rs. 10 each, issued at a discount of 10%. The  
company had called up only Rs. 8 per share. Final call of Rs. 2 each has not been  
made on these shares. These shares were allotted to Ram, who did not pay the first  
call of Rs. 3. 60 shares were reissued at Rs. 7 per share, as Rs. 8 paid up. Give  
Journal entries in the books of the company, showing the working clearly.  
JOURNAL 
 Date Particulars L.F. Dr. (Rs.) Cr.(Rs)  
 Share Capital A/c (100 x Rs. 8) ...Dr. 800  
 To Forfeited Shares A/c (100 xRs. 4) 400  
 To Discount on Issue of Shares (1 00 x Re. 1 )  
 100  
 To Share First Calf A/c (100 x Rs. 3) 300  
 (Being 100 scares forfeited for non-payment of first call ...)  
 Bank A/c (60 x Rs. 7) ...Dr. 420  
 Discount on issue of Shares A/c (60 x Re. 1) ...Dr. 60  
 Forfeited Shares A/c ...Dr. 60  
 To Share Capital A/c 540  
 (Being 60 shares were reissued at Rs. 7 per share,  
 as Rs. 8 paid up)  
 Forfeited Shares A/c ...Dr. 180  
 To Capital Reserve A/c 180  
 (Being the transfer of profit on reissue o' shoes':  
 (Working Note) Q.8 Z Ltd. invited applications for issuing 200000 equity shares of Rs. 
25 each at a  
premium of Rs. 10 per share. The amount was payable as follows :  
 On application and allotment Rs. 10 per share Balance including premium on first and  
final call.  
 Applications per 250000 shares were received. Application for 25000 shares were  
rejected and shares were allotted on pro rata basis to the remaining applicants. All  
calls were made and were duly received except the first and final call on 2000 shares  
allotted to Vijay. His shares were forfeited. The forfeited shares were reissued @ Rs.  
30 per share fully paid up. Pass the necessary Journal entries in the books of the  
company.  
Ans. JOURNAL 
 Date Particulars L.F. Dr. (Rs.) Cr.(Rs)  
 Bank A/c ...Dr. 25,00,000  
 To Equity Share Application and Allotment A/c  
 25,00,000  
 (Being the application money received on 2,50,000 shares)  
 Equity Share Application and Allotment A/c ...Dr. 25,00,000  
 To Equity Share Capital A/c 20,00,000  
 To Cash-in-Advance A/c (25,000 x Rs. 10)  
 2,50,000  
 To Bank A/c (25,000 xRs, 10) 2,50,000  
 (Being the application money adjusted)  
 Equity Share First and Final Call A/c ...Dr. 50,00,000  
 To Equity Share Capital A/c (2,00,000 x Rs. 15)  
 30,00,000  
 To Securities Premium A/c (2,00,000 x Rs. 10)  
 20,00,000  
Page 4


 
Accounting for Share capital & Debentures  
Q.1 What do you mean by Private placement of shares?  
Ans. Private Placement of shares implies issue and allotment of shares to a selected  
groups of persons privately and not to public in general through public issue. In order  
to place the shares privately, a company must pass a special resolution to this effect.  
Q.2 What is Sweat Equity?  
Ans. Sweat Equity shares means easily shares issued by the company to its employees 
or  
whole time directors at a discount or for consideration other then cash for providing  
know - how or making available right in the nature of intellectual properly rights or  
valve addition by whatever name called.  
Q.3 What maximum amount of discount can be allowed on the reissue of forfeited  
shares?  
Ans. The maximum amount of discount on reissue of forfeited shares is that the amount 
of  
discount allowed cannot exceed the amount that had been received on forfeited  
shares on their original issue and that the discount allowed on re issue of forfeited  
shares should be debited to the share forfeited account.  
Q.4 State in brief, the SEBI Guidelines regarding Debenture Redemption Reserve.  
Ans. At per SEBI Guidelines, an amount equal to 50% of the debenture issue must be  
transferred to DRR before the redemption begins. In other words, before redemption,  
at least an amount equal to 50% of the debenture issue must stand to the credit of  
DRR 
Q.5 Name the head under which discount on issue of debentures appears in the Balance  
Sheet of "C" Company.  
Ans. Discount on issue of debentures will appear under the heading Miscellaneous  
Expenditure.  
Q.6 Can a company issue share of discount ? What conditions must a company comply  
with before the issue of such shares.  
Ans. Section 79 of the companies Act, 1956 permits a company to issue shares at a  
discount only if the following conditions are fulfilled :  
 1) The shares are of a class already issued.  2) At least one year must have elapsed 
since the company become entitled to  
 commence business.  
 3) The issue of shares at discount is authorises by a revolution passed by the  
 company in its general meeting and sanctioned by the central Government.  
4) The resolution specifies the maximum rate of discount at which the shares are to  
be issued. The rate must not exceed 10% unless sanctioned by the central  
Government.  
Q.7 New India Ltd. forfeited 100 shares of Rs. 10 each, issued at a discount of 10%. The  
company had called up only Rs. 8 per share. Final call of Rs. 2 each has not been  
made on these shares. These shares were allotted to Ram, who did not pay the first  
call of Rs. 3. 60 shares were reissued at Rs. 7 per share, as Rs. 8 paid up. Give  
Journal entries in the books of the company, showing the working clearly.  
JOURNAL 
 Date Particulars L.F. Dr. (Rs.) Cr.(Rs)  
 Share Capital A/c (100 x Rs. 8) ...Dr. 800  
 To Forfeited Shares A/c (100 xRs. 4) 400  
 To Discount on Issue of Shares (1 00 x Re. 1 )  
 100  
 To Share First Calf A/c (100 x Rs. 3) 300  
 (Being 100 scares forfeited for non-payment of first call ...)  
 Bank A/c (60 x Rs. 7) ...Dr. 420  
 Discount on issue of Shares A/c (60 x Re. 1) ...Dr. 60  
 Forfeited Shares A/c ...Dr. 60  
 To Share Capital A/c 540  
 (Being 60 shares were reissued at Rs. 7 per share,  
 as Rs. 8 paid up)  
 Forfeited Shares A/c ...Dr. 180  
 To Capital Reserve A/c 180  
 (Being the transfer of profit on reissue o' shoes':  
 (Working Note) Q.8 Z Ltd. invited applications for issuing 200000 equity shares of Rs. 
25 each at a  
premium of Rs. 10 per share. The amount was payable as follows :  
 On application and allotment Rs. 10 per share Balance including premium on first and  
final call.  
 Applications per 250000 shares were received. Application for 25000 shares were  
rejected and shares were allotted on pro rata basis to the remaining applicants. All  
calls were made and were duly received except the first and final call on 2000 shares  
allotted to Vijay. His shares were forfeited. The forfeited shares were reissued @ Rs.  
30 per share fully paid up. Pass the necessary Journal entries in the books of the  
company.  
Ans. JOURNAL 
 Date Particulars L.F. Dr. (Rs.) Cr.(Rs)  
 Bank A/c ...Dr. 25,00,000  
 To Equity Share Application and Allotment A/c  
 25,00,000  
 (Being the application money received on 2,50,000 shares)  
 Equity Share Application and Allotment A/c ...Dr. 25,00,000  
 To Equity Share Capital A/c 20,00,000  
 To Cash-in-Advance A/c (25,000 x Rs. 10)  
 2,50,000  
 To Bank A/c (25,000 xRs, 10) 2,50,000  
 (Being the application money adjusted)  
 Equity Share First and Final Call A/c ...Dr. 50,00,000  
 To Equity Share Capital A/c (2,00,000 x Rs. 15)  
 30,00,000  
 To Securities Premium A/c (2,00,000 x Rs. 10)  
 20,00,000  
 (Being the amount due on first and final call on 2,00,000  
 shares @ Rs, 25 including Rs. 10 per share as premium)  
 Calls-in-Advance A/c ...Dr. 2,50,000  
 To Equity Share First and Final Call A/c  
 2,50,000  (Being Calls-in-Advance adjusted)  
 Bank A/c ...Dr. 47,02,500  
 To Equity Share First and Final Call A/c (Note)  
 47,02,500  
 (Being the first and final call money received except  
 on 2,000 shares)  
 Equity Share Capital A/c (2,000 x Rs. 25) ...Dr. 50,000  
 Securities Premium A/c (2,000 x Rs. 10) …Dr. 20,000  
 To Equity Share First and Final Call A/c (Note)  
 47,500  
 To Forfeited Shares A/c (Bal. Fig.) 22,500  
 {Being 2,000 shares forfeited for non-payment of calls money)  
 Bank A/c (2,000 x Rs. 30) ...Dr. 60,000  
 To Equity Share Capital A/c (2.000 x 25)  
 50,000  
 To Securities Premium A/c (2,000 x 5)  
 10,000  
 (Being forfeited shares reissued at Rs. 30 fully paid)  
 Forfeited Shares A/c ...Dr. 22,500  
 To Capital Reserve A/c 22,500  
 (Being profit on reissued transfer 10 capital reserve)  
Q.9 Raghav Ltd. purchased a running business from Krishna Traders for a sum of Rs.  
15,00,000 payable 3,00,000 by cheque and for the balance issued 9% debenture of  
Rs. 100 each at par. The assets and liabilities consisted of the following :  
 Plant & Machinery Rs. 4,00,000  
Page 5


 
Accounting for Share capital & Debentures  
Q.1 What do you mean by Private placement of shares?  
Ans. Private Placement of shares implies issue and allotment of shares to a selected  
groups of persons privately and not to public in general through public issue. In order  
to place the shares privately, a company must pass a special resolution to this effect.  
Q.2 What is Sweat Equity?  
Ans. Sweat Equity shares means easily shares issued by the company to its employees 
or  
whole time directors at a discount or for consideration other then cash for providing  
know - how or making available right in the nature of intellectual properly rights or  
valve addition by whatever name called.  
Q.3 What maximum amount of discount can be allowed on the reissue of forfeited  
shares?  
Ans. The maximum amount of discount on reissue of forfeited shares is that the amount 
of  
discount allowed cannot exceed the amount that had been received on forfeited  
shares on their original issue and that the discount allowed on re issue of forfeited  
shares should be debited to the share forfeited account.  
Q.4 State in brief, the SEBI Guidelines regarding Debenture Redemption Reserve.  
Ans. At per SEBI Guidelines, an amount equal to 50% of the debenture issue must be  
transferred to DRR before the redemption begins. In other words, before redemption,  
at least an amount equal to 50% of the debenture issue must stand to the credit of  
DRR 
Q.5 Name the head under which discount on issue of debentures appears in the Balance  
Sheet of "C" Company.  
Ans. Discount on issue of debentures will appear under the heading Miscellaneous  
Expenditure.  
Q.6 Can a company issue share of discount ? What conditions must a company comply  
with before the issue of such shares.  
Ans. Section 79 of the companies Act, 1956 permits a company to issue shares at a  
discount only if the following conditions are fulfilled :  
 1) The shares are of a class already issued.  2) At least one year must have elapsed 
since the company become entitled to  
 commence business.  
 3) The issue of shares at discount is authorises by a revolution passed by the  
 company in its general meeting and sanctioned by the central Government.  
4) The resolution specifies the maximum rate of discount at which the shares are to  
be issued. The rate must not exceed 10% unless sanctioned by the central  
Government.  
Q.7 New India Ltd. forfeited 100 shares of Rs. 10 each, issued at a discount of 10%. The  
company had called up only Rs. 8 per share. Final call of Rs. 2 each has not been  
made on these shares. These shares were allotted to Ram, who did not pay the first  
call of Rs. 3. 60 shares were reissued at Rs. 7 per share, as Rs. 8 paid up. Give  
Journal entries in the books of the company, showing the working clearly.  
JOURNAL 
 Date Particulars L.F. Dr. (Rs.) Cr.(Rs)  
 Share Capital A/c (100 x Rs. 8) ...Dr. 800  
 To Forfeited Shares A/c (100 xRs. 4) 400  
 To Discount on Issue of Shares (1 00 x Re. 1 )  
 100  
 To Share First Calf A/c (100 x Rs. 3) 300  
 (Being 100 scares forfeited for non-payment of first call ...)  
 Bank A/c (60 x Rs. 7) ...Dr. 420  
 Discount on issue of Shares A/c (60 x Re. 1) ...Dr. 60  
 Forfeited Shares A/c ...Dr. 60  
 To Share Capital A/c 540  
 (Being 60 shares were reissued at Rs. 7 per share,  
 as Rs. 8 paid up)  
 Forfeited Shares A/c ...Dr. 180  
 To Capital Reserve A/c 180  
 (Being the transfer of profit on reissue o' shoes':  
 (Working Note) Q.8 Z Ltd. invited applications for issuing 200000 equity shares of Rs. 
25 each at a  
premium of Rs. 10 per share. The amount was payable as follows :  
 On application and allotment Rs. 10 per share Balance including premium on first and  
final call.  
 Applications per 250000 shares were received. Application for 25000 shares were  
rejected and shares were allotted on pro rata basis to the remaining applicants. All  
calls were made and were duly received except the first and final call on 2000 shares  
allotted to Vijay. His shares were forfeited. The forfeited shares were reissued @ Rs.  
30 per share fully paid up. Pass the necessary Journal entries in the books of the  
company.  
Ans. JOURNAL 
 Date Particulars L.F. Dr. (Rs.) Cr.(Rs)  
 Bank A/c ...Dr. 25,00,000  
 To Equity Share Application and Allotment A/c  
 25,00,000  
 (Being the application money received on 2,50,000 shares)  
 Equity Share Application and Allotment A/c ...Dr. 25,00,000  
 To Equity Share Capital A/c 20,00,000  
 To Cash-in-Advance A/c (25,000 x Rs. 10)  
 2,50,000  
 To Bank A/c (25,000 xRs, 10) 2,50,000  
 (Being the application money adjusted)  
 Equity Share First and Final Call A/c ...Dr. 50,00,000  
 To Equity Share Capital A/c (2,00,000 x Rs. 15)  
 30,00,000  
 To Securities Premium A/c (2,00,000 x Rs. 10)  
 20,00,000  
 (Being the amount due on first and final call on 2,00,000  
 shares @ Rs, 25 including Rs. 10 per share as premium)  
 Calls-in-Advance A/c ...Dr. 2,50,000  
 To Equity Share First and Final Call A/c  
 2,50,000  (Being Calls-in-Advance adjusted)  
 Bank A/c ...Dr. 47,02,500  
 To Equity Share First and Final Call A/c (Note)  
 47,02,500  
 (Being the first and final call money received except  
 on 2,000 shares)  
 Equity Share Capital A/c (2,000 x Rs. 25) ...Dr. 50,000  
 Securities Premium A/c (2,000 x Rs. 10) …Dr. 20,000  
 To Equity Share First and Final Call A/c (Note)  
 47,500  
 To Forfeited Shares A/c (Bal. Fig.) 22,500  
 {Being 2,000 shares forfeited for non-payment of calls money)  
 Bank A/c (2,000 x Rs. 30) ...Dr. 60,000  
 To Equity Share Capital A/c (2.000 x 25)  
 50,000  
 To Securities Premium A/c (2,000 x 5)  
 10,000  
 (Being forfeited shares reissued at Rs. 30 fully paid)  
 Forfeited Shares A/c ...Dr. 22,500  
 To Capital Reserve A/c 22,500  
 (Being profit on reissued transfer 10 capital reserve)  
Q.9 Raghav Ltd. purchased a running business from Krishna Traders for a sum of Rs.  
15,00,000 payable 3,00,000 by cheque and for the balance issued 9% debenture of  
Rs. 100 each at par. The assets and liabilities consisted of the following :  
 Plant & Machinery Rs. 4,00,000  
 Building Rs. 6,00,000  
 Stock Rs. 5,00,000  
 Sundry debtors Rs. 3,00,000  
 Sundry creditors Rs. 3,00,000  
Ans.  
JOURNAL  Date Particulars L.F. Dr. (Rs.) Cr.(Rs)  
 Plant and Machinery A/c ...Dr. 4,00,000  
 Buildings A/c ...Dr. 6,00,000  
 Stock A/c ...Dr. 5,00,000  
 Sundry Debtors A/c ...Dr. 3,00,000  
 To Sundry Creditors A/c 2,00,000  
 To Krishna Limited 15,00,000  
 To Capital Reserve A/c (Balancing Figure)  
 1,00,000  
 (Being the purchase of assets liabilities)  
 Krishna Limited ...Dr. 3,00,000  
 TO Bank A/c 3,00,000  
 (Being Rs. 3,00,000 paid by cheque)  
 Krishna Limited ...Dr. 12,00,000  
 To 9% Debentures A/c 12,00,000  
 (Being the balance of Re. 12,00,000 discharged by 
 issue of 9% Debentures at par)  
Q.10 Dhyey Ltd. redeemed Rs. 30,00,000, 8% debentures issued at a premium of 5% as  
follows :  
 Rs. 12,00,000, 8% debentures were converted into equity shares of Rs. 100 each  
issued at a premium of Rs. 25 per share and the balance by converting them into 8%  
preference shares of Rs. 100 each issued at a discount of Rs. 10 per shares.  
 Pass the Journal entries.  
Ans. JOURNAL