ICAI Notes- Unit 2: Issue, Forfeiture and Re-Issue of Shares | Accounting for CA Foundation PDF Download

 Page 1


    
 
11.23 
COMPANY ACCOUNTS 
 
LEARNING OUTCOMES 
UNIT – 2 ISSUE, FORFEITURE AND RE-ISSUE  
OF SHARES 
 
 
After studying this unit, you would be able to:  
? Appreciate various types of shares and share capital. 
? Learn the accounting treatment if shares issued under different 
circumstances. 
? Differentiate the accounting treatment for under-subscription and 
over-subscription of shares. 
? Understand the concept and accounting treatment of call-in-arrears 
and call-in-advance. 
? Deal with the forfeiture of shares issued with different conditions. 
? Journalize the entry for re-issue of shares. 
? Know the treatment of shares issued for consideration other than 
cash. 
  
© The Institute of Chartered Accountants of India
Page 2


    
 
11.23 
COMPANY ACCOUNTS 
 
LEARNING OUTCOMES 
UNIT – 2 ISSUE, FORFEITURE AND RE-ISSUE  
OF SHARES 
 
 
After studying this unit, you would be able to:  
? Appreciate various types of shares and share capital. 
? Learn the accounting treatment if shares issued under different 
circumstances. 
? Differentiate the accounting treatment for under-subscription and 
over-subscription of shares. 
? Understand the concept and accounting treatment of call-in-arrears 
and call-in-advance. 
? Deal with the forfeiture of shares issued with different conditions. 
? Journalize the entry for re-issue of shares. 
? Know the treatment of shares issued for consideration other than 
cash. 
  
© The Institute of Chartered Accountants of India
  
ACCOUNTING 
1.24 a
 11.24 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note: As per Section 53 of Companies Act, 2013 a company cannot issue shares at discount 
except for in case of sweat equity shares and therefore any issue on discount by the company 
will be void with company being punishable with fine. Sweat equity shares means such equity 
shares as are issued by a company to its directors or employees at a discount or for 
consideration, other than cash, for providing their know-how or making available rights in the 
nature of intellectual property rights or value additions, by whatever name called. 
Pro–rata allotment made by 
Directors 
Allotment money received
Full subscription i.e. 
application received for all 
issued shares 
Under subscription i.e. 
application received are less than 
share issued 
Over subscription i.e. 
applications received are 
more than share issued 
Procedure for raising funds through equity
Issue of prospectus inviting applications for share from the public 
Minimum 
subscription 
received 
Minimum subscription 
not received 
All application 
money returned 
Directors make 
allotment for shares 
applied 
Further calls made and call 
money received 
UNIT OVERVIEW 
Shares issued at Premium 
Shares issued at Face Value 
“Securities Premium Account” 
is credited with the entry for 
“Share Capital Account” 
Share issued for cash 
© The Institute of Chartered Accountants of India
Page 3


    
 
11.23 
COMPANY ACCOUNTS 
 
LEARNING OUTCOMES 
UNIT – 2 ISSUE, FORFEITURE AND RE-ISSUE  
OF SHARES 
 
 
After studying this unit, you would be able to:  
? Appreciate various types of shares and share capital. 
? Learn the accounting treatment if shares issued under different 
circumstances. 
? Differentiate the accounting treatment for under-subscription and 
over-subscription of shares. 
? Understand the concept and accounting treatment of call-in-arrears 
and call-in-advance. 
? Deal with the forfeiture of shares issued with different conditions. 
? Journalize the entry for re-issue of shares. 
? Know the treatment of shares issued for consideration other than 
cash. 
  
© The Institute of Chartered Accountants of India
  
ACCOUNTING 
1.24 a
 11.24 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note: As per Section 53 of Companies Act, 2013 a company cannot issue shares at discount 
except for in case of sweat equity shares and therefore any issue on discount by the company 
will be void with company being punishable with fine. Sweat equity shares means such equity 
shares as are issued by a company to its directors or employees at a discount or for 
consideration, other than cash, for providing their know-how or making available rights in the 
nature of intellectual property rights or value additions, by whatever name called. 
Pro–rata allotment made by 
Directors 
Allotment money received
Full subscription i.e. 
application received for all 
issued shares 
Under subscription i.e. 
application received are less than 
share issued 
Over subscription i.e. 
applications received are 
more than share issued 
Procedure for raising funds through equity
Issue of prospectus inviting applications for share from the public 
Minimum 
subscription 
received 
Minimum subscription 
not received 
All application 
money returned 
Directors make 
allotment for shares 
applied 
Further calls made and call 
money received 
UNIT OVERVIEW 
Shares issued at Premium 
Shares issued at Face Value 
“Securities Premium Account” 
is credited with the entry for 
“Share Capital Account” 
Share issued for cash 
© The Institute of Chartered Accountants of India
    
 
11.25 
COMPANY ACCOUNTS 
2.1 INTRODUCTION  
Funds provided by the owner(s) into a business are recorded as capital. Capital of the business 
depends upon the form of business organisation. Proprietor provides capital in a sole-
proprietorship business. In case of a partnership, there is more than one proprietor, called 
partners. Partners introduce capital in a partnership firm. As the maximum number of 
members in a partnership firm is restricted, therefore only limited capital can be provided in 
such form of businesses. Moreover, the liability of the proprietor(s) is unlimited in case of non-
corporate business, namely, sole-proprietorship and partnership. 
Capital funding process for different types of business forms can be summarised as follows: 
Business 
Organisation 
Ownership Type of Capital Liability of Owners 
Sole - Proprietorship Proprietor - He alone 
is the owner of 
business 
Capital Unlimited
Partnership Partners Partners' Capital Unlimited
Company Shareholders Share Capital Limited to issue price of 
shares held 
With the onset of industrial revolution, requirement of capital investment soared to a new 
height and the attached risk of failure increased due to pace of technological developments. 
Non-corporate entities could not cope with the pressure of increased capital and degree of 
risk involved. This led to the emergence of corporate form of organisation. 
2.2 SHARE CAPITAL 
Total capital of the company is divided into a number of small indivisible units of a fixed 
amount and each such unit is called a share. The fixed value of a share, printed on the share 
certificate, is called nominal/par/face value of a share. However, a company can issue shares 
at a price different from the face value of a share. The liability of holder of shares (called 
shareholders) is limited to the issue price of shares acquired by them.  
Note: The issue price need not be equal to market price of the share. These days the shares 
are generally priced on the basis of book building process. (Book building is a process through 
which company determines it's share prices. Under this method company determines a price 
band of its shares and on the basis of bids received from potential investors at various prices 
within the price band finally fixes its issue price.) 
The total capital of the company is divided into shares, the capital of the company is called 
‘Share Capital’. At the time of issue of shares, every Company is required to follow SEBI 
Regulations.  
© The Institute of Chartered Accountants of India
Page 4


    
 
11.23 
COMPANY ACCOUNTS 
 
LEARNING OUTCOMES 
UNIT – 2 ISSUE, FORFEITURE AND RE-ISSUE  
OF SHARES 
 
 
After studying this unit, you would be able to:  
? Appreciate various types of shares and share capital. 
? Learn the accounting treatment if shares issued under different 
circumstances. 
? Differentiate the accounting treatment for under-subscription and 
over-subscription of shares. 
? Understand the concept and accounting treatment of call-in-arrears 
and call-in-advance. 
? Deal with the forfeiture of shares issued with different conditions. 
? Journalize the entry for re-issue of shares. 
? Know the treatment of shares issued for consideration other than 
cash. 
  
© The Institute of Chartered Accountants of India
  
ACCOUNTING 
1.24 a
 11.24 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note: As per Section 53 of Companies Act, 2013 a company cannot issue shares at discount 
except for in case of sweat equity shares and therefore any issue on discount by the company 
will be void with company being punishable with fine. Sweat equity shares means such equity 
shares as are issued by a company to its directors or employees at a discount or for 
consideration, other than cash, for providing their know-how or making available rights in the 
nature of intellectual property rights or value additions, by whatever name called. 
Pro–rata allotment made by 
Directors 
Allotment money received
Full subscription i.e. 
application received for all 
issued shares 
Under subscription i.e. 
application received are less than 
share issued 
Over subscription i.e. 
applications received are 
more than share issued 
Procedure for raising funds through equity
Issue of prospectus inviting applications for share from the public 
Minimum 
subscription 
received 
Minimum subscription 
not received 
All application 
money returned 
Directors make 
allotment for shares 
applied 
Further calls made and call 
money received 
UNIT OVERVIEW 
Shares issued at Premium 
Shares issued at Face Value 
“Securities Premium Account” 
is credited with the entry for 
“Share Capital Account” 
Share issued for cash 
© The Institute of Chartered Accountants of India
    
 
11.25 
COMPANY ACCOUNTS 
2.1 INTRODUCTION  
Funds provided by the owner(s) into a business are recorded as capital. Capital of the business 
depends upon the form of business organisation. Proprietor provides capital in a sole-
proprietorship business. In case of a partnership, there is more than one proprietor, called 
partners. Partners introduce capital in a partnership firm. As the maximum number of 
members in a partnership firm is restricted, therefore only limited capital can be provided in 
such form of businesses. Moreover, the liability of the proprietor(s) is unlimited in case of non-
corporate business, namely, sole-proprietorship and partnership. 
Capital funding process for different types of business forms can be summarised as follows: 
Business 
Organisation 
Ownership Type of Capital Liability of Owners 
Sole - Proprietorship Proprietor - He alone 
is the owner of 
business 
Capital Unlimited
Partnership Partners Partners' Capital Unlimited
Company Shareholders Share Capital Limited to issue price of 
shares held 
With the onset of industrial revolution, requirement of capital investment soared to a new 
height and the attached risk of failure increased due to pace of technological developments. 
Non-corporate entities could not cope with the pressure of increased capital and degree of 
risk involved. This led to the emergence of corporate form of organisation. 
2.2 SHARE CAPITAL 
Total capital of the company is divided into a number of small indivisible units of a fixed 
amount and each such unit is called a share. The fixed value of a share, printed on the share 
certificate, is called nominal/par/face value of a share. However, a company can issue shares 
at a price different from the face value of a share. The liability of holder of shares (called 
shareholders) is limited to the issue price of shares acquired by them.  
Note: The issue price need not be equal to market price of the share. These days the shares 
are generally priced on the basis of book building process. (Book building is a process through 
which company determines it's share prices. Under this method company determines a price 
band of its shares and on the basis of bids received from potential investors at various prices 
within the price band finally fixes its issue price.) 
The total capital of the company is divided into shares, the capital of the company is called 
‘Share Capital’. At the time of issue of shares, every Company is required to follow SEBI 
Regulations.  
© The Institute of Chartered Accountants of India
  
ACCOUNTING 
1.26 a
 11.26 
Share capital of a company is divided into following categories: 
(i) Authorised Share Capital or Nominal Capital: A company estimates its maximum capital 
requirements. This amount of capital is mentioned in ‘Capital Clause’ of the 
‘Memorandum of Association’ registered with the Registrar of Companies. It puts a 
limit on the amount of capital, which a company is authorised to raise during its 
lifetime and is called ‘Authorised Capital’. It is shown in the Share Capital schedule in 
the financial statements as per the prescribed format at face value. 
(ii) Issued Share Capital: A company need not issue total authorised capital. Whatever 
portion of the share capital is issued by the company, it is called ‘Issued Capital’. Issued 
capital means and includes the nominal value of shares issued by the company for: 
1. Cash, and 
2. Consideration other than cash to: 
(i) Promoters of a company; and 
(ii) Others. 
 It is also presented in the balance sheet at nominal value. 
 The remaining portion of the authorised capital which is not issued either in cash or 
consideration may be termed as ‘Un-issued Capital’. It is not shown in the balance sheet. 
(iii) Subscribed Share Capital: It is that part of the issued share capital, which is subscribed 
by the public i.e., applied by the public and allotted by the company. It also includes 
the face value of shares issued by the company for consideration other than cash. 
(iv) Called-up Share Capital: Companies generally receive the issue price of shares in 
instalments. The portion of the issue price of shares which a company has demanded 
or called from shareholders is known as ‘Called-up Capital’ and the balance, which the 
company has decided to demand in future may be referred to as Uncalled Capital. 
(v) Paid-up Share Capital: It is the portion of called up capital which is paid by the 
shareholders. Whenever a particular amount is called by the company and the 
shareholder(s) fails to pay the amount fully or partially, it is known as ‘unpaid calls’ 
or ‘instalments (or Calls) in Arrears’. Thus, instalments in arrears mean the amount 
not paid although it has been demanded by the company as payment towards the 
issue price of shares. To calculate paid-up capital, the amount of instalments in arrears 
is deducted from called up capital. 
 Call-in-advance is that portion of capital which is yet to be called by the company but 
has already been paid by shareholder.  
 In the financial statements, called-up and paid-up capital are shown together.  
© The Institute of Chartered Accountants of India
Page 5


    
 
11.23 
COMPANY ACCOUNTS 
 
LEARNING OUTCOMES 
UNIT – 2 ISSUE, FORFEITURE AND RE-ISSUE  
OF SHARES 
 
 
After studying this unit, you would be able to:  
? Appreciate various types of shares and share capital. 
? Learn the accounting treatment if shares issued under different 
circumstances. 
? Differentiate the accounting treatment for under-subscription and 
over-subscription of shares. 
? Understand the concept and accounting treatment of call-in-arrears 
and call-in-advance. 
? Deal with the forfeiture of shares issued with different conditions. 
? Journalize the entry for re-issue of shares. 
? Know the treatment of shares issued for consideration other than 
cash. 
  
© The Institute of Chartered Accountants of India
  
ACCOUNTING 
1.24 a
 11.24 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note: As per Section 53 of Companies Act, 2013 a company cannot issue shares at discount 
except for in case of sweat equity shares and therefore any issue on discount by the company 
will be void with company being punishable with fine. Sweat equity shares means such equity 
shares as are issued by a company to its directors or employees at a discount or for 
consideration, other than cash, for providing their know-how or making available rights in the 
nature of intellectual property rights or value additions, by whatever name called. 
Pro–rata allotment made by 
Directors 
Allotment money received
Full subscription i.e. 
application received for all 
issued shares 
Under subscription i.e. 
application received are less than 
share issued 
Over subscription i.e. 
applications received are 
more than share issued 
Procedure for raising funds through equity
Issue of prospectus inviting applications for share from the public 
Minimum 
subscription 
received 
Minimum subscription 
not received 
All application 
money returned 
Directors make 
allotment for shares 
applied 
Further calls made and call 
money received 
UNIT OVERVIEW 
Shares issued at Premium 
Shares issued at Face Value 
“Securities Premium Account” 
is credited with the entry for 
“Share Capital Account” 
Share issued for cash 
© The Institute of Chartered Accountants of India
    
 
11.25 
COMPANY ACCOUNTS 
2.1 INTRODUCTION  
Funds provided by the owner(s) into a business are recorded as capital. Capital of the business 
depends upon the form of business organisation. Proprietor provides capital in a sole-
proprietorship business. In case of a partnership, there is more than one proprietor, called 
partners. Partners introduce capital in a partnership firm. As the maximum number of 
members in a partnership firm is restricted, therefore only limited capital can be provided in 
such form of businesses. Moreover, the liability of the proprietor(s) is unlimited in case of non-
corporate business, namely, sole-proprietorship and partnership. 
Capital funding process for different types of business forms can be summarised as follows: 
Business 
Organisation 
Ownership Type of Capital Liability of Owners 
Sole - Proprietorship Proprietor - He alone 
is the owner of 
business 
Capital Unlimited
Partnership Partners Partners' Capital Unlimited
Company Shareholders Share Capital Limited to issue price of 
shares held 
With the onset of industrial revolution, requirement of capital investment soared to a new 
height and the attached risk of failure increased due to pace of technological developments. 
Non-corporate entities could not cope with the pressure of increased capital and degree of 
risk involved. This led to the emergence of corporate form of organisation. 
2.2 SHARE CAPITAL 
Total capital of the company is divided into a number of small indivisible units of a fixed 
amount and each such unit is called a share. The fixed value of a share, printed on the share 
certificate, is called nominal/par/face value of a share. However, a company can issue shares 
at a price different from the face value of a share. The liability of holder of shares (called 
shareholders) is limited to the issue price of shares acquired by them.  
Note: The issue price need not be equal to market price of the share. These days the shares 
are generally priced on the basis of book building process. (Book building is a process through 
which company determines it's share prices. Under this method company determines a price 
band of its shares and on the basis of bids received from potential investors at various prices 
within the price band finally fixes its issue price.) 
The total capital of the company is divided into shares, the capital of the company is called 
‘Share Capital’. At the time of issue of shares, every Company is required to follow SEBI 
Regulations.  
© The Institute of Chartered Accountants of India
  
ACCOUNTING 
1.26 a
 11.26 
Share capital of a company is divided into following categories: 
(i) Authorised Share Capital or Nominal Capital: A company estimates its maximum capital 
requirements. This amount of capital is mentioned in ‘Capital Clause’ of the 
‘Memorandum of Association’ registered with the Registrar of Companies. It puts a 
limit on the amount of capital, which a company is authorised to raise during its 
lifetime and is called ‘Authorised Capital’. It is shown in the Share Capital schedule in 
the financial statements as per the prescribed format at face value. 
(ii) Issued Share Capital: A company need not issue total authorised capital. Whatever 
portion of the share capital is issued by the company, it is called ‘Issued Capital’. Issued 
capital means and includes the nominal value of shares issued by the company for: 
1. Cash, and 
2. Consideration other than cash to: 
(i) Promoters of a company; and 
(ii) Others. 
 It is also presented in the balance sheet at nominal value. 
 The remaining portion of the authorised capital which is not issued either in cash or 
consideration may be termed as ‘Un-issued Capital’. It is not shown in the balance sheet. 
(iii) Subscribed Share Capital: It is that part of the issued share capital, which is subscribed 
by the public i.e., applied by the public and allotted by the company. It also includes 
the face value of shares issued by the company for consideration other than cash. 
(iv) Called-up Share Capital: Companies generally receive the issue price of shares in 
instalments. The portion of the issue price of shares which a company has demanded 
or called from shareholders is known as ‘Called-up Capital’ and the balance, which the 
company has decided to demand in future may be referred to as Uncalled Capital. 
(v) Paid-up Share Capital: It is the portion of called up capital which is paid by the 
shareholders. Whenever a particular amount is called by the company and the 
shareholder(s) fails to pay the amount fully or partially, it is known as ‘unpaid calls’ 
or ‘instalments (or Calls) in Arrears’. Thus, instalments in arrears mean the amount 
not paid although it has been demanded by the company as payment towards the 
issue price of shares. To calculate paid-up capital, the amount of instalments in arrears 
is deducted from called up capital. 
 Call-in-advance is that portion of capital which is yet to be called by the company but 
has already been paid by shareholder.  
 In the financial statements, called-up and paid-up capital are shown together.  
© The Institute of Chartered Accountants of India
    
 
11.27 
COMPANY ACCOUNTS 
(vi) Reserve Share Capital: As per Section 65 of the Companies Act, 2013, a Company may 
decide by passing a resolution that a certain portion of its subscribed uncalled capital 
shall not be called up except in the event of winding up of the company. Portion of 
the uncalled capital which a company has decided to call only in case of liquidation of 
the company is called Reserve Capital.  
Reserve Capital is different from Capital reserve, Capital reserves are part of ‘Reserves 
and Surplus’ and refer to those reserves which are not available for declaration of 
dividend. Thus, reserve capital which is portion of the uncalled capital to be called up 
in the event of winding up of the company is entirely different in nature from capital 
reserve which is created out of capital profits only.   
ILLUSTRATION 1 
A company had an authorised capital of 
` 
10,00,000 divided into 1,00,000 equity shares of 
` 
10 
each. It decided to issue 60,000 shares for subscription and received applications for 70,000 
shares. It allotted 60,000 shares and rejected remaining applications. Upto 31-3 -2022, it has 
demanded or called 
` 
9 per share. All shareholders have duly paid the amount called, except 
one shareholder, holding 5,000 shares who has paid only 
`
7 per share.
Prepare a balance sheet assuming there are no other details. 
SOLUTION 
Balance Sheet as at 31st March, 2022 
Particulars Notes No. 
` 
 
EQUITY AND LIABILITIES   
Shareholders’ funds   
 Share capital 1 5,30,000 
Total 5,30,000
 
 
1.   Authorised Capital = Issued Capital + Unissued Capital. 
2. Subscribed Capital can be equal to or grater than or  less than Issued Capital 
resulting in 3 situations respectively: Fully Subscribed; Over Subscribed and 
Under Subscribed. 
3. Called up Capital = Paid up Capital + Calls in arrears if any – Calls in advance 
         if any. 
 
© The Institute of Chartered Accountants of India