CBSE Class 12 Accountancy HOTs Accounting For Share Capital

ACCOUNTING FOR SHARE CAPITAL & DEBENTURE

PRACTICAL QUESTIONS

 

Question. X Ltd. issued 20,000 shares of Rs. 10 each at a premium of 10% payable as follows:- On application Rs. 2 ( 1^st Jan 2001), on allotment Rs. 4 (including premium) (1^st April 2001), On first call Rs. 3 (1^st June 2001), on second call & final call Rs. 2 (1^st Aug. 2001).

Applications were received for 18,000 shares and the directors made allotment in full. One shareholder to whom 40 shares were allotted paid the entire balance on his share holdings with allotment money and another shareholder did not pay allotment and 1^st call money on his 60 shares but which he paid with final call. Calculate the amount of interest paid and received on calls-in-advance and callsin- arrears respectively on 1st Aug. 2001.

 

Ans. 1 Interest on Calls in advance Rs. 2.80

          Interest on Calls in arrears Rs. 5.50

 

Question. X Ltd took over the assets of Rs. 6,60,000 and liabilities of Rs. 80,000, Y Ltd for Rs. 600,000. Show the necessary journal entries in the book of X Ltd. assuming that

 

Case-I : The consideration was payable 10% in cash and the balance in 54000 equity shares of Rs. 10 each.

 

Case-II : The consideration was payable 10% in cash and the balance in 45000 equity shares of Rs. 10 each.

 

Case-III : The consideration was payable 10% in cash and the balance in 60,000 equity shares of Rs. 10 each.

 

Question. X ltd. was formed with a capital of Rs. 500,000 divided into shares of Rs. 10 each out of these 2000 shares were issued to the vendors as fully paid as purchase consideration for a building acquired, 1000 shares were issued to signatories to the memorandum of association as fully paid. The directors offered 6500 shares to the public and called up Rs. 6 per and received the entry called up amount on share allotted. Show these transaction in the Balance sheet of a company.

 

Ans. 3 Issued Capital Rs. 95000

 

Question. X Ltd. invited applications for 11,000 shares of Rs. 10 each issued at 10% premium payable as:

On application            Rs. 3 (including Rs. 1 premium)

On allotment              Rs. 4 (including Rs. 1 premium)

On 1^st Call                 Rs. 3

On 2^nd& final call        Rs. 2

Application were received for 24000 shares.

Category I : One fourth of the shares applied for allotted 2000 shares.

Category II: Three fourth the shares applied for allotted 9000 shares.

 

Remaining applicants were rejected. Mr. Mohan holding 300 shares out of category II failed to pay allotment and two calls and his shares were re issued @ Rs. 11 fully paidup. Pass necessary journal entries.

 

Ans. 4 Hint-

(i) Amount received on allotment Rs. 26,100.

(ii) Amount transferred to share forfeited A/C Rs. 900

(iii) Amount transferred to Capital Reserve Rs. 600.

 

Question. A company forfeited 240 shares of Rs. 10 each issued to raj at a premium of 20%. Raman had applied for 300 shares and had not paid anything after paying Rs 6 per share including premium on application. 180 shares were reissued at Rs. 11 per share fully paid up. Pass journal entries relating to forfeiture and reissue of shares.

 

Ans. 5 Capital Reserve Rs. 990.

 

Question. On 1st July 2007. A Ltd gave notice of their intention to redeem their outstanding Rs. 400,000 8% Debentures on 1st January, 2008 @ Rs. 102 each and offered the holders the following options-

(a) To subscibe for (i) 6% cumulative preference shares of Rs. 20 each at Rs. 22.50 per share, accepted by debenture holders of Rs. 1,71,000 or (ii) 12% debentures were issued @96% accepted by the holders of Rs. 1,44,000 Debentures.

(b) Remaining debentures to be redeemed for cash if neither of the option under (a) was accepted. Pass necessary journal entries.

 

Ans. 6

Hints-

(1) Case a (i) – No. of preference shares issued 7752.

(2) Case a (ii)- No. of debentures issued 1530.

(3) Remaining 85000 debentures paid in cash.

 

Question. Sonu Ltd. company issued 15,000 shares of Rs. 10 each. Payment on there shares is to be made as follows:

On application Rs. 4     ( 1^st Feb, 2003)

On allotment Rs. 3       (1^st April, 2003)

On final call Rs. 3        (1^st May, 2003)

Rakesh to whom 1000 shares were allotted paid the full amount on application and mohan to whom 200 shares were allotted paid the final call money on allotment. Interest @ 6% was paid on 1st May, 2003. Pass necessary journal entries.

 

Ans. 7 Interest on Calls in advance = 15 + 3 = Rs. 18

 

Question. TPT Ltd. invited applications for issuing 1,00,000 equity shares of Rs. 10 each at a premium of Rs. 3 per share. The whole amount was payable on application. The issue was over subscribed by 30,000 shares and allotment was made on pro-rata basis. Pass necessary journal entries in the books of the company.

 

Ans. 8

(i) Dr. Bank A/C Rs. 16,90,000, Cr.Eq.share Application A/C Rs. 16,90,000.

(ii) Dr.Eq.Share Application A/C Rs. 16,90,000, Cr.Eq. share Capital A/C Rs.10,00,000,

Cr. Security premium A/C Rs. 300,000, Cr. Bank A/C Rs. 3,90,000.

 

Question. What is Zero Coupon Bond ?

 

Ans. 9 Debentures Issued without a predetermined rate of interest are called zero coupon Bond.

 

Question. What is a Debenture Trust Deed?

 

Ans 10. A company issuing Debentures by way of public issue is required to appoint the trustees and execute a trust deed . It is a document created by the company which issues the Debentures.

 

Question. On 01-04-1999, A Ltd., issued 2000, 7% debentures of Rs. 100 each at a discount of 10% redeemable at par after 4 years by converting them into equity shares of Rs. 100 each issued at a premium of 25%. Pass journal entries in the following cases:

(i) If debentures are redeemed on maturity.

(ii) If debentures are redeemed before maturity.

 

Ans. 11 Case (i) – No. of Equity shares to be issued 1,600.

           Case (ii) – No. of Equity shares to be issued 1,440.

 

Question. Pass journal entries for the following at the time of issue of debentures:

(a) B Ltd. issues 30,000, 12% Debentures of Rs. 100 each at a discount of 5 % to be repaid at par at the end of 5 years.

(b) E Ltd. issues Rs. 60,000, 12% Debentures of Rs. 100 each at a discount of 5 % repayable at a premium of 10% at the end of 5 years.

(c) F Ltd. issues Rs. 70,000, 12% Debentures of Rs. 100 each at a premium of 5 % redeemable at 110%.

 

 

Q.13 500 shares of Rs. 100 each issued at a discount of 10% were forfeited for the non-payment of allotment money of Rs. 50 per share. The first and final call of Rs.10 per share on these shares were not made. The forfeited shares were reissued at Rs. 80 per share fully paid-up.

 

Ans. 13 Capital Reserve Rs. 10,000

 

Q.14 200 shares of Rs. 100 each issued at a discount of 10% were forfeited for the non payment of allotment money of Rs. 50 per share. The first and final call of Rs. 10 per share on these shares were not made. The forfeited share were reissued at Rs. 14 per share fully paid up.

 

Ans. 14 Capital Reserve Rs. 600

 

Q.15 800 Shares of Rs. 10 each issued at per were forfeited for the non-payment of final call of Rs. 2 per share. These shares were reissued at Rs. 8 per share fully paid-up.

 

Ans. 15 Capital Reserve Rs. 4,800.

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  esolution 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.

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.

UNIT 4: Company Accounts- Share capital

LEARNING OBJECTIVES

Understand the meaning and features of company

I) Classification of share capital

II) Understand the accounting treatment of over subscription, calls in arrears, premium and discount on issue of shares.

III) Understand the meaning of forfeiture of shares

IV) Pass journal entries regarding forfeiture and reissue of shares

V) Calculate capital reserve

VI) Differentiate between capital reserve and reserve capital

VII) Understand the disclosure of the share capital in the balance sheet

Salient Features

*A company is an artificial person having separate legal entity.

*A company is created by law and effected by law.

*A private company can be formed with minimum two members and maximum fifty.

*For a public company minimum members required are 7 and there is no maximum limit.

*The capital of the company is divided into units of small denominations which are called shares.

*Though the company is an artificial person, it has to perform all statutory obligation like a person association.

*A public company can allot shares in case of minimum subscription is received.

*Shares can be issued at par, premium, or even at discount.

*Preferences shareholder enjoy preference rights whereas equity share holder enjoy voting rights.

*When a shareholder fails to pay one or more installments due on the shares held by him, the company has the authority to forfeit such shares.

*A company can re-issue the forfeited shares in accordance with the provisions contained in the articles of the company.

(1 marks)

Q.1 Give the definition of a compnay as contained in the companies act,1956.

Ans  section 3(1)(i) of companies act defines a company as "a company formed and registered under this act or an existing company." According to sec3(1)(ii),"An exisiting company means a company formed and registered under any of the former companies Acts."

Q.2 Can forfeited shares be issued at a discount ? If so to what extent?

Ans Re-issue of forfeited shares: Forfeited shares can be reissued at a discount. However, the In other words, amount received on received on re-issue plus amount already received on forfeited shares must not be less than the paid up value of shares.

Q.3 As a director of a company you had invited applications for 20,000 equity shares of Rs.10 each at a premium of Rs.2 each. The total applications money received at Rs.3/- per share was Rs.72,000. Name the kind of subscription. List the three alternatives for allotting these share.

Ans It is a case of over-subscription. Shares are said to be over-subscribed when the numbers of shares ar more than the number of shares offered:

(i) Allotment for 1st 20,000 shares and the rest can rejected

(ii) Allotment on prorata basis

(iii)Allotment of some application in full and some on prorata basis,and some refused.

4 What is an Escrow Account?

Ans. In order to fulfill certain obligations under the scheme of buy-back of securities an account is opened, which is known as escrow account.

Q.5 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.6 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.7 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.8 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 betransferred 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.9 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.10 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 authorised by a revolution passed by the company in its general meeting and sanctioned by the central Government.

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.13 Employees stock option plan-"A right to buy and not an obligation". Comment

.

Ans. Employees stock option plan is the right granted to the employees of the company to purchases the shares lower than the market prices. It is worth mentioning the options provide a right and not the obligation to bur shares. It means that the employees under this plan are not necessarily required to purchase the shares. It is their wish to buy or not necessarily required to purchase the shares. It is their wish to buy or not.

Q.14 Write a short note on minimum subscription?

Ans Minimum subscription is the amount received from share holders which is sufficient from the point of view of directors‘ for following purposes:

(a) For purchasing necessary assets of the company.

(b) For paying preliminary expenses and commission on sales of shares.

(c) For paying loan if arranged for above two purposes.

(d) For working capital and for any other purposes which the directors agree upon.

Q.15 Rohit Ltd. Purchased assets from Rohan & co. for Rs. 3,50,000. A sum of Rs. 75,000 was paid by the emans of a bank draft and for the balance due Rohit Ltd. Issued Equity shares of Rs. 10 each at a premium of 10% .Journalise the above transaction in the books of the company.

Q.16 50 shares of Rs. 10 each, issued at as premium of Rs. 5 per share, were forfeited by sohan Ltd. for the nonpayment of allotment money of Rs.9 per share (including premium). The first and final call on these shares at Rs. # per share was not made. Forfeited shares were re-issued @ Rs. 12 per share, fully paid up. Journalise

Q17 AB Ltd. Invited applications for issuing 1,00,000 equity shares of Rs. 10 each. The amount was payable as follows: On Application Rs.3 per share; On allotment Rs.2 per share; and on 1st and final call Rs.5 per share. Applications for 1,50,000 shares were received and prorata allotment was made to all applicants as follows: Application for 80,000 shares were allotted 60,000 shares on pro-rata basis ; Application for 70,000 shares were allotted 40,000 shares on pro-rata basis; Sudha to whom 600 shares were allotted out of the group 80,000 shares failed to pay allotment money. Her shares were forfeited immediately after allotment. Asha who had applied for 1,400 share out of the group 70,000 shares failed to pay the first and final call.Her shares were also forfeited. Out of forfeited shares 1,000 shares were reissued @ Rs.8 per share fully paid up The reissued shares included all the forfeited shares of Sudha. Pass necessary journal entries to record the above transaction

21. Alpha Ltd issued for public subscription 40,000 equity shares of Rs. 10 each. At a premium of Rs. 2 per share payable as under:

On application Rs. 2 per share, on allotment Rs. 5 per share (including premium), on first call Rs. 2 per share and on second call Rs. 3 per share. Applications were received for 60,000 shares. Allotment was made pro rata basis to the

applicants for 48000 shares, the remaining applications being refused. Money overpaid on application was applied towards sums due on allotment.

A, to whom 1,600 shares were allotted, failed to pay the allotment money and B, to whom 2,000 shares were allotted failed to pay the two calls. These were subsequently forfeited after the second call was made. Pass journal entries.

22. A limited company invites applications for 50,000 equity shares of Rs. 10 each, at a maximum discount by the Companies Act, payable as follows:

On application Rs. 3; on allotment Rs. 3; on first call Rs. 2; on final call the balance. Applications were received for 55,000 shares. Allotments were made on the following basis:

(i) To applicants for 35,000 shares- in full(ii) To applicants for 20,000 shares- 15,000 shares.

Excess money paid on application was utilized towards allotment money. A shareholder who was allotted 1,500 shares out of the group applying for 20,000 shares failed to pay allotment money and money due on calls. These shares were forfeited. 1,000 forfeited shares were reissued as fully paid on receipt of Rs. 8 per share. Show the journal in the books of the company