Accountancy · Class 12 · Accounting for Companies · 2.º Período

Accounting for Share Capital

Features and types of companies, and the process of issuing shares. Accounting treatment for over-subscription, calls-in-arrears, forfeiture, and reissue of shares.

TL;DR:Accounting for Share Capital introduces students to the corporate world, focusing on how Indian companies raise funds from the public. It covers the lifecycle of a share, from the prospectus and application to allotment and calls. Students learn about the Companies Act, 2013, and the specific accounting entries for issuing shares at par or premium.

• CBSE Learning Outcomes
• CBSE Class 12 Accountancy, Part A, Unit 2: Accounting for Companies - Accounting for Share Capital: features and types of companies, Share and share capital
• CBSE Class 12 Accountancy, Part A, Unit 2: Accounting for Companies - Accounting for share capital: issue and allotment of equity and preferences shares, over-subscription and under-subscription

About This Topic

Accounting for Share Capital introduces students to the corporate world, focusing on how Indian companies raise funds from the public. It covers the lifecycle of a share, from the prospectus and application to allotment and calls. Students learn about the Companies Act, 2013, and the specific accounting entries for issuing shares at par or premium.

A major focus is on complex scenarios like over-subscription and pro-rata allotment, which are common in the Indian stock market (IPOs). Students also master the technical process of forfeiture and reissue of shares. This topic comes alive when students can physically model the patterns of share allotment and the flow of capital from the public to the company's equity base.

Key Questions

1. What are the different categories of share capital?
2. How is over-subscription of shares handled through pro-rata allotment?
3. What is the accounting entry for the forfeiture of shares?

Watch Out for These Misconceptions

Common Misconception

Students often think that the Securities Premium Account can be used for any business expense.

What to Teach Instead

Under Section 52(2) of the Companies Act, 2013, Securities Premium has very specific uses, like issuing bonus shares or writing off preliminary expenses. A collaborative investigation into the Act helps students list these specific restricted uses.

Common Misconception

Confusing 'Subscribed but not fully paid' with 'Calls-in-Arrears'.

What to Teach Instead

While related, they are presented differently in the balance sheet. Using a gallery walk with different balance sheet extracts helps students see how calls-in-arrears are deducted from the subscribed capital.

Active Learning Ideas

Simulation Game

The IPO Launch

Students act as a company issuing 10,000 shares while the rest of the class 'applies' for 15,000 shares. The 'company' must then perform a pro-rata allotment and calculate the excess application money to be adjusted against calls.

50 min·Whole Class

Stations Rotation

Forfeiture and Reissue

Set up stations with different scenarios: shares forfeited for non-payment of first call, shares issued at premium and forfeited, and shares reissued at a discount. Students rotate to pass the journal entries and calculate the transfer to Capital Reserve.

45 min·Small Groups

Think-Pair-Share

Types of Share Capital

Students are given a company's financial notes. They must identify Authorised, Issued, Subscribed, and Paid-up capital. They then pair up to discuss how these figures would be presented in the Notes to Accounts of a Balance Sheet.

25 min·Pairs

Frequently Asked Questions

What is pro-rata allotment in an IPO?

Pro-rata allotment happens when a share issue is over-subscribed. Instead of rejecting applications, the company allots shares proportionately to all applicants. Students can use a simulation to calculate how much excess money is carried forward to the next call for each applicant.

How is the Capital Reserve calculated after reissue?

Capital Reserve is the profit made on the forfeited shares that have been reissued. It is calculated as: (Amount forfeited on reissued shares) minus (Discount allowed on reissue). A station rotation activity is excellent for practicing this multi-step calculation.

How can active learning help students understand share capital?

Active learning, such as a mock IPO simulation, turns abstract accounting entries into a logical sequence of events. Students see the 'why' behind pro-rata adjustments and forfeiture when they have to manage the 'shareholders' themselves. This hands-on experience makes the complex journal entries for over-subscription much easier to remember and apply.

Can shares be issued at a discount in India?

According to the Companies Act, 2013, companies are generally prohibited from issuing shares at a discount, except in the case of sweat equity shares. Teachers can use a structured debate to discuss why this law was implemented to protect investors.