Академический Документы
Профессиональный Документы
Культура Документы
CONTENTS
Index
Acknowledgement
Introduction
Characteristics of a company
Classes or kinds of shares
Issues of shares
Terms of issues of shares
Accounting treatment
Forfeiture of shares
Forfeiture of shares originally issued at a premium
Reissue of forfeited shares
When shares belonging to pro rata category are forfeited
Illustration
Working notes
Conclusion
Bibliography
Page No.
INTRODUCTION
Meaning
A company or a joint stock company is an enterprise established through a process of
law for undertaking (usually) a business venture. A company is an artificial person
existing in the eyes of law and distinct from its members. It has a share capital divided
into shares, the owners of which are known as members or shareholders. Insolvency or
death of a member has no effect on the life of the company.
Section 3(1) (i) of the Companies Act, 1956 defines a company as A company formed
and registered under this Act or an existing company. An existing company means A
company formed and registered under any of the previous company laws. The term
company has not been much clarified by the companies Act. Let us look at some
definitions of the term for better understanding.
According to Chief Justice Marshal A corporation is an artificial being,invisible,
intangibal, existing only in contemplation of the.
According to Professor Haney A company is an artificial person created by law, having
separate entity with a perpetual succession and a common seal.
(i)
earn sufficient profits in the year 2009. In this case, the company shall pay Rs. 2,10,000
as dividend for three years to the preference shareholders.
Non-cumulative preference shares :- Non-cumulative preference shares are those
shares which do not carry right to receive arrears of dividend. In the above example,
preference shareholders shall be entitled to receive dividend only for the year 2009, i.e.,
Rs. 70,000.
(ii)
(iii)
(iv)
there are no profits. Directors may or may not recommend dividend or such
shares. That is why in financial terminology the share capital raised through such
capital is called as Risk Capital.
Issues of shares
A company collects its capital by issue of shares. A public company can issue shares
only after it has met the legal compliances that is obtaining certificate for
commencement of business, filing of prospectus with the registrar of companies, etc. A
private company, on the other hand, does not have to meet any such legal compliances.
Accounting Treatment :
Bank A/C
.Dr.
(ii)
.Dr.
(iii)
Dr.
Rs. 60,000
Rs. 50,000
Rs. 10,000
(iv)
Bank A/C
To share allotment A/C
Dr.
Rs. 60,000
Rs. 60,000
Dr.
Dr.
Forfeiture of Shares
Forfeiture of shares means cancelling the share for non payment of calls due to as a
final action against the defaulting shareholder(s). If any shareholder does not pay the
amount of a call, the company may exercise the power to forfeit those shares. Shares,
however, can be forfeited only if the articles of association permits it. The company must
first give a clear 14 days notice to the defaulting shareholder that unless he pays the
amount due together with interest, if any, by the specified date, the shares are liable to
be forfeited. If the shareholder still does not pay, the company may forfeit them by
passing an appropriate resolution.
On forfeiture, the shares are cancelled to that extent the share capital is reduced but the
amount already paid by the shareholders is not returned to him it is forfeited. Of
course, the account showing the unpaid call is also cancelled by a credit. The entry
passed on forfeiture of shares is :
Share Capital A/C
To Forfeited Shares A/C
To various unpaid calls A/C
Or
Dr.
Calls-in-arrear A/C
credited with the amount due but not paid by the shareholder(s) and forfeited shares
account will be credited by the amount paid by the shareholder(s).
Forfeiture of Shares which were issued at premium :(a) If premium has been received
Share capital A/c
Dr.
Dr.
Dr.
Dr
In case they are issued at a discount, the discount cannot exceed the amount that had
been received and forfeited. In other words, there cannot be any loss on account of
reissue of forfeited shares. The journal entry is:
Bank A/c
Dr.
If the forfeited shares are reissued at a price higher than that paid - up, the excess is
credited to securities premium account.
Reissue of Forfeited Shares originally issued at a discount :If shares originally issued at a discount are forfeited and thereafter reissued, the
maximum permissible reissue discount, is the sum received on forfeited shares and the
original discount. For example, if a share of Rs. 10 was originally issued at a discount of
Rs. 1 is forfeited, and the amount received on it was Rs. 2, the maximum discount on
reissue of such a forfeited share can be Rs. 3 (i.e., original discount Re.1 + amount
received Rs. 2). The journal entry will be as follows in case the share is reissued for Rs.
7 per share, fully paid up :
Particulars
Explanation
Bank A/c
Dr.
Dr.
Dr.
10
Illustration :On 1st April , 2010, X Ltd. Made an issue of 3,00,000 equity shares of Rs. 10 each at a
premium of Rs. 4 per share, payable as follows:
Rs. 4 on application ( including Re. 1 premium )
Rs. 3 on allotment ( including Re. 1 premium )
Rs. 4 on first call ( including Re. 1 premium )
Rs. 3 on second and final call ( including Re. 1 premium )
Application were received for 4,00,000 shares, of which applications for 50,000 shares
were rejected and their money was refunded. Rest of the applicants were issued shares
on pro rata basis and their excess money was adjusted towards allotment.
Hari, to whom 6,000 shares were allotted, failed to pay the allotment money and his
shares were forfeited after allotment. Mohan who applied for 10,500 shares failed to pay
the two calls and on his such failure, his shares were forfeited.
Shyam, who was allotted 3,000 shares did not pay final call.
12,000 forfeited shares were reissued as fully paid on receipt of Rs. 9 per share, the
whole of Mohans shares being included.
Prepare the cash book and pass the necessary journal entries. Also, give the balance
sheet of the company.
Solution :
Dr.
Particulars
To equity share application A/c
(4,00,000 Rs. 4)
To equity share allotment A/c (W.N1)
To equity share 1st call A/c (W.N.2)
(2,85,000 shares Rs. 4 )
To equity share second and final
Call A/c ( W.N. 2)
( 2,82,000 shares Rs. 3 )
To equity share capital A/c
(12,000 shares Rs. 9 )
CASH BOOK
Rs.
16,00,000
6,86,000
11,40,000
Particulars
By share application A/c
(50,000 shares Rs. 4)
By balance c/d
Rs.
2,00,000
41,80,000
8,46,000
1,08,000
43,80,000
43,80,000
JOURNAL
Date
Particulars
L.F
.
Dr.
Dr.
Dr.
Dr.
Dr.
Dr. (Rs.)
Cr. (Rs.)
14,00,000
9,00,000
3,00,000
2,00,000
9,00,000
6,00,000
3,00,000
30,000
6,000
14,000
22,000
11,76,000
8,82,000
2,94,000
8,82,000
90,000
18,000
12,000
5,88,000
2,94,000
36,000
27,000
45,000
12,000
44,000
44,000
Rs.
Assests
Current assests
Cash at bank
Rs.
41,80,000
30,00,00
0
29,61,00
0
11,000
11,64,000
41,80,000
44,000
41,80,00
0
Working Notes :
1. (a) Excess amount received from Hari on application:
6,000 shares were allotted to Hari
3,50,000
Therefore he must have applied for
3,00,000
(b)
(c)
18,000
4,000
14,000
9,00,000
2,00,000
7,00,000
14,000
6,86,000
Ab
Rs.
45,000
56,000
12,000
44,000
4.
Rs.22,000
3,000
Rs.11,000
It should be noted that forfeited amount of shares not yet reissued will be shown in the
balance sheet as a part of capital.
5. Securities premium related to allotment @ re.1 on 6,000 shares of Hari has not
been received by the company. Therefore at the time of forfeiture, securities
premium account will be debited to cancel it, because premium account was
credited at the time of allotment. This should also be considered at the time of
forfeiture of Mohan shares.
CONCLUSION
With the expansion in the scale of operations and increase in risk involved, noncorporate forms of organizations ( i.e. sole proprietorship, partnership firms) found
themselves unequal to the task of meeting all the capital requirements and
increased risks of the present day large scale business operations. Thus, a relatively
new form of business organization came into vogue and this is called a joint stock
company or simply, a company.
BIBLIOGRAPHY
1. Tulsians Accountancy [ P.C.Tulsian, class XII (CBSE), Tenth Edition, Part A ]
2. Analysis of Financial Statements [ Arya Publications, D.K.Goel, class XII, part B]