Lecture Notes on Accounting for Share Capital

Introduction

• Discussion on the significance of accounting for share capital and its relevance for students pursuing commerce.
• Key points for understanding:
  • Importance of theory in accounting.
  • Practical implications for students in CA or commerce courses.

Companies Overview

• Concept of Companies:
  • Companies are entities that pool resources from the public.
  • Various types of companies exist based on their structure and ownership.

Types of Companies:

• Public Limited Company
• Private Limited Company
• One Person Company
• Limited by Guarantee

Accounting Entries for Shares

1. Issue of Shares:
   • Companies can issue shares to raise capital.
   • Types of Shares:
     • Equities
     • Preference Shares
2. Share Capital Accounting Entries:
   • Journal entries for share capital include aspects such as:
     • Application Stage: Bank account debit to share application.
     • Allotment Stage: Share allotment account debit to share capital.
     • Call Stage: Share capital accounts for the first and final calls.

Important Terms

• Subscription of Shares: Shareholders subscribe to shares based on demand.
• Over-subscription: When the number of applications exceeds the number of shares issued.
• Under-subscription: When the number of applications is less than the number of shares issued.

Handling Over-subscription

• Methods to Handle Over-subscriptions:
  1. Refund Extra Applications:
  2. Pro-rata Allotment: Adjust excess applications against future allotments or calls.

Handling Under-subscription

• Action Required: Refund excess amounts if the minimum subscription is not met.

Accounting for Calls

• Types of Calls:
  • First Call: Amount due at the first call.
  • Final Call: Amount due at the final call.
• Entries for Calls:
  • Calls in Arrears: When a shareholder fails to pay.
  • Calls in Advance: When a shareholder pays before the due date.

Key Points for Students

• Importance of understanding the difference between equity and preference shares.
• Significance of knowing the consequences of calls in default (failure to pay).
• Theory in Practice: Real-life implications for those working in accounting and company finance.

Conclusion

• The necessity for future accountants and finance professionals to master these concepts in share capital accounting.