CBSE Class 12 Accountancy Accounting for Share Capital Notes | Issue, Forfeiture & Reissue
CBSE Class 12 Accountancy Accounting for Share Capital Notes | Issue, Forfeiture & Reissue
Introduction
Accounting for Share Capital is an important chapter in CBSE Class 12 Accountancy. In this chapter, students learn how a company raises money by issuing shares and how these transactions are recorded in the books of the company.
The chapter mainly covers equity shares, preference shares, issue of shares, over-subscription, under-subscription, issue at par and premium, calls in advance and arrears, private placement, ESOP, sweat equity, forfeiture and reissue of shares, and Balance Sheet disclosure.
The best way to prepare this chapter is to understand the logic behind each journal entry instead of simply memorising entries.
1. Meaning of a Company
A company is an artificial person created by law. It has a separate legal identity from its members.
In simple words:
A company is a legal entity formed by a group of persons to carry on business activities.
Main Features of a Company
| Feature | Easy Explanation |
|---|---|
| Separate Legal Entity | Company has a separate identity from its shareholders. |
| Limited Liability | Liability of shareholders is generally limited to the amount unpaid on their shares. |
| Perpetual Succession | Company continues to exist even if shareholders change or die. |
| Transferability of Shares | Shares can generally be transferred, subject to applicable rules. |
| Artificial Person | A company is created by law and acts through its authorised persons. |
| Common Capital | Capital of the company is divided into units called shares. |
Types of Companies
For CBSE examination, students should understand the basic classification of companies.
1. Private Company
A private company generally restricts the right to transfer its shares and does not invite the public to subscribe to its securities.
2. Public Company
A public company can raise capital from the public subject to the provisions of the Companies Act, 2013.
3. One Person Company (OPC)
It is a company having only one person as its member.
2. Meaning of Share
A share represents a unit into which the total share capital of a company is divided.
Example
Suppose a company has share capital of ₹10,00,000, divided into 1,00,000 shares of ₹10 each.
Therefore:
Number of Shares = 1,00,000
Face Value of Each Share = ₹10
The shareholder who owns these shares becomes a member of the company according to the applicable provisions.
3. Meaning of Share Capital
Share Capital means the capital raised by a company by issuing shares to its shareholders.
Example
A company issues:
50,000 shares × ₹10 each = ₹5,00,000
Therefore, the share capital is ₹5,00,000.
4. Types of Share Capital
This is an important theoretical area for CBSE exams.
The main types are:
- Authorised Capital
- Issued Capital
- Subscribed Capital
- Called-up Capital
- Paid-up Capital
- Uncalled Capital
- Reserve Capital
4.1 Authorised Capital
Authorised capital is the maximum amount of share capital that a company is authorised to issue according to its constitutional documents.
Example
A company is authorised to issue:
1,00,000 shares of ₹10 each.
Authorised Capital:
1,00,000 × ₹10 = ₹10,00,000
4.2 Issued Capital
Issued capital is that portion of authorised capital which the company offers for subscription.
Example
Authorised capital = ₹10,00,000
The company issues shares worth ₹7,00,000.
Therefore:
Issued Capital = ₹7,00,000
4.3 Subscribed Capital
Subscribed capital is the portion of issued capital that has been subscribed by the public/shareholders.
Example
Issued capital = ₹7,00,000
Public applies for shares worth ₹6,00,000.
Therefore:
Subscribed Capital = ₹6,00,000
4.4 Called-up Capital
Called-up capital is the amount of share capital that the company has called from shareholders for payment.
Example
A ₹10 share is issued, but the company has called only ₹7 per share.
Then:
Called-up Capital = ₹7 per share
The remaining ₹3 is uncalled.
4.5 Paid-up Capital
Paid-up capital is the amount of called-up capital that has actually been paid by shareholders.
Formula
Paid-up Capital = Called-up Capital – Calls in Arrears
4.6 Uncalled Capital
The amount which has not yet been called by the company from shareholders is called Uncalled Capital.
Example
Face value = ₹10
Amount called = ₹7
Therefore:
Uncalled Amount = ₹3 per share
4.7 Reserve Capital
Reserve capital is that portion of uncalled capital which a company resolves to call only in the event of winding up.
Exam Tip
Do not confuse:
Uncalled Capital ≠ Reserve Capital
Reserve capital is a part of uncalled capital, but not all uncalled capital is reserve capital.
5. Nature and Types of Shares
The two main types of shares are:
1. Equity Shares
2. Preference Shares
6. Equity Shares
Equity shares are shares which are not preference shares.
Equity shareholders are the real risk-bearing owners of the company. Their dividend is not fixed and depends upon the profits and the company's decision regarding dividend.
Important Features
- Dividend is generally not fixed.
- Equity shareholders carry greater risk.
- They generally have voting rights.
- They receive their capital after preference shareholders at the time of winding up.
7. Preference Shares
Preference shares are shares that carry preferential rights regarding:
- Payment of dividend, and
- Repayment of capital in the event of winding up.
Example
If preference shareholders have a right to receive dividend before equity shareholders, they are called preference shareholders.
8. Difference Between Equity Shares and Preference Shares
| Basis | Equity Shares | Preference Shares |
|---|---|---|
| Dividend | Generally not fixed | Generally fixed |
| Risk | Higher | Comparatively lower |
| Voting Rights | Generally available | Generally restricted |
| Repayment of Capital | After preference shareholders | Before equity shareholders |
| Return | Depends on profits | Preferential right to dividend |
| Nature | Risk-bearing capital | Preferential capital |
9. Issue of Shares
A company may issue shares for raising capital.
Shares can be issued:
- At Par
- At Premium
- For Consideration Other Than Cash
The amount payable on shares may be collected:
Application → Allotment → First Call → Final Call
10. Issue of Shares at Par
When shares are issued at their face value, they are said to be issued at par.
Example
Face value of share = ₹10
Issue price = ₹10
Therefore, shares are issued at par.
11. Issue of Shares at Premium
When shares are issued at a price higher than their face value, they are said to be issued at a premium.
Example
Face value = ₹10
Issue price = ₹12
Therefore:
Securities Premium = ₹2 per share
Important Formula
Issue Price = Face Value + Securities Premium
So:
₹12 = ₹10 + ₹2
12. Basic Journal Entries for Issue of Shares
Suppose shares are issued at par and money is received in stages.
At the time of Share Application
Bank A/c Dr.
To Share Application A/c
Transfer of Application Money
Share Application A/c Dr.
To Share Capital A/c
At the time of Allotment
Share Allotment A/c Dr.
To Share Capital A/c
Receipt of Allotment Money
Bank A/c Dr.
To Share Allotment A/c
At the time of Call
Share Call A/c Dr.
To Share Capital A/c
Receipt of Call Money
Bank A/c Dr.
To Share Call A/c
13. Journal Entry When Shares Are Issued at Premium
Suppose ₹10 shares are issued at ₹12.
Premium = ₹2.
If premium is payable on allotment:
Share Allotment A/c Dr.
To Share Capital A/c
To Securities Premium A/c
Board Exam Tip
Remember:
Face Value → Share Capital A/c
Premium → Securities Premium A/c
14. Public Subscription of Shares
When a company invites the public to apply for its shares, people submit applications along with the application money.
There can be:
1. Full Subscription
2. Over-Subscription
3. Under-Subscription
15. Over-Subscription of Shares
When applications received are more than the number of shares offered, it is called over-subscription.
Example
Company offers 10,000 shares.
Applications received for 15,000 shares.
Therefore, applications exceed the shares offered by 5,000 shares.
This is over-subscription.
What can a company do?
The company may:
- Reject some applications and refund the money.
- Make proportionate allotment.
- Adjust excess application money towards allotment/calls, where applicable.
16. Pro-Rata Allotment
In case of over-subscription, shares may be allotted in a proportion.
Example
Company offers 10,000 shares.
Applications received for 15,000 shares.
If all applicants are allotted proportionately:
Ratio = 10,000 : 15,000 = 2 : 3
Therefore, an applicant applying for 300 shares may receive:
300 × 2/3 = 200 shares
Exam Point
In pro-rata allotment questions, first calculate:
Ratio of Shares Allotted : Shares Applied
Then determine the number of shares allotted to each applicant.
17. Under-Subscription of Shares
When applications received are less than the number of shares offered, it is called under-subscription.
Example
Shares offered = 1,00,000
Applications received = 80,000
Therefore:
Under-subscription = 20,000 shares
If the minimum subscription requirement is satisfied, the company may allot the shares for which applications have been received, subject to applicable rules.
18. Calls in Advance
When a shareholder pays an amount before the company makes a call, the amount is called Calls in Advance.
Important Point
Calls in advance are not part of share capital until the amount becomes due as a call.
Journal Entry
When money is received in advance:
Bank A/c Dr.
To Calls in Advance A/c
When the call becomes due:
Calls in Advance A/c Dr.
To Share Call A/c
Exam Tip
Calls in Advance = Amount received before it is called.
19. Calls in Arrears
When a shareholder fails to pay the amount due on a call, the unpaid amount is called Calls in Arrears.
Example
Call due = ₹3 per share
Amount paid = ₹2
Therefore:
Calls in Arrears = ₹1 per share
Journal Entry
Calls in Arrears A/c Dr.
To Share Call A/c
When arrears are received:
Bank A/c Dr.
To Calls in Arrears A/c
CBSE syllabus point: Interest on calls in arrears/calls in advance is excluded from the specified scope in the current curriculum.
20. Issue of Shares for Consideration Other Than Cash
Sometimes a company may issue shares to acquire an asset or purchase a business instead of paying the consideration completely in cash.
Example
A company purchases machinery from a vendor for ₹5,00,000 and issues shares of ₹10 each to the vendor in settlement.
Number of shares:
₹5,00,000 ÷ ₹10 = 50,000 shares
Journal Entry
Machinery A/c Dr. ₹5,00,000
To Vendor A/c ₹5,00,000
For issue of shares:
Vendor A/c Dr. ₹5,00,000
To Share Capital A/c ₹5,00,000
21. Private Placement of Shares
Private Placement means an offer or invitation by a company to a selected group of persons to subscribe to its securities, subject to the applicable provisions of the Companies Act, 2013.
Easy Meaning
Instead of inviting the general public, the company offers securities to selected persons.
Example
A company needs ₹50 lakh and offers shares to a selected group of investors rather than making a public issue.
This is an example of private placement.
22. Employee Stock Option Plan (ESOP)
ESOP is a scheme under which employees are given an option to purchase or subscribe to the company's shares, subject to the applicable terms and regulations.
Easy Meaning
Employees get an opportunity to become shareholders of the company by acquiring its shares under the ESOP scheme.
Why do companies use ESOP?
- To motivate employees.
- To retain talented employees.
- To create a sense of ownership.
- To align employees' interests with the company's performance.
Exam Tip
Remember:
ESOP = Opportunity given to employees to acquire shares of the company.
23. Sweat Equity Shares
Sweat Equity Shares are shares issued by a company to its directors or employees in accordance with applicable legal provisions, generally in recognition of their contribution such as know-how, intellectual property, or value additions.
Easy Meaning
The company may reward eligible employees/directors for their contribution by issuing them shares.
Remember the Difference
ESOP: Gives an option/opportunity to employees to acquire shares.
Sweat Equity: Shares issued to eligible employees/directors for their contribution, subject to law.
24. Forfeiture of Shares
When a shareholder fails to pay the amount due on shares and the company cancels the shares according to its terms and applicable law, it is called forfeiture of shares.
Example
A shareholder has to pay ₹10 per share but fails to pay the allotment/call money.
The company may forfeit the shares according to the applicable provisions.
Important Point
Forfeiture does not mean that the company simply refunds the amount already received.
The amount already received is generally credited to Share Forfeiture A/c, subject to the accounting treatment applicable to the transaction.
25. Journal Entry for Forfeiture of Shares
Suppose ₹10 shares were issued at par.
₹7 per share had been called.
The shareholder paid ₹5 but failed to pay ₹2.
The basic entry will be:
Share Capital A/c Dr.
To Share Allotment/Share Call A/c
To Share Forfeiture A/c
Logic
- Share Capital A/c is debited with the amount called-up.
- Amount unpaid is credited to the relevant Calls in Arrears/Allotment/Call A/c.
- Amount already received is credited to Share Forfeiture A/c.
26. Forfeiture of Shares Issued at Premium
This is an important CBSE examination area.
If securities premium was already received, Securities Premium A/c is generally not reversed merely because the shares are forfeited.
However, if the premium had become due but was not received, the relevant Securities Premium A/c is reversed/debited as part of the forfeiture entry.
Exam Tip
Always check:
Was Securities Premium received or not?
This decides the treatment of Securities Premium at forfeiture.
27. Reissue of Forfeited Shares
After forfeiture, the company may reissue the forfeited shares.
Shares can be reissued:
- At Par
- At Premium
- At Discount
Important Rule
Discount on reissue cannot exceed the amount forfeited on those shares.
This is one of the most important rules for numerical questions.
28. Reissue at Par
Suppose a ₹10 share is forfeited after receiving ₹6 per share and is reissued at ₹10.
Journal entry:
Bank A/c Dr. ₹10
To Share Capital A/c ₹10
The amount already forfeited remains in Share Forfeiture A/c.
29. Reissue at Discount
Suppose:
- Face value = ₹10
- Amount forfeited = ₹6
- Reissue price = ₹8
Discount on reissue = ₹2.
Journal entry:
Bank A/c Dr. ₹8
Share Forfeiture A/c Dr. ₹2
To Share Capital A/c ₹10
Key Rule
Discount on reissue = ₹2
Amount forfeited = ₹6
Since ₹2 ≤ ₹6, the reissue is permitted from the accounting point of view.
30. Reissue at Premium
If forfeited shares are reissued at a price above their face value, the excess is credited to Securities Premium A/c.
Example
Face value = ₹10
Reissue price = ₹12
Premium = ₹2
Entry:
Bank A/c Dr. ₹12
To Share Capital A/c ₹10
To Securities Premium A/c ₹2
31. Transfer of Profit on Reissue
After reissue of forfeited shares, any remaining balance in Share Forfeiture A/c relating to the reissued shares is transferred to Capital Reserve.
Journal Entry
Share Forfeiture A/c Dr.
To Capital Reserve A/c
Very Important Board Rule
Profit on reissue of forfeited shares → Capital Reserve
It is not transferred to Statement of Profit and Loss.
32. Partial Reissue of Forfeited Shares
If only some of the forfeited shares are reissued, only the proportionate amount of forfeiture relating to the reissued shares is transferred to Capital Reserve.
Example
100 shares forfeited.
Only 60 shares reissued.
Amount forfeited relating to 100 shares = ₹5,000.
Amount transferred to Capital Reserve:
₹5,000 × 60/100 = ₹3,000
The remaining ₹2,000 remains in Share Forfeiture A/c until the remaining shares are reissued.
33. Balance Sheet Disclosure of Share Capital
The share capital of a company is disclosed under Shareholders' Funds in the Balance Sheet.
For CBSE examination, students should understand the major details required for disclosure under the prescribed format.
Main Particulars
Equity and Liabilities
→ Shareholders' Funds
→ Share Capital
The Balance Sheet disclosure includes details such as:
- Authorised share capital
- Issued share capital
- Subscribed share capital
- Number of shares
- Face value per share
- Amount of share capital
- Reconciliation of shares where applicable
- Rights, preferences and restrictions attached to shares
- Details relating to calls unpaid and related disclosures, as applicable
The presentation is based on the prescribed requirements under Schedule III, Part I of the Companies Act, 2013, which is specifically included in the CBSE learning outcomes.
34. Important Difference: Calls in Advance vs Calls in Arrears
| Basis | Calls in Advance | Calls in Arrears |
|---|---|---|
| Meaning | Amount received before it is due | Amount not received when due |
| Situation | Shareholder pays early | Shareholder fails to pay |
| Nature | Liability until call becomes due | Amount recoverable from shareholder |
| Account | Calls in Advance A/c | Calls in Arrears A/c |
| Cash Flow | Money received | Money not received |
Easy Trick
Advance = Paid Early
Arrears = Paid Late/Not Paid
35. Important Difference: Private Placement vs Public Subscription
| Basis | Public Subscription | Private Placement |
|---|---|---|
| Offer | Made to public | Made to selected persons |
| Investors | General investing public | Selected investors |
| Purpose | Raising capital through public issue | Raising capital from selected persons |
| Nature | Public issue | Selective offer |
36. Important Difference: Forfeiture vs Reissue
| Forfeiture | Reissue |
|---|---|
| Shares are cancelled due to non-payment | Forfeited shares are issued again |
| Shareholder loses the shares | New holder receives the shares |
| Share Forfeiture A/c may be credited | Share Forfeiture A/c may be debited |
| Capital Reserve is not created at forfeiture itself | Profit on reissue is transferred to Capital Reserve |
37. Important Formulas for Board Exams
Share Capital
Share Capital = Number of Shares × Face Value per Share
Securities Premium
Securities Premium = Number of Shares × Premium per Share
Issue Price
Issue Price = Face Value + Premium
Paid-up Capital
Paid-up Capital = Called-up Capital – Calls in Arrears
Uncalled Capital
Uncalled Capital = Nominal/Face Value – Called-up Amount per Share
Pro-rata Ratio
Shares Allotted : Shares Applied
Discount on Reissue
Discount on Reissue ≤ Amount Forfeited on the Reissued Shares
38. Most Important Journal Entries at a Glance
Receipt of Application Money
Bank A/c Dr.
To Share Application A/c
Transfer of Application Money
Share Application A/c Dr.
To Share Capital A/c
Allotment Due
Share Allotment A/c Dr.
To Share Capital A/c
To Securities Premium A/c (if applicable)
Allotment Money Received
Bank A/c Dr.
To Share Allotment A/c
Call Due
Share Call A/c Dr.
To Share Capital A/c
Call Money Received
Bank A/c Dr.
To Share Call A/c
Calls in Advance
Bank A/c Dr.
To Calls in Advance A/c
Calls in Arrears
Calls in Arrears A/c Dr.
To Share Call A/c
Forfeiture
Share Capital A/c Dr.
To Relevant Unpaid Amount A/c
To Share Forfeiture A/c
Reissue at Discount
Bank A/c Dr.
Share Forfeiture A/c Dr.
To Share Capital A/c
Transfer of Profit on Reissue
Share Forfeiture A/c Dr.
To Capital Reserve A/c
39. CBSE Board Exam Tips
Tip 1: Learn the Sequence
For an issue of shares, remember:
Application → Allotment → Call(s)
Tip 2: Separate Face Value and Premium
Whenever shares are issued at premium:
Face Value → Share Capital
Premium → Securities Premium
Tip 3: Understand Pro-Rata Allotment
Do not directly calculate the excess application money. First determine:
Allotted Shares / Applied Shares
Tip 4: Remember the Forfeiture Logic
Ask three questions:
- How much was called?
- How much was received?
- How much remains unpaid?
Tip 5: Reissue Rule
Always check:
Discount on Reissue ≤ Amount Forfeited
Tip 6: Capital Reserve
Profit arising on reissue of forfeited shares is transferred to:
Capital Reserve
40. Common Mistakes Students Should Avoid
❌ Confusing authorised capital with issued capital.
❌ Treating calls in advance as share capital immediately.
❌ Forgetting Securities Premium when shares are issued at premium.
❌ Using the wrong pro-rata ratio.
❌ Ignoring unpaid allotment/call money in forfeiture questions.
❌ Giving excessive discount on reissue.
❌ Transferring reissue profit to Statement of Profit and Loss instead of Capital Reserve.
❌ Forgetting that only the relevant proportion of forfeiture is transferred when shares are partly reissued.
41. Quick Revision – Accounting for Share Capital
Company → Artificial legal person
Share → Unit of share capital
Share Capital → Capital raised through issue of shares
Equity Shares → Risk-bearing ownership capital
Preference Shares → Preferential rights regarding dividend and repayment of capital
At Par → Issue Price = Face Value
At Premium → Issue Price > Face Value
Over-subscription → Applications > Shares Offered
Under-subscription → Applications < Shares Offered
Calls in Advance → Money received before it is due
Calls in Arrears → Money not received when due
Private Placement → Offer to selected persons
ESOP → Employee option to acquire shares
Sweat Equity → Shares issued to eligible employees/directors for contribution, subject to applicable law
Forfeiture → Cancellation of shares due to non-payment
Reissue → Issue of forfeited shares again
Reissue Profit → Capital Reserve
Conclusion
Accounting for Share Capital is a highly scoring chapter when students understand the logic of the transactions. The most important areas for board preparation are types of share capital, issue of shares, issue at premium, over-subscription and pro-rata allotment, calls in advance and arrears, issue for consideration other than cash, private placement, ESOP, sweat equity, forfeiture and reissue of shares, and Balance Sheet disclosure.
For numerical questions, focus especially on journal entries, working notes and the correct treatment of Share Capital, Securities Premium, Share Forfeiture and Capital Reserve.
These notes are designed for CBSE Class 12 Accountancy revision, board examination preparation and quick chapter-wise study.
Official CBSE reference: The current CBSE 2026–27 Accountancy curriculum lists this chapter under Accounting for Companies and specifically includes the above share-capital topics.
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Very useful notes for CBSE Class 12 Accountancy. The explanation of share capital, over-subscription, calls in advance and arrears, forfeiture, and reissue is simple and easy to understand. The journal entries and exam tips are especially helpful for board exam preparation. Thank you for sharing such student-friendly study material!
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