Accounting for Share Capital — Class 12 Accountancy

A company is an artificial person created by law, having a separate legal entity distinct from its members and a common seal, governed by the Companies Act 2013. Its capital is contributed by a large number of shareholders, who elect a Board of Directors to manage the company. A company raises capital mainly by issuing shares (share capital) and debentures (debt capital). Share capital is classified into authorised, issued, subscribed, called-up and paid-up capital, and companies issue mainly equity shares and preference shares. Shares may be issued for cash or for consideration other than cash, and at par or at a premium; the securities premium can be used only for purposes specified in the Act. The chapter explains the accounting for the receipt of application, allotment and call money, including the situations of oversubscription (where applications exceed shares offered) and undersubscription. It also covers calls-in-arrears, where a shareholder fails to pay a call, and calls-in-advance, where money is paid before a call is made. When shares are not paid for, the company may forfeit them, cancelling the membership and seizing the amount already paid; forfeited shares can later be reissued, often at a discount, with any surplus on the forfeited-shares account transferred to capital reserve.