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Accounting for Share Capital Class 12 Notes: CBSE Accountancy Chapter 1

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Accountancy Part II Chapter 1 Accounting for Share Capital Class 12 Notes - FREE PDF Download

Accounting for Share Capital Class 12 Notes for CBSE Accountancy Part II Chapter 1 is the best option for revising the chapter for your exams. This note concisely summarises the chapter, emphasising key concepts and important points. Understanding the share capital is essential for knowing the financial structure and obligations of a company. 

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Table of Content
1. Accountancy Part II Chapter 1 Accounting for Share Capital Class 12 Notes - FREE PDF Download
2. Access Revision Notes for Class 12 Accountancy Chapter 1 Accounting for Share Capital
3. 5 Important Topics of Class 12 Accountancy Chapter 1 You Shouldn’t Miss!
4. Importance of Class 12 Accountancy Chapter 1 Accounting for Share Capital Revision Notes
5. Tips for Learning the Class 12 Accountancy Chapter 1 Accounting for Share Capital
6. Chapter-wise Revision Notes Links for 12 Accountancy Part II
7. Chapter-wise Revision Notes Links for 12 Accountancy Part I 
8. Important Study Materials For Class 12 Accountancy
FAQs


Accounting for Share Capital Class 12 Notes PDF cover the fundamental concepts, types of share capital, accounting treatments, and practical applications, ensuring a thorough understanding of this crucial topic in corporate finance. Download Vedantu’s comprehensive Class 12 Accountancy Revision Notes for Chapter 1 aligned with the Class 12 Accountancy Syllabus and ensure you are well-prepared for your exams.

Access Revision Notes for Class 12 Accountancy Chapter 1 Accounting for Share Capital

  • A company is an organization consisting of shareholders who hold shares, which form the basis of ownership. Shares are a fractional part of the capital and can be equity or preference shares. Share capital is collected through issuing shares to a select group or the public for subscription. Shares can be issued for cash or consideration other than cash, with cash being more common. Issues for cash must follow legal procedures and can be collected through application, allotment, or calls on shares.

  • Unpaid calls or calls in arrears are unpaid amounts not received from shareholders or allottees. Companies can charge interest on these calls, but not all must maintain separate accounts. Some shareholders may pay part or whole of unpaid calls. Calls in advance are paid over allotments/calls, with separate accounts maintained.

  • If the amount of minimum subscription is not received to the extent of 90%, the issue dissolves. In case the applications received are less than the number of shares offered to the public, the issue is termed as ‘under subscribed’. 

  • Issue of Shares at Premium: Irrespective of the fact that shares have been issued for consideration other than cash, they can be issued either at par or at a premium. 

  • The issue of shares at par implies that the shares have been issued for an amount exactly equal to their face or nominal value. In case shares are issued at a premium, i.e. at an amount more than the nominal or par value of shares, the amount of premium is credited to a separate account called ‘Securities Premium Reserve Account’, the use of which is strictly regulated by law.

  • Shares can be issued at a discount, provided the company complies with legal provisions. Sweat equity shares can be issued at a discount, debited to the 'Discount on Issue of Share Account'. If shareholders fail to pay instalments, the company can forfeit shares, leading to the cancellation of allotment due to breach of contract. The accounting treatment depends on the conditions of the shares, with the amount received being credited to the 'Forfeiture Shares Account'.

  • A company's management can reissue shares once forfeited, subject to terms and conditions in its articles of association. Discounts can be allowed, but not exceeding the credit balance in the Share forfeiture account. Once reissued, the credit balance is transferred to the Capital Reserve, representing profit on forfeiture.


What is a Company?

A company is an entity made up of people who are referred to as "shareholders" and who, through the board of directors, can act as legal persons. Since they own company shares, they are referred to as shareholders.


What is a Share?

A share is a tiny gift to the company's capital that entitles the contributor to become a business partner. The shareholder gains ownership as a result. These days, the general public can purchase shares from publicly traded corporations, thereby making the public the company's shareholders. 


What are the features of a company?

  • Can only be established per company law provisions.

  • Possesses a distinct legal entity that exists independently of its members.

  • A portion of the company's unpaid shares are covered by the members' limited liability.

  • Despite changes in its membership, the company still exists and grows.

  • Each business must have a seal that serves as the organization's official signature.

  • The company's shares are transferable.

  • A business can file lawsuits and be sued since it is a legal entity.


 What are the kinds of companies?

  • Companies Limited by Shares: Members' liability is capped at the face value of the shares they own.

  • Companies Limited by Guarantee: Members' liabilities will only surface if the company is wound up.

  • Unlimited Companies: A company is referred to as an unlimited company if its members' liability is unrestricted.

  • Public Company: An organization is referred to as a public company if it is neither a private corporation nor a subsidiary of one.

  • Private Company: A company that limits the transfer of its shares and requires a minimum of two members to establish itself, with a maximum membership of 200, is classified as a private company.

  • One-Person Company: An organisation with just one member is called OPC


Share capital of a company

A corporation's share capital is the total amount of capital supplied by its shareholders, who are the people who offer shares to the company. A share capital account is a common capital account that combines the identities of multiple shareholders.


Categories of Share Capital

  • Authorised Capital: As defined by the Memorandum of Association, authorised capital is the maximum quantity of shares that a company may issue. The maximum amount of capital that the company can raise is outlined in the Memorandum of Understanding. Another name for it is registered or nominal capital.

  • Issued Capital: Authorised capital that is made available to the general public for subscription is referred to as issued capital, whereas authorised capital that is not made available to the general public for subscription is referred to as unissued capital.

  • Subscribed Capital: The portion of issued capital to which the general public has subscribed is known as subscribed capital.

  • Called Up money: The portion of subscribed money that the business has requested from the general public is known as up capital.

  • Paid-Up Capital: Paid-up capital is the amount of the called-up capital that the shareholders have received.

  • Uncalled Capital: The amount of capital subscribed but not yet called up is referred to as uncalled capital.

  • Reserve Capital: Reserve capital is the amount of money set aside by the business in case it needs to be wound up.


Nature and Classes of Shares

(i) Preference Shares: Preference shares are those that meet the specified requirements.

a) That it bears a preferential right to a dividend, which may be paid to preference shareholders in the form of a predetermined sum or as an amount determined by applying a fixed rate to each share's nominal value before any dividend is distributed to equity shareholders.

b)That it has the preferential right to capital repayment before any payments to equity shareholders concerning capital that it carries or would carry upon the company's winding up.

(ii) Equity Shares: Equity/ordinary shares are those that have no preference over other shares when it comes to dividend payments or capital repayments.


Procedure of Issue of Shares

  1. Issue of Prospectus: The company notifies the public in writing that it has opened for business by releasing a prospectus. The prospectus provides comprehensive details about the business and the funding process it will adhere to.

  2. Receipt of Applications: Following the public release of the prospectus, potential investors wishing to purchase shares in the company apply, pay the application fee, and deposit the funds at a designated bank as directed by the Allotment of Shares. 

  3. Allotment of Shares: After completing a few more legal requirements, the corporation may allocate shares if the minimum subscription has been received. Those who have been assigned shares receive letters of allocation, and those who have not received shares receive letters of sorrow.


Accounting Treatment

When applying, separate accounts are first formed for each applicant. Any funds received are put into these accounts at a designated bank on a prearranged basis.


Bank A/c Dr. To Share Application A/c (Amount received on application for — shares @ Rs. ______ per share)


Calls in Advance

Shareholders may pay a portion or all of the unpaid calls, known as "Calls in Advance." This amount is a company's liability and should be credited to the "Call in Advance Account." The amount received is adjusted towards payment as it becomes due. The balance in the "Calls in Advance" account is shown as a separate item in the company's balance sheet. The company is required to pay interest on this amount from its receipt until the due date. If the Articles are silent, Table F applies, providing interest at a rate of 12% per annum.


Over Subscription

Over Subscription occurs when a company receives more shares than the public offers for subscription. Directors can accept some applications in full and reject others, make a pro-rata allotment to all, or adopt a combination of the two. The problem is resolved with the allotment of shares. Accounting should consider the situation within the total frame of application and allotment, including receipt of application amount, due on allotment, and receipt from shareholders.


Under Subscription

Subscription occurs when the number of shares applied for is less than the number of applications invited. For example, if a company offers 2 lakh shares but only receives 1,90,000, the allocation will be confirmed, and the company must refund the entire amount.


Issue of Shares at a Premium

Financially strong and well-managed companies often issue shares at a premium, which is more than the nominal or par value. The premium amount is called at any stage of the issue, usually with the amount due on the allotment, application money, or call money, and credited to a separate account.


Issue of Shares at a Discount

A company can issue shares at a discount, less than the nominal value, indicating a discount on the issue. However, this is typically only allowed in cases like the reissue of forfeited shares or the issue of sweat equity shares.


Issue of Shares for Consideration other than Cash

A company may negotiate with vendors to issue fully paid shares, which can be issued at par, premium, or discount prices, depending on the amount payable to the vendor and the price at which the shares are issued.


Forfeiture of Shares

Shareholders may fail to pay instalments, such as allotment or call money. The company can forfeit their shares, cancel allotments and treat the received amount as forfeited. Directors must follow a procedure based on Table F, accounting for shares issued at par, premium, or discount. Share capital accounts are debited with forfeited shares, while unpaid calls accounts are credited with received amounts.


Reissue of Forfeited Shares

Directors can cancel or re-issue forfeited shares at par, premium, or discount. The discount allowed on reissue should not exceed the amount received at the time of initial issue. The remaining balance should be treated as capital profit and transferred to the Capital Reserve Account. For example, a company can allow a maximum discount of Rs. 600 on reissued shares, but the whole balance cannot be transferred to the capital reserve. Only the proportionate amount of balance related to the forfeited shares should be transferred.


5 Important Topics of Class 12 Accountancy Chapter 1 You Shouldn’t Miss!

S. No

Important Topics - Accounting for Share Capital

1

Types of Share Capital

2

Issue of Shares

3

Forfeiture and Re-issue of Shares

4

Buyback of Shares

5

Redemption of Preference Shares


Importance of Class 12 Accountancy Chapter 1 Accounting for Share Capital Revision Notes

  • This revision note will help students to consolidate and summarize key concepts from the chapter.

  • They provide a quick review before exams, saving time and focusing on important topics.

  • They facilitate better retention of information by condensing essential details into concise formats.

  • Essential for exam preparation to highlight important points, formulas, and concepts.

  • Assist in applying theoretical knowledge to practical problems or scenarios.

  • Ideal for last-minute revision sessions to refresh memory and reinforce learning.


Tips for Learning the Class 12 Accountancy Chapter 1 Accounting for Share Capital

  • Understand the differences between authorized, issued, subscribed, and paid-up capital.

  • Familiarize yourself with procedures for issuing shares at par, premium, and discount, including associated accounting treatments.

  • Understand reasons for share forfeiture, its accounting, and the process of re-issuing forfeited shares.

  • Learn about reasons for share buybacks, their accounting treatment, and the legal framework for executing buybacks.

  • Study conditions, procedures, and accounting implications of redeeming preference shares by a company.


Conclusion

Accounting for Share Capital Class 12 Notes PDF forms the foundation for understanding the financial structure and obligations of a company through its share capital. Mastering the concepts covered in this chapter, such as types of share capital, issuance, forfeiture, buyback, and redemption, is crucial for students aiming to perform well in their board examinations and gain practical insights into corporate financial management. By comprehensively studying these topics, students can develop a solid understanding of how companies manage their capital and make informed financial decisions.


Chapter-wise Revision Notes Links for 12 Accountancy Part II


Chapter-wise Revision Notes Links for 12 Accountancy Part I 


Important Study Materials For Class 12 Accountancy

FAQs on Accounting for Share Capital Class 12 Notes: CBSE Accountancy Chapter 1

1. How will Class 12 Chapter 1 revision notes help me understand Accounting for Share Capital?

These notes provide a clear explanation of concepts like share capital, types of shares, and the process of issuing shares. They include examples and illustrations to simplify complex topics.

2. Why is it important to study Accounting for Share Capital in Class 12 Accountancy?

Understanding share capital is crucial for comprehending a company's financial structure and how it raises funds through shares. It forms the basis for more advanced financial accounting principles.

3. What are the key topics covered in Accounting for Share Capital Class 12 Notes PDF?

The notes cover topics such as types of share capital (equity and preference shares), issues of shares (at par, at a premium, at a discount), forfeiture and re-issue of shares, and accounting entries related to share transactions.

4. How can Class 12 Chapter 1 aid in exam preparation?

Accounting for Share Capital Class 12 Notes provide summarized information and formulae necessary for solving numerical problems related to share capital transactions. Studying these notes ensures comprehensive preparation for exams.

5. Are there practical examples included in these revision notes for Class 12 Chapter 1?

Yes, the notes include practical examples and solved problems that demonstrate the application of share capital accounting principles in real-world scenarios. These examples help in better understanding and application.

6. What additional resources are provided along with these revision notes of Class 12 Chapter 1?

Alongside the notes, you can access downloadable PDFs, practice questions, and links to supplementary resources that further enhance your understanding of Accounting for Share Capital.

7. How do Class 12 Chapter 1 notes compare different types of shares and their implications?

The notes compare equity shares and preference shares in terms of rights, dividends, and redemption. Understanding these distinctions helps in analysing a company's capital structure and financial strategies.

8. Can Accounting for Share Capital Class 12 Notes be used for quick revision before exams?

Yes, the notes are structured for easy revision with summarized key points, important formulas, and tips for tackling exam questions related to share capital accounting.

9. What skills can I develop by studying Accounting for Share Capital Class 12 Notes PDF?

Studying these notes enhances your analytical skills in financial accounting, improves your ability to interpret company financial statements, and prepares you for handling share capital transactions in practical scenarios.

10. How do Class 12 Chapter 1 revision notes cater to different learning styles?

The notes are designed to accommodate visual learners with tables, while also providing detailed explanations for conceptual learners, ensuring comprehensive understanding for all.