NCERT Solutions for Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 1

Accounting for Share Capital Class 12

Chapter 1 Accounting for Share Capital Exercise Solutions

Next Chapter 2 : Issue and Redemption of Debentures >>

Short answerslong answers : Solutions of Questions on Page Number : 65

Q1 :  

What is public company?


Answer :

A public company is defined as a company that offers a part of its ownership in the form of shares, debentures, bonds, securities to the general public through stock market. There must be atleast seven members to form a public company. As per the section 3 (1) (iv) of Companies Act 1956, public company means a company which:

a) is not a private company,

b) has a minimum paid up capital of Rs 5,00,000 or such higher paid up capital, as may be prescribed,

c) is a private company, being a subsidiary of a company which is not a private company.

A public company should not be mistakenly understood as a publicly-owned company, as the latter is exclusively owned and controlled by the government. A public company issues its share to general public without any restriction on maximum number of persons. A public company can be segmented into two types:

1. Listed Company- A Company whose shares are listed and traded in the stock exchange like, Tata Motors, Reliance, etc.

2. Unlisted Company- A Company whose shares are not listed in the stock exchange and thereby these shares cannot be traded in the stock exchange.

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Q2 :  

What is meant by the word 'Company'? Describe its characteristics.


Answer :

The Section 3 (1) (i) of the Company Act of 1956 defines an organisation as a company that is formed and registered under the Act or any existing company that is formed and registered under any earlier company laws. In general, a company is an artificial person, created by law that has a separate legal entity, perpetual succession, common seal and has limited liability. It is a voluntary association of person who together contributes in the capital of the company to do business. Generally, the capital of a company is divided into small parts known as shares, the ownership of which is transferable subject to certain terms and conditions. There are two types of company, public company and private company.

Characteristics of Company

1. Association of Person: A company is formed voluntarily by a group of persons to perform a common business. Minimum number of person should be two for formation of a private company and seven for a public company.

2. Artificial Person: Company is an artificial and juristic person that is created by law.

3. Separate Legal Entity: A company has a separate legal entity from its members (shareholders) and Directors. It can open a bank account, sign a contract and can own a property in its own name.

4. Limited Liability: The liability of the members of a company is limited up to the nominal value or the face value of the shares. Unlike a partnership firm, on insolvency of a company, the members and the shareholders are not liable to pay the amount due to the creditors of the company. In fact, the members and the shareholders are only liable to pay the unpaid amount of the shares held by them. For example, if the value of share is Rs 10 and Rs 6 is paid up, then the member is liable to pay only Rs 4.

5. Perpetual Existence: The existence of company is not affected by the death, retirement, and insolvency of its members. That is, the life of a company remains unaffected by the life and the tenure of its members in the company. The life of a company is infinite until it is properly wound up as per the Company Act.

6. Common Seal: The Company is an artificial person and has no physical existence; hence it cannot put its signature. Thus, the Common Seal acts as an official signature of a company that validates the official documents.

7. Transferability of Shares: The shares of public limited company is easily and freely transferable without any consent from other members. But the share of ownership of a private limited company is not transferable without the consent of the other members.

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Q3 :  

What is private limited company?


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Q4 :  

Explain in brief the main categories in which the share capital of a company is divided.


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Q5 :  

Define Government Company?


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Q6 :  

What do you mean by the term 'share'? Discuss the type of shares, which can be issued under the Companies Act, 1956 as amended to date.


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Q7 :  

What do you mean by a listed company?


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Q8 :  

Discuss the process for the allotment of shares of a company in case of over subscription.


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Q9 :  

What are the uses of securities premium?


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Q10 :  

What is a 'Preference Share'? Describe the different types of preference shares.


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Q11 :  

What is buy-back of shares?


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Q12 :  

Describe the provision of law relating to 'Calls-in-Arrears' and 'Calls-in-Advance'.


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Q13 :  

Write a brief note on 'Minimum Subscription'.


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Q14 :  

Explain the terms 'Over-subscription' and 'Under-subscription'. How are they dealt with in accounting records?


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Q15 :  

Describe the purposes for which a company can use 'Securities Premium Account'.


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Q16 :  

State clearly the conditions under which a company can issue shares at a discount.


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Q17 :  

Explain the term 'Forfeiture of Shares' and give the accounting treatment on forfeiture.


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Next Chapter 2 : Issue and Redemption of Debentures >>

Numerical questions : Solutions of Questions on Page Number : 66

Q1 :  

Anish Limited issued 30,000 equity shares of Rs 100 each payable at Rs 30 on application, Rs 50 on allotment and Rs 20 on Ist and final call. All money was duly received.

Record these transactions in the journal of the company.


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Q2 :  

The Adersh Control Device Ltd was registered with the authorised capital of Rs 3,00,000 divided into 30,000 shares of Rs 10 each, which were offered to the public. Amount payable as Rs 3 per share on application, Rs 4 per share on allotment and Rs 3 per share on first and final call. These share were fully subscribed and all money was dully received. Prepare journal and Cash Book.


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Q3 :  

Software solution India Ltd inviting application for 20,000 equity share of Rs 100 each, payable Rs 40 on application, Rs 30 on allotment and Rs 30 on call. The company received applications for 32,000 shares. Application for 2,000 shares were rejected and money returned to Applicants. Applications for 10,000 shares were accepted in full and applicants for 20,000 share allotted half of the number of share applied and excess application money adjusted into allotment. All money received due on allotment and call. Prepare journal and cash book.


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Q4 :  

Rupak Ltd. issued 10,000 shares of Rs 100 each payable Rs 20 per share on application, Rs 30 per share on allotment and balance in two calls of Rs 25 per share. The application and allotment money were duly received. On first call all member pays their dues except one member holding 200 shares, while another member holding 500 shares paid for the balance due in full. Final call was not made.

Give journal entries and prepare cash book.


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Q5 :  

Mohit Glass Ltd. issued 20,000 shares of Rs 100 each at Rs 110 per share, payable Rs 30 on application, Rs 40 on allotment (including Premium), Rs 20 on first call and Rs 20 on final call. The applications were received for 24,000 shares and allotted 20,000 shares and reject 4,000 shares and amount returned thereon. The money was duly received.

Give journal entries.


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Q6 :  

A limited company offered for subscription of 1,00,000 equity shares of Rs 10 each at a premium of Rs 2 per share. 2,00,000. 10% Preference shares of Rs 10 each at par.

The amount on share was payable as under :

 

 

Equity Shares

Preference Shares

On Application

Rs 3 per share

Rs 3 per share

On Allotment

Rs 5 per share

Rs 4 per share

 

(including a premium)

 

On First Call

Rs 4 per share

Rs 3 per share

 

All the shares were fully subscribed, called-up and paid.

Record these transactions in the journal and cash book of the company:

 

 


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Q7 :  

Eastern Company Limited, having an authorised capital of Rs 10,00,000 in shares of Rs 10 each, issued 50,000 shares at a premium of Rs 3 per share payable as follows :

 

On Application

Rs 3 per share

On Allotment (including premium)

Rs 5 per share

On first call (due three months after allotment) and the balance as and when required.

 

Rs 3 per share

 

Applications were received for 60,000 shares and the directors allotted the shares as follows :

(a) Applicants for 40,000 shares received shares, in full.

(b) Applicants for 15,000 shares received an allotment of 8,000 shares.

(c) Applicants for 500 shares received 200 shares on allotment, excess money being returned.

 

All amounts due on allotment were received.

The first call was duly made and the money was received with the exception of the call due on 100 shares.

Give journal and cash book entries to record these transactions of the company. Also prepare the Balance Sheet of the company.

 


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Q8 :  

Sumit Machine Ltd issued 50,000 shares of Rs 100 each at discount of 5%. The shares were payable Rs 25 on application, Rs 40 on allotment and Rs 30 on first and final call. The issue were fully subscribed and money were duly received except the final call on 400 shares. The discount was adjusted on allotment. Give journal entries and prepare balance sheet.


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Q9 :  

Kumar Ltd purchases assets of Rs 6,30,000 from Bhanu Oil Ltd. Kumar Ltd. issued equity share of Rs 100 each fully paid in consideration. What journal entries will be made, if the share are issued, (a) at par, (b) at discount of 10 % and (c) at premium of 20%.


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Q10 :  

Bansal Heavy machine Ltd purchased machine worth Rs 3,20,000 from Handa Trader. Payment was made as Rs 50,000 cash and remaining amount by issue of equity share of the face value of Rs 100 each fully paid at an issue price of Rs 90 each.

Give journal entries to record the above transaction.


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Q11 :  

Naman Ltd issued 20,000 shares of Rs 100 each, payable Rs 25 on application, Rs 30 on allotment , Rs 25 on first call and The balance on final call. All money duly received except Anubha, who holding 200 shares did not pay allotment and calls money and Kumkum, who holding 100 shares did not pay both the calls. The directors forfeited shares of Anubha and kumkum.

Give journal entries.


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Q12 :  

Kishna Ltd issued 15,000 shares of Rs 100 each at a premium of Rs 10 per share, payable as follows:

 

On application

Rs 30

On allotment

Rs 50 (including premium)

On first and final call

Rs 30

 

All the shares subscribed and the company received all the money due, With the exception of the allotment and call money on 150 shares. These shares were forfeited and reissued to Neha as fully paid share of Rs 12 each.

 

Give journal entries in the books of the company.

 


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Q13 :  

Arushi Computers Ltd issued 10,000 equity shares of Rs 100 each at 10% discount. The net amount payable as follows:

 

On application

Rs 20

On allotment

Rs 30 (Rs 40 - discount Rs 10 )

On first call

Rs 30

On final call

Rs 10

 

A shareholder holding 200 shares did not pay final call. His shares were forfeited. Out of these 150 shares were reissued to Ms. Sonia at Rs 75 per shares.

 

Give Journal entries in the books of the company.

 


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Q14 :  

Raunak Cotton Ltd. issued a prospectus inviting applications for 6,000 equity shares of Rs 100 each at a premium of Rs 20 per shares, payable as follows:

 

On application

Rs 20

On allotment

Rs 50 (including premium)

On first call

Rs 30

On final call

Rs 20

 

Applications were received for 10,000 shares and allotment was made Pro-rata to the applicants of 8,000 shares, the remaining applications Being refused. Money received in excess on the application was adjusted toward the amount due on allotment.

 

Rohit, to whom 300 shares were allotted failed to pay allotment and calls money, his shares were forfeited. Itika, who applied for 600 shares, failed to pay the two calls and her share were also forfeited. All these shares were sold to Kartika as fully paid for Rs 80 per shares.

 

Give journal entries in the books of the company.

 


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Q15 :  

Himalaya Company Limited issued for public subscription of 1,20,000 equity shares of Rs 10 each at a premium of Rs 2 per share payable as under :

With Application

Rs 3 per share

On allotment (including premium)

Rs 5 per share

On First call

Rs 2 per share

On Second and Final call

Rs 2 per share

Applications were received for 1,60,000 shares. Allotment was made on pro-rata basis. Excess money on application was adjusted against the amount due on allotment.

Rohan, whom 4,800 shares were allotted, failed to pay for the two calls. These shares were subsequently forfeited after the second call was made. All the shares forfeited were reissued to Teena as fully paid at Rs 7 per share.

Record journal entries in the books of the company to record these transactions relating to share capital. Also show the company's balance sheet.

 


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Q16 :  

Prince Limited issued a prospectus inviting applications for 2,00,000 equity shares of Rs 10 each at a premium of Rs 3 per share payable as follows :

 

With Application

Rs 2

On Allotment (including premium)

Rs 5

On First Call

Rs 3

On Second Call

Rs 3

 

Applications were received for 30,000 shares and allotment was made on pro-rata basis. Money overpaid on applications was adjusted to the amount due on allotment.

 

Mr. 'Mohit' whom 400 shares were allotted, failed to pay the allotment money and the first call, and her shares were forfeited after the first call. Mr. 'Joly', whom 600 shares were allotted, failed to pay for the two calls and hence, his shares were forfeited.

 

Of the shares forfeited, 800 shares were reissued to Supriya as fully paid for Rs 9 per share, the whole of Mr. Mohit's shares being included.

 

Record journal entries in the books of the Company and prepare the Balance Sheet.


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Q17 :  

Life machine tools Limited, issued 50,000 equity shares of Rs 10 each at Rs 12 per share, payable at to Rs 5 on application (including premium), Rs 4 on allotment and the balance on the first and final call.

Applications for 70,000 shares had been received. Of the cash received, Rs 40,000 was returned and Rs 60,000 was applied to the amount due on allotment, the balance of which was paid. All shareholders paid the call due, with the exception of one share holder of 500 shares. These shares were forfeited and reissued as fully paid at Rs 8 per share. Journalise the transactions.


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Q18 :  

The Orient Company Limited offered for public subscription 20,000 equity shares of Rs 10 each at a premium of 10% payable at Rs 2 on application; Rs 4 on allotment including premium; Rs 3 on First Call and Rs 2 on Second and Final call. Applications for 26,000 shares were received. Applications for 4,000 shares were rejected. Pro-rata allotment was made to the remaining applicants. Both the calls were made and all the money were received except the final call on 500 shares which were forfeited. 300 of the forfeited shares were later on issued as fully paid at Rs 9 per share. Give journal entries and prepare the balance sheet.


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Q19 :  

Alfa Limited invited applications for 4,00,000 of its equity shares of Rs 10 each on the following terms :

 

Payable on application

Rs 5 per share

Payable on allotment

Rs 3 per share

Payable on first and final call

Rs 2 per share

 

Applications for 5,00,000 shares were received. It was decided :

 

(a) to refuse allotment to the applicants for 20,000 shares;

(b) to allot in full to applicants for 80,000 shares;

(c) to allot the balance of the available shares' pro-rata among the other applicants; and

(d) to utilise excess application money in part as payment of allotment money.

One applicant, whom shares had been allotted on pro-rata basis, did not pay the amount due on allotment and on the call, and his 400 shares were forfeited. The shares were reissued @ Rs 9 per share. Show the journal and prepare Cash book to record the above.

 


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Q20 :  

Ashoka Limited Company which had issued equity shares of Rs 20 each at a discount of Rs 4 per share, forfeited 1,000 shares for non-payment of final call of Rs 4 per share. 400 of the forfeited shares are reissued at Rs 14 per share out of the remaining shares of 200 shares reissued at Rs 20 per share. Give journal entries for the forfeiture and reissue of shares and show the amount transferred to capital reserve and the balance in Share Forfeiture Account.


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Q21 :  

Amit holds 100 shares of Rs 10 each on which he has paid Re.1 per share as application money. Bimal holds 200 shares of Rs 10 each on which he has paid Re.1 and Rs 2 per share as application and allotment money, respectively. Chetan holds 300 shares of Rs 10 each and has paid Re.1 on application, Rs 2 on allotment and Rs 3 for the first call. They all fail to pay their arrears and the second call of Rs 2 per share and the directors, therefore, forfeited their shares. The shares are reissued subsequently for Rs 11 per share as fully paid. Journalise the transactions.


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Q22 :  

Ajanta Company Limited having a normal capital of Rs 3,00,000, divided into shares of Rs 10 each offered for public subscription of 20,000 shares payable at Rs 2 on application; Rs 3 on allotment and the balance in two calls of Rs 2.50 each. Applications were received by the company for 24,000 shares. Applications for 20,000 shares were accepted in full and the shares allotted. Applications for the remaining shares were rejected and the application money was refunded.

All moneys due were received with the exception of the final call on 600 shares which were forfeited after legal formalities were fulfilled. 400 shares of the forfeited shares were reissued at Rs 9 per share.

Record necessary journal entries and prepare the balance Sheet showing the amount transferred to capital reserve and the balance in Share forfeiture account.


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Q23 :  

Journalise the following transaction in the books Bhushan Oil Ltd:

(a) 200 shares of Rs 100 each issued at a discount of Rs 10 were forfeited for the non payment of allotment money of Rs 50 per share. The first and final call of Rs 20 per share on these share were not made. The forfeited share were reissued at Rs 70 per share as fully paid-up.

(b) 150 shares of Rs 10 each issued at a premium of Rs 4 per share payable with allotment were forfeited for non-payment of allotment money of Rs 8 per share including premium. The first and final call of Rs 4 per share were not made. The forfeited share were reissued at Rs 15 per share fully paid-up.

(c) 400 share of Rs 50 each issued at par were forfeited for non-payment of final call of Rs 10 per share. These share were reissued at Rs 45 per share fully paid-up.


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Exercise : Solutions of Questions on Page Number : 72

Q1 :  

Amisha Ltd inviting application for 40,000 shares of Rs 100 each at a premium of Rs 20 per share payable; on application Rs 40 ; on allotment Rs 40 (Including premium): on first call Rs 25 and Second and final call Rs 15.

Application were received for 50,000 shares and allotment was made on pro-rata basis. Excess money on application was adjusted on sums due on allotment.

Rohit to whom 600 shares were allotted failed to pay the allotment money and his shares were forfeited after allotment. Ashmita, who applied for 1,000 shares failed to pay the

Two calls and his shares were forfeited after the second call. Of the shares forfeited, 1,200 shares were sold to Kapil for Rs 85 per share as fully paid, the whole of Rohit's shares being included.

Record necessary journal entries.


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