Accounting for Share Capital Part 2 Chapter 1 NCERT Textbook PDF

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NCERT Class 12 Accountancy Textbook Chapter 1 With Answer PDF Free Download

Accounting for Share Capital

Chapter 1: Accounting for Share Capital

A company form of organisation is the third stage in the evolution of forms of organisation. Its
capital is contributed by a large number of persons called shareholders who are the real owners of the company. But neither it is possible for all of them to participate in the management of the company nor considered desirable.

Therefore, they elect a Board of Directors as their representative to manage the affairs of the company. In fact, all the affairs of the company are governed by the provisions of the Companies Act, 2013. A company means a company incorporated or registered under the Companies Act,
2013 or under any other earlier Companies Acts.

According to Chief Justice Marshal, “a company is a person, artificial, invisible, intangible and existing only in the eyes of law. Being a mere creation of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence”.

A company usually raises its capital in the form of shares (called share capital) and debentures (debt capital.) This chapter deals with accounting for the share capital of companies.

1.1 Features of a Company

A company may be viewed as an association of a person who contributes money or money’s worth to a common inventory and use it for a common purpose. It is an artificial person having a corporate legal entity distinct from its members (shareholders) and has a common seal used for its signature.

1.3 Share Capital of a Company

A company, being an artificial person, cannot generate its own capital which has necessarily to be collected from several persons. These persons are known as shareholders and the amount contributed by them is called share capital.

Since the number of shareholders is very very large, a separate capital account cannot be opened for each one of them. Hence, innumerable streams of capital contribution merge their identities in a common capital account called ‘Share Capital Account.

1.4 Nature and Classes of Shares

Shares refer to the units into which the total share capital of a company is divided. Thus, a share is a fractional part of the share capital and forms the basis of ownership interest in a company. The persons who contribute money through shares are called shareholders.

The amount of authorized capital, together with the number of shares in which it is divided, as stated in the Memorandum of Association but the classes of shares in which the company’s capital is to be divided, along with their respective rights and obligations are prescribed by the Articles of Association of the company. As per The Companies Act, a company can issue two types of shares (1) preference shares, and (2) equity shares (also called ordinary shares)

Language English
No. of Pages74
PDF Size4.7 MB

NCERT Solutions Class 12 Accountancy Chapter 1 Accounting for Share Capital

1. What is a public company?

A Public company as per section Sec 2(71) and Sec.3 (1) (a) of the Company Act, 2013 means a company which

a. Is not a private company

b. Has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed

c. Is a private company, being a subsidiary of a company that is not a private company.

The stock of a public company can be acquired by any individual and it may be through IPO or through trading on the stock market.

2. What is a private limited company?

As per Section 2(68) of the Companies Act, 2013, Private limited companies are defined as companies that have the following characteristics:

1. Companies whose article of association restricts the transfer of shares

2. No minimum paid-up capital

3. Minimum 2 members and maximum of 200 members (Only one in case of One Person Company)

4. Must include “private limited” or “Pvt Ltd” in their names

5. Shares of a private company are not traded in stock exchanges

3. When can shares be forfeited?

A shareholder has to pay allotment money for holding the shares and has to pay the calls which are part of the share allotment. When a shareholder fails to do so, a 14 days notice is served to the shareholder, if the shareholder does not pay in these 14 days, the shares will be forfeited.

4. What is meant by Calls-in-Arrears?

When an investor (shareholder) fails to pay all the installments for the allotted shares in the due time, the company expects the investor to pay the amount on subsequent calls or stages. The amount of money that is paid at later stages is called as Call-in-Arrears.

5. What do you mean by a listed company?

Public companies whose shares are listed in recognized stock exchanges for public trading are called Listed companies. Such companies are also known as Quota Companies. Once the securities are listed it helps the investors in knowing the value of their investment in a listed company. It provides the potential investors an idea about the goodwill of the company and helps them in taking future investment decisions and evaluating the viability of investing in the company.

6. What are the uses of securities premium?

Securities premium can be used for these activities:

1. Issuing fully paid-up bonus shares to existing shareholders.

2. Writing off the expense of issue of shares and debentures, such as the discount given on the issue of shares.

3. Writing off preliminary expenses

4. Buying back shares

5. For paying premium payable on redemption of debentures.

7. What is meant by Calls-in-Advance?

When the shareholder pays the whole amount before the share payment date becomes due i.e. before the share issuing company makes a call for it. It is known as Calls-in-advance.

8. Write a brief note on ‘Minimum Subscription’.

It refers to the minimum amount of shares that must be subscribed by the public so that the share allotting company can allot shares to the applicants, which is termed as Minimum Subscription. If Minimum Subscription is not attained, the company cannot allot shares to its applicants and it should refund the amount received to the public. The minimum Subscription should not be less than 90% of the amount issued.

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