CBSE Class 12 Accountancy Company Accounts Share Capital Assignment

LEARNING OBJECTIVES

Understand the meaning and features of company

I) Classification of share capital

II) Understand the accounting treatment of over subscription, calls in arrears, premium and discount on issue of shares.

III) Understand the meaning of forfeiture of shares

IV) Pass journal entries regarding forfeiture and reissue of shares

V) Calculate capital reserve

VI) Differentiate between capital reserve and reserve capital

VII)Understand the disclosure of the share capital in the balance sheet

(1 marks)

Q.1 Give the definition of a compnay as contained in the companies act,1956.

Ans section 3(1)(i) of companies act defines a company as "a company formed and registered under this act or an existing company." According to sec3(1)(ii),"An exisiting company means a company formed and registered under any of the former companies Acts."

Q.2 Can forfeited shares be issued at a discount ? If so to what extent?

Ans Re-issue of forfeited shares: Forfeited shares can be reissued at a discount. However, the In other words, amount received on received on re-issue plus amount already received on forfeited shares must not be less than the paid up value of shares.

Q.3 As a director of a company you had invited applications for 20,000 equity shares of Rs.10 each at a premium of Rs.2 each. The total applications money received at Rs.3/- per share was Rs.72,000. Name the kind of subscription. List the three alternatives for allotting these share.

Ans It is a case of over-subscription. Shares are said to be over-subscribed when the numbers of shares ar more than the number of shares offered:

       (i) Allotment for 1st 20,000 shares and the rest can rejected

       (ii) Allotment on prorata basis

       (iii)Allotment of some application in full and some on prorata basis,and some refused.

Q.4 What is an Escrow Account?

Ans. In order to fulfill certain obligations under the scheme of buy-back of securities an account is opened, which is known as escrow account.

Q.5 What do you mean by Private placement of shares?

Ans. Private Placement of shares implies issue and allotment of shares to a selected groups of persons privately and not to public in general through public issue. In order to place the shares privately, a company must pass a special resolution to this effect.

Q.6 What is Sweat Equity?

Ans. Sweat Equity shares means easily shares issued by the company to its employees or whole time directors at a discount or for consideration other then cash for providing know - how or making available right in the nature of intellectual properly rights or valve addition by whatever name called.

Q.7 What maximum amount of discount can be allowed on the reissue of forfeited shares?

Ans. The maximum amount of discount on reissue of forfeited shares is that the amount of discount allowed cannot exceed the amount that had been received on forfeited shares on their original issue and that the discount allowed on re issue of forfeited shares should be debited to the share forfeited account.

Q.8 State in brief, the SEBI Guidelines regarding Debenture Redemption Reserve.

Ans. At per SEBI Guidelines, an amount equal to 50% of the debenture issue must be transferred to DRR before the redemption begins. In other words, before redemption, at least an amount equal to 50% of the debenture issue must stand to the credit of DRR

Q.9 Name the head under which discount on issue of debentures appears in the Balance Sheet of "C" Company.

Ans. Discount on issue of debentures will appear under the heading Miscellaneous Expenditure.  

Q.10 Can a company issue share of discount ? What conditions must a company comply with before the issue of such shares.

Ans. Section 79 of the companies Act, 1956 permits a company to issue shares at a discount only if the following conditions are fulfilled :

        1) The shares are of a class already issued.

        2) At least one year must have elapsed since the company become entitled to commence business.

        3) The issue of shares at discount is authorised by a revolution passed by the company in its general meeting and sanctioned by the central Government. The resolution specifies the maximum rate of discount at which the shares are to be issued. The rate must not exceed 10% unless sanctioned by the central Government.

Important Concepts

1. A share is one of a finite number of portions in the capital of a company.

2. The person who subscribes in shares is called a share holder.

3. Dividend is the profit which the company distributes to the share holders at the end of the financial year.

4. Nominal Value (N.V) or face value (F.V) is the original value of the share.

5. Market Value (M.V) is the price at which the share is quoted in the market.

6. If the market value of a share is the same as its nominal value, the share is said to be at par.

7. A share is said to be above par or at premium, if its market value is more than its face value.

8. A share is said to be below par or at a discount, if its market value is less than its face value.

9. The profit, which a share-holder gets from his investment in the company is called dividend.

10. The dividend is always calculated on the face value and not on the market value.

11. The dividend is expressed as a percentage of the nominal value of the share.

12. The shares are generally of two types:
i. Preferred shares
ii. Common or ordinary shares

Important Formulae’s

1. Investment= Number of shares x Market Value of 1 share

2. Number of shares bought = Sum invested/M.V of 1 share

3. Number of shares bought = Total dividend/Dividend on 1 share

4. Number of shares bought = Total Income/Income on 1 share

5. Income = Number of shares × rate of dividend × F.V

6. F.V. = Face-value=Nominal-value=N.V.

7. Return %=Income Profit %

Please refer to attached file for CBSE Class 12 Accountancy Company Accounts Share Capital Assignment