Accountancy is closely linked to all trades. This subject maintains track of company transactions, assigns them, and summarises them. It’s essential to have a strong accounting foundation. To balance the equation and comprehend the concepts, a lot of effort is required. Accounting for Share Capital, a company’s capital is generally raised through the sale of shares (share capital) and debentures (debt capital.) This Chapter covers accounting for a company’s share capital.
Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 1- Accounting For Share Capital provides students with comprehensive answers to the NCERT questions of all topics. The curriculum of Class 12 is a continuation of the principles of accounting, learnt in Class 11.
NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 1, created by Extramarks, significantly help students prepare for their upcoming board examination. In addition to these, students can use the Extramarks website to access several other study tools. NCERT books, CBSE revision notes, CBSE sample papers, CBSE past years’ question papers, and other materials are also available.
Key Topics Covered In NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 1
The following major topics are covered in NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 1- Accounting for Share Capital.
| Features of a Company |
| Kinds of Companies |
| Share Capital of a Company |
| Categories of Share Capital |
| Nature and Classes of Shares |
| Issue of Shares |
| Accounting Treatment |
| Forfeiture of Shares |
Let us look at in-depth information on each subtopic in NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 1- Accounting for Share Capital.
Features of a Company
A company is a group of individuals who pool their money or assets into a common fund and utilise it for specific purposes. It’s a fictitious person who operates as a corporate legal entity apart from its core members or stockholders and uses a standard authentication for its signature.
Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 1 presents some definite features of a company, which are stated below:
- Corporate Body: The Companies Act of 2013 requires a company to be registered. Any other entity that has been formed with the Registrar of Companies but has not been registered cannot be regarded as a company.
- Different Legal Entity: A company is a legal entity that exists independently of its shareholders and members.
- Limited Liability: Members of the company are not accountable for the firm’s obligations because it exists as a distinct entity. The liability of the corporate members is limited to the value of their shares or the amount of the guarantee.
- Transferability of Shares: A public limited company’s shareholders can transfer their shares according to the articles of the association’s rules.
- Common Seal: As the company is a legal entity or a person, it cannot sign its name. It necessitates the creation of a common seal that can be used to symbolise choices taken on the company’s behalf.
- Perpetual Succession: A corporation is a fictitious person. As a result, there are no limitations on age. Death, insolvency, retirement, or the insanity of one or more members have no bearing on the company’s standing.
- Number of Members: According to the Companies Act of 2013, a public limited company must have seven members, while a private limited company must have two. A public limited corporation can have an infinite number of members, but a private limited company can only have 200.
Kinds of Companies
Companies are classified based on the responsibility of their core members or the overall number of members. Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 1 presents and explains all different kinds of Companies.
Companies can be divided into two sections based on the liability of their members:
- Companies Limited by Shares:
In this case, the members’ responsibility is limited to the nominal value of their shares. If a shareholder has paid the total amount of their claims, they have no liability, regardless of the company’s debts.
When the company’s assets are inadequate to pay off its debts, the shareholders’ assets might be utilised. In other words, creditors have the right to demand payment from their shareholders. Despite being permitted under Section 2 (20) of the Companies Act, such businesses do not exist in India.
Enterprises can be categorised into three categories based on the number of shareholders:
- Public Company: A public company is a business that is not a private corporation and is not a subsidiary of any private firm.
- Private Company: A private company is one whose articles of incorporation restrict the ability to transfer its shares. Except in the case of a one-person corporation, it must have at least two individuals. The number of stockholders is limited to 200. (excluding its employees).
- One Person Company: Company has just one shareholder,’ according to Section 2 (62) of the Companies Act, 2013. Only a natural person who is an Indian citizen can incorporate a one-person business according to Rule 3 of the Companies (Incorporation) Rules, 2014.
Share Capital of a Company
As there are too many shareholders, it isn’t easy to create separate capital accounts. As a result, the various capital contributions from shareholders are accounted for in a single capital account called the Share Capital Account.
Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 1 categorises share capital in the following ways :
- Authorised Capital
- Issued Capital
- Subscribed Capital
- Called up Capital
- Paid-up Capital
- Uncalled Capital
- Reserved Capital
Categories of Share Capital
The money raised by the firm by issuing shares to investors is referred to as share capital. Authorised, issued, subscribed, called up, and paid-up share capital are several types of share capital.
Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 1 Classifies shred capital into the following categories from an accounting standpoint:
- Authorized Capital: The amount of authorised capital in which a corporation can issue its Memorandum of Association is known as authorised capital. The official money can be reduced or raised according to the procedures laid forth in the Companies Act.
- Issued Capital: The shares issued to merchants and endorsers of the enterprise’s memorandum are a fraction of the allowed capital generally disseminated to the public for subscription.
- Subscribed Capital: The portion of issued capital subscribed by corporate investors is referred to as subscribed capital.
- Called up Capital: Called up capital refers to the share capital that stockholders owe but are yet to be paid.
Nature and Classes of Shares
The units into which a company’s total share capital is split or divided are called shares. As a result, a share is a fractional amount of the share capital that serves as the basis for a company’s ownership stake. Shareholders are those who provide money in the form of shares.
Following the Companies Act, a company can issue two Classes of shares:
Preference shares, also known as preferred stock, are shares of an organisation’s stock that pay dividends to members before distributing equity shares. Following are some of its features:
- Preference shares are a long-term investment vehicle.
- Preference shares (PS) often pay a more extraordinary dividend than debenture interest.
- Preference shareholders (PSH) receive a predetermined dividend rate regardless of earnings volume.
- Equity Share:
Ordinary shares were previously known as equity shares. The actual proprietors of the company are the shareholders of such shares. After preference shareholders receive their dividends, the equity stockholders are paid a dividend. Following are some of its features:
- The corporation retains its equity share capital. It is only returned when the business is shut down.
- Equity shareholders have voting rights and get to choose the company’s management.
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Issue of Shares
The technique through which businesses distribute additional shares to shareholders is known as the issue of shares. While circulating the shares, the company sticks to the requirements set forth by the Companies Act of 2013. The three major fundamental phases in issuing shares are the distribution of prospectuses, the receipt of applications, and the allocation of shares.
The following are the primary operations in the process of issuing shares:
The prospectus is an announcement to the public that a new business offer has come up, requiring capital to operate. It contains detailed information about the business and how the money will be collected from potential investors.
When the prospectus is distributed to the public, potential investors who want to join up and subscribe to the company’s share capital fill out an application and deposit the application money with a designated bank as specified in the prospectus.
The shares can be allocated after the minimum subscription has been met. Since there is always an oversupply of shares, the allocation is done on a pro-rata basis. Letters of Allotment are sent to persons who have been assigned a portion of the stock. Consequently, the firm and the claimant have a genuine contract, and the claimant is now a part-owner of the company.
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Accounting Treatment
An asset that has been thoroughly devalued and is still being used in the business will be reported on the balance sheet (B/S) at cost plus accumulated depreciation. There will be no depreciation charge after the asset has been entirely depreciated.
When a Company is dissolved:
- Its books of account must be closed, and the profit or loss (P/L) resulting from the realisation of assets and discharge of obligations must be determined.
- A Realisation account is created to assess the net effect (profit/loss) of realising assets and paying liabilities that may be moved to the partner’s capital account in their profit sharing ratio (PSR).
- As a result, all assets and external obligations are moved into this account.
- It keeps track of asset sales, liability payments, and realisation expenses.
- Profit/loss on realisation is the amount in this account, distributed to partners’ capital accounts in their profit sharing ratio (PSR).
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Forfeiture of Shares
The circumstance in which the allocated shares are cancelled by the issuing firm owing to non-payment of the subscription amount requested by the issuing business from the shareholder is referred to as forfeiture of shares.
If a shareholder’s shares are forfeited, the shareholder’s rights and interests as a shareholder are lost, and the shareholder no longer is considered to be a member of the organisation.
NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 1 Accounting for Share Capital: Important Links
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