--- title: "Chapter 5: Accounting for Share Capital" type: "Article" site_name: "TheSushant." publisher: "TheSushant." published_status: "publish" content_format: "markdown" author: "Sushant Kumar" published: "2026-04-17 21:41:25" modified: "2026-10-04 09:57:37" slug: "chapter-5-accounting-for-share-capital" canonical: "https://thesushant.in/chapter-5-accounting-for-share-capital/" excerpt: "Why This Chapter Matters This chapter shifts from partnership to company accounting, which is more structured and regulated. Here you learn: How companies raise money How shares are issued How..." reading_time: 4 word_count: 713 featured_image: "" featured_image_alt: "" categories: - "Accounts" - "Chapters" - "Commerce" tags: generator: "WP Markdown TS" generator_version: "1.1" language: "en-US" --- # Chapter 5: Accounting for Share Capital ![Chapter 5: Accounting for Share Capital](https://thesushant.in/img/og.php?id=3431&w=768&h=403) ## Why This Chapter Matters This chapter shifts from partnership to **company accounting**, which is more structured and regulated. Here you learn: * How companies raise money * How shares are issued * How accounting entries are passed This chapter is heavily practical and **directly scoring in exams**. --- ## 1. Meaning of a Company A company is a legal entity formed under law. According to Companies Act, 2013: * A company is an **artificial person** * It exists only in the eyes of law * It is separate from its owners (shareholders) --- ## Key Understanding: * Owners = Shareholders * Management = Board of Directors * Company = Separate legal identity --- ## 2. Features of a Company ### 1. Separate Legal Entity Company is different from its members. ### 2. Limited Liability Shareholders are liable only to the extent of unpaid share value. ### 3. Perpetual Succession Company continues even if members change. ### 4. Transferability of Shares Shares can be transferred easily (especially in public companies). ### 5. Common Seal Acts as official signature of company. ### 6. Can Sue or Be Sued Company can enter legal contracts. --- ## 3. Types of Companies ### Based on Liability: 1. Companies Limited by Shares 2. Companies Limited by Guarantee 3. Unlimited Companies --- ### Based on Members: 1. Public Company 2. Private Company 3. One Person Company (OPC) --- ## 4. Share Capital (Core Concept) Company raises capital by issuing shares. > Share capital is the total amount contributed by shareholders. --- ## 5. Categories of Share Capital This is a very important conceptual area. --- ### 1. Authorised Capital Maximum capital company can issue. --- ### 2. Issued Capital Part of authorised capital offered to public. --- ### 3. Subscribed Capital Part of issued capital accepted by public. --- ### 4. Called-up Capital Amount demanded by company from shareholders. --- ### 5. Paid-up Capital Amount actually received. --- ### 6. Uncalled Capital Amount not yet demanded. --- ### 7. Reserve Capital Called only during winding up. --- ## 6. Shares and Their Types A share represents ownership in company. --- ### Types of Shares: ### 1. Preference Shares * Fixed dividend * Priority in repayment --- ### 2. Equity Shares * Variable dividend * Higher risk and return --- ## 7. Issue of Shares (Process) Shares are not collected in one go. Money is collected in stages: 1. Application 2. Allotment 3. Calls (First, Second, Final) --- ### Step 1: Issue of Prospectus Invitation to public --- ### Step 2: Application Investors apply and pay application money --- ### Step 3: Allotment Shares are allotted --- ### Step 4: Calls Remaining money collected --- ## 8. Accounting Entries (Core Practical Area) --- ### On Application: Bank A/c Dr. → Share Application A/c --- ### Transfer to Capital: Share Application A/c Dr. → Share Capital A/c --- ### On Allotment Due: Share Allotment A/c Dr. → Share Capital A/c --- ### On Receipt: Bank A/c Dr. → Share Allotment A/c --- ### On Call Due: Share Call A/c Dr. → Share Capital A/c --- ### On Receipt: Bank A/c Dr. → Share Call A/c --- ## 9. Calls in Arrears When shareholders do not pay call money. * It becomes **Calls in Arrears** * Shown as deduction from capital --- ## 10. Calls in Advance When shareholders pay before call is made. * Treated as liability * Interest may be paid --- ## 11. Over Subscription When applications exceed shares offered. --- ### Solutions: 1. Full rejection 2. Pro-rata allotment 3. Mixed approach --- ## 12. Under Subscription When applications are less than shares offered. * Shares allotted as per applications * Must meet minimum subscription --- ## 13. Issue of Shares at Premium When shares are issued above face value. Extra amount → **Securities Premium Account** --- ### Uses of Securities Premium: * Issue bonus shares * Write off expenses * Buyback of shares --- ## 14. Issue of Shares at Discount Generally not allowed except: * Reissue of forfeited shares * Special cases --- ## 15. Issue for Consideration Other Than Cash Shares issued in exchange for assets. --- ### Formula: Number of Shares = Amount Payable ÷ Issue Price --- ## 16. Important Rules for Calls * Call ≤ 25% of face value * Minimum 1 month gap * Proper notice required --- ## 17. Common Mistakes Students Make * Confusing types of capital * Wrong journal entries * Ignoring calls in arrears/advance * Misunderstanding over-subscription * Forgetting securities premium treatment --- ## Final Understanding This chapter is about **how companies raise and manage capital**. If you understand: * Capital structure * Share issue process * Journal entries Then: * Numericals become mechanical * You gain strong control over company accounts ---   **Enjoyed this?** Share it with others S ### [Sushant Kumar](https://thesushant.in/author/sushant/) Founder As a current B.Com (Hons) student at DU SOL and an active Chartered Accountancy (CA) aspirant, I understand the exact pressure, syllabus confusion, and administrative hurdles students face daily. TheSushant.in was built to provide first-hand, stress-tested guidance. Every DU SOL update, exam strategy, and CA study note shared here comes directly from my personal academic journey, official notifications, and real-time student experience. No generic advice: practical, student-to-student blueprints to help you clear your exams and level up. Written & Reviewed by Author --- ## Source - **Original Article:** [https://thesushant.in/chapter-5-accounting-for-share-capital/](https://thesushant.in/chapter-5-accounting-for-share-capital/) - **Markdown Endpoint:** [https://thesushant.in/chapter-5-accounting-for-share-capital/?output=markdown](https://thesushant.in/chapter-5-accounting-for-share-capital/?output=markdown)