NEB Class 12 Account Important Questions & Solutions
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| NEB Class 12 Account Important Qns & Ans Part 2 |
Principles of Accounting Grade 12
Unit 1: Accounting for Companies
Shares and Share Capital of a Company
1. What is share?
The total capital of a company is usually split into certain small units. Each of such small units of the capital of a company is called a share. For example, if the total capital of a company is Rs. 10,00,000 divided into 10,000 shares of Rs. 100 each. So, each unit of Rs.100 is called a share. Thus, the company has 10,000 shares of Rs. 100 each.
2. What is equity share capital? OR What is an ordinary share?
The shares which do not carry preferential rights regarding the payment of dividends and repayment of capital in case of winding up of the company are called equity shares. This means dividends on equity shares are paid only after making the payment of dividends on preference shares and equity share capital is refunded only after the repayment of preference share capital. A dividend on equity shares is payable only when there is profit and dividends are declared by the Board of Directors. The equity shareholders have the full right to vote in the meeting regarding company affairs and share the residual profits. Equity shareholders have to bear the risk.
3. What is preference share capital?
Preference shares are the shares issued by a company that have the right to receive dividends at a certain specified rate before any dividend is paid on equity shares and the right to return capital before equity shareholders in the event of liquidation of the company. Usually, preference shareholders do not have any voting rights in the meeting. So preference shares are risk-free and the return on investment at a certain fixed rate is fixed. It is also a part of the authorized capital.
4. Give any five differences between Preference shares and Equity Shares.
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| Grade 12 Principle of Accounting Important Questions |
5. What is a capital reserve?
Capital reserve is created out of capital profits. No special resolution is required to create a capital reserve. It can be used for writing off capital losses. It is shown on the liabilities side of the balance sheet under the head "Reserve & Surplus". It is mandatory to create a capital reserve when the capital profit exists.
6. What is reserve capital?
It is that part of uncalled capital reserved by the company by passing a special resolution that will not be called up except on the winding up of the company.
7. What is paid-up capital?
Paid-up capital is that part of the capital which is actually paid by shareholders of the company. Paid-up capital can be equal to or lesser than the called-up capital but it can never exceed the called-up capital. The paid-up capital is the actual capital of the company which is shown on the liabilities side of the balance sheet and totaled with other liabilities.
8. What is called up capital?
Called-up capital is that part of subscribed capital that is actually called up from the shareholders. The common practice of the company is to make calls for payment of the value of shares in installments from the shareholders. These installments are called share application, share allotment, share 1st call, and share final call. If the company has called up to the final call, then called-up capital will be equal to subscribed capital. It may be less than the subscribed capital if the entire value of the share is not called up. The paid-up capital can never exceed the subscribed capital. The part of the subscribed capital which has not yet been called up is called uncalled capital.
9. What is issued capital?
Issued capital is that part of the authorized capital which is offered to the public for subscription. Issued capital also includes shares offered to the vendors for the purchase of assets. Generally company does not issue all of its shares at a time. The company issues only those number of shares that are sufficient to meet the present financial requirement of the company. The issued capital can never be higher than the authorized capital.
10. What is subscribed capital?
Subscribed capital is that part of issued capital that is actually subscribed by the public and allotted by the company. The subscribed capital can never exceed the issued capital, however, share applications may be received for more shares than issued shares. It also includes shares issued for consideration other than cash. The issued share capital, which has not been subscribed by the public is called under subscription of capital.
11. What is authorised share capital?
Authorized share capital is the maximum amount of capital that a company can raise by issuing shares. The total amount of capital is determined after taking into consideration the future requirement of the fund of the company. The authorized capital of the company is divided into shares of a fixed face value like a share of Rs. 100 or Rs. 10 each etc. The authorized capital is mentioned in the memorandum of association at the time of registration of the company. It is also called registered capital or nominal capital. A company is not required to issue the whole of its authorized capital at the time of its formation. The changes in the authorized capital can be made by passing a special resolution in the annual general meeting of the company.
12. Differentiate between issued and subscribed capital.
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| Grade 12 Principle of Accounting Important Questions |
13. What is the pro-rata allotment of shares?
When the issue of shares of a company is over-subscribed, the applicants are allotted shares at a fixed proportion. Instead of showing favor to certain applicants by allotting full shares, and applying disfavor to others by rejecting their application, the company allots shares to all of them proportionately. Making allotments of shares to all the applicants in this manner is known as pro-rata allotment. For example: if a company issues 10,000 shares and receives an application for 20,000 shares. Here the company allots 10,000 shares to the applicants of 20,000 shares. The proportion of allotment is 1:2. This means the applicants have been allotted 50% of the shares applied.
14. What do you mean by forfeiture of shares?
Forfeiture means the seizure of shares of shareholders who fail to pay allotment or call
money or both by the company. If any shareholder fails to pay the allotment and call money, the company may forfeit such shares. The names of such defaulting shareholders are removed from the share register and the allotment is cancelled. The amount received from such shareholders on their holdings is not refundable but forfeited. The right of ownership of such forfeited shares of the shareholders exists no longer.
15. What do you mean by reissue of shares?
The company can re-issue the forfeited shares. The forfeited shares can be re-issued by the company at par, at a discount, or at a premium. The re-issue amount is debited to the bank account and credited to the share capital account. The reissued share at a discount should not exceed the forfeited amount. Share forfeited account is debited with the difference between the paid-up value of shares and the amount received by their reissue. The balance of the share-forfeited amount should be transferred to the capital reserve account.
The following journal entry is passed at the time of the re-issue of forfeited shares.
Bank A/C (with the amount received) Dr.
Discount A/C (if previously issued at a discount) Dr.
Share Forfeiture A/C (if discount allowed on re-issue) Dr.
To Share capital (with par value)
To Share premium (if re-issued at premium)
(Being forfeited shares reissued)
16. When and how the shares of a company are forfeited?
Forfeiture of shares means seizure of shares of shareholders due to non-payment of allotment or calls money or both. The amount received on shares forfeited is also seized and the ownership of shares is also canceled. The company sends reminders to the defaulting shareholders to make the payment of calls in arrears. After the reminder if the defaulters fail to pay the money. The company can serve them notice to pay the amount within a specific date. The shares will be forfeited failing to pay the amount of calls in arrears within the specified date. The shares are forfeited by passing journal entries. In journal entry share capital account is debited with the called-up amount on shares. The forfeited shares account is credited with the amount received on forfeited shares. The calls in arrears account on the allotment and calls are also credited.
Entries on forfeiture:
Share capital A/C Dr. (Call up money per share x No. of shares forfeited)
To Share forfeited A/C (Amount per share received x No. of shares forfeited)
To Calls in arrears (Unpaid allotment and calls money)