NCERT Solutions Class 12 Accountancy 2 Accounting for Share Capital

Answer : Section 617 of Companies Act 1956 defines Government Company as a company in which not less than 51% of the paid up share capital is held by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government Company.

Answer : Listed companies are those companies whose shares are listed on a recognised stock exchange for public trading. When a company’s security is listed in a recognised stock exchange the price fluctuation can easily be observed by the investor and he/she can easily determine the increase/decrease in value of their investment in a concerned listed company.
This is the only reason that the volume remain high in case of a listed company as all the moves can be observed and investment strategy can easily be planned in that company.

Answer : When securities like shares and debentures are issued to public more than their face value the excess is called security premium. As per the Section 78 of the Companies Act 1956, the amount of securities premium can be used by the company for the following purposes
(i) For paying up unissued shares of the company to be issued to members (shareholders) of the company as fully paid bonus share.
(ii) For writing off the preliminary expenses of the company.
(iii) For writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company.
(iv) For paying up the premium that is to be payable on redemption of preference shares or debentures of the company.
(v) Further, as per the Section 77A, the securities premium amount can also be utilised by the company to buy-back its own shares.

Answer : When a company repurchase its own share from the market to reduce the number of share it is called buy-back of shares. As per the Section 77A of the Companies Act, 1956 the procedure for buy back of share would be as follows
(i) First of all the Articles of the Association must authorise the company for the buy-back of shares.
(ii) A special resolution must be passed in the companies’ Annual general body meeting.
(iii) The amount of buy-back of shares should not exceed 25% of the paid-up capital and free reserves.
(iv) The debt-equity ratio should not be more than a ratio of 2:1 after the buyback.
(v) All the shares of buy-back should be fully paid-up.
(vi) The buy-back of the shares should be completed within 12 months from the date of passing the special the resolution.
(vii) The company should file a solvency declaration with the Registrar and’ SEBI which must be signed by at least two directors of the company. –

Sources for Buy-back of Share
(i) Free reserves.
(ii) Securities premium account.
(iii) Proceeds of any shares or other specified securities, provided that no buy-back of any kind of shares or other specified securities shall be made out of the proceeds of the earlier issues of the similar kind of shares or specified securities.

Answer : When shares are issued to the general public, it is necessary that the minimum subscription amount should be subscribed so that the company can allot shares to the applicants. This minimum amount of share subscription is termed as minimum subscription. As per the Company Act 1956, the minimum subscription of share cannot be less than 90% of the issued amount. If the minimum subscription is not received, the company cannot allot shares to its applicants and it shall immediately refund the entire application amount received to the public.
e.g., if a company issued 1,00,000 equity share than at least 90,000 share must be subscribed by the public.

Answer : According to Section 3 (1) (i) of the Company Act of 195 “Company means a company formed and registered under this Act or £ existing company.”

In general, a company is an artificial person, created by law that has separate legal entity, perpetual succession, and common seal and t limited liability. It is a voluntary association of person who together contribu in the capital of the company to do business.

Generally, the capital of a company is divided into small parts known shares, the ownership of which is transferable subject to certain terms s conditions.
Characteristics of Company
(i) Incorporated Association A company comes into existence through the operation of law. Therefore, its incorporation under the Companies Act is must. Without such registration, no company can come into existence. Being created by law, it is regarded as an artificial legal person.
(ii) Separate Legal Entity A company has a separate legal entity, which is not affected by changes in the membership. Therefore being a separate entity, a company can contract, sue and be used in its corporate name and capacity.
(iii) Artificial Person A company is an artificial and juristic person that is created by law.
(iv) Limited Liability Every shareholder of accompany has limited liability. His liability is limited to the extent of the unpaid value of the shares held by him. If such shares are fully paid up, he is subject to no further liability.
(v) Perpetual Existence The existence of company is not affected by the death, retirement, and insolvency of its members. That is, the life of a company remains unaffected by the life and the tenure of its members in the company. The life of a company is infinite until it is properly wound up as per the Companies Act.
(vi) Common Seal The company is not a natural person and has no physical existence. Hence, it cannot put its signature. Thus, the common seal acts as an official signature of a company that validates the official documents.
(vii) Maintenance of Books A limited company is required by law to keep a prescribed set of account books and any failure in this regard attracts penalties.

Answer : Share capital of a company can be divided into the following categories
(i) Authorised Capital It refers to that amount which is laid down in clause of the memorandum of association of the company. This i maximum amount with which company is registered and to raise from the public by the issue of shares. The therefore, called the registered or nominal or authorised capital of company.
(ii) Issued Capital The authorised capital which is offered to the public for subscription including shares offered to the vendors for subscription other than cash is called the issued capital.
(iii) Subscribed Capital It is the portion of issued capital which has been subscribed to by the public i.e., applied for and allotted by the company. Thus, face value of allotted shares is known as subscribed capital.
(iv) Called-up Capital The portion of the subscribed capital which the shareholders are called upon to pay is termed as called up capital of the company. The company usually does not require a shareholder to pay in one lot, the full value of the shares he has subscribed for. He is generally required to pay it by instalments. The balance of subscribed capital which has not been called-up represents uncalled capital.
(v) Paid-up Capital The amount of called-up capital which has been actually paid by the shareholders is called as paid-up capital and the amounts yet due from the shareholders are called as calls-in-arrears.
(vi) Reserve Capital Sometimes a company by means of special resolution decides that certain portion of its uncalled capital shall not be called-up during its existence and it would be available as an additional security to its creditors in the event of its liquidation. Such a portion of uncalled capital is termed as reserve capital.

Answer : The capital of a company is divided into a number of equal parts. Each part is called a share. A company may divide its capital into shares of ? 10, ? 50, ^100 or any suitable amount, but it is always preferable to have shares of small denomination in order to bring them within the reach of small investor.
According to Lord Lindley, “The portion of capital to which each member is entitled to his share”. In this way, share is proportionate part of the share capital and forms ownership in a company.
According to Companies Act, 1956 there are two types of shares
(i) Preference Share Preference Share is one which carries the following two rights
(a) They have a right to receive dividend at a fixed rate before any dividend is paid on the equity shares
(b) On the winding up of the company, they have right to return of capital before the capital returned on equity shares.
However, not with standing the above two conditions, a holder of the preference share may have a right to share fully or to a limited extent in the surplus of the company as specified in the Memorandum or Articles* of the company.
(ii) Equity Share Under Indian Companies Act 1956, ‘an equity share is share which is not preference share’. Thus, this share does not carry any preferential right or in other words, equity share is one which is entitled to dividend and repayment of capital after the claim of preference shares is satisfied. Usually the equity shareholders control the affairs of the company and hence right to all the profits after the preference dividend has been paid.

Answer : When shares are issued to the public for subscription through the prospectus by well managed and financially strong companies, it may happen that the total number of applications received for shares exceeds the number of shares offered by the company to the public, such situation is called the situation of over-subscription. A company can opt for any of the three alternatives to allot shares in case of over-subscription of shares.
(i) Excess Applications are Refused and Money received on Excess Applications is Returned to the Applicants

(ii) If the Applicant are made Partially Allotment (or Pro-rata Basis) In case of over-subscription, when a company allots shares rateable to all the applicants, it is called as pro-rata allotment.
In such a case, the main problem is what to do with the excess amount received on application. Practically, it will be quite irrational to refund the excess money first and then ask the allottee applicants to pay the allotment money.

In practice, generally excess application money receive on these shares is adjusted towards the amount due on allotment or call. For this purpose the entry is made as follows
Pro-rata and Refund of Money In case of over-subscription, the director can adopt a combination of the above two alternatives i.e., they can accept full allotment to some applications, a pro-rata allotment to others and no allotment to the rest.