Accounting for Share Capital Notes3

Study Material & Notes for the Chapter 8



Accounting treatment of Shares Issued for Cash

In general, shares are issued for cash. The company may call the share money either in one instalment or in two or more instalments. But company always collects this money through its bankers.

Receipt of Share Money in One Instalment

The company may receive the share money in one instalment along with application. In this case the following journal entries are made in the books of the company

accountsaptitude_Share Capital topic-3 A
B. Receipt of Share Money in Two or More Instalments
  • Instead of receiving payment in one instalment i.e. at the time of application the company collects it in two or more instalments.
  • The first, instalment which the applicants have to pay along with the applications for shares is known as Application Money.
  • On the allotment of shares the allottees are required to pay the second instalment which is termed as Allotment Money.
  • If the company decides to call the share money in more than two instalments the other instalment is/are termed as Call Money (i.e. first-call, second call or final call).
a) Receipt of Share Application Money
b) Allotment Money becoming due:

On the allotment of shares the amount receivable on the next instalment i.e. on allotment becomes due.

c) Call on Shares
  • After the receipt of application and allotment money the money that remains unpaid can be called up by the company as and when required
  • Thus a call is a demand made by the company asking the shareholders to remit the called up amount on shares allotted to them.
  • The company may demand the remaining money in more than two instalments. The amount called after the allotment is known as call money. There may be one or more calls, depending on the fund requirements of the company.
If the company makes more than one call the same accounting treatment is followed for recording the second call or third call money due and their receipt. The last call made is termed as final call.
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