Company accounts differ from sole proprietor/partnership because a company raises capital from the public through shares and debentures and must follow statutory rules. This topic gives the foundation needed for journal entries and final statements in company accounts.
Scoring strategy:
A company is a separate legal entity with limited liability of its owners (shareholders).
Share capital is the capital raised by a company by issuing shares to the public.
Common terms:
Exam table (quick):
Issue of shares means offering shares to public and collecting amount in stages:
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Company accounts differ from sole proprietor/partnership because a company raises capital from the public through shares and debentures and must follow statutory rules. This topic gives the foundation needed for journal entries and final statements in company accounts.
Scoring strategy:
A company is a separate legal entity with limited liability of its owners (shareholders).
Share capital is the capital raised by a company by issuing shares to the public.
Common terms:
Exam table (quick):
Issue of shares means offering shares to public and collecting amount in stages:
Securities premium is the excess of issue price over face value of shares.
Uses (broad idea): it is a capital reserve-like item; can be used for specific purposes such as issue expenses, writing off discount, bonus issue, etc. (as allowed by law).
If a shareholder fails to pay allotment/calls, company may cancel the shares. This is forfeiture.
Forfeited amount is credited to Share Forfeiture A/c (capital reserve type), and the unpaid amount is adjusted.
Debenture is a written acknowledgement of debt by the company. Debenture holders are creditors, not owners.
Features:
Debentures can be issued:
Discount/loss on issue of debentures is usually treated as a capital loss and written off over the period of debentures (as per policy/standards).
Redemption means repayment of debentures at maturity or earlier as per terms.
Methods (overview):
Prospectus/issue → Application → Allotment → Calls → Receipt of money → Share capital becomes paid-up
Issue of debentures → Interest payments → Redemption (repayment) → Debenture liability closed
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From this topic
Types of share capital (any three):
Table:
Thus, these terms explain the stages of raising share capital.
Table:
Hence, preference shares provide preferential rights while equity carries higher risk and higher potential return.
Shares are commonly issued by collecting money in stages:
Key points:
Flowchart:
Application received → Allotment made → Calls due → Calls received → Paid-up capital determined
Conclusion: A clear stage-wise approach helps pass correct journal entries and avoids confusion in numericals.