Chapter 1 of Class 12 Accountancy Part 2 introduces students to a new concept—corporate accounting, starting with the basics of share capital. This chapter focuses on how companies raise funds by issuing shares, the different types of shares, and the accounting treatment of share-related transactions like application, allotment, forfeiture, and reissue. For students aiming to score well in their CBSE board exams, this chapter is extremely important as it combines theory with practical journal entries.
I am writing about this chapter because many students feel nervous when they start with Part 2 of the Accountancy book, especially when they hear terms like share capital, equity shares, preference shares, and oversubscription. But once you understand the logic behind each transaction and the purpose of each journal entry, it becomes one of the most scoring parts of the syllabus. This chapter is also directly connected to real-life company practices, so understanding it well will help you later if you pursue commerce, B.Com, CA, or any business-related career. I’ve explained the main concepts in simple terms and added examples so that you get a clear picture of the basics.
Key Concepts in Chapter 1 – Accounting for Share Capital
What is Share Capital?
Share capital refers to the money raised by a company through the issue of shares. This is the main source of permanent capital for any company. It is shown under the Equity and Liabilities side of the company’s balance sheet.
There are two main types of shares:
- Equity Shares – carry voting rights and are riskier
- Preference Shares – have fixed dividends and priority in repayment
Types of Share Capital
| Type of Capital | Description |
|---|---|
| Authorised Capital | Maximum capital a company can issue |
| Issued Capital | Capital offered to the public |
| Subscribed Capital | Capital actually taken by shareholders |
| Called-up Capital | Amount asked to be paid so far |
| Paid-up Capital | Amount actually received |
Issue of Shares
When a company issues shares to the public, it usually collects money in stages:
- Application Money
- Allotment Money
- First Call
- Final Call
Journal entries are made for each stage.
Oversubscription
When applications received are more than the number of shares offered, it’s called oversubscription. The company can:
- Reject extra applications
- Refund money
- Adjust extra amount to allotment
Forfeiture of Shares
If a shareholder fails to pay allotment or call money, the company can cancel the shares. This is called forfeiture. The amount already paid is not refunded.
Reissue of Forfeited Shares
The company can reissue these forfeited shares at a discount. The discount should not exceed the amount forfeited earlier.
Important Formulas and Concepts
- Minimum Subscription: 90% of issued capital must be subscribed for the issue to be valid
- Securities Premium: Extra money received above the face value of shares is recorded under this head
- Pro-rata Allotment: Used during oversubscription when partial allotment is made to all applicants
Download PDF – NCERT Class 12 Accountancy Part 2 Chapter 1
If you want to revise this chapter from the official textbook, downloading the PDF version is the best way to go. The NCERT version contains:
