NCERT Class 12 Books Accountancy Part 2 Chapter 1- Accounting for Share Capital

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Accounting for Share Capital Goes Like This-

LEARNING OBJECTIVES

After studying this chapter, you will be able to-

• Explain the basic nature of a joint stock company as a form of business organisation and the various kinds of companies based on liability of their members
• Describe the types of shares issued by a company
• Explain the accounting treatment of shares issued at par, at premium and at discount including oversubsription
• Outline the accounting for forfeiture of shares and reissue of forfeited shares under varying situations
• Workout the amounts to be transferred to capital reserve when forfeited shares are reissued; and prepare share forfeited account

A company form of organisation is the third stage in the evolution of forms of organisation. Its capital is contributed by a large number of persons called shareholders who are the real owners of the company. But neither it is possible for all of them to participate in the management of the company nor considered desirable. Therefore, they elect a Board of Directors as their representative to manage the affairs of the company. In fact, all the affairs of the company are governed by the provisions of the Companies Act, 2013. A company means a company incorporated or registered under the Companies Act, 2013 or under any other earlier Companies Acts. According to Chief Justice Marshal, “a company is a person, artificial, invisible, intangible and existing only in the eyes of law. Being a mere creation of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence”. A company usually raises its capital in the form of shares (called share capital) and debentures (debt capital.) This chapter deals with the accounting for share capital of companies.

1.1 Features of a Company

A company may be viewed as an association of person who contribute money or money’s worth to a common inventory and use it for a common purpose. It is an artificial person having corporate legal entity distinct from its members (shareholders) and has a common seal used for its signature. Thus, it has certain special features which distinguish it from the other forms of organisation.

These are as follows-

Body Corporate: A company is formed according to the provisions of Law enforced from time to time. Generally, in India, the companies are formed and registered under Companies Law except in the case of Banking and Insurance companies for which a separate Law is provided for.

Separate Legal Entity: A company has a separate legal entity which is distinct and separate from its members. It can hold and deal with any type of property. It can enter into contracts and even open a bank account in its own name.

Limited Liability: The liability of the members of the company is limited to the extent of unpaid amount of the shares held by them. In the case of the companies limited by guarantee, the liability of its members is limited to the extent of the guarantee given by them in the event of the company being wound up.

Perpetual Succession: The company being an artificial person created by law continues to exist irrespective of the changes in its membership. A company can be terminated only through law. The death or insanity or insolvency of any member of the company in no way affects the existence of the company. Members may come and go but the company continues.

Common Seal: The company being an artificial person, cannot sign its name by itself. Therefore, every company is required to have its own seal which acts as official signatures of the company. Any document which does not carry the common seal of the company is not binding on the company.

Transferability of Shares: The shares of a public limited company are freely transferable. The permission of the company or the consent of any member of the company is not necessary for the transfer of shares. But the Articles of the company can prescribe the manner in which the transfer of shares will be made.

May Sue or be Sued: A company being a legal person can enter into contracts and can enforce the contractual rights against others. It can sue and be sued in its name if there is a breach of contract by the company.

Some Glimpses of the Chapter are-

 
NCERT Class 12 Books Accountancy Part 2 Chapter 1- Accounting for Share Capital- PDF Download

Chapter 1- Accounting for Share Capital Safalta provides the latest NCERT course books for all the major subjects of Class 12. A team of proficient teachers drafts these matters in a precise and thorough manner. You can download the PDFs for all the subjects in a chapter-wise format.

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