Accounting for Share Capital: Complete Guide for Class 12 NCERT Students
By MyStudyCoach Team · Published on 1 July 2026 · 6 min read
Accounting for Share Capital is a key topic in Class 12 Accountancy that explains how companies raise funds by issuing shares. This guide covers the entire process from share application to allotment and calls, including the necessary accounting entries as per NCERT.
Understanding Share Capital and Its Importance
Share capital is the total amount of capital raised by a company by issuing shares to investors. It represents the ownership interest of shareholders in the company. For Class 12 NCERT students, it is important to know that share capital forms the backbone of a company’s equity and is classified into authorized, issued, subscribed, and paid-up capital.
Authorized Share Capital: Maximum capital a company can raise.
Issued Share Capital: Shares actually issued to shareholders.
Subscribed Share Capital: Shares accepted by investors.
Paid-up Capital: Amount actually received from shareholders.
Accounting for share capital ensures transparency in how funds are raised and used. It also complies with the Companies Act, 2013, which regulates share issuance and capital maintenance.
Process of Issuing Shares: From Application to Allotment
The issue of shares is a multi-step process governed by legal provisions and company policies. Here’s how it works:
1. Invitation to Subscribe: The company issues a prospectus or letter of offer inviting investors to apply for shares. 2. Application Money: Investors submit application money along with their application. 3. Share Application Account: The money received is credited here initially. 4. Allotment of Shares: Company allots shares based on applications received. 5. Transfer to Share Capital Account: Application money for allotted shares is transferred from Share Application Account to Share Capital Account.
Types of Share Issues
Public Issue: Shares offered to the general public.
Rights Issue: Existing shareholders get the right to buy additional shares.
Private Placement: Shares issued to selected individuals or institutions.
Bonus Shares: Free shares issued to existing shareholders from reserves.
This process ensures clarity and proper fund management.
Accounting Entries for Share Application, Allotment, and Calls
Accounting for share capital involves recording transactions at various stages:
Stage
Debit Account
Credit Account
Explanation
Application Money
Bank A/c
Share Application A/c
Money received on application
Transfer to Capital
Share Application A/c
Share Capital A/c
Application money transferred after allotment
Allotment Money
Share Allotment A/c
Share Capital A/c
Amount due on allotment
Receipt of Allotment
Bank A/c
Share Allotment A/c
Allotment money received
Calls Money
Share Calls A/c
Share Capital A/c
Amount due on calls
Receipt of Calls
Bank A/c
Share Calls A/c
Calls money received
Worked Example:
A company issues 10,000 shares of Rs. 10 each at par. Application money Rs. 2 per share, allotment Rs. 3 per share, first call Rs. 3 per share, and final call Rs. 2 per share.
On application:
Bank A/c Dr. 20,000
To Share Application A/c 20,000
On allotment due:
Share Allotment A/c Dr. 30,000
To Share Capital A/c 30,000
On allotment received:
Bank A/c Dr. 30,000
To Share Allotment A/c 30,000
On first call due:
Share First Call A/c Dr. 30,000
To Share Capital A/c 30,000
On first call received:
Bank A/c Dr. 30,000
To Share First Call A/c 30,000
On final call due:
Share Final Call A/c Dr. 20,000
To Share Capital A/c 20,000
On final call received:
Bank A/c Dr. 20,000
To Share Final Call A/c 20,000
Methods of Issuing Shares and Their Accounting Treatment
Companies can issue shares through different methods, each with specific accounting treatments:
Public Issue: Shares are offered to the public via prospectus. Application money is received and recorded in Share Application Account.
Rights Issue: Existing shareholders get rights to buy shares at a discount or par. Accounting entries are similar to public issue but restricted to existing shareholders.
Private Placement: Shares issued to select investors privately. Application and allotment entries are recorded as usual.
Bonus Shares: Issued free to existing shareholders from company reserves. No cash is received; instead, reserves are debited and share capital credited.
Comparison Table: Share Issue Methods
Method
Who Can Apply
Money Received
Accounting Entry Focus
Public Issue
General Public
Yes
Application, Allotment, Calls
Rights Issue
Existing Shareholders
Yes
Similar to Public Issue
Private Placement
Selected Investors
Yes
Similar to Public Issue
Bonus Shares
Existing Shareholders
No
Transfer from Reserves to Capital
Understanding these methods helps Class 12 students master share capital accounting.
Common Challenges and Solutions in Accounting for Share Capital
While accounting for share capital, students often face challenges such as:
Pro-rata Allotment: When shares are oversubscribed, shares are allotted on a pro-rata basis. Calculate shares allotted and adjust excess money.
Forfeiture of Shares: If a shareholder fails to pay allotment or calls, shares may be forfeited. Entries involve debiting Equity Share Capital and crediting Forfeited Shares Account.
Calls in Arrears and Calls in Advance: Calls not received on due date are calls in arrears; advance payments are calls in advance.
Worked Example: Pro-rata Allotment
Sujal Ltd. received applications for 24,000 shares but allotted only 20,000 shares. Application money is Rs. 3 per share. Arjav applied for 600 shares.
This example clarifies pro-rata allotment and adjustment in accounts.
Summary and Exam Tips for Accounting for Share Capital
For Class 12 NCERT exams, focus on these key points:
Understand definitions of different types of share capital.
Memorize journal entries for application, allotment, and calls.
Practice problems on pro-rata allotment, forfeiture, and reissue of shares.
Know the legal provisions under Companies Act, 2013.
Use tables and diagrams to organize information clearly.
Exam Tip: Always write journal entries with proper narration. Use clear dates and amounts. Practice multiple examples to gain confidence.
By mastering these concepts, you will excel in the Accounting for Share Capital chapter.
Frequently asked questions
What is the difference between authorized and issued share capital?
Authorized share capital is the maximum capital a company can raise, while issued share capital is the portion actually offered to shareholders.
How is share application money accounted for in books?
Share application money is first credited to Share Application Account and transferred to Share Capital Account after allotment.
What happens if a shareholder fails to pay allotment money?
Shares may be forfeited, and accounting entries debit Equity Share Capital and credit Forfeited Shares Account.
Can a company issue bonus shares without receiving money?
Yes, bonus shares are issued free by transferring reserves to share capital; no cash is received.
What is pro-rata allotment of shares?
Pro-rata allotment occurs when shares are oversubscribed; shares are allotted proportionally to applicants.
Are calls in arrears and calls in advance recorded differently?
Yes, calls in arrears are unpaid calls, while calls in advance are payments received before due date; both have distinct accounting treatments.
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