Book 2 · NCERT — Company Accounts & FSA

Companies Quick Reference

Share Capital types, Issue at par / premium / discount, Calls in Advance/Arrears, Forfeiture & Re-issue entries, Pro-rata allotment, Securities Premium (Sec 52), Debentures issue + redemption, DRR (10%), DRI (15%), Interest + TDS — built around the Companies Act 2013.

Share Capital types Issue at Par Issue at Premium Calls in Advance/Arrears Pro-rata allotment Forfeiture Re-issue Non-cash issue Debenture Issue Collateral Security Interest + TDS Redemption DRR + DRI

Share Capital — 6 categories Ch 8

Category	Meaning
Authorised	Maximum amount per Memorandum (also called Nominal / Registered).
Issued	Portion of Authorised offered to the public.
Subscribed	Portion of Issued actually applied for.
Called-up	Portion of Subscribed called by the company.
Paid-up	Called-up minus Calls in Arrears.
Reserve Capital (Sec 65)	Uncalled portion that can be called only on winding up.

Equity vs Preference Shares

Preference shares have a preferential right to (a) dividend at a fixed rate and (b) capital repayment on winding up. Types: Cumulative (arrears carry forward) · Participating (extra share of surplus profit) · Convertible (into equity) · Redeemable (max 20-year tenure).

Issue of Shares at Par Ch 8

Standard 3-stage entries

Stage	Journal Entry
Application	Bank A/c Dr. To Share Application A/c
Allotment due	Share Application A/c Dr. (allotted) To Share Capital A/c
(Allotment due)	Share Allotment A/c Dr. To Share Capital A/c
(Allotment received)	Bank A/c Dr. To Share Allotment A/c
Call (1st / 2nd / Final)	Share Call A/c Dr. To Share Capital A/c then Bank A/c Dr. To Share Call A/c

If the company refunds excess application money: Share Application A/c Dr; To Bank A/c.

Issue at Premium — Securities Premium A/c Ch 8

Bank A/c Dr. (incl. premium)	xxx
To Share Capital A/c (face value)	xxx
To Securities Premium A/c (premium portion)	xxx

Permitted uses of Securities Premium (Sec 52(2) of Companies Act 2013)

Issue fully paid bonus shares

Write off preliminary expenses

Write off discount/expenses on issue of shares or debentures

Provide premium on redemption of preference shares or debentures

Buy-back of own securities (Sec 68)

Issue at Discount on equity shares is PROHIBITED by Sec 53 of the Companies Act 2013. Exception: Sweat Equity Shares (Sec 54) may be issued at a discount to employees/directors.

Calls in Advance + Calls in Arrears Ch 8

Aspect	Calls in Advance (Sec 50)	Calls in Arrears
Definition	Money received before the company calls it	Money called but not yet received
Default rate (Table F)	Interest payable @ 12% p.a.	Interest receivable @ 10% p.a.
Allowed only if	AoA permits	Always (involuntary)
Dividend entitlement	NOT entitled on advance portion	Suspended till paid
B/S disclosure	Under "Other Current Liabilities"	Deducted from Subscribed Capital

Pro-rata Allotment Ch 8

When applications > shares offered (over-subscription), the surplus application money is adjusted against allotment.

Pro-rata calculation

Allotment money required − Excess Application money received = Net amount receivable on Allotment

Excess application money is FIRST adjusted against allotment, THEN against subsequent calls if it exceeds allotment.

Forfeiture of Shares Ch 8

Issued at Par (call money unpaid)

Share Capital A/c Dr. (called-up amount × shares forfeited)	xxx
To Calls in Arrears A/c (unpaid amount)	xxx
To Forfeited Shares A/c (paid-up amount)	xxx

Issued at Premium (premium received earlier)

Premium has already been received and credited to Securities Premium A/c. Do NOT cancel the Securities Premium A/c. Forfeit only the Capital + unpaid Calls.

Issued at Premium (premium NOT yet received)

Share Capital A/c Dr.	xxx
Securities Premium A/c Dr. (cancel unreceived premium)	xxx
To Calls in Arrears A/c	xxx
To Forfeited Shares A/c	xxx

Re-issue of Forfeited Shares Ch 8

Maximum permissible discount on re-issue

Max Discount = Amount in Forfeited Shares A/c (per share)

Re-issue can be at par, at premium, or at discount — but discount cannot exceed the forfeited amount.

Re-issue entries

Bank A/c Dr. (re-issue price)	xxx
Forfeited Shares A/c Dr. (discount on re-issue, if any)	xxx
To Share Capital A/c (face value re-issued)	xxx
(Forfeited shares re-issued)

Transfer balance to Capital Reserve

Forfeited Shares A/c Dr. (balance after re-issue)	xxx
To Capital Reserve A/c	xxx

Profit on re-issue (= remaining balance in Forfeited Shares A/c after re-issue) is a Capital Profit and goes to Capital Reserve A/c — never P&L.

Issue for Consideration Other Than Cash Ch 8

Shares issued to vendors (for assets purchased), promoters (for services), or underwriters (for underwriting commission). No cash exchanged — Bank A/c is NOT debited.

Sundry Assets A/c Dr. (or Goodwill / Vendors)	xxx
To Vendors A/c (purchase consideration)	xxx
Vendors A/c Dr.	xxx
To Share Capital A/c (face value)	xxx
To Securities Premium A/c (if at premium)	xxx

Debentures — Issue Ch 9

Issue at Par

Bank A/c Dr.	xxx
To Debenture Application & Allotment A/c	xxx
Debenture Application & Allotment A/c Dr.	xxx
To __% Debentures A/c	xxx

Issue at Discount, Redeemable at Premium (loss structure)

Bank A/c Dr. (issue price)	xxx
Discount on Issue of Debentures A/c Dr.	xxx
Loss on Issue of Debentures A/c Dr.	xxx
To __% Debentures A/c (face value)	xxx
To Premium on Redemption of Debentures A/c	xxx

Issue at Premium

Bank A/c Dr. (incl. premium)	xxx
To __% Debentures A/c (face value)	xxx
To Securities Premium A/c	xxx

Discount on Issue / Loss on Issue: written off over the life of debentures. Order — first against Securities Premium A/c (per Sec 52), then any balance against P&L A/c.

Issue as Collateral Security Ch 9

Debentures issued as additional security against a loan — no separate consideration is received. Two methods:

Method 1 — No journal entry

Just disclose the fact in a note to Balance Sheet. Loan A/c shows the borrowing; debentures appear in the disclosure footnote.

Method 2 — Formal entry

Debenture Suspense A/c Dr.	xxx
To __% Debentures A/c	xxx
(Debentures issued as collateral against bank loan)

When the loan is repaid, reverse the entry: Debentures A/c Dr; To Debenture Suspense A/c.

Interest on Debentures + TDS Ch 9

Interest on Debentures is a CHARGE against profit (debited to P&L A/c, not P&L Appropriation). Paid even when there is a loss. TDS @ 10% deducted at source under Sec 193 of the Income Tax Act.

Debenture Interest A/c Dr. (gross interest)	xxx
To Debenture-holders A/c (90% — net of TDS)	xxx
To TDS Payable A/c (10%)	xxx
Debenture-holders A/c Dr.	xxx
To Bank A/c	xxx
TDS Payable A/c Dr.	xxx
To Bank A/c (TDS deposited with govt)	xxx
Profit and Loss A/c Dr.	xxx
To Debenture Interest A/c (transfer at year-end)	xxx

Methods of Redemption Ch 9

Lump Sum at Maturity

Pay full face value (+ premium if any) on the maturity date. Most common.

Instalments — Drawing of Lots

Redeem a portion each year. Random lottery selects which debentures redeem each year.

Open Market Purchase (OMP)

Company buys back its own debentures from the secondary market — useful when market price < face value.

Conversion

Convert debentures into shares (or new debentures) — applicable to convertible debentures only.

Standard redemption entry (lump sum at par)

__% Debentures A/c Dr. (face value)	xxx
To Debenture-holders A/c	xxx
Debenture-holders A/c Dr.	xxx
To Bank A/c	xxx

Redemption at Premium (premium provided earlier)

__% Debentures A/c Dr.	xxx
Premium on Redemption of Debentures A/c Dr.	xxx
To Debenture-holders A/c	xxx

DRR + DRI Rules Ch 9

Rule	Details
Debenture Redemption Reserve (DRR) Sec 71(4) Companies Act 2013	Required = 10% of nominal value of debentures (post-2019 amendment). Created by transferring profits from P&L Appropriation to DRR A/c before redemption. Exempt: Listed companies, AIFIs, NBFCs registered with RBI.
Debenture Redemption Investment (DRI) Rule 18(7) Companies (Share Capital and Debentures) Rules 2014	Required = 15% of debentures to be redeemed in the next financial year, deposited in a scheduled bank/specified securities by 30 April of that year. Liquidity safeguard so the company actually has cash for redemption.

DRR creation entry

Surplus in P&L A/c Dr.	xxx
To Debenture Redemption Reserve A/c (10% of NV)	xxx

After redemption — transfer DRR to General Reserve

Debenture Redemption Reserve A/c Dr.	xxx
To General Reserve A/c	xxx