Accounting for Share and Debenture Capital

About this unit

Companies raise long-term funds mainly by issuing shares and debentures. This unit explains what a company is, the kinds of share capital, and the journal entries for issuing shares, dealing with over- and under-subscription, calls in arrears and in advance, forfeiture and reissue. It then covers the issue of debentures, interest on them and the writing off of discount or loss on issue, along with their presentation in the balance sheet.

Key ideas

• Company: separate legal entity, limited liability, perpetual succession.
• Categories of share capital: authorised, issued, subscribed, called-up and paid-up.
• Equity and preference shares.
• Issue at par and at premium; pro-rata allotment; calls in arrears and advance.
• Forfeiture and reissue of shares; transfer to capital reserve.
• Debentures: issue at par, premium, discount; as collateral security; interest and TDS.

How to prepare

Practise journal entries step by step for application, allotment and calls, keeping track of the amount per share at each stage. Make a habit of calculating forfeited amounts and capital reserve carefully. Learn where each item appears in the company balance sheet and its notes.