Accounting for Shares

Arjun EP

Published on: June 26, 2020

What is the accounting for shares?

Accounting theory of accounting for shares for the board exam.

What do you understand by share capital?

SHARE CAPITAL

Share is an ownership document. It is issued by a limited company to collect capital.

Every long journey starts with first step; every limited company is established with the help of equity shares.

In other words no equity shares, no limited company.

Total or authorized capital of the company is divided into small fraction.

This fraction is called shares. The person who purchases shares of the company is known shareholder.

Shares are transferable to other person and company.

Define share capital. Also differentiate between issued capital and subscribed capital

Differences between Issued Capital & Subscribed Capital

Bases	Issued capital	Subscribed capital
Number of shares	Issued shares must be minimum 50% of authorised shares.	There is no limit of subscribed shares.
Price	Price may be less than face value.	Price may be equal or less than issued value.
Responsible	Issued capital is fixed by company.	Subscribed capital is depended on applicants.

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Define preference shares.

PREFERENCE SHARE

Preference share is also called preference stock.

These shares can be issued only after equity shares.

The persons who receive preference shares are called preference shareholders.

Generally, these shareholders have preference rights in dividend received.

Dividend rates are pre fixed.

Preference shareholders get dividend after interest on debenture but before equity shareholders.

At the time of winding up, preference shareholders get money after all the debts but before equity shareholders.

Preference share have various type.

Define preference shares and give any two differences between preference shares and equity shares.

State any three important differences between preference shares and equity shares

Differences between Equity Shares & Preference Shares

Bases	Equity share	Preference share
Meaning	Equity shares are the base capital of a limited company.	A limited company can issue preference share only after issuing equity shares.
Name of investors	The person who purchases equity shares is called equity shareholder.	The person who purchases preference shares is called preference shareholder
Reward for investors	Equity shareholders receive dividend.	Preference shareholders receive preference dividend
Voting right	All the equity shareholders have voting right.	Only specific preference shareholders have voting right.
Fluctuation of reward	Dividend rate may be different from year-to-year.	Lack of information, preference dividend rate is fixed.

State any three differences between calls in arrears and calls in advance

Differences between Calls in Arrears & Calls in Advance

Bases	Calls in arrear	Calls in advance
Reason	Calls in arrear may be known or unknown by the shareholder.	A call in advance is paid by the shareholder by knowingly.
Debit or credit	It is debited in journal entry.	It is recorded two times; first it is credited then it is debited in journal entry.
Interest	Generally, interest is not charged on calls in arrears.	5% interest can be paid on calls in advance if it is mentioned on the Article of Association.