Accounting theory of accounting for shares for the board exam.
What do you understand by 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
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 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
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
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. |
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