Class 12 Accountancy: Share Capital and Debentures, Taught in Order

Follow the money, in order

A company invites applications, receives money with those applications, decides who gets shares, and then asks for the rest in instalments. Each of those is an event with a date, and the journal simply records them as they happen.

Taught this way, the entries stop being arbitrary. Application money arrives before anyone owns anything, which is why it sits where it does until allotment. Allotment is the moment shares are actually issued, which is why the premium usually appears there. Calls are later requests for money already owed. A student who can tell that story in their own words will not confuse the order again.

Two variations then attach to the sequence. Money that should have come and did not is in arrears. Money that came earlier than asked is in advance. Both are simply positions in the same timeline.

Pro-rata allotment, where the marks actually go

When a company receives applications for more shares than it has, it allots in proportion and keeps some of the excess money against what will be due at allotment. The arithmetic is not hard. The bookkeeping is where students lose marks, because the excess has to be tracked for each group of applicants.

It becomes genuinely difficult when an applicant in a pro-rata group then fails to pay. The amount that person still owes is not the full allotment money, because part of their application money was already adjusted against it. Working out what is actually outstanding is the step that separates a confident student from a guessing one, and it is almost always worth explicit marks as a working note.

• Write the working note first. Shares applied for, shares allotted, money received, money adjusted, money still due. Then write the entry.
• Never do it mentally. Students who skip the note get the right answer on simple questions and are lost the moment a defaulter appears.

Forfeiture and reissue

If a shareholder does not pay, the shares can be forfeited and later reissued to someone else. Three rules carry most of the marks here.

First, what the company keeps is what it actually received, and that is set aside rather than treated as income. Second, a premium that was never received cannot be retained, so it comes out again. Third, when the shares are reissued at a reduced price, the reduction is met from what was forfeited, and there is a ceiling on it: the company cannot give away more than it kept. Whatever is left over at the end is transferred to capital reserve, and that transfer is frequently the last mark in the question.

Debentures, and what to check in your syllabus

Debentures are borrowing rather than ownership, and once a student holds that distinction the entries follow. Issue for cash, issue for consideration other than cash, and issue as collateral security are the three situations that appear most, along with interest on debentures and the treatment of any loss on issue. Redemption, where the syllabus includes it, is taught separately and is worth confirming from the current syllabus rather than from an older book, because this is an area that has moved.

How to practise it, in Gurgaon or online

We teach one-to-one at home across Delhi, Noida and Gurgaon, and live online anywhere. The most efficient practice is not more questions, it is the same question three ways: once fully subscribed, once over-subscribed with pro-rata, and once with a defaulter who is forfeited and reissued. Doing one question in three variations teaches the structure. Doing three unrelated questions teaches three answers.

Because Gurgaon sessions tend to be longer and less frequent, given the travel between sectors, that structure suits the format well. One full variation set fits comfortably into a single long session with time left to mark it.

Questions parents ask