Reporting Share Capital in the Balance Sheet

1. The Format: Balance Sheet Extract and Notes to Accounts

For company accounts, the Balance Sheet follows a vertical format as prescribed by Schedule III of the Companies Act, 2013. This is different from the 'T-format' you used for partnership firms. In your exam, you are typically asked to show only an 'extract' of the Balance Sheet, focusing solely on Share Capital.

The Balance Sheet extract shows the final, consolidated figure for Share Capital. The detailed breakdown and calculations that lead to this figure are presented in a separate schedule called Notes to Accounts.

To start, let's get familiar with this new format.

Here is a static image of the standard format for your reference. The structure shown is mandatory.

As you saw, the process involves two parts:

1. The Balance Sheet (Extract): This is the main statement.
2. Notes to Accounts: This provides the supporting details for the figures in the Balance Sheet.

The key categories in the Notes to Accounts are:

• Authorised Capital: The maximum amount of capital a company is legally authorised to issue, as stated in its Memorandum of Association. This is shown for disclosure purposes and is closed with a double line; it is not part of the main calculation.
• Issued Capital: The portion of the authorised capital that the company has offered to the public for subscription. This is also shown for disclosure and closed with a double line.
• Subscribed Capital: The portion of the issued capital that the public has actually applied for and has been allotted by the company. This is the category from which the final Balance Sheet figure is derived.

2. The Core of the Calculation: Subscribed Capital

Subscribed Capital is the most important section and is further divided into two categories. Understanding this distinction is critical.

1. Subscribed and Fully Paid-up: Shares are classified here only if both of the following conditions are met:

   • The company has called up the entire face value of the share (e.g., all ₹10 on a ₹10 share).
   • The shareholder has paid the full amount called up.

2. Subscribed but Not Fully Paid-up: This category includes shares where:

   • The company has not yet called up the full face value (e.g., called up only ₹8 on a ₹10 share).
   • OR, the company has called up the full face value, but the shareholder has failed to pay a part of it (i.e., there are Calls-in-Arrears).

Let's watch a short segment that explains this crucial difference with clear examples.

3. Handling Adjustments

The 'Subscribed but Not Fully Paid-up' section is where we account for most of the complexities you've learned, like Calls-in-Arrears and Forfeiture.

What to Ignore

First, it's important to know what not to include in the Share Capital note. Several items you've encountered in journal entries have their own place in the Balance Sheet.

Summary of Items to Ignore in Share Capital Note:

• Securities Premium & Capital Reserve: These are shown under the head 'Reserves and Surplus', which is a separate line item under 'Shareholder's Funds'.
• Calls-in-Advance: This is a liability for the company and is shown under 'Other Current Liabilities'.
• Oversubscription: The final number of shares presented is always the number of shares issued and allotted, not the number applied for. Excess money is either refunded or adjusted, so it doesn't affect the final share capital figure.

Treatment of Calls-in-Arrears and Forfeiture

Now, let's see how to handle the adjustments that do affect the Share Capital note.

• Calls-in-Arrears: When a shareholder fails to pay call money, the unpaid amount is deducted from the amount called-up on those specific shares within the 'Subscribed but Not Fully Paid-up' category.

• Forfeited Shares: When shares are forfeited but not yet re-issued, they are removed from the subscribed share count. However, the amount that was already paid by the defaulting shareholder (the forfeited amount) is added as a separate line item at the end of the Notes to Accounts.

Let's see these adjustments in action.

4. Comprehensive Problem Solving

You now have all the components needed to prepare the Balance Sheet extract and Notes to Accounts. Let's apply this knowledge to a comprehensive problem similar to what you might face in your exam.

First, let's review a solved example that combines several elements.

Finally, to see how these concepts are tested in the latest exam patterns, let's analyze a question from a recent CBSE sample paper. This question is broken down into multiple-choice questions based on a single set of data.

Conclusion

Great job today! You have successfully learned how to present Share Capital in a company's Balance Sheet, a skill that is not only fundamental to corporate accounting but also carries significant weight in your exams.

Key Takeaways:

• Share Capital is presented in a vertical Balance Sheet extract under Equity and Liabilities -> Shareholder's Funds.
• The detailed breakdown is provided in the Notes to Accounts, which shows Authorised, Issued, and Subscribed Capital.
• The final figure for the Balance Sheet comes from the Subscribed Capital section.
• Subscribed and Fully Paid-up requires the full face value to be called and paid. All other subscribed shares fall under Subscribed but Not Fully Paid-up.
• Calls-in-Arrears are deducted from the called-up capital of the specific shares in default.
• The amount forfeited on shares not yet re-issued is added back at the end of the Share Capital note.
• Items like Securities Premium and Capital Reserve are disclosed under 'Reserves and Surplus', not 'Share Capital'.

In the next module, we will begin a detailed study of Forfeiture and Reissue of Shares. While we touched upon its presentation today, our upcoming lessons will dive deep into the journal entries required to forfeit shares (issued at par and premium) and the subsequent accounting for their reissue, including the important calculation of the amount transferred to Capital Reserve.