Disclosure of Share Capital in the Balance Sheet

What is Share Capital?

A company has to raise funds to conduct its business. Since it is an artificial person, it cannot generate capital on its own. So it approaches investors for funds and issues shares (the total capital of a company gets divided into several units and each unit is called a share) as proof of their investment. These funds are collectively known as Share Capital.

Types of Share Capital

The different types of share capital are as follows:

  • Authorised Capital – It is the total amount of share capital that a company can issue to investors. It is also known as Normal or Registered Capital. This amount is present in the Memorandum of Association of that Company. They can increase or decrease the Authorised Capital after following the provisions mentioned in the Companies Act. The company doesn’t have to issue shares for the entire amount at once. They can do it in tranches based on their need for funds.
  • Issued Capital – It is part of the Authorised Capital that the company has asked for investment from the general public for a subscription via shares. The leftover part is known as Unissued Capital. The company can issue that amount at a later date.
  • Subscribed Capital – Subscribed Capital is a part of the Issued Capital which the investors have taken via shares.
  • Called-up Capital – The portion of Subscribed Capital that the company has asked its shareholders to pay is the Called-up Capital. They can ask investors to pay the total amount or a part of the face value of shares.
  • Paid-up Capital – Paid-up Capital is the actual amount that the investors have paid to the company. If the shareholders haven’t given a part of the called up amount, it is known as Calls in Arrears.
  • Uncalled Capital – It is the part of Subscribed Capital which the company hasn’t asked its shareholders to pay yet. The company can ask for the amount when they require more funding.
  • Reserve Capital – Reserve Capital is that part of Uncalled Capital that the company may keep separate and use when it winds up its operations.

Disclosure of Share Capital in the Balance Sheet

Capital is present on the Liabilities side of the Balance Sheet of a company. The reason is that a company is an artificial person, and it owes the Capital amount to its owners and investors. Share Capital is present under the head Shareholders Fund.

We will explain how you can display the Share Capital in the Balance Sheet with the help of an example:

Question:

Zero Ltd. is a company that has an Authorised Share Capital amounting to Rs. 50 lakh divided into 50000 shares (the value of each share is Rs. 100). They offered 40000 shares to the general public under the following options:

  • Rs. 30 per share during application
  • Rs. 30 per share during allotment
  • Rs. 40 per share during the first call (it was also the final call)

The company got applications for 30000 shares. Out of those 30000 shares, they did not get the allotment money on 500 shares.

They did not make the First Call for those shares. Kindly display the relevant items in the Balance Sheet of Zero Ltd.

Answer:

Balance Sheet of Zero Ltd.

As on ……….

Equity and Liabilities

Note to

Current Year

(₹)

Previous Year

(₹)

Shareholder’s Funds:

  1. Share Capital*

(1)

17,85,000

Assets

Cash and Equivalents (Cash at Bank)

17,85,000

*As per the revised Schedule VI, disclosure related to the Share Capital is provided in Notes to Accounts

Notes to Accounts

Equity and Liabilities

Current Year

(₹)

Previous Year

(₹)

(1) Share Capital:

  1. Authorised Capital
  2. 50000 shares of Rs. 100 each

  3. Issued Capital
  4. 40000 shares of Rs. 100 each

  5. Subscribed Capital
  6. 30000 shares of Rs. 100 each

  7. Called-up Capital
  8. 30000 shares of Rs. 100 each Rs 60 per share called up

  9. Paid-up Capital
  10. 30000 shares of Rs. 100 each Rs 60 per share called up

    Less: Calls in Arrears (500 shares @Rs. 30 per share)

18,00,000

(15,000)

50,00,000

40,00,000

30,00,000

18,00,000

17,85,000

Total

17,85,000

Conclusion

Disclosure of Share Capital in the Balance Sheet helps maintain a proper record of the total amount that shareholders have invested in the company in exchange for part ownership and voting rights in the entity.

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