Full Payment of Share Capital

Oct 13, 2025 by magicalceylontours.com 16 views

Kantara Company Ltd: A Case Study of Equity Share Issue and Accounting Treatment

In this article, we will discuss the equity share issue of Kantara Company Ltd, where 12,000 equity shares of ₹100 each were issued at a premium. The shares were payable as ₹50 on application, ₹30 on allotment, and ₹20 on the first and final call. However, the public subscribed for only 10,000 shares, and the company received the entire money due except for the first and final call money. We will analyze the accounting treatment of this transaction and discuss the implications of the company's actions.

An equity share issue is a process by which a company issues new shares to the public to raise capital. In the case of Kantara Company Ltd, the company issued 12,000 equity shares of ₹100 each at a premium. The shares were payable as follows:

₹50 on application
₹30 on allotment
₹20 on the first call
₹20 on the final call

The public subscribed for only 10,000 shares, which means that the company received the entire money due except for the first and final call money.

When a company issues equity shares, it recognizes the proceeds from the issue as a liability until the shares are fully paid. In this case, the company received the entire money due except for the first and final call money. The accounting treatment for this transaction would be as follows:

Application Money: The company received ₹50 per share on application, which is a liability until the shares are fully paid. The company would recognize this amount as a liability in the balance sheet.
Allotment Money: The company received ₹30 per share on allotment, which is also a liability until the shares are fully paid. The company would recognize this amount as a liability in the balance sheet.
First Call Money: The company received ₹20 per share on the first call, which is a liability until the shares are fully paid. The company would recognize this amount as a liability in the balance sheet.
Final Call Money: The company did not receive the final call money, which is ₹20 per share. This amount would be recognized as a liability in the balance sheet, but it would not be due until the final call.

The company's actions have several implications:

Under-subscription: The public subscribed for only 10,000 shares, which means that the company did not receive the full amount of ₹1,20,000 (12,000 shares x ₹100 per share) that it had expected. This could lead to a shortage of funds for the company.
Unpaid Share Capital: The company has unpaid share capital of ₹20,000 (10,000 shares x ₹2 per share) due to the non-payment of the final call money.
Liability: The company has a liability of ₹2,00,000 (10,000 shares x ₹20 per share) due to the non-payment of the first and final call money.

In conclusion, the equity share issue of Kantara Company Ltd is a complex transaction that requires careful analysis. The company received the entire money due except for the first and final call money, which has implications for the company's financial position. The accounting treatment for this transaction involves recognizing the proceeds from the issue as a liability until the shares are fully paid. The company's actions have several implications, including under-subscription, unpaid share capital, and liability.

Based on the analysis, the following recommendations are made:

Full Payment of Share Capital: The company should ensure that the full payment of share capital is made by the shareholders to avoid any liability.
Provision for Unpaid Share Capital: The company should make a provision for unpaid share capital in the balance sheet to reflect the true financial position of the company.
Disclosure of Financial Position: The company should disclose its financial position, including the unpaid share capital and liability, in the financial statements to provide transparency to the stakeholders.

Indian Accounting Standards (Ind AS): The Indian Accounting Standards (Ind AS) provide guidance on the accounting treatment for equity share issues.
Companies Act, 2013: The Companies Act, 2013 provides guidance on the issue of equity shares and the payment of share capital.

Equity Share: An equity share is a type of share that represents ownership in a company.
Application Money: Application money is the amount paid by a shareholder on application for shares.
Allotment Money: Allotment money is the amount paid by a shareholder on allotment of shares.
First Call Money: First call money is the amount paid by a shareholder on the first call for payment of share capital.
Final Call Money: Final call money is the amount paid by a shareholder on the final call for payment of share capital.
Kantara Company Ltd: A Case Study of Equity Share Issue and Accounting Treatment - Q&A

In our previous article, we discussed the equity share issue of Kantara Company Ltd, where 12,000 equity shares of ₹100 each were issued at a premium. The shares were payable as ₹50 on application, ₹30 on allotment, and ₹20 on the first and final call. However, the public subscribed for only 10,000 shares, and the company received the entire money due except for the first and final call money. In this article, we will answer some frequently asked questions related to this case study.

Q1: What is the accounting treatment for the application money received by the company?

A1: The company recognizes the application money as a liability until the shares are fully paid. In this case, the company received ₹50 per share on application, which is a liability until the shares are fully paid.

Q2: What is the accounting treatment for the allotment money received by the company?

A2: The company recognizes the allotment money as a liability until the shares are fully paid. In this case, the company received ₹30 per share on allotment, which is a liability until the shares are fully paid.

Q3: What is the accounting treatment for the first call money received by the company?

A3: The company recognizes the first call money as a liability until the shares are fully paid. In this case, the company received ₹20 per share on the first call, which is a liability until the shares are fully paid.

Q4: What is the accounting treatment for the final call money not received by the company?

A4: The company recognizes the final call money as a liability until the shares are fully paid. In this case, the company did not receive the final call money, which is ₹20 per share. This amount would be recognized as a liability in the balance sheet, but it would not be due until the final call.

Q5: What are the implications of the company's actions?

A5: The company's actions have several implications, including under-subscription, unpaid share capital, and liability. The company did not receive the full amount of ₹1,20,000 (12,000 shares x ₹100 per share) that it had expected, which could lead to a shortage of funds for the company. The company also has unpaid share capital of ₹20,000 (10,000 shares x ₹2 per share) due to the non-payment of the final call money, and a liability of ₹2,00,000 (10,000 shares x ₹20 per share) due to the non-payment of the first and final call money.

Q6: What are the recommendations for the company?

A6: Based on the analysis, the following recommendations are made:

Full Payment of Share Capital: The company should ensure that the full payment of share capital is made by the shareholders to avoid any liability.
Provision for Unpaid Share Capital: The company should make a provision for unpaid share capital in the balance sheet to reflect the true financial position of the company.
Disclosure of Financial Position: The company should disclose its financial position, including the unpaid share capital and liability, in the financial statements to provide transparency to the stakeholders.

Q7: What are the relevant accounting standards and laws that apply to this case study?

A7: The relevant accounting standards and laws that apply to this case study are:

Indian Accounting Standards (Ind AS): The Indian Accounting Standards (Ind AS) provide guidance on the accounting treatment for equity share issues.
Companies Act, 2013: The Companies Act, 2013 provides guidance on the issue of equity shares and the payment of share capital.