Page 14 - DEBK12

8.4 Double Entry Book Keeping—CBSE XII

CHAPTER SUMMARY

• A company is an organisation formed by an association of persons through a process of law for undertaking
(usually) a business venture.
The essential characteristics of a company are:

(i) It is a voluntary association of individuals coming into existence through a process of law for under taking
(usually) a business.
(ii) It is an artificial legal person created by the process of law.
(iii) It has a separate legal entity.
(iv) It has a perpetual succession, i.e., it can be created and wound up by law only.
(v) It may or may not have a common seal, i.e., official seal of the company.
(vi) The shares of a company can be transferred from one person to another.

• Share Capital
(i) Authorised Share Capital is the maximum amount up to which a company can issue shares.
(ii) Issued Share Capital is a part of authorised share capital that is issued by the company for subscription.
(iii) Subscribed Share Capital is a part of issued share capital that is subscribed.

Subscribed Share Capital is shown as:
— Subscribed and fully paid-up.
— Subscribed but not fully paid-up.
· Called-up amount is the amount of nominal value of share that has been called-up for payment.
· Paid-up amount is the amount that is received by the company.
(iv) Reserve Capital is a part of subscribed share capital that a company resolves, by a Special Resolution, not to
call except in the event and for the purpose of company being wound up.

• Types of Shares: Shares that can be issued are Preference Shares or Equity Shares.
Preference Shares are the shares that carry preferential right as to dividend at fixed rate and preferential
right as to repayment of capital.
Equity Shares are the shares that are not Preference Shares.

Shares can be issued (i) for cash and (ii) for consideration other than cash.
Further, the shares can be issued for cash: (i) at par, or (ii) at premium.
• Shares can be Issued for consideration other than cash: (i) at par, or (ii) at premium.
• Oversubscription of Shares means shares applied for are more than the shares offered for subscription.

• Undersubscription of Shares means shares applied for are less than the shares offered for subscription.
• Pro rata Allotment means allotment of shares in a fixed proportion. Pro rata allotment takes place only when
the shares are oversubscribed.