Arrange following steps in sequence with regard to the procedure of share issue, forfeiture and reissue. A. Receipt of Applications B. Allotment of shares C. Issue of shares D. Forfeiture of shares E. Reissue of shares Choose the correct answer from the options given below:
C, A, B, D, E
Understanding the Sequence of Share Issue, Forfeiture, and Reissue Steps
The process of a company issuing shares to the public, and subsequent actions like forfeiture and reissue, follows a specific sequence of steps. It's important to understand this order for accounting and company law purposes.
Analyzing the Given Steps
Let's look at the steps provided in the question:
- A. Receipt of Applications: This is when potential investors apply for shares.
- B. Allotment of shares: This is the process where the company decides and allocates shares to applicants.
- C. Issue of shares: This is the initial decision and offer by the company to make shares available to the public.
- D. Forfeiture of shares: This happens when a shareholder fails to pay call money, and the company cancels their shares.
- E. Reissue of shares: Forfeited shares can be sold again by the company.
Determining the Correct Sequence of Share Process
Let's arrange these steps in a logical order from the beginning of the share offering process to potential later events like forfeiture and reissue.
- The process begins when a company decides to offer its shares to the public. This is the stage of Issue of shares. The company prepares a prospectus and invites applications. (Step C)
- After the issue is announced, interested investors respond by applying for the shares. This step is the Receipt of Applications. (Step A)
- Once applications are received, the company reviews them and decides which applicants will be allocated shares and how many. This is known as the Allotment of shares. Shares are officially assigned to the successful applicants. (Step B)
- Subsequent steps might involve calling for further payments (call money). If a shareholder fails to pay these calls, the company has the right to cancel their shares. This is called Forfeiture of shares. This step only occurs if there is non-payment after allotment. (Step D)
- Shares that have been forfeited can later be sold again by the company to new investors. This process is the Reissue of shares. This step only occurs after shares have been forfeited. (Step E)
Therefore, the correct chronological sequence of these steps is Issue of shares, Receipt of Applications, Allotment of shares, Forfeiture of shares, and finally, Reissue of shares.
Sequence Summary
Putting it all together, the sequence is:
C (Issue) → A (Applications) → B (Allotment) → D (Forfeiture) → E (Reissue)
| Sequence Number | Step Code | Description |
|---|---|---|
| 1 | C | Issue of shares |
| 2 | A | Receipt of Applications |
| 3 | B | Allotment of shares |
| 4 | D | Forfeiture of shares |
| 5 | E | Reissue of shares |
This order represents the typical flow from announcing the availability of shares through the application and allocation process, extending to potential consequences of non-payment and subsequent reissue.
Revision Table: Key Terms in Share Transactions
| Term | Explanation |
|---|---|
| Share Issue | The process where a company offers its shares to the public or existing shareholders to raise capital. |
| Share Application | An offer made by a person to the company to buy a certain number of shares. |
| Share Allotment | The process by which a company accepts the application for shares and allocates shares to the applicants. |
| Share Forfeiture | Cancellation of shares by the company due to non-payment of calls by the shareholder. |
| Share Reissue | Selling of forfeited shares by the company to new investors. |
Additional Information: Share Issue Process Details
The Issue of shares process often starts with approving the issue, filing documents like the prospectus, and marketing the issue. Receipt of Applications involves collecting application forms and money. Allotment of shares is a crucial step done after the subscription period closes; shares are allocated, and allotment letters are sent out. If a shareholder fails to pay money due on calls, reminders are sent, and only after following the prescribed procedure can the board proceed with Forfeiture of shares. Forfeited shares can be reissued at a discount, but the discount cannot exceed the amount already received on the forfeited shares. Any surplus on reissue is transferred to the Capital Reserve.
Understanding the sequence of these steps is vital for recording share capital transactions accurately in the company's books of account.
Important Questions from Accounting for Share Capital
Arrange the following in the correct order:
(A) Subscribed Capital
(B) Issued Capital
(C) Authorised Capital
(D) Paid-up Capital
(E) Called-up Capital
Choose the correct answer from the options given below:
Libraries run by charitable trusts are an example of:
Oversubscription is a situation where the:
Match List-I with List-II and choose the correct answer from the options given below:
List-I
(Name of account to be debited or credited, when shares are forfeited)List-II
(Amount to be debited or credited)(A) Share Capital Account (I) Debited with amount not received (B) Share Forfeited Account (II) Credited with amount not received (C) Calls-in-arrears Account (III) Credited with amount received towards share capital (D) Securities Premium Account (IV) Debited with amount called up 400 shares of ₹ 50 each issued at par were forfeited for non-payment of final call of ₹ 10 per share. These shares were reissued at ₹ 45 per share as fully paid-up. The amount transferred to capital reserve is:
