The difference between 'subscribed capital' and 'called up capital' is called
Understanding Share Capital Concepts
In the world of company finance, understanding different types of share capital is crucial. A company raises funds by issuing shares, and the total value of these shares is categorized based on different stages of the issuance and payment process. This question asks about the specific difference between 'subscribed capital' and 'called up capital'. Let's break down these terms.
What is Subscribed Capital?
Subscribed capital is the part of the issued share capital for which applications have been received from the public and allotted to them. It represents the nominal value of shares that investors have agreed to buy. When a company makes an offer to the public for its company shares, the portion that the public agrees to take up is the subscribed capital.
What is Called-up Capital?
Called-up capital is the portion of the subscribed capital that the company has formally asked the shareholders to pay. A company doesn't always demand the full nominal value of a share upfront. It may call for payment in installments as and when needed. So, called-up capital represents the total amount that the company has legally demanded from its shareholders on the shares they have subscribed for. This is a key concept in company shares and related accounting terms.
The Difference: Uncalled Capital
The question asks for the difference between subscribed capital and called-up capital. This difference represents the amount that the company has the right to demand from shareholders in the future, but has not yet asked for payment. This portion is known as Uncalled capital. It is the part of the nominal value of the subscribed shares that remains to be called up by the company from its shareholders.
Mathematically, the relationship can be shown as:
\(\text{Uncalled Capital} = \text{Subscribed Capital} - \text{Called-up Capital}\)
Therefore, the difference between subscribed capital and called-up capital is indeed Uncalled capital. This is a fundamental concept in accounting terms related to share capital management.
Other Relevant Capital Terms
Let's briefly look at the other options provided to understand why they are not the correct answer in this context:
- Calls in Arrear: This is the amount that has been called up by the company but has not yet been paid by the shareholders. It represents defaulted payments on called-up capital.
- Calls in Advance: This is the amount paid by shareholders voluntarily, which is over and above the amount currently called up by the company.
- Paid up Capital: This is the actual amount of money received by the company from its shareholders against the shares allotted. It is the portion of the called-up capital that has been paid by the shareholders. In other words, Paid-up Capital = Called-up Capital - Calls in Arrear. It is also a vital component of share capital reporting.
Based on the definitions, the difference between subscribed capital and called-up capital is precisely the portion that has not yet been called up, which is Uncalled capital. This is a critical distinction when analyzing a company's financial structure and its Uncalled capital serves as a reserve that the company can tap into if needed in the future.
Important Questions from Shares
Which of the following distinction(s) is/are not correct between public issue and rights issue?
(A) In public issue, applications for shares are invited from the general public and in rights issue, the shares are offered to existing shareholders.
(B) In public issue there is no question of any over-subscription and in rights issue the shares may be under subscribed or over subscribed leading to prorata allotment.
(C) The price of public issue is generally less than the market price and in rights issue, the price is deliberately made less than the market price.
(D) In a public issue, the communication of the issue is through prospectus or advertisements and in a rights issue the communication is between the company and the existing members of the company.
Choose the most appropriate answer from the options given below:
Match List I with List II:
List I List II (A) Bonus shares (I) Invitation to existing shareholders to purchase additional new shares (B) Demat shares (II) Issue is made to existing members free of charge (C) Right issue (III) Share issues by a company to its employees/directors at a discount for providing know-how (D) Sweat equity share (IV) Shares in electronic form Choose the correct answer from the options given below:
Identify the correct sequence of activities involved in the process of buy back of shares.
A. Letter of offer to the shareholders.
B. Opening of bank account.
C. Approval for Extra-ordinary General Meeting.
D. Convening board meeting.
E. Declaration of Solvency.
Choose the correct answer from the options given below:
Identify the correct statements in context of equity financing.
A. Borrowing limit increases as a consequence of increase in number of shares.
B. Ordinary shares are generally not redeemable.
C. Issue of new shares dilutes the EPS if the profits do not increase immediately in proportion to increase in number of shares.
D. A company is not legally oblidged to pay dividend.
E. Ordinary shares are less riskier from investor's perspective.
Choose the correct answer from the options given below:
Which of the following order is followed in the issue of shares under the "Fixed Price Offer Method"?
A. Issue of a prospectus
B. Receipt by the company of application for share
C. Selection of merchant banker
D. Issue of share certificates
E. Allotment of shares to the applicant
Choose the correct answer from the options given below
