Alteration of Share Capital
The following points highlight the five ways of alteration of share capital.
Share Capital Alteration Way #1 Increase its share capital by making fresh issue. If a company wants to increase its capital beyond the amount of its authorised capital, it must increase its authorised capital by the amount of new shares.
Entries for the purpose will be the same as in the case of original issue of shares.
Share Capital Alteration Way #2 Consolidate and divide all or any of its share capital into shares of larger denomination.
Journal entry, for this purpose, will be as under:
(i) Share Capital (say Rs. 10) A/c Dr.
To Share Capital (Say Rs. 100) A/c
By this consolidation, only the number of shares are reduced but the amount of share capital will remain unchanged.
Share Capital Alteration Way #3 Subdivide all or any of its share capital into shares of smaller denomination.
Entry will be:
(ii) Share Capital (say Rs. 100) A/c Dr.
To Share Capital (say Rs. 10) A/c
In this case, only the number of shares are increased whereas the amount of share capital will not make any change.
Share Capital Alteration Way #4 Convert all or any of fully paid-up shares into stock or reconvert stock into fully paid-up shares of any denomination.
The entries will be:
(iii) Equity Share Capital A/c Dr.
To Equity Stock A/c Or, vice versa, in the opposite case.
Share Capital Alteration Way #5 Cancel unissued share capital (not taken or agreed to be taken by any person) and thereby diminish the amount of share capital. No journal entry is required for this purpose. Only the details of authorised capital are to be incorporated in the next Balance Sheet. It should be remembered that if reduction results in a decrease of paid-up capital, it requires the approval of Court which are discussed subsequently under the head ‘Capital Reduction’.
X Ltd., having a share capital of Rs. 5,00,000 divided into 5,000 shares of Rs. 100 each, resolves to consolidate the shares into 50,000 shares of Rs. 10 each. Show the entries.
X Ltd. has a share capital of Rs. 2,00,000 divided into 2,000 shares of Rs. 100 each of which Rs. 80 per share called-up and paid-up.
Show the entries under each of the following conditions:
(i) If X Ltd. resolves to subdivide the shares into 20,000 shares of Rs. 10 each, of which Rs. 8 per share paid-up and called-up.
(ii) If X Ltd. resolves to convert its 2,000 shares of Rs. 100 each (assume fully-paid) into Rs. 2,00,000 worth of stock.