Study Material

Aspects of Corporate Accounting

(22BCMCC403)
B.COM. -Semester-4

Ms. Mahek Raval, Department of Commerce

Department offered by FoBC
 ASPECTS OF CORPORATE ACCOUNTING (22BCMCC403)
B.COM.

ASPECTS OF CORPORATE ACCOUNTING

(22BCMCC403)

UNIT-1: FUNDAMENTAL AND

ADVANCED CONCEPT OF SECURITIES
Unit Content
• Issue of Shares at par and premium
• Issue of Debentures at par, premium and discount
• Issue of Bonus Shares and Right Shares
• Buyback of Shares
• Alteration in share capital including consolidation and split of
shares (Only Concept)
• Illustrations

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1 INTRODUCTION
Company form came into existence after industrial revolution due to limitations of
proprietorship and partnership firms in carrying out business on a large scale. In the
modern age capital is required for the business. So, company collects its own capital
from several persons. Joint stock company is an association of persons and has an
objective of carrying out some business for profit. Company has a separate legal
existence by law. Incorporation, management and winding up of company are governed
by the provisions of companies Act.

1.1 SHARE AND SHARE CAPITAL :

Capital of company is called Share Capital, which can be divided into transferable small
denominations. Each such unit of denomination is known as Share.

To raise capital, company issues prospectus as required by law and invites public to
purchase its shares. Those who purchase shares of company are called members or
shareholders of company. As long as the share(s) are held by this person, he is called
shareholder or co-owner of the company. For shareholders, who has purchased or is in
possession of the shares, indicate the proportion (ratio) of his ownership in the company.

A company may issue two types of shares : (1) Preference share and (2) Equity share.
(1) Preference Share : Preference share is one which gives preferential right to its
holder for receiving the dividend at a specified rate before any dividend paid to equity
share holder. When the company goes into liquidation the preference share holder has
the preferential right for repayment of capital before the equity shareholder.

(2) Equity Share or Ordinary Share : The shares, which are not preference shares,
are known as equity shares.

• Equity shareholders have voting rights in the company's meeting.

• Dividend on equity shares which is decided by the board of directors and
approved by the shareholders in the general meeting is given only out of the
profit remaining after distribution of dividend on preference shares at fixed rate.

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• Company gives a dividend on equity shares every year on the basis of current
year's profit, profit of the previous years, accumulated reserves, possibilities of
future profits and also management policy of the company.
• At the time of liquidation of company, from the balance funds equity
shareholders have right of repayment of capital only after returning preference
share capital.
• Equity share capital is known as principal share capital of the company.
According to current provisions of the companies act, the equity share should
have a minimum face value of Rs. 1. In the present scenario, most of the company
have face value of each share is Rs. 1 or Rs. 10 or Rs. 100.

2 TYPES OF SHARE CAPITAL

(i) Authorised/Nominal/Registered Capital : The maximum amount which a
company can accumulate by share capital during its lifetime, is called authorised
share capital. It is stated in the memorandum of association and also stated at
the time of registration. Hence, it's called registered capital. If there is a need to
increase the authorised capital of a company in future, the same can be increased
by passing a resolution in the general meeting of shareholders of company and
also as per provisions of companies act. Authorised capital is also called
nominal capital. For example, authorised capital of ABC limited is 1,00,00,000
(one crore) divided into 10,00,000 equity shares of Rs. 10 each.
(ii) Issued Capital : The share capital issued by issue of shares out of authorised
capital based on the need of the company in full or part is known as issued
capital. For example, if 7,00,000 shares are issued out of authorised capital of
10,00,000 shares of 10 each, 70,00,000 is known as issued capital of the
company, being 7,00,000 shares of 10 each. Issued capital should not be more
than authorised capital.
(iii) Subscribed Capital : The value of shares for which applications are received
out of issued share capital is known as subscribed capital. Subscribed share
capital can be equal to or less than the issued capital. Even if share applications

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are received for more number of shares than the issued shares, company can
allot shares only to the extent of share issued.
(iv) Called up Capital : Company can call up an amount equal to face value of
shares or lesser amount from the applicants to whom the share are allotted.
When company calls for lesser amount of the share, the balance amount can be
called in future from the shareholders. Such amount called up on shares is
known as called-up capital. For example, if company has called up 6 per share
on 7,00,000 share of 10 each, the called up capital will be 42,00,000.
(v) Uncalled Capital : It is a part of subscribed capital. A capital which is not yet
called from the shareholders by the board of directors of the company is called
uncalled capital. Uncalled capital is difference between subscribed capital and
called up capital. E.g. If the company has called for 6 per share on a share of
face value of 10 each than 4 per share is considered as uncalled capital.
(vi) Paid up Capital : The amount received by the company from shareholders out
of called up capital is known as paid up capital. If shareholder does not pay the
amount called for any reason, there will be difference between the called up
capital and paid up capital. For example, called up capital is 42,00,000 (7,00,000
share X 6 per share). If a shareholder holding 1000 shares could not pay first
called money of 2 per share, than paid up capital shall be 41,98,000 (Rs.
42,00,000 — 2000).

2.1 EXERCISE
Authorised capital of a limited company is divided into 2,50,000 equity shares of
10 each. Out of this, the company offerred 2,00,000 equity shares for public
subscription. Company received applications for 1,90,000 equity shares against the
public subscription. Company called up total 8 per share and all the called up
amounts were duly received. From the above information, show classification of
share capital.

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Ans. : Authorised capital :

2,50,000 equity shares of 10 each 25,00,000

Issued capital :

2,00,000 equity shares of 10 each 20,00,000

Subscribed capital :

1,90,000 equity shares of 10 each 19,00,000

Called up and paid up capital :

1,90,000 equity shares of 10 each,

8 per share called up and paid up 15,20,000

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3 EXAMPLES
3.1 ISSUE OF SHARES AT PAR

Que 1 Shailja company ltd. issued 2,40,000 equity shares of Rs. 10 each, on which
the amounts called up was as under :
On application Rs. 3 per share
On allotment Rs. 3 per share
On first call Rs. 2 per share
On final call Rs. 2 per share
Amounts called on allotment and calls were received in full on time. Applications
were received for all shares. Pass journal entries in the books of company.

Que 2 Dev company ltd. issued 24,000 equity shares of Rs. 100 each, on which the
amounts called up was as under :
On application Rs. 30 per share
On allotment Rs. 10 per share
On first call Rs. 30 per share
On final call Rs. 30 per share
Amounts called on allotment and calls were received in full on time. Applications
were received for all shares. Pass journal entries in the books of company.

3.2 ISSUE OF SHARES AT PREMIUM

Que 3 Nency Ltd. of Mumbai issued 8000 equity shares of Rs. 10 each at a premium of
Rs. 5 per share. The amount was called up as under :

With application Rs. 7 per share (Including premium of Rs. 5)

With allotment of Rs. 5 per share

With final call Rs. 3 per share

Company received applications for 8500 equity shares. Excess applications received
were rejected and amount received with applications on this was refunded. Amount due
on allotment and final call were duly called up. All the amount due on all the shares
were duly received. Pass necessary journal entries in the books of company for above
transactions.

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Que 4 Nisarg Pharma Ltd. of Gandhinagar issued 80,000 equity shares of Rs. 10 each
at a premium of Rs. 40 per share. The amount was called up as under :

With application Rs. 14 per share (Including premium of Rs. 10)

With allotment of Rs. 33 per share (Including premium Rs. 30)

With final call Rs. 3 per share

Company received applications for 85,000 equity shares. Excess applications received
were rejected and amount received with applications on this was refunded.

Amount due on allotment and final call were duly called up. All the amount due on all
the shares were duly received.

Pass necessary journal entries in the books of company for above transactions.

4 ISSUE OF DEBENTURES AT PAR, PREMIUM AND

DISCOUNT
4.1 ISSUE OF DEBENTURES AT PAR
Que 5 Ashok Mills Limited issued 8000 debentures of Rs. 100 each for public
subscription. Interest is to be paid at the rate 8 % p.a. on debentures. The amount were
called up per debenture as under :

With application Rs. 30

On allotment Rs. 40

On call Rs. 30

Application were received by company of 10,000 debentures. After allotment of 8000

debentures, rejected excess applications of debentures and refunded the money to
applicants. All the amounts due on allotment and call were duly received.

4.2 ISSUE OF DEBENTURES AT PREMIUM:

When the debentures are issued at more than their face value, they are said to have been
issued at premium. For example, if a debenture of Rs. 100 is issued at Rs. 130, then it
us called, this debenture issued at premium of Rs. 30.

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As per Companies Act, 2013, premium amount on debentures is transfered to 'Securities

Premium Reserve Account'.

Like share premium, debenture premium is also a capital profit and hence the same can
not be used for distribution of dividend but can be used for writing off capital expenses
or loss like discount on issue of debentures, premium on redemption of debentures,
preliminary expenses, goodwill, patent etc.

"Securities Premium Reserve A/c" is shown on the equity and liabilities side of the
balance sheet under the head "Reserve and Surplus".

Que 6 Gujarat Limited issued 5000; 10 % debentures of Rs. 200 each at premium of 20
%. On which the amount per debenture was called up as under :

Rs. 60 on application

Rs. 100 on allotment (including premium)

Rs. 80 on final call

Applications were received for a total of 8000 debentures, from these excess
applications were rejected and refunded the money received thereon. All the amounts
due on allotment and call were duly received. Pass journal entries in the books of the
company.

Write journal entries in the books of the company.

4.3 ISSUE OF DEBENTURES AT DISCOUNT :

When the company issues debentures at a price which is less than their face value or
nominal value, the debentures are said to have been issued at a discount. For example,
a debenture of Rs. 100 face value is issued at 90, here 10 would be discount.

Amount of discount on debentures is debited to 'Discount on Debentures A/c'.

There is no restriction in the companies act as regards the maximum discount which

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can be given on the issue of the debentures. If there is no restriction in the Articles of
Association of the company, debentures can be issued at a discount.

If there is no clarification, discount on debenture is recorded at the time of debenture

allotment entry.

Que 7 Rajkot Oil Limited issued 8000 10 % debentures of Rs. 100 each at a price of
Rs. 90 per debenture. The amount per debenture was payable as under :

Rs. 30 with application

Rs. 40 on allotment (after discount)

Rs. 20 on call

The company received application of 8000 debentures. The company received the full
money called on allotment. Except on 300 debentures, the company received full
amount 'due on call'. Pass necessary journal entries in the books of company.

5 CALLS IN ARREARS
When company makes call for allotment money or call money and if some shareholder
fails to pay such money on due date, such unpaid amount is transferred to "Calls-in-
arrears" account.

Que 8 Pranav Limited of Bhavnagar issued 18,00,000 equity shares of Rs. 10 each. The
company received applications for 20,00,000 shares. Shares were allotted at meeting of
board of directors.

Excess shares applications were rejected and the application money thereon was
refunded to the applicants. Amount on shares was called up as under :

On application Rs. 3 per share

On allotment Rs. 2.50 per share

On first call Rs. 2 per share

On final call Rs. 2.50 per share

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Yogesh who was allotted 1600 shares, could not pay first and final call money. Where,
Nilam who was allotted 1400 shares could not pay final call money. Except this, all the
amounts due from all the shareholders were received on due dates. Yogesh and Nilam
paid calls-in-arrears amounts at a later date.

Pass necessary journal entries relating to above transactions in the books of the
company.

Que 9 Payal Limited of Vadodara issued 1,80,000 equity shares of Rs. 10 each. The
company received applications for 2,00,000 shares. Shares were allotted at meeting of
board of directors.

Excess shares applications were rejected and the application money thereon was
refunded to the applicants. Amount on shares was called up as under :

On application Rs. 3 per share

On allotment Rs. 2.50 per share

On first call Rs. 2 per share

On final call Rs. 2.50 per share

Kishan who was allotted 3200 shares, could not pay first and final call money. Where,
Krish who was allotted 700 shares could not pay final call money. Except this, all the
amounts due from all the shareholders were received on due dates. Kishan and Krish
paid calls-in-arrears amounts at a later date.

Pass necessary journal entries relating to above transactions in the books of the
company.

6 FORFEITED SHARES
Que 10 Naznin Textiles Limited issued 12,00,000 equity shares of Rs. 10 each. On
which amount was payable as under :

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On application Rs. 4 per share

On allotment Rs. 4 per share and

On final call Rs. 2 per share

Company received application for 15,50,000 equity shares from public. Excess
applications were rejected and amount paid on application thereon was refunded.

Harun, who was allotted 8000 shares, had not paid allotment and final call amount.

Salim, who was allotted 2000 shares, had not paid amount on final call.

Company forfeited shares of Harun and Salim and all the forfeited shares were reissued
at Rs. 7.50 per share as fully paid up. All these shares were purchased by Shahrukh.

Pass necessary journal entries in the books of company to record above transactions .

7 ISSUE OF BONUS SHARES AND RIGHT SHARES

7.1 BONUS SHARES
A bonus share may be defined as issue of shares at no cost to current shareholders in a
company, based upon the number of shares that the shareholder already owns. In other
words, no new funds are raised with a bonus issue. While the issue of bonus shares
increases the total number of shares issued and owned, it does not increase the net worth
of the company. Although the total number of issued shares increases, the ratio of
number of shares held by each shareholder remains constant.

Bonus issue is also known as 'capitalisation of profits'. Capitalisation of profits refers

to the process of converting profits or reserves into paid up capital. A company may
capitalise its profits or reserves which otherwise are available for distribution as
dividends among the members by issuing fully paid bonus shares to the members.

If the subscribed and paid-up capital exceeds the authorised share capital as a result of
bonus issue, a resolution shall be passed by the company at its general body meeting
for increasing the authorised capital. A return of bonus issue along with a copy of

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resolution authorising the issue of bonus shares is also required to be filed with the
Registrar of Companies.

7.1.1 PROVISIONS OF THE COMPANIES ACT, 2013

Section 63 of the Companies Act, 2013 deals with the issue of bonus shares.
According to Sub-section (1) of Section 63, a company may issue fully paid-up
bonus shares to its members, in any manner whatsoever, out of—

(i) its free reserves*;

(ii) the securities premium account; or
(iii) the capital redemption reserve account: Provided that no issue of bonus
shares shall be made by capitalising reserves created by the revaluation
of assets.

Que 11 Jayanti Ltd. has an authorised capital of Rs. 8,00,000 in equity shares of Rs.
100 each of which 4,000 shares were issued to the public in 2010. It is decided on 1st
April, 2017 that 1,000 unissued shares are to be issued to the existing shareholders as
fully paid bonus shares and a part of the company's Reserve Fund amounting to Rs.
5,00,000 should be utilised in this connection. You are required to give journal entries,
recording the above transactions related to bonus issue.

Que 12 A limited company with a subscribed capital of Rs. 10,00,000 in equity shares
of Rs.10 each has resolved to utilis the balance of Securities Premium Account to issue
fully paid bonus shares in the ratio of one equity share for every five equity shares held.

Show journal entries in the books of the company.

Que 13 The Balance sheet of Mayank Ltd. As on 31st March, 2023 is as follows :

Particulars Note Amount (Rs.)

no.
I. Equity and Liabilities
1. Shareholder’s Fund

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a) Share Capital 1 6,00,000

b) Reserves and Surplus 2 11,00,000
c) Money received against share warrants NIL
2. Share application money pending allotment NIL
3. Non- Current Liabilities
a) Long term borrowings – 6.5% Debentures NIL
4. Current Liabilities
a) Long term Borrowings
b) Trade Payables 3,00,000
Total 20,00,000
II. Assets
1. Non – Current Assets
a) Fixed Assets
i. Tangible Assets 3 17,00,000
b) Non-Current Investments
2. Current Assets
a) Current Investment NIL
b) Inventories NIL
c) Trade receivables 1,00,000
d) Cash and Cash equivalent 2,00,000
Total 20,00,000

Notes to Account

1. Share Capital

Particulars Amount Rs.

Authorized Capital
1,50,000 equity shares at Rs. 10 each 15,00,000

Issued Subscribed and Paid up Capital

80,000 Equity Shares at Rs. 10 each, Rs. 7.5 paid up 6,00,000
80,00,000
2. Reserves and Surplus

Particulars Amount Rs.

Security Premium 1,00,000
Capital Redemption Reserve 4,00,000
General Reserve 1,50,000
Plant Revaluation Reserve 4,50,000
11,00,000

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The Company wanted to issue bonus shares to its shoulders at 1 Share for every two
shares held. Necessary resolutions were passed; requisite legal requirement to complied
with.

You are required to Pass journal entries in the books of Company.

7.2 RIGHT ISSUE

A rights issue is an invitation to existing shareholders to purchase additional new shares
in the company. This type of issue gives existing shareholders securities called rights.
With the rights, the shareholder can purchase new shares at a discount to the market
price on a stated future date. The company is giving shareholders a chance to increase
their exposure to the stock at a discount price.

A rights issue is an invitation to existing shareholders to purchase additional new shares

in the company. This type of issue gives existing shareholders securities called rights.
With the rights, the shareholder can purchase new shares at a discount to the market
price on a stated future date. The company is giving shareholders a chance to increase
their exposure to the stock at a discount price.

Que 14 The following is the abstracts of Balance Sheet of T Ltd. as on 31.3.2017

Issued and Paid-up Capital 20,000 Equity Shares of Rs. 10 each fully paid-up = Rs.
2,00,000

Reserves and Surplus

Securities Premium Rs. 30,000

General Reserve Rs. 1,00,000

Profit and Loss Account Rs. 80,000

At the annual general meeting of the company, the following resolution were passed

(i) to issue 2 bonus shares for every five shares held as on date; and

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(ii) to give existing shareholders the option to purchase three Rs. 10 Rights shares at
Rs. 14 per share for every five shares held before the issue of bonus shares.

All the shareholders took up the option of Rights shares and Bonus shares were duly
allotted.

Show appropriate journal entries to record the above transactions in the books of T Ltd.

Que 15 Fitness Ltd. is planning to raise funds by making rights issue of equity shares
to part finance its expansion. the existing equity share capital of the company is 40 lakhs
and the market value is 45 per share. The company offered to its shareholders the right
to buy 2 shares of 10 each at 12 per share for every 5 shares held.

You are required to calculate : (i) Theoretical market price per share after the rights
issue; (ii) The value of the rights

8 BUYBACK OF SHARES
Buy-back of shares means purchase of its own shares by a company. When shares are
bought back by a company, they have to be cancelled by the company. Thus, shares
buy-back results in decrease in share capital of the company. A company cannot buy its
own shares for the purpose of investment. A company having sufficient cash may decide
to buy-back its own shares. The following may be the objectives/advantages of Buy-
back of shares:

(a) to increase earnings per share if there is no dilution in company's earnings

as the buy-back of shares reduces the outstanding number of shares.

(b) to increase promoters holding as the shares which are bought back are
cancelled.

(c) to discourage others to make hostile bid to take over the company as the
buy-back will increase the promoters holding.

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(d) to support the share price on the stock exchanges when the share price, in
the opinion of company management, is less than its worth, especially in the
depressed market.

(e) to pay surplus cash to shareholders when the company does not need it
for business.

The Companies Act, 2013 under Section 68 (1) permits companies to buy-back their
own shares and other specified securities out of:

(i) its free reserves; or

(ii) the securities premium account; or

(iii) the proceeds of the issue of any shares or other specified securities.

Note: No buy-back of any kind of shares or other specified securities shall be made out
of the proceeds of an earlier issue of the same kind of shares or same kind of other
specified securities. For example, if equity shares are to be bought-back, then,
preference shares may be used for the purpose.

The other important provisions relating to the buy-back are:

(1) Section 68 (2) further states that no company shall purchase its own shares or other
specified securities unless—

(a) the buy-back is authorised by its articles;

(b) a special resolution has been passed in general meeting of the company
authorising the buy-back;

(c) the buy-back must be equal or less than twenty-five per cent of the total
paid-up capital and free reserves of the company:

(d) Further, the buy-back of shares in any financial year must not exceed 25%
of its total paid-up capital and free reserves.

(e) the ratio of the debt owed by the company (both secured and unsecured)
after such buy-back is not more than twice the total of its paid-up capital and its
free reserves.

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(f) all the shares or other specified securities for buy-back are fully paid - up;

(3) Every buy-back shall be completed within twelve months from the date of passing
the special resolution, or the resolution passed by the board of directors.

(4) The buy-back may be—

(a) from the existing security holders on a proportionate basis; or

(b) from the open market; or

(c) by purchasing the securities issued to employees of the company pursuant to

a scheme of stock option or sweat equity.

Que 16 The Balance sheet of Kashish Ltd. As on 31st March, 2023 is as follows :

Particulars Note Amount (Rs.)

no.
III. Equity and Liabilities
5. Shareholder’s Fund
d) Share Capital 1 80,00,000
e) Reserves and Surplus 2 42,33,000
f) Money received against share warrants NIL
6. Share application money pending allotment NIL
7. Non- Current Liabilities
c) Long term borrowings – 6.5% Debentures NIL
8. Current Liabilities
c) Long term Borrowings
d) Trade Payables NIL
Total 1,22,33,000
IV. Assets
3. Non – Current Assets
b) Fixed Assets
ii. Tangible Assets 3 70,00,000
d) Non-Current Investments
4. Current Assets
e) Current Investment 2,33,000
f) Inventories NIL
g) Trade receivables NIL
h) Cash and Cash equivalent 50,00,000
Total 1,22,33,000

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Notes to Account

1. Share Capital

Particulars Amount Rs.

Authorized Capital
10,00,000 equity shares at Rs. 10 each 1,00,00,000

Issued Subscribed and Paid up Capital 80,00,000

8,00,000 Equity Shares at Rs. 10 each fully paid up
80,00,000
2. Reserves and Surplus

Particulars Amount Rs.

Security Premium 42,33,000
42,33,000
3. Fixed Assets : Tangible

Particulars Amount Rs.

Land and Building 30,00,000
Machinery 30,00,000
Furniture 10,00,000
70,00,000

The Company bought back 40 lakh equity shares of Rs. 10 each at Rs. 50 Per share.

The Payment for this was made out of bank balance. Pass necessary journal entries to
record these transactions.

Que 17 Delight Ltd. decided to buy back 60,000 of the equity shares of Rs. 10 each at
a premium of 25%. For this, it issues 50,000 7.5% Preference Shares of Rs. 100 each at
par. The company has Rs. 80,000 in General Reserve, Rs. 1,00,000 in Profit and Loss
Account (Cr.), Rs. 1,20,000 in Capital Reserve and Rs. 1,00,000 in security premium.
It decided to utilise profits and reserves also. Give Journal Entries assuming that the
transactions have been duly carried out.

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Que 18 The Balance sheet of Kashish Ltd. As on 31st March, 2023 is as follows :

Particulars Note Amount (Rs.)

no.
V. Equity and Liabilities
9. Shareholder’s Fund
g) Share Capital 1 80,00,000
h) Reserves and Surplus 2 36,80,000
i) Money received against share warrants NIL
10. Share application money pending allotment NIL
11. Non- Current Liabilities
e) Long term borrowings – 6.5% Debentures 3,00,000
12. Current Liabilities
e) Long term Borrowings
f) Trade Payables 2,53,000
Total 1,22,33,000
VI. Assets
5. Non – Current Assets
c) Fixed Assets
iii. Tangible Assets 3 85,00,000
f) Non-Current Investments
6. Current Assets
i) Current Investment 10,80,000
j) Inventories NIL
k) Trade receivables 5,40,000
l) Cash and Cash equivalent 21,13,000
Total 1,22,33,000
Notes to Account

1. Share Capital

Particulars Amount Rs.

Authorized Capital
10,00,000 equity shares at Rs. 10 each 1,00,00,000

Issued Subscribed and Paid up Capital 80,00,000

8,00,000 Equity Shares at Rs. 10 each fully paid up
80,00,000
2. Reserves and Surplus

Particulars Amount Rs.

Security Premium 25,00,000
General Reserve 7,00,000
Profit and Loss 4,80,000
36,80,000

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 ASPECTS OF CORPORATE ACCOUNTING (22BCMCC403)
B.COM.

3. Fixed Assets : Tangible

Particulars Amount Rs.

Land and Building 30,00,000
Machinery 45,00,000
Furniture 10,00,000
85,00,000

On 1st April, 2023 the company announced the buy back of its 25% equity shares
at Rs. 20 per share. For that purpose the company sold its entire investment at Rs.
12,00,000 and issued 8000 10% Preference shares of Rs. 100 each. The company
utilized 50% of General reserve, 100% of the profit and loss account and rest was taken
from the Security Premium Account.

Show necessary Journal Entry.

9 CONSOLIDATION AND SPLIT OF SHARES

9.1 CONSOLIDATION OF SHARES
Consolidation of shares is a corporate action where a company reduces the number of
outstanding shares by combining the shares and increasing the face value. Consolidation
of shares is also known as reverse stock split. The company notifies the shareholders
through email before the stock consolidation.

Example scenario

Mr A holds 10,000 shares at ₹10 each. In the case of a share consolidation in the ratio
of 1:5, the 5 shares will be reduced to 1 share. The 10,000 shares will be reduced to
2000 shares. The number of shares reduces, but the overall value of the shares remains
the same.

Value of holdings before the consolidation of shares: 10,000 × 10 = ₹1,00,000

Value of holdings after the consolidation of shares: 2000 × 50 = ₹1,00,000

MS. MAHEK RAVAL, DEPARTMENT OF COMMERCE 21

 ASPECTS OF CORPORATE ACCOUNTING (22BCMCC403)
B.COM.

9.2 SPLIT OF SHARES

A stock split is a corporate action where a company increases the number of shares by
reducing the face value of the stock. Companies generally split shares to increase
liquidity since the price of the stock reduces after the split. A split increases the number
of shares by decreasing the face value, but the total value of the investment remains the
same. The split shares will be credited within a week.

Example scenario

When a stock with a face value of ₹10 undergoes a 2:1 stock split, the face value of the
stock reduces from ₹10 to ₹5. This results in doubling the number of shares owned, but
the total investment value remains constant at ₹10. Although the value per share
decreases after the split, the total investment value remains the same.

Here are some more scenarios:

MS. MAHEK RAVAL, DEPARTMENT OF COMMERCE 22