C20 After studying this unit, you will be able to 1. Sub-divide and consolidate shares 2. Convert shares into stock and stock into shares. 3. Apply SEBI guidelines regarding rights issue and also for issue bonus shares. Understand the provisions relating to buy-back of securities. 5. Account for Employees Stock Option Scheme. 4.1 ALTERATION OF SHARE CAPITAL Sub-division and Consolidation of Shares: If authorised by its Articles, a company may, in a general meeting, decide to sub-divide or consolidate the shares into those of a smaller or higher denomination than that fixed by the Memorandum of Association, so long as the proportion between the paid up and unpaid amount, if any, on the shares continues to be the same as it was in the case of the original shares. For example, a company with a capital of Rs. 10,00,000 divided into 10,000 equity shares of Rs. 100 each on which Rs. 75 is paid up decides to recognise its capital by splitting one equity share of Rs. 100 each into 10 such shares of Rs. 10 each. The consequential entry to be passed in such a case would be - Dr. Cr. Rs. Rs. Equity Share Capital (Rs. 100) A/C Dr. 7,50,000 To Equity Share Capital (Rs. 10) Alc 7,50,000 (Being the sub-division of 10,000 shares of Rs. 100 each with Rs. 75 paid up thereon into 1,00,000 shares of Rs. 10 each with Rs. 7.50 paid up thereon as per the resolution of shareholders passed in the General Meeting held on...) Similar entries will be passed on consolidation of shares of a smaller amount into those of a larger amount as well as on converting fully paid shares into stock. Illustration 1 On 31-12-2004 B Ltd. had 20,000, Rs. 10 Equity Shares as authorised capital and the shares were all issued on which Rs. 8 was paid up. In June, 2005 the company in general meeting decided to sub-divide each share into two shares of Rs. 5 with Rs. 4 paid up. In June, 2006 the company in general meeting resolved to consolidate 20 shares of Rs. 5, Rs. 4 per share paid up into one share of Rs. 100 each, Rs. 80 paid up Pass entries and show how share capital will appear in the Balance Sheet as on 31-12-2004, 31- 12-2005 and 31-12-2006