Topic: Accounting for owners capital and reserve
Can anyone please explain the difference b/w Paid up Capital and Reserve Capital while issuing shares for a newly registered company? Thanks in advance for your replies.
2 12/27/2013 09:08:33 am (edited by erwindebruin 12/27/2013 09:10:56 am)
Re: Accounting for owners capital and reserve
Please read here: http://en.wikipedia.org/wiki/Share_capital
Issued share capital is the total of the share capital issued (allocated) to shareholders. This may be less or equal to the authorised capital. Previously, issued capital comprised common equity shares as well as all preferred shares. But now only irredeemable preferred shares can be shown as part of issued share capital. The shared capital of a company is constantly changing. They company can give out more shares to their shareholders or buy them back, increasing or reducing the issued share capital, respectively. Issued share capital is not affected by the market price of shares. The value of issued capital presented in the financial statements is simply the number of issued shares multiplied by the face value of each share. For example, if a company issues 50,000 shares for $1 and the market price is at $2 per share, the issued share capital would still only be $50,000, and not $100,000.
Called up share capital is the total amount of issued capital for which the shareholders are required to pay. This may be less than the subscribed capital as the company may ask shareholders to pay by installments.
Paid up share capital is the amount of share capital paid by the shareholders. This may be less than the called up capital as payments may be in instalments ("calls-in-arrears") .
Reserve capital in your question is the difference between the amount paid and the nominal amount of the issued share. In the example the reserve (premium reserve) is $ 100,000 minus $ 50,000 = $ 50,000.