Advanced Accounting · Financial Statements of Companies

Share Capital, Reserves and Surplus Disclosures under Schedule III

Updated 5 October 2026 · Fact-checked

Under Schedule III (Division I), a company shows share capital and reserves and surplus under Shareholders' funds. You disclose authorised, issued, subscribed and paid-up capital (called-up less calls in arrears), add forfeited shares, and list each reserve with its opening balance, additions, deductions and closing balance.

Understand Share Capital, Reserves and Surplus Disclosures

A balance sheet must tell the reader how much money owners have put in and how much profit is retained. Schedule III of the Companies Act, 2013 has two formats. Under Division I (Non-Ind AS), the heading is Shareholders' funds, which contains Share capital and Reserves and surplus. Under Division II (Ind AS), the heading is Equity, which comprises Equity share capital and Other equity. This page follows the Division I format. Notes to accounts give the detail.

Share capital has four levels. Authorised capital is the maximum permitted by the Memorandum. Issued capital is the part offered to the public or others. Subscribed capital is the part applicants have taken up. Called-up capital is the amount the company has asked shareholders to pay. Paid-up capital is the amount of called-up capital actually received, that is, called-up capital less calls in arrears. Subscribed capital is further split into subscribed and fully paid, and subscribed but not fully paid.

Sometimes a shareholder has not paid a call that was due. That unpaid amount on the share capital portion is calls in arrears. It is deducted from called-up capital to reach paid-up capital. Securities premium is credited only when it becomes due. Premium that is called but unpaid is a receivable (calls unpaid) and is not deducted from share capital. Only arrears on the capital portion are deducted from called-up capital. Money received before it is due is calls in advance. It is not part of share capital. It is generally shown as a liability, commonly under other current liabilities. When shares are forfeited for non-payment, the amount already received on them stays with the company. If the forfeited shares are not yet reissued, that amount is added to paid-up capital as forfeited shares (amount originally paid up).

Reserves and surplus include capital reserve, capital redemption reserve, securities premium, debenture redemption reserve, revaluation reserve, share options outstanding, other reserves such as general reserve, and the surplus (balance in the Statement of Profit and Loss). Securities premium is the amount received over the face value of shares. Capital reserve arises from capital profits, for example the profit on reissue of forfeited shares (the balance left in the forfeited shares account for the shares reissued, after the discount allowed) or gain on a business purchase. Securities premium can only be used for purposes listed in Section 52 of the Companies Act, 2013, such as issuing fully paid bonus shares, writing off preliminary expenses, writing off the expenses of an issue of shares or debentures or the commission paid or discount allowed on such an issue, providing for the premium payable on redemption of redeemable preference shares or debentures, and buying back the company's own shares. It cannot be freely distributed as dividend.

For each class of shares, the notes must also give the number of shares, the face value, rights and restrictions, a reconciliation of shares at the start and end of the year, shares held by the holding company, and shares held by holders of more than 5%.

Key rules to remember

Paid-up capital: Paid-up capital = Called-up capital − Calls in arrears; Calls in arrears (on the capital portion) are deducted from called-up capital. Calls in advance are not part of share capital. They are generally shown separately as a liability, commonly under other current liabilities.
Capital with forfeited shares: Total shown = Subscribed and fully paid + Subscribed but not fully paid − Calls in arrears + Forfeited shares (amount originally paid up); Forfeited shares not yet reissued are added at the amount originally received.
Calls in advance: Calls in advance → Liability (commonly other current liabilities); Not part of share capital. Disclose it separately in the notes.
Securities premium: Securities premium = (Issue price − Face value) × Number of shares; Premium is credited only when it becomes due (called). Premium that is called but unpaid is a receivable (calls unpaid) and is not deducted from share capital. Only arrears on the capital portion are deducted from called-up capital.
Surplus roll-forward: Closing surplus = Opening balance + Profit for the year − Transfers to reserves − Dividends and other appropriations; A debit balance of the Statement of Profit and Loss is shown as a negative figure under Reserves and surplus.
Reserve note layout: Opening balance + Additions − Deductions = Closing balance; Apply this to each reserve separately, as the notes require.

How to solve Share Capital, Reserves and Surplus Disclosures questions

Use this order for any question that asks you to show share capital or reserves in the balance sheet or notes.

1List the facts: authorised capital, shares issued, shares applied for and allotted, amount called, amount received.
2Work out issued and subscribed capital at face value. If the question says all issued shares were subscribed, they are equal.
3Compute called-up capital, then deduct calls in arrears to get paid-up capital. Check that calls in arrears are only for amounts already called.
4Add forfeited shares at the amount originally paid, if still not reissued. Move calls in advance out to other current liabilities.
5Identify premium received and other capital items. Put premium in securities premium and capital profits in capital reserve.
6Build the reserves note: for each reserve show opening, additions, deductions and closing. Compute the surplus from the profit and loss balance and appropriations.
7Total the Shareholders' funds section and tally it to the balance sheet. Write notes with the correct headings.

Quickest way: Capital ladder and reserve check

When to use it: Use it under time pressure, both for MCQs and for the 70-mark descriptive part.

Write the ladder: Authorised → Issued → Subscribed → Called-up → Paid-up. Fill each rung with numbers.
For MCQs, test the trap first: is the arrears amount deducted, are calls in advance wrongly added, or is forfeited amount missing? Eliminate options that miss these.
Write the note heading exactly as Schedule III does, such as Share Capital and Reserves and Surplus. Examiners give marks for correct headings.
Show the reserve note as one line per reserve with opening, additions, deductions and closing columns. Show workings for any amount that is not obvious.
Finish by adding the Shareholders' funds total once and checking that it ties to the balance sheet.

Common mistakes in Share Capital, Reserves and Surplus Disclosures

Adding calls in advance to paid-up capital.
The money has been received, so it feels like capital.
Fix: Calls in advance are not yet due. Show them as a liability under other current liabilities, and mention them in the notes.
Forgetting to deduct calls in arrears from called-up capital, or deducting them from authorised capital.
Students mix the capital levels.
Fix: Deduct arrears only from called-up capital to reach paid-up capital.
Leaving out forfeited shares, or showing them at face value.
Students think forfeited shares are cancelled and gone.
Fix: Until reissue, add the amount originally paid on forfeited shares to the share capital note. After reissue, the profit on reissue (the balance left in the forfeited shares account for the shares reissued, after the discount allowed) is transferred to capital reserve.
Treating securities premium and capital reserve as the same thing.
Both are capital in nature and both are not freely distributable.
Fix: Premium arises from issuing shares above face value, and its use is limited by Section 52. Capital reserve arises from capital profits such as gain on reissue of forfeited shares. Keep them as separate lines.
Showing the issued, subscribed and paid-up amounts as the same number without checking.
Students copy one figure.
Fix: Compute each level. They are equal only when all issued shares are subscribed, called and paid.
Showing a loss in surplus as a positive number or ignoring it.
Students think reserves can only be positive.
Fix: A debit balance in the Statement of Profit and Loss is shown as a negative figure inside Reserves and surplus.

Worked examples

Example 1

X Ltd has authorised capital of 2,00,000 equity shares of ₹10 each. It issued 1,00,000 shares at ₹10 each, all subscribed. The company has called only ₹9 per share so far, so ₹1 per share (₹1,00,000 in total) is uncalled and no share is fully paid. Calls in arrears on the called amount are ₹6,000. Separately, the company received ₹4,000 as calls in advance, against the uncalled ₹1 per share. Paid-up capital is called-up capital less calls in arrears. Show the share capital note.

Show the solution

Authorised capital = 2,00,000 × ₹10 = ₹20,00,000.
Issued capital = 1,00,000 × ₹10 = ₹10,00,000. All were subscribed, so subscribed capital is also ₹10,00,000.
Only ₹9 of the ₹10 face value has been called, so no share is fully paid. Subscribed and fully paid = nil. All 1,00,000 shares are subscribed but not fully paid.
Called-up capital = 1,00,000 × ₹9 = ₹9,00,000.
Deduct calls in arrears ₹6,000. Paid-up capital = ₹9,00,000 − ₹6,000 = ₹8,94,000.
Note layout: Subscribed and fully paid: nil. Subscribed but not fully paid: 1,00,000 equity shares of ₹10 each, ₹9 called up = ₹9,00,000, less calls in arrears ₹6,000 = ₹8,94,000. Total share capital = ₹8,94,000.
Calls in advance ₹4,000 were received against the uncalled ₹1 per share. They are not added to capital. Show them under other current liabilities.

Answer: Share capital is ₹8,94,000, all shown as subscribed but not fully paid (1,00,000 shares of ₹10 each, ₹9 called up ₹9,00,000, less calls in arrears ₹6,000). Subscribed and fully paid is nil. Authorised capital is ₹20,00,000 and issued and subscribed capital is ₹10,00,000. The ₹4,000 of calls in advance, received against the uncalled ₹1 per share, appears under other current liabilities.

Example 2

Y Ltd issued 50,000 equity shares of ₹10 each. The full ₹10 was called on 49,000 shares and received, so these are fully paid. The other 1,000 shares were forfeited after ₹7 per share was received (₹3 per share unpaid), and have not been reissued. The ₹3 per share unpaid on the forfeited shares is not a call in arrears, because forfeited shares are no longer held by any member, so nobody owes the company that amount. The opening balances for the year are: securities premium ₹2,00,000, general reserve ₹1,00,000 and surplus ₹80,000. During the year the company issued 10,000 more equity shares of ₹10 each at ₹15 each, fully paid. Profit for the year was ₹3,00,000. Of this profit, ₹50,000 is transferred to general reserve. Show closing share capital and reserves and surplus.

Show the solution

Subscribed and fully paid before the new issue = 49,000 × ₹10 = ₹4,90,000. The 1,000 forfeited shares are not counted here.
New issue: 10,000 × ₹10 = ₹1,00,000. Subscribed and fully paid = ₹4,90,000 + ₹1,00,000 = ₹5,90,000.
Forfeited shares (amount originally paid up) = 1,000 × ₹7 = ₹7,000. The ₹3 per share not received is not added. Total share capital = ₹5,90,000 + ₹7,000 = ₹5,97,000.
Securities premium on the new issue = 10,000 × (₹15 − ₹10) = ₹50,000. Closing securities premium = ₹2,00,000 + ₹50,000 = ₹2,50,000.
General reserve closing = ₹1,00,000 + ₹50,000 (transfer from profit) = ₹1,50,000.
Surplus closing = ₹80,000 + ₹3,00,000 − ₹50,000 (transfer to general reserve) = ₹3,30,000.
Reserves and surplus total = ₹2,50,000 + ₹1,50,000 + ₹3,30,000 = ₹7,30,000.

Answer: Share capital is ₹5,97,000 (₹5,90,000 fully paid plus ₹7,000 forfeited shares). Reserves and surplus total ₹7,30,000: securities premium ₹2,50,000, general reserve ₹1,50,000 and surplus ₹3,30,000.

Exam tips

In MCQs, the usual traps are calls in arrears, calls in advance and forfeited shares. Check which of these is in the question before computing.
In the descriptive answer, show the share capital note and the reserves note separately with Schedule III headings. Even if the arithmetic slips, you can still earn the format marks.
When a question says premium is called with the final call, premium is credited only when called. Check the timing before adding it.
Cite Section 52 when you list the permitted uses of securities premium. Do not claim it can be used for dividends.
Revise the disclosure items in the notes: reconciliation of shares, rights attached, holding company shares, and shareholders above 5%. These are often asked as short theory questions.

Practice questions from Financial Statements of Companies

Share Capital, Reserves and Surplus Disclosures in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Share Capital, Reserves and Surplus Disclosures: frequently asked questions

What is the difference between capital reserve and securities premium?

Securities premium is the amount received above face value when shares are issued. Capital reserve comes from capital profits, such as profit on reissue of forfeited shares. Securities premium can be used only for the purposes listed in Section 52 of the Companies Act, 2013, such as issuing bonus shares, writing off preliminary and issue expenses, and buying back shares. Both are shown under Reserves and surplus.

How are calls in arrears and calls in advance shown in the balance sheet?

Calls in arrears are deducted from called-up share capital in the notes. Calls in advance are not part of share capital. They are generally shown separately as a liability, commonly under other current liabilities.

Where do forfeited shares appear in the balance sheet?

If not reissued, the amount originally paid on them is added to paid-up share capital in the notes. After reissue, the profit on reissue is transferred to capital reserve. This is the balance left in the forfeited shares account for the shares reissued, after the discount allowed.

What goes under Reserves and surplus in Schedule III?

Schedule III (Division I) lists capital reserves, capital redemption reserve, securities premium, debenture redemption reserve, revaluation reserve, share options outstanding account, other reserves (state the nature, such as general reserve) and surplus, which is the balance in the Statement of Profit and Loss. For each, show the opening balance, additions, deductions and closing balance.