Issue of shares

Issue of Shares, Corporate Accounting

1. ISSUE OF SHARES
Dr. G. Prabakaran
Assistant Professor of Commerce
A.V.C. College (Autonomous)
Mannampandal –609 305
Mayiladuthurai District
Tamil Nadu, India
Mobile: [phone]
E-mail: [email protected]

2. Joint Stock Company
ThewordCompanyisderivedfromtheLatinword,Companies,
‘Come’meanstogether
‘Panis’meansbread
So,Companiesmeansearningbreadtogether.Thiswordcametobesubstituted
tocompanywhichmeanscarryingonanenterprisetogether.
Meaning
ACompanyisavoluntaryassociationofpersonsformedforcommon
purpose,withcapitaldivisibleintoparts,knownassharesandwithlimited
liability.
InSimple,Companyisanartificialpersoncreatedbylaw,havinga
perpetualsuccessionandacommonseal.

4. CAPITAL
AuthorisedCapital
Themaximumamountofcapitalregisteredbythecompany.Itisalsoknownas
RegisteredCapitalorNominalCapital.
IssuedCapital
Itisthatpartofauthorisedcapitalwhichisofferedtothepublic,allottedto
directorsasqualificationsharesandissuedtovendorsaspurchaseconsideration.
SubscribedCapital
Itisthatpartofissuedcapitalwhichissubscribedbythepublic.
Calledupcapital
Itisthatpartofthesubscribedcapitalwhichtheshareholdersarecalleduponby
thecompanytopay.
Paidupcapital
Itisthatportionofthecalledupcapitalwhichtheshareholdershaveactuallypaid.
ReserveCapital
Itisthatpartofthecapitalwhichisnotissuedandcanbeissuedonlyatthetimeof
liquidationofthecompany.

6. SHARE
Capitalofthecompanydividedintodifferentpartsorunits,eachunitiscalledShare
KindsofShares
1.PreferenceShares:APreferenceshareisonewhichenjoyscertainpreferential
rights.
*Fixeddividendisguaranteedbeforeanypaymentofdividend.(Fixedrateof
dividend)
*Repaymentofcapitalintheeventofwindingupofthecompany.
2.EquityShares:Equitysharesarethosewhichcarrynospecialrights.Insimple,
Equitysharesaretheshareswhicharenotpreferenceshares.
3.Shareswithdifferentialrights:Issueofshareswith‘differentialrights’in
accordancewiththeprovisionsoftheSec.86.SuchasDividend,votingrights,
otherwise(issueofsharessubjecttotheconditions)
Stock
Stockmeanstheshareofacompany.Itistheaggregateoffullypaidupshares
consolidatedanddividedintodifferentparts.Itisalwaysfullypaidup.

7. Under Subscription: If total number of shares for which applications are received is
less than the number of share issued, it is called Under Subscription. It is possible to
made for all the applicants.
Over Subscription: When a company receives applications for a larger number of
shares than those offered to the public, it is known as over subscription.
Pro-rata allotment: Shares may be allotted proportionate to the applications received
to all the applicants. It may be to reject application on the basis of some criterion.
Calls-in-arrears:When one or more shareholders fail to pay the amount due from
them towards allotment and calls, such dues are called ‘Calls-in-arrears.
Calls-in-Advance: When a company accepts money from the shareholders in
advance towards calls not yet made by the company, such amounts are termed as
‘Calls-in-Advance’.
Forfeiture of shares: It is the termination of membership and taking away of the
shares of a shareholder because of default in the payment of allotment and call
money.

8. Shares are issued in the form of
1.At Par: Par Value is the Face value or Nominal value of the shares already fixed
at the time of registration of the company.
2.At Premium: When shares are issued more than the par value is called Share
Premium.
For e.g., A Ltd. issued 10,000 shares of Rs.10 each at a premium of Rs.2. Comprises
as Application Rs.4, Allotment –5 (Including premium), I & Final Call –3
3. At Discount: When shares are issued lesser than the par value is called share
discount. No one company cannot be issued shares as Discount for their fresh issue.

9. ISSUE OF SHARES
Itcanbeclassifiedintotwocategories,basedonthemannerofreceiving
consideration.
1.Issueofsharesforimmediate,fullconsideration.
a)Non-Cashconsideration b)Cashconsideration
2.Issueofsharesforconsiderationreceivableininstalmentstermedascalls
a)Non-Cashconsideration:
i.Issueofsharesforacquisitionofassets
Assetsa/c Dr.
Tosharecapitala/c
ii.Issueofsharestovendorsofbusiness
ForpurchasingofAssets:
Assetsa/c Dr.
ToVendorsa/c
Forissueofsharestovendors:
Vendor’sa/c Dr.
ToShareCapitala/c

10. b) Cash Consideration:
Companies may issue shares and receive the full amount of the issue in
one lump sum. This may be at par or a premium or at a discount.
Journal Entries
i.When the shares are issue at par
Bank a/c Dr.
To Share Capital a/c
ii. When the share are issue is at premium
Bank a/c Dr.
To Share Capital a/c
To Securities premium a/c
iii. When the shares are issue is at discount
Bank a/c Dr.
Discount on issue of sharesDr.
To Share Capital a/c

11. 2. Issue of shares for consideration receivable in instalments termed as calls
Such as Application, Allotment and Calls
APPLICATION
Received
(Bank A/c Dr.)
Transferred
(Sh.Capital A/c Cr.)
Rejected
Adjusted towards
Allotment
Bank a/c Dr.
To Share Application a/c
Share Application a/c Dr.
To Share Capital a/c
Share Application a/c Dr.
To Bank a/c
Share Application a/c Dr.
To Share allotment a/c

12. ALLOTMENT
Due
(Allotment Dr.)
Due with
Discount
Received
(Bank a/c Dr. )
Share allotment a/c Dr.
To Share Capital a/c
Share allotment a/c Dr.
To Share Capital a/c
To Share premium a/c
Share Allotment a/c Dr.
Discount on shares a/c Dr.
To Share Capital a/c
Bank a/c Dr.
To Share allotment a/c
Due with
Premium
ALLOTMENT

13. Due
(First Call Dr.)
Due
(Final Call Dr.)
Received
(Bank a/c Dr.)
Share I Call a/c Dr.
To ShareCapital a/c
Bank a/c Dr.
To Share I Call a/c
Share Final Call a/c Dr.
To Share Capital a/c
Bank a/c Dr.
To Share Final Call a/c
Received
(Bank a/c Dr,)
CALLS
First Call
Final Call

14. Calls-in-Arrears
Calls-in-Arrears A/c Dr.
To Respective unpaid calls a/c
Bank a/c Dr.
To Interest on Calls-in-arrears a/c

15. Calls-in-Advance
Bank a/c Dr.
To Calls-in-Advance A/c
Calls-in-Advance a/c Dr.
To Respective Calls a/c
Interest on Calls-in-Advance a/c Dr.
To Bank a/c

16. Share Capital A/c Dr.
To Respective unpaid calls a/c (Amount Due)
To Forfeited Shares a/c (Amount Actually Received)
FORFEITURE OF SHARES

17. Bank A/c Dr.
Forfeited Shares a/c Dr.
To Share Capital a/c
RE-ISSUE OF FORFEITED SHARES
Forfeited Shares A/c Dr.
To Capital Reserve a/c

18. Issue of shares for full consideration (Lump Sum)
ProblemNo.1.BatliboiCo.Ltd.issued50,000equitysharesofRs.10eachto
thepubliconconditionthatfullamountofshareswillbepaidinalump
sum.Allthesesharesweretakenupandpaidbythepublic.Passjournal
entriesinthebooksofcompanywhen…….
a.SharesareissuedatParb.Sharesareissuedatapremiumof10%and
c.Sharesareissuedatadiscountof10%
Solution
a.SharesareissuedatPar
Date Particulars Debit
Rs.
Credit
Rs.
Bank a/c Dr.
To Share Capital a/c
(Being 50,000 shares are issued
at Rs.10 each)
5,00,000
5,00,000

19. b. Shares are issued at a premium of 10%
Date Particulars Debit
Rs.
Credit
Rs.
Bank a/c (50000x11) Dr.
To Share Capital a/c
ToShare premium a/c
(Being 50,000 shares are issuedat
a premium of 10%)
5,50,000
5,00,000
50,000
c. Shares are issued at a discount of 10%
Date Particulars Debit
Rs.
Credit
Rs.
Bank a/c (50000x9) Dr.
Discountof issue of shares a/c Dr.
. To Share Capital a/c
(Being 50,000 shares are issued
at a discount of 10%)
4,50,000
50,000
5,00,000

20. ProblemNo.2:RamLtd.purchasedassetsofRs.8,00,000fromKumarBros.Itissued
equitysharesofRs.100eachfullypaidupinsatisfactionoftheirclaim.Makejournal
entriestorecordthesetransactions.
Solution
JournalEntries
Date Particulars Debit Credit
₹ ₹
Assetsa/c Dr. 8,00,000
ToKumarBros.a/c 8,00,000
(BeingassetspurchasedfromKumarbros.)
Kumarbros.a/c Dr. 8,00,000
ToShareCapitala/c 8,00,000
(Beingissueof8,000sharesofRs.100fullypaiduptoKumarbros.)

21. ProblemNo.3:WalterLtd.purchasedLand&BuildingscostingRs.20,00,000andin
paymentallotted20,000equitysharesofRs.100eachasfullypaid.Furtherthe
companyissued40,000equitysharestothepublic.Theshareswerepayableas
follows:
OnapplicationRs.20;
OnallotmentRs.40;
OncallRs.40
Thepublicappliedforalltheshareswhichwereallotted.Allmoneyswere
received.
Givejournalentriesandthebalancesheetofthecompany.
Solution:
Journalentries
Land & Building a/c Dr. 20,00,000
To Share Capital a/c 20,00,000
(Being L&B purchased and in return 20,000 shares of
Rs.100 to the vendor)

22. Bank a/c (40000x20) Dr. 8,00,000
To Share application a/c 8,00,000
(Being application money received)
Share application a/c (40000x20) Dr. 8,00,000
To Share Capital a/c 8,00,000
(Being application money transferred to
Capital a/c)
Share allotment a/c(40000x20) Dr. 16,00,000
To Share Capital a/c 16,00,000
(Being allotment money due)
Bank a/c (40000x20) Dr.16,00,000
To Share allotment a/c 16,00,000
(Being allotment money received)
Share Calls a/c (40000x20) Dr. 16,00,000
To Share Capital a/c 16,00,000
(Being call money due)
Bank a/c (40000x20) Dr. 16,00,000
To Share Calls a/c 16,00,000
(Being call money received)
Application money Received Application transfer to share capital
Allotment money due Allotment money received
Call money due
Call money received

23. Ledger Accounts
Bank Account a/c
Share Capital a/c
Share premium a/c
Share discount a/c
Calls-in-arrears a/c
Forfeiture a/c
Capital reserve a/c

24. Balance Sheet of Walter Ltd.
Particulars Note No. Amount
Equity & Liabilities
(i)Shareholder’s funds:
Share Capital 60,00,000
(ii) Non-current Liabilities -
(iii) Current Liabilities -
-------------
Total (i+ ii +iii) 60,00,000
-------------
Assets
(i)Non-current Assets:
Fixed Assets
Land & Buildings 20,00,000
(ii) Current Assets
Cash at bank 40,00,000
-------------
Total (i+ii) 60,00,000
-------------

25. Reference
Corporate Accounting –T.S. Reddy & A. Murthy, Margham Publications, Chennai