Issue of shares

ISSUE OF SHARES
Dr. G. Prabakaran
Assistant Professor of Commerce
A.V.C. College (Autonomous)
Mannampandal – 609 305
Mayiladuthurai District
Tamil Nadu, India
Mobile: 9894527575
E-mail: drgpavcc@gmail.com

Joint Stock Company
The word Company is derived from the Latin word, Companies,
‘Come’ means together
‘Panis’ means bread
So, Companies means earning bread together. This word came to be substituted
to company which means carrying on an enterprise together.
Meaning
A Company is a voluntary association of persons formed for common
purpose, with capital divisible into parts, known as shares and with limited
liability.
In Simple, Company is an artificial person created by law, having a
perpetual succession and a common seal.

CAPITAL
Authorised Capital
The maximum amount of capital registered by the company. It is also known as
Registered Capital or Nominal Capital.
Issued Capital
It is that part of authorised capital which is offered to the public, allotted to
directors as qualification shares and issued to vendors as purchase consideration.
Subscribed Capital
It is that part of issued capital which is subscribed by the public.
Called up capital
It is that part of the subscribed capital which the shareholders are called upon by
the company to pay.
Paid up capital
It is that portion of the called up capital which the shareholders have actually paid.
Reserve Capital
It is that part of the capital which is not issued and can be issued only at the time of
liquidation of the company.

SHARE
Capital of the company divided into different parts or units, each unit is called Share
Kinds of Shares
1. Preference Shares: A Preference share is one which enjoys certain preferential
rights.
* Fixed dividend is guaranteed before any payment of dividend. (Fixed rate of
dividend)
* Repayment of capital in the event of winding up of the company.
2. Equity Shares: Equity shares are those which carry no special rights. In simple,
Equity shares are the shares which are not preference shares.
3. Shares with differential rights: Issue of shares with ‘differential rights’ in
accordance with the provisions of the Sec. 86. Such as Dividend, voting rights,
otherwise (issue of shares subject to the conditions)
Stock
Stock means the share of a company. It is the aggregate of fully paid up shares
consolidated and divided into different parts. It is always fully paid up.

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.

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.

ISSUE OF SHARES
It can be classified into two categories, based on the manner of receiving
consideration.
1. Issue of shares for immediate, full consideration.
a) Non- Cash consideration b) Cash consideration
2. Issue of shares for consideration receivable in instalments termed as calls
a) Non- Cash consideration:
i. Issue of shares for acquisition of assets
Assets a/c Dr.
To share capital a/c
ii. Issue of shares to vendors of business
For purchasing of Assets:
Assets a/c Dr.
To Vendors a/c
For issue of shares to vendors:
Vendor’s a/c Dr.
To Share Capital a/c

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.
ii. When the share are issue is at premium
Bank a/c Dr.
To Securities premium a/c
iii. When the shares are issue is at discount
Bank a/c Dr.
Discount on issue of shares Dr.

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 Bank a/c
To Share allotment a/c

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

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

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

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

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

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

Issue of shares for full consideration (Lump Sum)
Problem No. 1. Batliboi Co. Ltd. issued 50,000 equity shares of Rs.10 each to
the public on condition that full amount of shares will be paid in a lump
sum. All these shares were taken up and paid by the public. Pass journal
entries in the books of company when…….
a. Shares are issued at Par b. Shares are issued at a premium of 10% and
c. Shares are issued at a discount of 10%
Solution
a. Shares are issued at Par
Date Particulars Debit
Rs.
Credit
Rs.
Bank a/c Dr.
(Being 50,000 shares are issued
at Rs.10 each)
5,00,000
5,00,000

b. Shares are issued at a premium of 10%
Rs.
Credit
Rs.
Bank a/c (50000x11) Dr.
To Share 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%
Rs.
Credit
Rs.
Bank a/c (50000x9) Dr.
Discount of 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

Problem No.2: Ram Ltd. purchased assets of Rs.8,00,000 from Kumar Bros. It issued
equity shares of Rs.100 each fully paid up in satisfaction of their claim. Make journal
entries to record these transactions.
Solution
Journal Entries
Date Particulars Debit Credit
₹ ₹
Assets a/c Dr. 8,00,000
To Kumar Bros. a/c 8,00,000
(Being assets purchased from Kumar bros.)
Kumar bros. a/c Dr. 8,00,000
To Share Capital a/c 8,00,000
(Being issue of 8,000 shares of Rs.100 fully paid up to Kumar bros.)

Problem No.3:Walter Ltd. purchased Land & Buildings costing Rs.20,00,000 and in
payment allotted 20,000 equity shares of Rs.100 each as fully paid. Further the
company issued 40,000 equity shares to the public. The shares were payable as
follows:
On application Rs.20;
On allotment Rs.40;
On call Rs.40
The public applied for all the shares which were allotted. All moneys were
received.
Give journal entries and the balance sheet of the company.
Solution:
Journal entries
Land & Building a/c Dr. 20,00,000
(Being L&B purchased and in return 20,000 shares of
Rs.100 to the vendor)

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
(Being application money transferred to
Capital a/c)
Share allotment a/c(40000x20) Dr. 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
(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

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

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
-------------

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

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