ISSUE OF SHARES

ISSUE OF SHARES
A company raises its capital by issue shares  . a public company can issue share only after it met prescribed legal compliance .
Public Issue of Shares
Public issue of shares means offer made by a company to public for subscription of shares.
It can be made by a Public Company after complying with the prescribed legal compliances.
Private Placement of Shares
Private Placement of Shares means issue of shares relatively small numbers of select group of investors privately to raise capital and not to public  in general through public issue  . These investors usually are banks, mutual funds and insurance companies .
Initial Public Offer: (IPO)*
Making an offer or inviting the public in general for the first time to subscribe shares, is known as Initial Public Offer (IPO).
I. ISSUE OF SHARES FOR CASH
Issue of Shares for cash means shares issued by a company against amount received by cheque or a banking instrument. These shares may be issued -:
· at par (at nominal or face value) or
· at premium (above the nominal or face value).
· Issue of shares at a discount is not allowed by the Companies Act, 2013 (Section 53).*
Issue price may be payable by the subscriber either:
(i) in lump sum along with the application; or
(ii) in instalments at different stages, i.e., partly on application, partly on allotment and  balance in one or more calls.
accounting of issue of shares for cash in detail.

 (i) Issue of Shares and Amount Payable in Lump Sum
 When the issue price of shares is payable along with the application, the shares are said to have  been issued against payment in lump sum.

Accounting Entries

  • For Receiving Shares Application and Allotment Money:

             Bank A/c                                                                                                 Dr.
                     To Shares Application and Allotment A/c
(Being Application and allotment money received)

  • For Allotment of Shares:
      Shares Application and Allotment A/c                                         Dr.

                         To Share Capital A/c                                                    [With Nominal (face) Value]
                        To Securities Premium Reserve A/c                       [With Premium Amount, if issued at Premium]

(Shares allotted against shares application and allotment money received)

Question-:  Jyanti Power Limited decided to issue 8,50,000 equity shares of ₹ 10 each. The whole amount was payable on applications. The whole amount was duly received. Pass necessary journal entries for this transaction.
Solution -:

In the Books of Jayanti  Ltd.
JOURNAL

Date

Particular

l.F.

Dr. Amount ₹

Cr. Amount ₹

 

Bank A/c                                                         Dr.
             To Equity Share Application and Allotment A/c
(Amount received on 8,50,000 equity shares for Application and Allotment)

 

85,00,000

85,00,000

 

Equity Share Application & Allotment A/c          Dr.
            To Equity Share Capital A/c
(Amount due on Application and Allotment for 8,50,000 equity shares @ ₹10 each)

 

85,00,000

85,00,000

Question-: ABC Ltd. allotted 50,000 Equity Shares of ₹ 50 each payable on application itself. The entire amount was received in lump sum for these shares. Pass necessary journal entries in the books of ABC Ltd. (CBSE Sample Paper 2017)
Solution -:

In the Books of  ABCLtd.
JOURNAL

Date

Particular

l.F.

Dr. Amount ₹

Cr. Amount ₹

 

Bank A/c                                                    Dr.
               To Equity Share Application & Allotment A/c
(Application money received on 50,000 Equity Shares @ ₹ 50 per share)

 

2,50,000

2,50,000

 

Equity Share Application & Allotment A/c            Dr.
To Equity Share Capital A/c
(Amt. transferred to share capital account)

 

2,50,000

2,50,000

Question -: Super Ltd. having an authorised capital of ₹ 2 lakh divided into 20,000 shares of ₹ 10 each, issued to the public 10,000 shares payable ₹ 3 per share on application, ₹2 per share on allotment, ₹ 5 per share on call. Applications were received for 12,000 shares. The directors rejected applications for, 2,000 shares and returned their application money. Assuming that all moneys were received duly. Pass necessary journal entries in the books of the Company ?
Solution -:

In the Books of  Super Ltd.
JOURNAL

Date

Particular

l.F.

Dr. Amount ₹

Cr. Amount ₹

 

Bank a/c                                                         Dr.
           To Share Application a/c
 (Amount received on application for 12,000 shares 

 

36,000

36,000

 

 

Share Application a/c                                        Dr.
                 To Share Capital a/c
(Amount due on application 10,000 Shares)

 

30,000

30,000

 

Share Application a/c                                         Dr.
                To Bank a/c
(Amount returned to Non allottees for 2,000 shares)

 

6,000

6,000

 

Share Allotment a/c                                          Dr.
            To Share Capital a/c
(Amount due on allotment)

 

20,000

20,000

 

 

Bank a/c                                                                 Dr.
              To Share Allotment a/c
(Amount received on allotment)

 

20,000

20,000

 

 

Share first call a/c                                                       Dr
                To Share Capital a/c
(Amount due on first call)

 

50,000

50,000

 

 

Bank a/c                                                                         Dr.
To Share Call a/c
(Amount received on first call)

 

50,000

50,000

(ii) Issue of Shares and Amount Payable in Instalments
 Issue price of the shares may be payable in instalments.
· First instalment on shares is paid along with the application and is called Application Money. Application money is transferred to Share Capital Account at the time of allotment of shares.
· Second instalment is called by the company on allotment and is called Allotment Money.
· After allotment of shares remaining part of issue price, when called-up is called Call Money .
( Call money may be called by the company to be paid by the shareholders in one or more instalments. If only one call is made then it is called First and Final Call in place of first call,  otherwise the word final is added to the last instalment . )

Question-4: Sanjana Limited Company issued 1,000 6% preference shares of ₹ 100 each at par. The public sent applications for 800 preference shares. The amounts were payable as under 10% on application, 20% on allotment and 70% on call. The amounts received were as under ₹ 16,000 on allotment and ₹ 49,000 on call. Draw up necessary journal entries in the books of the company.
Solution -:

In the Books of Sanjana Ltd.
JOURNAL

Date

Particular

l.F.

Dr. Amount ₹

Cr. Amount ₹

 

Bank a/c                                                          Dr.
                 To 6% Preference  share Application a/c
(Amount received on application  for 800 preference shares)

 

8.000

8,000

 

 

 

6% Pref, share Application a/c                                 Dr.
                 To 6% Preference, share Capital a/c
(Amount due on 800 Preference shares)

 

8,000

8,000

 

 

6% Preference Share Allotment a/c                 Dr.
              To 6% Preference share Capital a/c
(Amount due on allotment on 800 Preference shares)

 

16,000

1
6,000

 

 

 

Bank a/c                                                                 Dr.
              To 6% Pref. Share Allotment a/c
(Amount received on allotment on 800 Preference shares)

 

16,000

16,000

 

 

6% Pref, share Call a/c                                              Dr.
To 6% Preference share Capital a/c
(Amount due on Call on 800 Preference shares)

 

56,000

56,000

 

Bank a/c                                                                 Dr.
Calls-in-arrear a/c                                                        Dr.
                       To 6% Preference Share call a/c

(Amount received on 700 Preference shares and
Calls-in-arrear on 100 shares)

 

49,000
7,000

56,000

Question-: Arun limited company offered for public subscription for 10,000 shares of ₹ 10 each at a premium of ₹ 5 per share payable as under
(i) on application ₹ 3,
(ii) on allotment ₹ 9 (including premium) and
(iii) the balance at call.
All the amounts due were received except call money on 100 shares. Pass necessary journal entries in the books of the company.
Solution -:

In the Books of  Arun Ltd.
JOURNAL

Date

Particular

l.F.

Dr. Amount ₹

Cr. Amount ₹

 

Bank a/c                                                         Dr
              To Share Application a/c
(Amount received on application)

 

30,000

30,000

 

Share Application a/c                                                 Dr.
                To Share Capital a/c
 (Amount due on application)

 

30,000

30,000

 

Share Allotment a/c                                                  Dr.
                To Share Capital a/c
               To Securities Premium Reserve a/c
(Amount due on allotment including premium)

 

90,000

40,000

 50,000

 

Bank a/c                                                                  Dr.
               To Share Allotment a/c
(Amount received on allotment)

 

90,000

 

90,000

 

Share First and Final Call a/c                           Dr.
                     To Share Capital a/c
(Amount due on call)

 

30,000

30,000

 

Bank a/c                                                                        Dr.
             To Share First and Final Call a/c
(Amount received on call 9,900 shares)

 

29,700

29,700

Question-: Hemant & Co. Ltd. issued 10,000 shares of ₹ 10 each payable at premium of ₹4 per share. The amounts payable are as under
On application           ₹4 (including premium of ₹ 1)
On allotment              ₹3 (including premium of ₹ l)
On first call                 ₹4 (including premium of ₹ l)
On second and final call ₹ 3 (including premium of ₹ 1)
All the amounts were received duly. Pass necessary journal entries in the
books of the company.
Solution-:

In the Books of  Hemant & Co.
JOURNAL

Date

Particular

l.F.

Dr. Amount ₹

Cr. Amount ₹

 

Bank a/c                                                          Dr.
               To Share Application a/c
(Application money received)

 

40,000

40,000

 

Share Application a/c                                                  Dr.
            To Share Capital a/c
            To Securities Premium Reserve a/c
(Application money due with premium of ₹ 1)

 

40,000

30,000
10,000

 

Share Allotment a/c                                                     Dr.
         To Share Capital a/c
        To Securities Premium Reserve a/c
(Allotment money due with Premium of ₹ 1)

 

30,000

20,000
10,000

 

Bank a/c                                                                        Dr.
                To Share Allotment a/c
(Allotment money received)

 

30,000

30,000

 

Share First Call a/c                                                      Dr.
            To Share Capital a/c
            To Securities Premium Reserve a/c
(First Call money due with premium for ₹  1 )

 

30,000

20,000
10,000

 

Bank a/c                                                                  Dr.
               To Share First Call a/c
 (First Call money received)

 

40,000

40,000

 

Share Second and Final Call a/c                      Dr.
            To Share Capital a/c
            To Securities Premium Reserve a/c
(Second and Final Call money due with )

 

40,000

30,000
10,000

 

Bank a/c                                                                        Dr.
             To Share Second and Final Calf a/c
(Second and Final call money received)

 

30,000

30,000

Question-: Roshni Ltd. offered 10,000 shares of ₹ 10 each to the public, payable ₹ 3 per share on application, ₹ 5 per share on allotment and ₹ 2 per share on first and final call. The public applied for 9,000 shares. Assuming that all moneys except first and final call money on 200 shares were received. Pass necessary journal entries inthe books of the company.
Solution-:

In the Books of  Roshni Ltd.
JOURNAL

Date

Particular

l.F.

Dr. Amount ₹

Cr. Amount ₹

 

Bank a/c                                                        Dr.
               To Share Application a/c
(Amount received on application for  9,000 shares @ ₹ 3 per shares.)

 

27,000

 

27,000

 

 

Share Application a/c                                               Dr.
               To Share Capital a/c
(Amount due on application for 9,000 shares @ ₹ 3 per share.)

 

27,000

 

27,000

 

 

Share Allotment a/c                                                   Dr.
             To Share Capital a/c
 (Amount due on allotment for 9,000 shares @ ₹ 5 per share.)

 

45,000

 

45,000

 

 

Bank a/c                                                                        Dr.
                To Share Allotment a/c
(Amount received on allotment of 9,000 shares @ ₹  5 per share)

 

45,000

 

45,000

 

 

Share first and final call a/c                                      Dr.
              To Share capital a/c
(Amount due on call for 9,000 shares @ ₹ 2 per share)

 

18,000

 

18,000

 

 

Bank a/c                                                                       Dr.
                To Share First and Final call a/c
(Amount received on call for 8,800 shares @ ₹ 2 per share)

 

17,600

17,600

Question-: A Company invited applications for 1,00,000 equity shares of ₹ 10 each. The amount payable on each share was as under
(1) On application ₹ 3 per share
(2) On allotment ₹ 3 per share
(3) On call ₹ 4 per share.
Applications were received for 1,20,000 shares. The company allotted 1,00,000
shares and rejected the applications for 20000 shares. The application money of rejected applicants was refunded duly. Pass necessary journal entries in the books of the company.
Solution-:

In the Books of  Ltd.
JOURNAL

Date

Particular

l.F.

Dr. Amount ₹

Cr. Amount ₹

 

Bank a/c                                                          Dr.
           To Equity Share Application a/c
  (Amount received on application for 1,20,000 equity shares)

 

3,60,000

 

3,60,000

 

 

Equity Share Application a/c                                    Dr.
              To Equity Share Capital a/c
(Amount due on 1,00,000 equity shares on application)

 

3,00,000

 

3,00,000

 

 

Equity Share Application a/c                                     Dr.
                         To Bank a/c
(Amount returned on 20,000 shares being not allotted)

 

60,000

 

60,000

 

 

Equity Share Allotment a/c                              Dr.
              To Equity Share Capital a/c
(Amount due on allotment for 1,00,000 shares)

 

3,00,000

 

3,00,000

 

Bank a/c                                                             Dr.
           To Equity Share Allotment a/c
(Amount received on allotment for 1,00,000 shares)

 

3,00,000

 

3,00,000

 

 

Equity Share Call a/c                                                 Dr.
                    To Equity Share Capital a/c
(Amount due on call for 1,00,000 shares)

 

4,00,000

4,00,000

 

Bank a/c                                                                 Dr.
              To Equity share Call a/c
(Amount received on call for 1,00,000 shares)

 

4,00,000

4,00,000

 

 

 

 

 

Question-: A limited company issued 10,000 equity shares of ₹ 10 each to the public payable ₹ 2 per share on application, ₹ 4 per share on allotment and ₹ 4 per share on call. Applications were received for 12,500 shares and allotment was made pro rata. The excess application money was utilised towards allotment. Pass necessary journal entries in the books of the company.
Solution-:

In the Books of …… Ltd.
JOURNAL

Date

Particular

l.F.

Dr. Amount ₹

Cr. Amount ₹

 

Bank Account                                                   Dr.
           To Share Application Account
(Amount received on application for 12,500 shares)

 

25,000

 

25,000

 

 

Share Application Account                              Dr.
                    To Share Capital Account
(Amount due on application for 10,000 shares actually issued)

 

20,000

 

20,000

 

 

Share Allotment Account                                  Dr
To Share Capital Account
(Amount due on allotment for 10,000 shares)

 

40,000

 

40,000

 

 

Bank Account                                                   Dr.|
Share Application Account                              Dr.
To Share Allotment Account

 [Amount received on allotment and excess
application money of ₹ 5,000 (25,000 – 20,000) adjusted ]

 

35,000
5,000

40,000

 

Share Call Account                                                                     Dr.
To Share Capital Account
(Amount due on call for 10,000 shares)

 

40,000

40,000

 

Bank Account                                                     Dr.
             To Share Call Account
(Amount received on call)

 

40,000

40,000

 

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