Terms of Issue of Shares
A company may issue shares:
1. At Par, ( at the nominal or face value) or
2. At Premium (above the nominal or face value)
1. Issue of Shares at Par
Issue of shares at par means that issue issue price of share is same as nominal or face value of the share .
Example -: (Issue of Shares at Par, Fully Subscribed, Issue Price Payable in Instalments).
Sky Ltd. invited applications for 1,000 shares of ₹ 10 for each. The amount is payble as ₹ 3 on application,₹ 4 on allotment and balance 3 on first and final call . the issue was fully subscribed and amount was duly received . Pass necessary Journal entries in the books of the company.
Solution -:
|
In the Books of Sky Ltd. |
||||
|
Date |
Particular |
l.F. |
Dr. Amount ₹ |
Cr. Amount ₹ |
|
|
Bank A/c Dr. |
|
3,000 |
3,000 |
|
|
Shares Application A/c Dr. |
|
3,000 |
3,000 |
|
|
Shares Allotment A/c Dr. (Allotment money due on 10,000 shares @ ₹ 4 per share) |
|
4,000 |
4,000 |
|
|
Bank A/c Dr. (Allotment money received on 10,000 shares) |
|
4,000 |
4,000 |
|
|
Shares First and Final Call A/c Dr (First and final call money due on 10,000 shares @ ₹ 3 per share) |
|
3,000 |
3,000 |
|
|
Bank A/c Dr. (First and final call money received on 10,000 shares) |
|
3,000 |
3,000 |
2. Issue of Shares at Premium
Issue of share at premium means share is issued at the value that is more then the face value .
For example -: A share with nominal value of ₹ 100 issued for ₹ 120 .
(The Additional amount received with share as premium is called Premium with share and transferred to Security premium reserve . )*
|
Utilisation of Security premium reserve |
|
Issuing fully paid bonus shares to the members; |
|
Writing off preliminary expenses of the company; |
|
Writing off the expenses of, or the commission paid or discount allowed on any issue of |
|
securities or debentures of the company; |
|
Providing for the premium payable on the redemption of any redeemable Preference Shares or of any debentures of the company; |
|
In purchasing its own shares (buy-back). |
Accounting Entries for Issue of Shares at Premium
|
Basis |
Journal Entry |
Amount |
|
On Receipt of Application Money*
|
Bank A/c Dr |
[With the total application money received including premium] |
|
On Allotment of Shares |
Shares Application A/c Dr. |
[With total application money] |
|
Amount Due on Allotment |
Shares Allotment A/c Dr. |
[With money due on allotment] |
|
On Receipt of Allotment Money |
Bank A/c Dr |
[With amount received against allotment money] [With amount not received against allotment money] |
|
Amount Due on First Call |
Shares First Call A/c |
[With the amount due on first call] [With the amount due towards share capital] [With the amount due towards premium] |
|
On Receipt of First Call |
Bank A/c Dr. |
[With the amount received against first call] [With the amount not received against first call money due] |
Example-: (Issue of Shares at Premium).
Spot Ltd. issued 10,000 Equity Shares of ₹ 100 each at a premium of ₹ 10 per share, payable as follows:
₹ 10 per share on application; and\
Balance on allotment
The issue was subscribed and shares were issued to the applicants. Pass the necessary Journal entries.
Solution-:
|
In the Books of Spot Ltd. |
||||
|
Date |
Particular |
l.F. |
Dr. Amount ₹ |
Cr. Amount ₹ |
|
|
Bank A/c Dr. To Shares Application A/c (Application Money received on 10,000 Equity Shares) |
|
1,00,000 |
1,00,000 |
|
Shares Application A/c Dr. To Share Capital A/c (Shares Application money transferred to Share Capital Account on allotment) |
1,00,000 |
1,00,000 |
||
|
Shares Allotment A/c Dr. (Amount due on allotment on 10,000 Equity Shares @ ₹10 per share) |
1,00,000 |
1,00,000 |
||
|
Bank A/c Dr. To Shares Allotment A/c (Amount of securities premium received) |
1,00,000 |
1,00,000 |
||
Example -: ( Issue of shares at Premium, Fully subscribed, Issue Price Payable in Instalments).India Ltd. was registered with a capital of ₹ 10,00,000 in equity shares of ₹ 100 each
It issued a prospectus inviting applications for 20,000 shares at 40% premium payable as follows:
On Application ₹ 50 (including ₹ 10 premium);
On Allotment ₹ 40 (including ₹ 10 premium);
On First Call ₹ 30 (including ₹ 10 premium);
On Second and Final Call ₹ 20 (including ₹ 10 premium).
Shares were subscribed and amount due was received. Pass the necessary Journal entries .
Solution-:
|
In the Books of India Ltd. |
||||
|
Date |
Particular |
l.F. |
Dr. Amount ₹ |
Cr. Amount ₹ |
|
|
Bank A/c Dr. To Equity Shares Application A/c (Application money received on 20,000 shares @ ₹ 50 per share) |
|
10,00,000 |
10,00,000 |
|
|
Equity Shares Application A/c Dr. To Securities Premium Reserve A/c (20,000 x ₹10) (Application money adjusted ) |
|
10,00,000 |
8,00,000 |
|
|
Equity Shares Allotment A/c Dr. To Equity Share Capital A/c (20,000 x ₹30) To Securities Premium Reserve A/c (20,000 x ₹10) (Allotment money due on 20,000 shares) |
|
8,00,000 |
6,00,000 |
|
|
Bank A/c Dr. To Equity Shares Allotment A/c (Allotment money received ) |
|
8,00,000 |
8,00,000 |
|
|
Equity Shares First Call A/c Dr. To Equity Share Capital A/c (20,000 x ₹20) To Securities Premium Reserve A/c (20,000 x ₹10) (First call money due on 20,000 shares) |
|
6,00,000 |
4,00,000 |
|
|
Bank A/c Dr. To Equity Shares First Call A/c (Shares first call amount received on 20,000 shares) |
|
6,00,000 |
6,00,000 |
|
|
Equity Shares Second and Final Call A/c Dr. To Equity Share Capital A/c (20,000 x ₹10) To Securities Premium Reserve A/c (20,000 x ₹10) (Second and final call money due on 20,000 shares) |
|
4,00,000 |
2,00,000 |
|
|
Bank A/c Dr. To Equity Shares Second and Final Call A/c (Shares second and final call money received) |
|
4,00,000 |
4,00,000 |
