Nitin Jain

ISSUE OF SHARES Receipt of share money in one installment

The company may receive the share money in one installment along with application. In this case the following journal entries are made in the books of the company 1. On Receipt of Application Money Bank A/c Dr To Share Application A/c (Application money received on .shares of Rseach) 2. On transferring the Application Money Share Application A/c Dr To Share Capital A/c (Application money transferred to share capital A/c)

Share money received in two or more installments

Instead of receiving payment in one installment i.e. at the time of application the company collects it in two or more installments. The first, installment which the applicants have to pay along with the applications for share is known as application money. On the allotment of shares the allotters are required to pay the second installment which is termed as allotment money. If the company decides to call the share money in more than two installments the other installment is/are termed as call money (i.e. first-call, second call or final call). In the above case the transactions are recorded in journal as given below: 1. On receipt of application money Bank A/c Dr To Share Application A/c (Receipt of share application money for . Shares @ Rs.. per share)
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Nitin Jain

2. On allotment of shares After receiving the application for shares within the prescribed time, the Board of Directors of the company proceed to allot shares. On allotment of shares the application money is transferred to Share Capital A/c. For this the following journal entry is made : Share Application A/c Dr To Share Capital A/c (Share application for . Shares @ Rs per share transferred to share capital A/c) 3. Allotment Money becoming due and received On the allotment of shares the amount receivable on the next installment i.e. on allotment becomes due. The following entry is made for recording the amount due: (i) Allotment money becoming due Share Allotment A/c Dr To Share Capital A/c (Share allotment money due on . shares @Rs ... per share) (ii) Receipt of allotment money On the receipt of share allotment money the following journal entry is made: Bank A/c Dr To Share Allotment A/c. (Receipt of the amount due on allotment of shares) 4. Calls on shares After the receipt of application and allotment money the money that remains unpaid can be called up by the company as and when required. Thus a call is a demand made by the company asking the shareholders to remit the called up amount on shares allotted to them. The company may demand the remaining money in more than two Installments. The amount called after the allotment is
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Nitin Jain

known as call money. There may be one or more calls, depending on the funds requirements of the company. When only one call is made Call Money is Due: Share First and Final Call A/c Dr To Share Capital A/c. (Call money due on . share @ Rs per share). 5. Receipt of call money The following journal entry is made for receipt of call money: Bank A/c Dr To Share First & Final call A/c (Call money due on shares @ Rs ... per share received) Note: If the company makes more than one call the same accounting treatment is followed for recording the second call or third call money due and their receipt. The last call made is termed as final call.

OVER SUBSCRIPTION
When company receives applications for more number of shares than the number of shares offered to the public for subscription it is a case of over subscription. A company cannot allot more shares than what it has offered. In case of over subscription, company has the following options: Option I Rejection of Excess Applications and Money Returned The company may reject the applications for shares in excess of the shares offered for issue and a letter of rejection is sent to such applicants. In this case the application money received from these applicants is refunded to them in full. The journal entry made is as follows: Share Application A/c Dr To Bank A/c (Application money on shares refunded to the applicants)
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Nitin Jain

Excess application money adjusted towards sums due on allotment. Journal entry made is: Shares Application A/c Dr To Share Allotment A/c (Excess application money adjusted towards sums due on allotment) If the application money received on partially accepted applications is more than the amount required for adjustment towards allotment money, the excess money is refunded. However, if the Articles of the company so authorise, the directors may retain the excess money as calls in advance to be adjusted against the call/calls falling due later on and the following entry is made: Share Application A/c Dr To Call-in-advance A/c (The adjustment of excess share application money retained as call-in advance in respect of ... shares). Option II Partial acceptance of Applications.

(PRORATA ALLOTMENT)
In some cases the company accepts the applications for subscription partially. It means that the company does not allot the full number of shares applied for. For example if an applicant has applied for 5000 shares and is allotted only 2000 shares, then the applications is said to have been partially accepted. The company may evolve some formula of accepting applications partially or making proportionate allotment/ the Prorata allotment which means that the applicants are allotted shares proportionately. In such a case the company adjusts the excess share money received on application towards share allotment money due on partially accepted applications. The journal entry recording the adjustment of application money towards share allotment money, is as under: Share Application A/c To Share Allotment A/c Dr

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Nitin Jain

(Share application money transferred to Share Allotment Account in respect of ... shares).

Issue of Shares at Premium

In Application stage: Share Application A/c Dr To Share Capital A/c To Securities Premium A/c (Share application money transferred to share capital A/c and securities Premium A/c) In Allotment or Call stage: Share Allotment A/c Dr Or/and Share Call A/c Dr To Securities Premium A/c (Adjustment of share premium due onshares @Rs.per share.)

Issue of Shares at Discount

Share Allotment A/c Dr Discount on issue of shares A/c Dr To Share Capital A/c (Allotment money due on.shares @Rs per share after allowing discount @Rs .per share)

Calls in Advance
Following journal entry is made for calls-in-advance. Bank A/c Dr To Calls-in-Advance A/c (Calls in advance received on.shares @ Rs .per share)
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Nitin Jain

Appropriation of calls-in-Advance A/c say in the final call Journal entry will be: Calls-in-Advance A/c Dr To Share Final call A/c (Calls in advance amount adjusted) For interest given on Calls-in-Advance Journal entry will be Interest on calls-in-Advance A/c Dr To Bank A/c (Interest paid on the amount of Call-in-Advance)

Calls in Arrears
The following journal entry is made to record Calls-in-Arrears: Calls-in-Arrears A/c Dr To Share Allotment/Call A/c (Share allotment/ Call money not received on . shares) When the unpaid balance is received later on the following journal entry is made: Bank A/c Dr To Calls in Arrears A/c (Amount due on allotment/ call remaining unpaid now received on shares.) The company may charge interest on the amount of calls in arrears at a given rate from the date of amount due till it is paid journal entry will be Bank A/c Dr To Interest on calls in arrears A/c

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Nitin Jain

Forfeiture of shares:
The shares allotted to a subscriber who has defaulted in paying any call due on his shares can be forfeited by decision of the Board of Directors if empowered by the articles of the company after giving due notice to the defaulting shareholders. This power of Board of Directors has to be applied bonafide and in the interest of the company. Journal Entries for Forfeiture Share Capital A/c Dr. [No. of share forfeited '' Amount called up per share] To Calls in Arrear [total amount of dues not collected on forfeited shares] To Share Forfeiture A/c [amount collected on forfeited shares] If forfeited shares are issued at a premium and such premium is not received then the entry should be: Share Capital A/c Share Premium A/c To Calls-in-arrear A/c To Share Forfeiture A/c Dr Dr

Re-Issue of forfeiture A/c

Bank A/c Dr. (Amount actually received) Share Forfeiture A/c Dr. (Discount on Reissue) To Share Capital A/c (Face value of share) If balance of Share Forfeiture A/c exceeds discount on Reissue, the Balance should be treated as a Capital profit which is computed on follows: Amount forfeited No. of shares reissued - Discount on No. of forfeited shares Reissued no. of shares. The Journal Entry will be: Share Forfeited A/c Dr
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Nitin Jain

To Capital Reserve Note: The forfeited amount on unissued shares will be shown in Balance Sheet as an addition to share capital.

ISSUE OF DEBENTURES Debentures issued for cash at par:

1. Application money is received Bank A/c Dr To Debentures Application A/c (Application money received for Debentures) 2. Transfer of debentures application money to debentures account on their allotment Debentures Application A/c Dr To Debentures A/c (Application money transferred to debenture account on allotment) 3. Money due on allotment Debentures Allotment A/c To Debentures A/c (Allotment money made due) Dr

4. Money due on allotment is received Bank A/c Dr To Debentures Allotment A/c (Receipt of Debenture allotment money) 5. First and final call is made Debentures First and Final call A/c To Debentures A/c Dr

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Nitin Jain

(First and Final call money made due on ............... debentures) 6. Debentures First and Final call money is received Bank A/c Dr To Debentures First and Final call A/c (Receipt of Amount due on call) Note: Two calls i.e. first call and second call may be made

Over subscription
Company if receives applications for number of debentures that exceed the number of debentures offered for subscription, it is called over subscription. There can be following treatment of the excess application money received: (a) The total amount of excess number of applications is refunded in case the applications are totally rejected. (b) The amount of excess application money is totally adjusted towards amount due on allotment and calls In case partial allotment is made, The excess amount is adjusted towards sums due on allotment and rest of the amount is refunded. Journal entries in the above cases will be as follows: For refund of money if the applications are rejected Debentures Application A/c Dr To Bank A/c (Refund of money on rejected applications) For adjustment of excess application money adjusted towards sum due on allotment Debentures Application A/c Dr To Debentures Allotment A/c
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(Excess application money adjusted)

Debentures issued at Premium

Debentures are said to be issued at premium when these are issued at a value which is more than their nominal value. For example, a debenture of Rs 100 is issued at Rs 110. This excess amount of Rs 10 is the amount of premium. The premium on the issue of debentures is credited to the Securities Premium A/c as per section 78 of the Companies Act, 1956. Journal entry will be as follows: Debentures Allotment A/c Dr To Debentures Account To Securities Premium A/c (Amount due on allotment along with premium of Rs ....)

Debentures issued at Discount

When debentures are issued at less than their nominal value they are said to be issued at discount. For example, debenture of Rs 100 each is issued at Rs 90 per debenture. Companies Act, 1956 has not laid down any conditions for the issue of debentures at a discount as have been laid down in case of issue of shares at discount. However, there should be provision for issue of such debentures in the Articles of Association of the Company. Journal entry for issue of debentures at discount (at the time of allotment) Debentures Allotment A/c Dr Discount on issue of debentures A/c Dr To Debentures A/c (Allotment money due. The amount of discount is @ Rs.... Per debenture)

Issue of Debentures with conditions Stipulated to their Redemption

(i) Issued at par redeemable at par
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Nitin Jain

Bank A/c Dr To Debentures Account (Issue of debentures of Rs .... at par) (ii) Issued at discount and redeemable at par Bank A/c Dr Discount on issue of Debentures A/c Dr To Debentures A/c (Issue of debentures of Rs ... at a discount of Rs ....) (iii) Issued at premium redeemable at par Bank A/c Dr To Debentures A/c To Securities Premium A/c (Issue of ... debentures of Rs .... at a premium of Rs ....) (iv) Issue at par, redeemable at premium Bank A/c Dr Loss on Issue of Debentures A/c Dr To Debentures A/c To Premium on Redemption of Debenture A/c (Issue of ... debentures of Rs ... a redeemable at a premium of Rs ...) (v) Issued at discount and redeemable at premium Bank A/c Dr Discount on Issue of Debentures A/c Dr Loss on Issue of Debentures A/c Dr To Debentures A/c To Premium on Redemption of Debenture A/c (Issue of ... debentures of Rs ... at a discount of Rs ... redeemable at a premium of Rs ....)

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