Issue of Shares

NOTE: Issue of bonus and rights shares, private , placement of shares, sweat equity shares, employees’ stock option
scheme, reservations for small individual participants and minimum tradable lots are not required.
Issue of Shares – 11 marks (weightage of the chapter)
What is a Share?
A share or stock is a document issued by a company, which entitles its holder to be one of the owners of the
company. A share is issued by a company or can be purchased from the stock market. A company is an Artificial
Legal person and does not have its own capital. It is raised by its shareholders by subscribing to the shares of the
company.
In simple words, the total share capital of the company is divided into units of small denomination (Rs.10 , Rs.50
or Rs.100 etc) each unit is known as Share.
A ‘Share’ represents a unit into which capital of a company is divided.
Kinds of Shares :Preference Shares &. Equity Shares
Share Capital of a Company

Students must remember that a company is an Artificial Legal person. A company does not have its own capital. It is
raised by its shareholders by subscribing to the shares of the companies. Share capital is that money which is
contributed by its shareholders.
Types of Share Capital
1. Authorised/Registered/Nominal capital : This capital is represented by the ‘Capital Clause’ of the Memorandum
of Association by which the company is Registered. Only after the Registration a company can issue its shares.
Company can issue shares fully or partially with the specified denomination i.e. Rs.10, Rs.50, Rs.100 etc.
2. Issued Capital: Issued Share Capital is the total of the share capital issued to shareholders. This may be Equal or
less than the authorised capital. Students must remember that issued capital is that part of the authorised capital
which is offered to the public for subscription, including the shares offered to the vendors for subscription other than
cash and shares allotted as bonus shares. Some part of authorised capital may be kept within the company which can
be offered later which is known as ‘Unissued Capital’.
3. Subscribed Capital: Subscribed capital is that portion of the issued capital which has been subscribed by the
public. This may be equal or less than the issued share capital as there may be capital for which no applications have
been received yet ('unsubscribed capital').
4. Called-up Capital : Called-up capital is that portion of the subscribed capital which shareholder will pay to the
company on the shares allotted to them. For example if the face value of a share is Rs.20 and the company has called
up only Rs.16 per share, in such a case the called up capital is Rs.16 and uncalled capital is Rs.4, which may be
collected by the company later.
5. Paid-up Capital: Paid up Share Capital is that amount of share capital which is paid by the shareholders. Paid up
capital may be equal or less than the called up capital as payments may be in arrears which is known as Calls-in-
Arrears. In simple words, it is the actual amount paid by the shareholders.
6. Uncalled Capital : Uncalled capital is that portion of the subscribed capital which has not yet been called-up in the
beginning, company may called this amount from the shareholders any time according to the need of funds.
7. Reserve Capital : Reserve Capital is that Part of the authorised capital which has not been called up by the
company. Reserve capital helps in paying the creditors’ at the time of liquidation.
Issue of Shares for Cash
There may be two situations under this case:
1. Shares Payable in Lump Sum
2. Shares payable in instalments
Note – Calls in advance is shown under Equity and liabilities under head “current liabilities” under sub head “other
current liabilities” .
When shares are issued to The Promoters
Promoters are those persons, firms or companies who are involved in setting up and funding a new company.
Remuneration May be paid to the promoters in the form of cash or shares. When shares are issued to the promoters
following entry will take place :
Goodwill A/c Dr.
To Share Capital A/c
(Being shares issued to promoters)
Alternative :
Incorporation Costs or Formation Expense A/c Dr.
(Being Shares issued to the promoters)
Note : Students must Remember here the Accounting Standard 10 According to Which Goodwill will be recorded in
the books only if some money or money worth is paid for goodwill.
Oversubscription
In case of well managed and financially strong companies it has been observed that excess applications are received
by the companies for the subscription of shares than the number of shares offered for subscription. In such a case
there are three options available to the directors of the company.
1. Reject the Excess Applications: in this case directors may reject the excess applications and excess application
money received will be paid back to the applicants.
2. Allotment on Pro-rata basis: The directors may allot the shares on pro-rata basis. For example Ram has applied for
100 shares but company has issued only 70 shares on pro- rata basis and money of 30 shares will be adjusted on the
allotment. (In this case applicants do not get the full shares applied by them.
3. Combination of above two alternatives: This is combination of first two methods where some of the excess
applications are rejected by the company and pro-rata allotment is made to the remaining applicants.
Options available in this case are :
• Some of the excess applications may be rejected
• Some applicants may get full allotment
• Some Applicants may get allotment on pro-rata basis
Case 1. When Excess Applications are Rejected

Accounting Treatment: Following Journal entries are recorded in this case:
1. Bank A/c Dr.
To Share Application A/c
(Being application money received on .... shares @ Rs. _ per share)
2. Share Application A/c Dr.

To Bank A/c ( Money refunded)
(Being Application money transferred to Sh. Capital A/c and money refunded on shares rejected)
3. Share Allotment A/c Dr.

(Being Amount due on the allotment)
4. Bank A/c Dr.

To Share Allotment A/c(Being allotment money received)
Case 2. When Pro-rata allotment is made
1. Bank A/c Dr.

(Being application money received on .... shares @ Rs. _ per share)

To Sh. Allotment A/c ( Money adjusted on allotment)
(Being App. money transferred to Sh. Capital A/c and excess adjusted in the allotment)

4. Bank A/c Dr.

To Share allotment Account
(Being Allotment money received after deducting the money adjusted)
Case 3. Combination of above two alternatives
1. Bank A/c Dr.

(Being application money received on _ _ shares @ Rs. _ per share)

To Sh. Allotment A/c (Money adjusted)
To Bank A/c ( Money refunded)
(Being Application money transferred to Sh. Capital A/c, Excess adjusted towards the Allotment and money refunded
on shares rejected)

4. Bank A/c Dr.

To Share allotment Account
(Being Allotment money received after deducting the adjusted money)
Calculation of Allotment Money
Use the following steps if these two conditions are satisfied :
a) There is Pro – rataAllotment to that shareholder
b) Allotment is not paid by the shareholder
If above two conditions are satisfied use these steps:
Calculation of Capital Reserve
(Total forfeited amount/No. of shares forfeited x No. of reissued shares) – Forfeiture A/c at the time of reissue .

Issue of Shares

Uploaded by

Copyright:

Available Formats

Issue of Shares

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Issue of Shares

Uploaded by

Copyright:

Available Formats

NOTE: Issue of bonus and rights shares, private , placement of shares, sweat equity shares, employees’ stock option

Issue of Shares – 11 marks (weightage of the chapter)

A ‘Share’ represents a unit into which capital of a company is divided.

Kinds of Shares :Preference Shares &. Equity Shares

Share Capital of a Company

Case 1. When Excess Applications are Rejected

2. Share Application A/c Dr.

3. Share Allotment A/c Dr.

4. Bank A/c Dr.

1. Bank A/c Dr.

2. Share Application A/c Dr.

3. Share Allotment A/c Dr.

4. Bank A/c Dr.

Case 3. Combination of above two alternatives

Accounting Treatment: Following Journal entries are recorded in this case:

1. Bank A/c Dr.

2. Share Application A/c Dr.

3. Share Allotment A/c Dr.

4. Bank A/c Dr.

You might also like