Issue of Shares

CHAPTER 1
Issue of Shares
Introduction • Capital • Meaning of Shares • Types of Shares – Equity Shares and Preference
Shares • Issue of Shares – Public Issue, Rights Issue and Preferential Allotment • Eligibility
Norms for making Public Issue of Shares • Accounting Process and Entries for Public Issue of
Shares – When shares are issued for ‘payment at once’ and when shares are issued for ‘payment
by installments’ • Accounting Process and Entries for Rights Issue of shares • Account Process
and Entries for Preferential Allotment of Shares • Issue of Sweat Equity Shares • Issue of
Shares for purchase of assets • Issue of shares to the promoters • Forfeiture of Shares • Re-
issue of forfeited shares • Treatment of items relating to ‘issue of shares’ in final accounts.
Introduction
Among various forms of business organization, Joint Stock Company is the most prominent.
A joint stock company is a form of business enterprise which is incorporated under the Indian
Companies Act, in which there will be a large number of owners contributing capital. The owners of
the company who contribute capital are called shareholders and the capital so contributed by them
is called Share Capital.
Meaning of Joint Stock Company
Joint stock company is an association of persons formed to carry on business with a view to
earn profit, having a common stock called the share capital which is divided into equal units called
shares held by The persons called the shareholders. Such a company has a separate identity different
from its members.
Definition of Company
Lord Justice Lindley has defined a company as" a voluntary association of organization of
many persons who contribute money or money's worth to a common stock and employ it some trade
or business and share the profit or loss there off"
Features of Joint Stock Company
The following the features of a company:
1) Company is an association of persons formed usually with a view to earn profit.
2) It is compulsorily registered under the companies Act.
2 Corporate Accounting and Reporting
3) It has perpetual succession and its existence will continue inspite of death or insolvency
of any of its members.
4) It is a legal person and can hold, purchase or sell property, incur debts, sue or sued in its
own name.
5) It is an artificial person, but it acts through directors of the company.
6) The liability of the members usually limited to the extent of the face value of shares held
by them.
7) The shares of the company are freely transferable by its members except in case of
private companies.
8) Every company required to have its own seal which acts as an official signature of the
company.
Types of Share Capital
The share capital of a company is of different types, viz;
1. Authorized Share capital.
2. Issued Share Capital
3. Subscribed Share Capital
4. Called-up Share Capital
5. Paid-up Share Capital.
Authorized Share Capital
Authorized Share Capital refers to the maximum amount of capital which a company is authorized
to mobilize from the public. during the life time of the company by the issue of shares, it is also
known as registred capital or nominal capital.
Issued Share Capital
Issued Share Capital refers to that part of authorized share capital which is actually issued to
the public for subscription.
Subscribed Share Capital
Subscribed Share Capital refers to that part of Issued Share Capital which is actually subscribed
by the public.
Called-up Share Capital
Called-up Share Capital refers to that part of Subscribed Share Capital which is actually called
by the company for the shareholders to pay.
Paid-up Share
Paid-up Share Capital is that part of Called-up Share Capital actually paid by the shareholders.
Meaning of Shares
A Share is a share in the share capital of a company. The share capital will be split into large
number of units of same value. Each such unit is called Share and the value of each share is called
Face Value. A company mobilizes share capital by issuing shares to the Public. The members of the
public who subscribe for the shares of the company are given a Share Certificate under the common
seal of the company for providing them with prima facie evidence of their title to the shares
specified therein. A bundle of, or aggregate of fully-paid shares is called stock.
Issues of Shares 3
Types of Shares
Shares which a company issues are of different kinds, viz.,
1. Preference Shares
2. Equity Shares
Preference Shares refer to those shares which are given preference in payment of dividend
and repayment of capital. The holders of these shares do not have any voting powers. The rate of
returns on these would be fixed and normally, they will be redeemed after a pre-determined period
of time or converted into equity shares.
Preference Shares are further classified into the following categories, viz:
1. Redeemable Preference Shares
2. Irredeemable Preference Shares
3. Participating Preference Shares
4. Non-Participating Preference Shares
5. Cumulative Preference Shares
6. Non-Cumulative Preference Shares
Redeemable Preference Shares are those shares which would be paid back with the capital
within the life-time of the company, usually, after a fixed period of time.
Irredeemable Preference Shares are those shares which would be paid back with the capital
only when the company is closed (i.e., liquidated).
Participating Preference Shares are those shares that gives the holder to right to received
dividends equal to the normally specified rate that preferred dividends are paid to preference share
holders, as well as an additional dividend based on some predetermined conditions.
Non-participating Preference Shares are those shares which are not entitled for any surplus
dividend.
Cumulative Preference Shares are those shares on which dividends unpaid in any year due to
lack of profit or other reasons, would be accumulated and paid in the following years.
Non-cumulative Preference Shares are those shares on which dividends unpaid in any year
will not be accumulated or carried forward.
Equity Shares are also called as ordinary shares, since they don’t have any preferences. The
holders of these shares have voting powers enabling them to decide about the progress and
performance of the Company. These shares do not carry any fixed rate of return. Every year, the
Board of Directors decide about the amount of dividends to be paid on each share, depending on
the profits and profitability of the Company.
Issue of Shares
Issue of shares can be primarily classified into three categories, viz.,
A. Public issue,
B. Rights issue, and
C. Preferential issue.
A. Public issue of shares or public offering refers to the offer made by a company to the new
investors for joining its shareholding family. Public offering is again classified into two categories,
viz.,
(a) Initial Public Offering (IPO); and
(b) Further Public Offering.
(a) Initial Public Offering (IPO) is when an unlisted company makes either a fresh
issue of securities or an offer for sale of its existing securities or both for the first
time to the public.
(b) Further Public Offering refers to fresh issue of shares to the public or sale of
shares to the public through an offer document, by a company which is already
listed.
B. Rights Issue refers to offering shares to the existing shareholders, as on a record date.
The rights are normally offered in a particular ratio to the number of securities held prior to the
issue. This route is best suited for companies who would like to raise capital without diluting stake
of its existing shareholders.
C. Preferential issue of shares refers to issuing of shares to a select group of persons. It is
also called private placement of shares.
Eligibility Norms for making Public Issue of Shares
SEBI has laid down the following eligibility norms for making public issue of shares (initial or
further) by a company:
Eligibility Norm One:
The company shall meet the following requirements:
(a) Net Tangible Assets of at least ` 3 crores for 3 full years.
(b) Distributable Profits in at least three years.
(c) Net worth of at least ` 1 crore in three years.
(d) If change in name, at least 50% revenue for preceding one year should be from the new
activity.
(e) The issue size does not exceed 5 times the pre-issue net worth.
To provide sufficient flexibility and also to ensure that genuine companies do not suffer on
account of rigidity of the parameters, SEBI has provided two other alternative routes to companies
not satisfying any of the above conditions, for accessing the Primary Market, as under:
Eligibility Norm Two:
(a) Issue shall be through book building route, with at least 50% to be mandatory allotted to
the Qualified Institutional Buyers.
(b) The minimum post-issue face value capital shall be ` 10 crore or there shall be a
compulsory market-making for at least 2 years.
OR
Entry Norm III (EN III):
(a) The “Project” is appraised and participated to the extent of 15% by Financial Institutions
or Scheduled Commercial Banks of which at least 10% comes from the appraisers.
Issues of Shares
Issue of Shares
      
Public Issue to Issue to Rights Preferential Bonus Sweat
Issue Vendors Promoters Issue Allotment of Shares Equity
Shares Shares
  
At Par At Premium At Discount
 
Issue of Shares Issue of Shares
for payment at once for payment in instalment
    
Forefeitre Re-issue of Application Allotment Calls
of share Forefeited Shares Stage Stage Stage
Forefeitre of Re-issue of Forefeitre

Share Share
5
(b) The minimum post-issue face value capital shall be ` 10 crore or there shall be a
compulsory market-making for at least 2 years.
In addition to satisfying the aforesaid eligibility norms, the company shall also satisfy the
criteria of having at least 1000 prospective allottees in its issue.
Exceptions to Eligibility Norms:
The following are eligible to be exempted from the fulfillment of Eligibility Norms:
(a) Private Sector Banks.
(b) Public Sector Banks.
(c) An infrastructure company whose project has been appraised by a Public Financial
Institution or IDFC or IL&FS or a bank which was earlier a Public Financial Institution and
not less than 5% of the project cost is financed by any of these institutions..
(d) Rights issue by a listed company.
Accounting Process and Entries for issue of shares
(A) ACCOUNTING PROCESS AND ENTRIES FOR PUBLIC ISSUE OF SHARES:
In case of Public Issue of Shares, issue of shares may be for ‘payment at once’ or ‘payment in
installments’.
1. In case of issue of shares for ‘payment at once’:
The entries to be passed for issues of shares in this case, depend on the price at which shares
have been issued to the Public. Shares can be issued either at par or at a premium or at a discount.
(a) Issue of shares at par
It means issue of shares at face value. The journal entry in this case is–
Bank Account Dr.
To Equity Share Capital Account
(b) Issue of shares at premium
It means issue of shares at a price above the face value. The additional amount charged or
collected from the applicants over and above the face value is called Securities Premium. The
journal entry in this case is-
Bank Account (With the issue price of shares) Dr.
To Equity Share Capital Account (with the face value of shares)
To Securities Premium Account (with the premium on shares)
(c) Issue of Shares at Discount
It means issue of shares at a price below the face value. The difference between the issue
price and the face value of shares is called Discount on issue of shares. The journal entry in this
case is –
Bank Account (with the issue price of shares) Dr.
Discount on issue of shares Account (with the discount on issue) Dr.
To Share Capital Account (with the face value of shares)
Issues of Shares 7
2. In Case of Issue of Shares for Payment in Installments:

Most of the times, companies do not collect the entire share capital money at once, since it
may not require all the money at once. Such companies collect money on issue of shares in following
stages:
A. On receiving Application for shares (Application Stage).
B. On making Allotment of shares to applicants (Allotment Stage).
C. On making call/s for the shareholders to pay the balance money (Call Stage).
The transactions at each stage and the entries to be passed have been outlined below:
A. Application Stage
When a company makes an offer to the Public for subscription of its shares, all the interested
members of the Public make an application to the company for the shares and along with the
application pay the prescribed amount to be paid with application. On receiving the application and
the application money, the following entry is passed –
Bank Account Dr.
To Share Application Account
After scrutinizing the applications, the Board of Directors decide about the allotment of shares
to the applicants, on the basis of extent of subscription. If there was an under subscription or
proper subscription, all eligible applicants will be allotted shares and on such allotment, the following
entry will be passed –
Share Application Account Dr.
To Share Capital Account
However, if there was an over-subscription of shares, pro-rata or proportionate allotment of
shares will be made. Those applicants who were not allotted any shares will be refunded with the
application money and those who were shares less than the number applied for, will either be
refunded the application money of shares not allotted or would adjust it towards allotment money
or call money (if the Articles of Association provide for it). In such case, the following entries are
passed-
• For the application money received on shares allotted –
To Share Capital account
• For the application money refunded –
To Bank Account
• For the application money adjusted towards allotment money or call money
To Share Allotment Account (or)
To Calls-in-advance Account
Stock Invest
Stock invest is an instrument which can be used by an applicant to tender money for shares or
debentures applied for. The instrument is introduced in response to a large number of complaints
received by the Government regarding non-receipt and delay of refund of share application money.
The investor who wants to obtain stockinvest has to open an account for a deposit with a bank
issuing the stockinvest. The bank issues blank stockinvest of desired amounts against the deposits
by the applicant. The issuing bank gives the stockinvests duly signed by the investor and also
marks the date of the issue.
Investor has to maintain the name of the company in whose favor the stockinvest is meant.
The application form number and number of shares or debentures applied for by the applicant along
with the stockinvest is being sent. The company enchashes the stockinvests of only those applicants
to whom allotment is made. The stockinvests of unsuccessful applicants are retrun by the company
to the applicants.
B. Allotment Stage
The shareholders who are allotted with the shares will be intimated about it and asked to pay
some amount towards allotment of shares. However, at this stage apart from collecting the amount
towards allotment, premium on issue of shares will also be collected (if the shares are issued at
premium) or adjustment for discount will be made (if the shares are issued at discount). The
entries for this are as follows-
(a) For showing the allotment money due from shareholders:
• Shares are issued at par-
Share Allotment Account Dr.
Issue of Shares at Premium
As per provisions of Section 52 of the Companies Act, 2013 a company can issues share at a
premium. The Companies Act requires the amount of the premium received to be credited to a
seperate account called “Securities Premium Account”.
According to the same section, the securities premium account may be utilised by the company
for one or more of the following specific purposes:
1. In paying up unissued shares to the company to be issued to member of the company as
fully paid bonus shares.
2. In writing off the preliminary expenses of the company
3. In writing off the expenses like commission paid or discuount allowed on issue of shares
or debenture of the company.
4. In providing for the premium payable on the redumption of redeemable preference shares
or any debentures of the company.
The balance of the securities premium account is shown on the liabilities side of Balance
Sheet under ‘Reserves and Surplus’.
The securities premium may be payable with application money or with allotment money or
partly with application money or party with allotment money. The entry for recording premium is as
under:
(i) When Premium is payable with application money:
To Securities Premium Account
Issues of Shares 9
(ii) When Premium is payable with allotment money:

To Securities Premium Account
Issue of Shares at Discount
Section 53 of the Companies Act, 2013 - Prohibition on Issues of Shares at Discount
1. Except as provided in Section 54, a shall not issues shares at a discount
2. Any share issued by a company at a discount shall be void.
A company can issues at a discount, that that is at a price less than its face value, only if the
following conditions are fulfilled.
1. The shares to be issued at a discount must be at a class already issued.
2. The issue must be authorised by a re solution passed by the company in general meeting
and sactioned by the company law board.
3. The resoulution must specify the maxiumum rate of discount at which the shares are to
be issued. But the rate should in no case exceed 10% or such higher percentage as the
company law Board may permit in any special case.
4. The issue takes place at least after one year from the data on which the company was
entitled to commerce business.
5. The issue must be completed within two months from the date on which the issue is
sanctioned from by the board or within such extended time as the board permits.
6. Every prospective relating to the issue of shares must show particulars of the discount
allowed and so much there of as has not been written off at the date of issue of the
prospectus.
The entry for discount, which is usually made at the time of making entry for allotment, is as
under:
(a) For share allotment money due:
Discount on Shares Account Dr.
(b) For receiving the money on allotment:
Bank Account Dr.
To Share Allotment Account
(Note: If any amount was adjusted from the Share Application Account, only the balance
amount will be collected)
Over Subcription
In case of oversubcription, all the applicants can not be satisfied in full. In such a case, three
alternatives exist:
1. Reject the excess applications in full
For example, if the total number of shares issued are 10,000 at `10 each, the amount to be
payable on appliation is `2 and the applications received are for 15,000 shares.
Under this method 10,000 shares are alloted in full and 5,000 shares are rejected. Inotherwords
application money of `10,000 (5,000×2) is paid back to applicants.
2. Proportionate allotment to all applicants: (Pro-rate)

For example, if the total number of shares issued are 10,000 at `10 each, the amount to be
payable on appliation is `2 and the applications received are for 15,000 shares.
Under this method, proportionateallotment to all the applicants would be in the ratio of 15,000
: 10,000 i.e., 3:2. The excess amount would be adjusted towards share allotment.
The accounting entry for allotment and adjustment towards allotment money:
Share Application Account Dr. 30,000
To Share Capital Account 20,000
To Share Allotment Account 10,000
3. A Combination of the above two methods:
Under this method, reject some applications in full and allot proportionately to the rest of the
applicants.
For example, if the total number of shares issued are 15,000 at `10 each, the amount to
payable on appliation is `2 and the number of shares applied are 15,000.
Under this mehtod, on allotment, 3,000 shares are rejected in full and the rest of the shares
are proportionately alloted in the ratio of 12,000 : 10,000 i.e., 6:5.
The accounting entry is as follows:
Share Application Account Dr. 30,000
To Share Capital Account (10,000×2) 20,000
To Share Allotment Account (2,000×2) 4,000
To Bank Account (3,000×2) 6,000
C. Call Stage
On allotment of shares, the applicants become shareholders of the company. Whenever, the
company is in need of additional resources, the remaining amount of the face value of shares (if
any) would be called from the shareholders. On making such call, the entry to be passed is –
Share (First, second or Final) Call Account Dr.
To Share Capital Account.
On receiving money on the call, the entry to be passed is –
Bank Account Dr.
To Share (First, Second or Final) Call Account.
(Note: • If any amount was adjusted from the Share Application Account, only the balance amount
will be collected • Similar entries are made for the second, third and final calls also.
Calls-in Arrears
When all shareholders have not made the payment within the given date, the amount called
for, but not paid is called ‘calls-in-arrears’. Whenever, there is calls-in-arrears, the entry for
money received can be passed, and the balance in Share Call Account (which represent amount
called for, but not paid) may be retained as such. Alternatively, when there is calls-in-arrears, the
following entry can be passed:
Bank Account (with the amount collected) Dr.
Calls-in-arrears Account (with the amount called, not paid) Dr.
To Share (First, Second or Final) Call Account (with the amount of call)
Issues of Shares 11
Interest on Calls-in-Arrears
Interest on calls-in-arrears is paid for the period between the last date fixed for payment of
calls and the actual date of payment. Entry for the receipt of interest on Calls-in-Arrears is as
follows:
Bank Account Dr.
To Interest on calls-in-arrears Account
[Note: As per Table ‘A’ interest on calls-in-arrears is charged at 5% per annum.]
For transfer of on calls-in-arrears to profit and loss accounts:
Interest on calls-in-arrears Account Dr.
To Profit and Loss Account
Calls-in-Advance
If authorised by the articles of association, a company may receive from shareholders the
amount remaining unpaid on the shares held by them even through the amount has not been called
up. The amount so received is credited to the calls in advance account. When the call is made, the
appropriate amount is transferred from calls-in-advance account to the relevant call account.
Journal entry for adjustment of calls-in-advance if any, is
Calls-in-Advance Account Dr
To Share Call Account
Interest on Calls-in-Advance
The company is compelled to pay interst on the calls in advance. Interest on calls-in-advance
is paid from the date of receipt of advance to the date of appropriation at 6% per annum. The
journal entry for the interest on calls in advance if any, is:
Interest in Calls-in-Advance Account Dr.
To Bank Account
For transfer of Interest on calls-in-Advance to profit and loss account:
Profit and loss Account Dr.
To Interst on calls in advance.
JOURNAL RELATING TO ISSUE OF SHARES
Issue of Shares at par
Issue of share at par means the issue of shares at a price equal to face value of shares. The
Accounting entries for issue of shares at par is has follows:
1. The Application money received
Bank Account Dr.
2. For transferring the Application money on allotment of shares –
3. The Allotment Money due

(when shares are issued at par)
4. For Allotment Money Received
Bank Account Dr.
5. For Share call monay due
Share Call Account Dr.
6. For Share Call money recived
Bank Account Dr.
To Share Call Account
PROBLEMS ON ISSUE OF SHARES AT PAR
Illustration 1(Problems on Issue of Shares at Par when Shares Partly Subscribed)
Ragavendra Company Limited issued 10,000 Equity Shares of `10 each and the money was
payable as under:
on application `2
on allotment `3.
on First and Final Call `5 per share.
9,000 shares were subscribed by the public. All the Shares were allotted and the money duly
received. Pass Journal Entries.
Solution:
The Books of Raghavendra Ltd.

Journal Entries
Sl.No. Particulars LF Debit Credit
` `
1 Bank Account Dr. 18,000
To Equity Share Application Account 18,000
(Being share application money received on 9,000 shares of `2 each)
2 Equity Share Application Account Dr. 18,000
To Equity Share Capital Account 18,000
(Being Share application money transferred)
3 Equity Share Allotment Account Dr. 27,000
(Being Share allotment money due)
To Equity Share Allotment Account 27,000
(Being Share allotment money received)
Issues of Shares 13
5 Equity Share First & Final Call Account Dr. 45,000

(Being Share First and Final Call Money due)
To Share First & Final Account 45,000
(Being Share First & Final Call Money received)
Illustration 2(Problems on Issue of Shares at Par when Shares Fully Subscribed)

Ashok Limited issued 20,000 Equity Shares of `10 each payable as follows:
`2 on application
`4 on allotment
`3 on First call and the Balance in Final call.
All the shares were duly subscribed for and the amount were duly received.
Give Journal Entries in the books of the company.
Solution:
The Books of Ashok Limited

Journal Entries
` `
(Being share application money received on 20,000 share of `2 each)
(Being share application money transferred)
3 Equity Share Allotment Account Dr. 80,000
(Being Share allotment money due)
(Being share allotment money received)
5 Equity Share First Call Account Dr. 60,000
(Being share first call money due)
To Equity Share First Call Account 60,000
(Being Share First call money received)
7 Equity Share Final Call Account Dr. 20,000
(Being Equity Share Final Call money due)

To Equity Share Final Call Account 20,000
(Being share final call money received)
Illustration 3(Problems on Issue of Shares at Par when their is calls-in-arrears)

The Vikas Company Ltd. issued 10,000 shares of `10 each. The public subscribed for 8,000
shares and were fully allotted. The Amount of each share was payable as under:
1. `2 per share on application
2. `3 per share on allotment
3. `2 per share on first call
4. `3 per share on final call.
All the calls were made and the money was duly received except first call on 500 shares and
final call on 1,000 shares.
Give Journal Entries in the Books of the Company.
Solution:
The Books of Vikas Company Ltd.
Journal Entries
` `
To Share Application Account 16,000
(Being share application money received on 8,000 shares
of `2 each)
2 Share Application Account Dr. 16,000
(Being Share application money transferred)
3 Share Allotment Account Dr. 24,000
(Being share allotment money due)
5 Share First Call Account Dr. 16,000
Calls in Arrears Account Dr. 1,000
To Share First Call Account 16,000
(Being share first call money received on 7,500 shares of
`2 each)
Issues of Shares 15
7 Share Final Call Account Dr. 24,000

(Being share final call money due)
To Share Final Call Account 24,000
(Being share final call money received on 7,000 shares of `3 each)
Illustration 4(Problems on Issue of shares at par with calls in arrears)

The National Trading Company Ltd, with a registred capital of `1,00,000 issued 5,000 equity
shares of `10 each, payable ` 2 on applicaiton, ` 2 on allotment, ` 3 on first call and ` 3 on final call.
All the shares were subscribed and the money duly received except the first call on 500 shares and
the final call on 1,000 shares.
Give journal entries, ledger accounts and the Balance Sheet.
Solution:
The National Trading Company Ltd.
Journal Entries
` `
1. Bank Account Dr. 10,000
(Being application money recorded on 5,000 shares at `2 per share)
2. Equity Share Application Account Dr. 10,000
To Equity share chapital Account 10,000
(Being application money transfered to share capital Account)
3. Equity Share Allotment Account Dr. 10,000
To Equity share capital Account 10,000
(Being share allotment money due on 5,000 shares at ` 2 per shares)
(Being allotement money received)
5. Equity share first call Account Dr. 15,000
(Being first call money due on 5,000 shares at ` 3 per share)
Calls in arrears Account Dr. 1,500
To Equity share first call Account 15,000
(Being first call money received on 4,500 shares at `3)
7. Equity share final call Account Dr. 15,000
(Being final call money due on 5,000 shares at ` 3 per share)

To Equity share final call Account 15,000
(Being final call money received on 4,000 shares at `3 per share)
Ledger Accounts
Bank Accounts
Particulars ` Particulars `
To Equity Share Application Account 10,000 By Balance c/d 45,500
To Equity Share First Call Account 13,500
45,500 45,500
To Balance b/d 45,500
Equity Share Application Account
To Equity Share Capital Account 10,000 By Bank Account 10,000
10,000 10,000
Equity Share Allotment Account

10,000 10,000
Equity Share First Call Account

By Calls-in-arrears Account 1,500
15,000 15,000
Equity Share Final Call Account

By Calls-in-arrears Account 3,000
15,000 15,000
Equity Share Capital Account

To Balance c/d 50,000 By Equity Share Application Account 10,000
By Equity Share Allotment Account 10,000
By Equity Share First Call Account 15,000
By Equity Share Final Call Account 15,000
50,000 50,000
By Balance b/d 50,000
Note: When it is asked to prepare ledger accounts, pass the journal entries for cash transaction as
usual.
Issues of Shares 17
Balance Sheet of the National Trading Company Limited

As on 31.3.2019
Particulars Note ` `
EQUITY AND LIABILITIES
1. Share Holders Fund
a. Share Capital: 1
Authorised Equity Share Capital 1,00,000
Issued and Paid up Capital 50,000
Less: Call in Arrears 4,500 45,500
b. Reserves and Surplus Nil
2. Non-Current Liabilities
3. Current Liabilities
Trade Payable (Sundry Creditors) Nil
Other Current Liabilities (Bank Overdraft) Nil
Total 45,500
ASSETS
1. Non-current Assets
a. Fixed Assets
Tangible Fixed Assets
Intangible Fixed Assets
2. Current Assets
Cash and Cash Equalvent
Bank 10 45,500
Total 45,500
ISSUE OF SHARES AT PREMIUM
Some times may issue shares at a premium, if there is good demand for its shares.
Issue of shares at premium means the issue of shares at a price higher than the face value
shares.
The difference between the issue price and the face value of the shares is called securities
premium. Securities premium is a capital profit transfered to a spearate account called securites
premium account.
The premium may be collected by the company either on application or on allotatement or on
call.
1. If the premium is payable along with the Application
For the transfer of share application money
To Secutiries Premium Account
2. If the premium is payable on allotment
For the share allotment money due
3. If the premium is payable on call

For the share call money due
Share Call Account Dr.
PROBLEMS ON ISSUE OF SHARES AT PREMIUM
Illustration 5 (Problem on Issue of shares at premium)
Hindustan Mills Limited issued to public 50,000 Equity Shares of `10 each on 1.4.2019 at a
premium of `6 per share payable.
`5 on application
`8 on allotment including premium and balance on first and final call. By 15.4.2019 the issue
was fully subscribed and allotment was made on 28.4.2019. The allotment money was received in
full by 28.5.2019. The call was made on 15.9.2019.
Pass Journal Entries in the books of Hindustan Limited for the above transactions.
Solution:
In the Books the Hindustan Limited
Journal Entries
Date Particulars LF Debit Credit
` `
15.4.2019 Bank Account Dr. 2,50,000
To Equity Share Application Account 2,50,000
(Being share application money received on 50,000 shares of `5)
15.4.2019 Equity Share Application Account Dr. 2,50,000
To Equity Share Capital Account 2,50,000
(Being transfer of share application money)
28.4.2019 Equity Share Allotment Account Dr. 4,00,000
To Securities Premium Account 3,00,000
(Being share allotment money due on 50,000
shares of `8 each including premium of `6 each)
28.5.2019 Bank Account Dr. 4,00,000
To Equity Share Allotment Account 4,00,000
15.9.2019 Equity Share First & Final Call Account Dr. 1,50,000
(Being share first and final call money due)
Issues of Shares 19
Illustration 6 (Problem on Issue of shares at premium with Ledger Account and Balance
Sheet)
ABC Co. Ltd., issued 20,000 shares at `10 each at a premium at Re.1 per share, payable ` 2
on application, `4 on allotment (including premium), `3 on first call and `2 on final call.
All shares were subscribed and the money duly received.
Pass the necessary journal entries, prepare bank account, securities premium account and
show Balance Sheet in the books of the company.
Solution
In the Books ABC Company Limited
Journal Entries
` `
(Being share application money received on 20,000 shares at
`2 per share)
2. Share Application Account Dr. 40,000
(Being share application money transfered to share capital Account)
3. Share Allotment Account Dr. 80,000
To Share Capital Account (20,000×3) 60,000
To Securities Premium Account (20,000×1) 20,000
(Being share allotment money due including premium)
5. Share First Call Account Dr. 60,000
(Being share first call money due on 20,000 shares at `3 per share)
(Being share first call money received)
7. Share Final Call Account Dr. 40,000
(Being share final call money due on 20,000 shares at `2 per share)
Ledger Account
Bank Account
To Share Application Account 40,000 By Balance c/d 2,20,000
2,20,000 2,20,000
To Balance b/d 2,20,000
Share Premium Account
To Balance c/d 20,000 By Share Allotment Account 20,000
20,000 20,000
To Balance b/d 20,000
Balance Sheet of the ABC Co. Ltd
As on 31st March 2019
a. Share Capital:
Authorised, Issued and Subscribed Capital 1 2,00,000
Call-up and Paid up Capital 2,00,000
Securities Premium 2 20,000
Total 2,20,500
ASSETS
a. Fixed Assets
2. Current Assets
Bank 10 2,20,500
Total 2,20,000
Issues of Shares 21
Illustration 7(Problems on Issue of shares at premium with Calls-in-Arrears when cash book
entries are asked)
A Limited Company issued 1,00,000 Equity Shares of `10 each at `12 per share payable as
follows:
`2 per share on application
`4 per share on allotment
`5 per share on first call (including premium)
Re.1 per share on final call.
All the shares were taken up by the public and the money was duly received except `500 on
final call. Make the necessary journal entries and cash book entries in the books of the company.
Solution:
A Limited Company
Journal Entries
` `
1 Equity Share Application Account Dr. 2,00,000
2 Equity Share Allotment Account Dr. 4,00,000
3 Equity Share First Call Account Dr. 5,00,000
To Securities Premium Account 2,00,000
(Being Share first call money due)
4 Equity Share Final Account Dr. 1,00,000
Bank Account
To Share Application Account 2,00,000 By Balance c/d 11,99,500
To Share Allotment Account 4,00,000
To Share First Call Account 5,00,000
11,99,500 11,99,500
To Balance b/d 11,99,500
Note: When cash book entries are asked in the problem, there is no need to pass cash/bank entries
Illustration 8 (Problme on Issue of shares at Premium with Calls-in-Arrears)

Suguna Mills Limited issued 10,000 equity shares of `10 each at a premium of `2 per share
payable as follows:
`2 on application
`5 on allotment (including premium) and
`5 on first and final call.
The shares were all subscribed and the money were duly received except the first and final call
on 1000 shares.
Pass the necessary Journal Entries in the books of the company.
Solution:
The Suguna Mills Limited
Journal Entries
` `
(Being share application money received)
To Securities Premium Account 20,000
(Being share allotment money due on 20,000 shares of `5
each including premium of `2 per share)
5 Share First & Final Calls Account Dr. 50,000
Call in Arrears Account 500
To Share First & Final Call Account 50,000
(Being share first and final call money received on 9,000
shares of `5 each)
Issues of Shares 23
Illustration 9(Problem on Issue of Shares at Par when there is Calls in Advance)

XYZ Co. Ltd., registred with a nominal capital of `5,00,000 in shares at ` 100 each, 3,000 of
which were issued, payable as to `12.50 on application, `12.50 on allotment, `25 three months
after allotment and the balance to be called up as and when required. All the money upto allotment
were duly received, but a s regards the call of `25, a shareholder holding 100 shares did not pay the
amount due. Another shareholder who was alloted 150 shares paid them up in full.
Pass journal entries and prepare Balance Sheet.
Solution
XYZ Company Limited
Journal Entries
Sl.No Particulars LF Debit Credit
` `
(Being share application money received on 3,000 shares at
`12.50 per share)
(Being transfer of share application money to share capital
Account)
(Being share allotment money due on 3,000 share at `12.50
per share)
(Being share first call money due on 3,000 shares at `25
per share)
Calls-in-Arrears Account Dr. 2,500
(Being share first call received on 2,900 shaes at `25 per share)
To Calls-in-Advances Account 7,500
(Being calls in advance received on 150 shares at `50 per share)
Balance Sheet of XYZ Co. Ltd

a. Share Capital:
Authorised 5,000 shares of ` 100 each 1 5,00,000
Issued and Subscribed Capital 3,000 shares of ` 100 each 3,00,000
Call-up and Paid up Capital 3,000 shares of ` 100 each
` 50 Called 1,50,000
Less: Calls in Arrears 2,500 1,47,500
Calls in Advanced 7,500
Total 1,55,000
ASSETS
a. Fixed Assets
2. Current Assets
Bank 10 1,55,000
Total 2,20,000
Illustration 10(A Problem on Issue of shares at premium with calls-in-arrears and calls-in-
advance when cash book entries are asked)
Ashok Limited issued 10,000 equity shares of `10 each at a premium of 20% payable as
follows:
`2 on application, `4 on allotment (including premium).
`3 on first call and `3 on final call.
All the shares were subscribed. The company made all the calls and all the money due were
duly received except the final call on 100 shares. A shareholder holding 200 shares paid the entire
balance along with allotment money.
Give the journal and cash book entries to record the above transactions.
[B.U., B.B.M., Nov./Dec., 1999]
Issues of Shares 25
Solution
The Ashok Limited
Journal Entries
` `
(Being transfer of share application money )
To Securities premium Account 20,000
To Share capital Account 30,000
(Being share final call money due on 10,000 shares at `3 each)
Dr. Cash Book Cr.

To Share Application Account 20,000 By Balance c/d 1,19,700
To Calls in Advance Account 1,200
To Share Final Account 29,100
1,19,700 1,19,700
ISSUE OF SHARES AT A DISCOUNT

Some times, a company in order to rise additional capital at a time, when there is no demand
for its shares, may issue its shares at a discount.
Issue of shares at a discount means the issue of shares at a price less than the face value
shares.
The difference between the face value and the issue price of the shares is called discount on
issue of shares. Discount on issue of share is capital loss, so it is shown under other non current
assets until it is completely written off.
When shares are issued at a discount, the discount is generally recorded while passing the
entry for the share allotment money due.
Share Alloatment Account (with Allotment money) Dr.
Discount on Issue of Shares Account (with discount account) Dr.
To Share Capital Account (with face value)
PROBLEMS ON ISSUE OF SHARES AT A DISCOUNT

Illustration 11 (Problem on Issue of shares at a discount)
M/s. Kaveri Company Limited issued 6,000 shares of `100 each at a discount of `5 per share.
The amount was payable as follows:
`20 on application
`40 on allotment
`35 on First and Final Call.
All the shares were subscribed and the amount were duly received.
Give the Journal Entries in the books of the company.
Solution
The Kaveri Company Limited
Journal Entries
` `
1 Bank Account Dr. 1,20,000
To Share Application Account 1,20,000
2 Share Application Account Dr. 1,20,000
To Share Capital Account 1,20,000
3 Share Allotment Account Dr. 2,40,000
Discount on issue of Share Account Dr. 30,000
5 Share First & Final Call Account Dr. 2,10,000
To Share Capital 2,10,000
To Share First & Final Call Account 2,10,000
(Being first and final call money received on 6,000 shares of `35)
Illustration 12 (Problem on Issue of shares at discount with Calls-in-Arrears)

The Mysore Sugar Company Limited issued 20,000 Equity Shares of `100 each at a discount of
`5 per share the amount was to be paid as follows:
on application `20
on allotment `35
on First and Final Call `40
Issues of Shares 27
All the shares were subscribed and the money was duly received except the first and final call
on 2,000 shares.
Give the Journal Entries to record the above transactions in the books of the company.
Solution
The Mysore Sugar Company Limited
Journal Entries
` `
(Being application money received on 20,000 Equity Shares of
`20 each)
2 Equity Shares Application Account Dr. 4,00,000
Discount on Issue of Shares Account Dr. 1,00,000
5 Equity Share First & Final Call Account Dr. 8,00,000
To Equity Share First & Final Call Account 8,00,000
(Being share first and final call money
received on 18,000 shares of `40 each)
Illustration 13 (Problem on Issue of shares at discount with Calls-in-Arrears)

The Modern Trading Company Limited issued 10,000 shares of `100 each at a discount of 5%
payable as follows:
on application `25
on allotment `40
on First and Final Call `30
All these shares were subscribed and the money duly received except the Final Call on 100
shares.
Give the Journal Entries to record the above transactions:
Solution
The Modern Trading Company Limited
Journal Entries
` `
Discount on Issue of Share Account Dr. 50,000
Call in Arrears Account Dr. 3,000
(Being share first and final call money
received on 9,900 shares of `30 each)
FORFEITURE OF AND RE-SSUE OF SHARES
Forfeiture of Shares
Forfeiture of Shares means cancellation of the rights of the shareholders on shares held by
them for non payment of allotment money or call money or both, on such shares. However, before
the share are forfeited the necessary notice has to be given for the payment of arrears within a
certain time. If the arrears are not paid within the time allowed, the directors may pass a resolution
for forfeiting the shares. The shareholders whos share are forfeited will be removed from the
membership of the company. More over the money already received on such shares will not be
refunded.
The entry for recording Forfeiture of shares issues at par will
1. Share Capital Account (with called up) Dr.
To Forfeiture Account (with already received)
To Share Allotment Account (with allotment money unpaid)
To Share Call Account (with call money and paid
Issues of Shares 29
2. The entry for recording Re-issues of Forfeiture of shares

Bank Account (with Issues price) Dr.
Share Forfeitrure Account (with discount) Dr.
To Share Capital Account (with called up)
3. For transfer of Balalce of Share Par Features
Share Forfeitrure Account Dr.
To Capital Resever Account
Illustration 14 (Problem on Forfeitore of Re-issue of shares)

On 1.1.2020 the Directors of Laxmi Trading Company Ltd. resolved that 1,000 Equity Shares
of `10 each are to be forfeited for the Non-payment of Final Call Money of `3 per share on 1.2.2005
the above Forfeited shares were Re-issued at `8 per share as fully paid up.
Give the Journal Entries to record the above transactions.
Solution:
The Laxmi Trading Company Limited
Journal Entries
` `
1.1.2020 Share Capital Account Dr. 10,000
To Share Forfeiture Account 7,000
(Being forfeiture of 1,000 shares of `10 each for non-payment
of final call of `3 each)
1.2.2020 Bank Account Dr. 8,000
Share Forfeiture Account Dr. 2,000
(Being re-issue of 1,000 forfeited shares at `8 each)
1.2.2020 Share Forfeiture Account Dr. 5,000
To Capital Reserve Account 5,000
(Being transfer of balance of share forfeiture Account)
Illustration 15 (Forfeitore of Re-issue of shares)

United Company Ltd. issued 1,000 shares of `100 each all the money due was received except
the Final Call on `50 shares of `30 per share from Nitin. The Directors forfeited these shares and
then re-issued the same as fully paid at `70 per share.
Write up the Journal Entries for Forfeiture on Re-Issue of Forfeiture Shares.
Solution:
The Laxmi Trading Company Limited
Journal Entries
` `
1 Share Capital Account Dr. 5,000
(Being forfeiture of 50 shares of `100 each for non-payment
of `30 each)
(Being re-issue of 50 forfeited share of `70 each)
3 Share Forfeiture Account Dr. 2,000
(Being balance of share forfeiture account transferred)
Illustration 16 (ProblemsnForfeitore of Re-issue of shares)

Bharath Company Ltd. issued 10,000 Equity Shares of `10 each all the money due was received
except the Final Call on 200 shares at `3 per share from Mr.Ram. The Directors Forfeited these
shares and then re-issued the same as fully paid at `7 per share. Write up the necessary Journal
Entries.
Solution:
The Bharath Company Limited
Journal Entries
` `
To Share Fianl Call Account 600
(Being Forfeiture of 200 shares of `10 each for non-payment
of final call `3)
Share Forfeiture Account Dr. 600
(Being re-issue of 200 forfeited share of `10 each at `7 per share)
3 Share Forfeiture Account Dr. 800
To Capital Reserve Account 800
(Being transfer of Balance of Share Forfeiture Account)
Issues of Shares 31
Illustration 17 (Problems on Forfeitore of Re-issue of shares)

Karnataka Company Ltd. issued 5,000 Equity Shares of `100 each payable `25 on application,
`25 on allotment and the balance on First and Final Call. Of these 200 share were forfeited as first
and final call money was not received. The Forfeited Shares were Re-issued at `80 per share.
Give Journal Entries for Forfeiture and Re-issue
Solution:
The Karnataka Company Limited
Journal Entries
` `
of First & Final call money of `50)
(Being re-issue of 200 forfeited shares of `100 each at
`80 per share)
(Being transfer of balance of share forfeiture account balance)

On 1.1.2020 the Directors of Homemate Company Ltd. resolved that 1,000 Equity Shares of
`100 each are to be forfeited for the Non-payment of First Call and Final Call Money of `20 and `30
each respectively on 1.2.202 the above forfeited shares were re-issued as fully paid up at `75 per
share. Pass Journal Entries.
Solution:
The Homemate Company Limited
Journal Entries
` `
1.1.2020 Share Capital Account Dr. 1,00,000
(Being Forfeiture of 1,000 shares of `100 each
for non-payment of First Call `20 and Final Call `30 each)
1.2.202 Bank Account Dr. 75,000

(Being re-issue of 1,000 shares of `100 each at `75 each)
1.2.202 Share Forfeiture Account Dr. 25,000
(Being transfer of balance of share forfeiture account)

Hindustan Company Ltd. issued 10,000 Equity Shares of `100 each, payable `25 on application,
`25 on allotment and the Balance on First and Final Call at `25 each of these 400 shares were
forfeited as First and Final Call money was not received. The forfeited shares were Re-issued at
`80 per share. Give Journal Entries for Forfeiture and Re-issue of share.
Solution:
The Hindustan Company Ltd.
Journal Entries
` `
of First and Final Call of `25 each)
(Being re-issue of 400 forfeited shares of `100 each at `80 each)
(Being the transfer of balance of share forfeiture account)
OVER SUBSCRIBED OF SHARES

When the number of shares applied by the public is more than number of shares offereed the
subscrition, there is said to be over subscription of shares. When an issue of shares is over subscribed,
the company can proceed with the allotment of only to the extent of share issued. The excesses
application may be rejected and amount paid on excesses shall be refunded or adjusted towards
share allotment and share calls.
Pro-rata Allotment
This is the most logical and impartical method. Every applicatent is treated equal in it. There
is no discrimiation. The mathematical principle of ratio and proporation is applied in allotting the
shares.
Issues of Shares 33
Accounting Entries for Shares Application when Share are Over Subscribed
The entry for recording Forfeiture of shares issues at par will
1. The Application money received
Bank Account Dr.
2. For transferring the Application money on allotment of shares –
3. For refund of excess application money recived
To Bank Account
4. For adjustment of excess application money towards share allotment or share calls
To Share Calls Account
Illustration 20 (Problems on Over Subscription when Share are Issued at Par)

Arvind Ltd. issued 10,000 Equity Shares of `100 each at par payable as follows:
`20 on application
`30 on allotment
`25 on First Call
`25 on second and Final call.
12,000 shares were applied by public. The Company received the amount except the final call
on 100 shares.
Prepare Journal Entries in the books of the company. [B.U., B.B.M., April, 2004]
Solution:
The Arvind Ltd.
Journal Entries
` `
(Being application money received on 12,000 shares of `20 each)
(Being transfer of application money on 10,000 shares transfered)
To Bank Account 40,000
(Being refund of excess application money)

6 Share First Call Account Dr. 2,50,000
8 Share Second and Final Call Account Dr. 2,50,000
(Being share second and final call money due)
To Share Second and Final Call Account 2,50,000
(Being share second and final call money received on
9,900 shares of `25 each)
Illustration 21 (Problem on Over-subscription when shares are issued at premium with forfeited
and re-issue)
The U.B.Co.Ltd., issued for public subscription 20,000 shares of `10 each at a premium of `2
per share payable as follows:
on application `2 per share
on allotment `5 per share (including premium)
on first call `2 per share
on final call `3 per share.
Applications were received for 30,000 shares. 20,000 shares were allotted and excess
application money received is returned.
The company made all the calls and the money due were duly received except the final call on
1,000 shares. These shares were forfeited and later re-issued as fully paid at `8 per share.
Pass the Journal Entries and also show how share capital appears in the Balance Sheet.
[B.U., B.B.M., April, 1999]
Solution:
The U.B.Co.Ltd.
Journal Entries
` `
(Being share application money received on 30,000 shares of
`2 each)
Issues of Shares 35

(Being share application money received)
(Being excess application money received is returned)
To Securities Premium 40,000
(Being allotment money received)
To Share Forfeitur Account 7,000
To Call in Arrears Account 3,000
(Being forfeitur of 1,000 shares of `10 each for non-payment
of final call `3 per share)
To Share Capital 10,000
(Being re-issue of 1,000 forfeited shares of `10 each at
`2 per share)
(Being transfer of Share Forfeiture account balance)
Balance Sheet of U.B. Co. Ltd

a. Share Capital:
20,000 shares of ` 10 each 1 2,00,000
b. Reserves and Surplus
Securities Premium 40,000
Total 2,40,000
ASSETS
a. Fixed Assets
2. Current Assets
Bank 10 2,40,000
Total 2,40,000
Illustration 22 (Problems on Over Subscription when shares are issued at premium)

The Bangalore Infotech Limited was newly formed with an authorised capital of `5,00,000
divided into Equity Shares of `10 each.
The company issued 25,000 Equity Shares at a premium of Re.1 per share payable as under:
(a) on application `2
(b) on allotment `4 (including premium)
(c) on First and Final Call `5.
Applications for 30,000 shares were received. The Directors allotted the shares and the excess
money received on applications was returned. All the Shareholders paid the allotment and call
money except ‘P’ who failed to pay the call money on 800 shares. The Directors forfeited these
shares. The forfeited shares were re-issued to ‘M’ at `9 per share as fully paid.
Give Journal Entries including cash transactions.
[B.U., B.B.M., Nov., 2001]
Solution:
Issues of Shares 37
Bangalore Infotech Limited

Journal Entries
` `
(Being the excess application money returned)
(Being share allotment money due on 25,000 shares of `4
each including premium of Re.1)
(Being share first and final call money received)
of first and final call of `5 each)
Share Forfeiture Account Dr. 800
of first and final call received)
(Being balance of forfeiture account on 600 shares were transfered)
Illustration 23 (Over-subscription with partial allotment on pro-rate basis)

A Company issued 20,000 shares of `10 each at a premium of `2 per share. Payment to be
made as follows:
on application `2
on allotment `5 (including premium)
on First Call `3
on Second Call `2
Applications were received for 40,000 shares. Applications for 10,000 shares were rejected
and allotment was made proportionately to the remaining applicants. The Directors made both the
calls and all the money were received except the final call on 900 shares, which were subsequently
forfeited. Later 600 of the forfeited shares were reissued as fully paid at `7.5 per share. Give
Journal Entries to record the above transactions. [B.U., B.B.M., April, 2000]
Solution:
A Company Limited
Journal Entries
` `
of `2 each)
(Being excess application money on 10,000 shares refunded)
(Being excess application money adjusted towards allotment)
(Being balance of share allotment money received)
Issues of Shares 39

(Being share final call money is due on 20,000 shares of `2 each)
(Being Forfeiture of 900 shares of `10 each for non-payment of
final call of `3 per share)
(Being re-issue of 600 forfeited share at `7.50 per share)
To Share Reserve Account 1,500
(Being re-issue of 600 forfeited share at `7.50 per share)
Illustration 24 (Problems on Over-subscription with Discretionary Allotment)

A Ltd. Company issued 20,000 Equity Shares of `10 each payable
`2 on application
`3 on allotment
`3 on first call and
`2 on final call.
Application for 30,000 shares were received. The Directors allotted as follows:
The applicants of 15,000 shares-Full
The applicants of 10,000 shares-5,000 allotted
The applicants of 5,000 shares-Nil
All the calls were made and the money duly received except Final Call money on 500 shares.
Give the Journal Entries. [B.U., B.B.M., April, 2003]
Solution:
A Limited
Journal Entries
` `
of `2 each)

(Being transfer of share application money receive on
20,000 share of ` 2 each)
To Bank 10,000
(Being refund of excess application money on 5,000 shares
refunded)
(Being adjustment of Excess application money on 5,000 shares
towards allotment money due)
6 Bank Account [60,000 – 10,000] Dr. 50,000
(Being share First call money due)
Illustration 25 (Problem on Over-subscription of shares with discretionary allotment)

A Limited Company having an Authorised Capital of `15,00,000 in shares of `10 each issued
1,00,000 shares of `10 each payable
on application `2
on allotment `3
on First call `2
on Final call `3
Application received from public totaled to 1,50,000 shares. The Directors allotted as follows:
Issues of Shares 41
To the applicants of 70,000 shares-Full

To the applicants of 50,000 shares-30,000 shares
To the applicants of 30,000 shares-Nil
All the calls were made and the money duly received except final call money on 2,000 shares.
These shares were forfeited and re-issued at `7 per share.
Pass entries and prepare the Balance Sheet. [B.U., B.B.M., Nov., 2003]
Solution:
A Limited
Journal Entries
` `
(Being share application money received on 1,50,000 shares
of `2 each)
(Being excess application refunded)
(Being excess application adjusted towards allotment money)
7 Share First Call Account Dr. 2,00,000
(Being first call money received)
9 Share Final Call Account Dr. 3,00,000
To Share Capital 3,00,000

To Share Final Call Account 2,94,000
(Being forfeiture of 2,000 shares of `10 each for non-payment
of final call of `3 each)
(Being re-issue of 2,000 forfeited shares of `10 each at
`7 per share)
(Being Balance of Share Forfeiture Account transferred)
Balance Sheet of A Ltd

a. Share Capital:
Authorised Capital 1 15,00,000
Issued, Subscribed and Called up Capital
1,00,000 shares of ` 10 each 10,00,000
Capital Reserve 8,000
Total 10,08,000
ASSETS
a. Fixed Assets
2. Current Assets
Bank 10 10,08,000
Total 10,80,000
Issues of Shares 43
Illustration 26(Problem on over subscription with Forfeiture and re-issue)

A Limited Company issued a prospectus inviting applications for 2000 shares of `10 each at a
premium of `2 per share payable as follows:
on application of `2 per share
on allotment `5 per share (including premium)
on first call `3 per share
on second call `2 per share.
Application were received for 3000 shares and allotment made on prorata to the applicants of
2400 shares, the remaining applications being refused. Money over paid on applications were
employed on account of sums due on allotment.
Ramesh to whom 40 shares were allotted failed to pay the allotment money and on his subsequent
failure to pay the first call, his shares were forfeited. John, the holder of 60 shares failed to pay the
two calls, and his shares were also forfeited. All these shares were sold to Chandran credited as
fully paid for `9 per share.
Give necessary Journal Entries and prepare the Cash Book. [BU, BBM, October, 1998]
Solution:
A Limited
Journal Entries
` `
(Being application money transferred on 2000 shares of `2 each)
2 Share Application Account Dr. 800
To Share Allotment Account 800
(Being excess application money received on 400 shares
adjusted towards allotment money)
To Securities Premium 4,000
(Being share allotment money due on 2000 shares of `5 each
including premium of `2 per share)
5 Share Second Call Account Dr. 4,000
(Being share second call due)
6 Share Capital Account Dr. 400

Share Premium Account Dr. 80
To Share Forfeiture Account 80
To Share Allotment Account 200
To Share First Call Account 120
To Share Second Call Account 80
allotment, First call and Second call money)
7 Share Capital Account Dr. 600
To Share Forfeiture Account 300
To Share First Call Account 180
To Share Second Call Account 120
of first call and second call money)
Cash Book
To Share Application Account 6,000 By Share Application 1,200
(3000×2) (600×2)
To Share Allotment Account 9,800 By Balance c/d 25,000
(1960×5)
(1900×3)
To Share Second Call Account 3,800
(1900×2)
To Share Capital 900
(100×9)
26,200 26,200
Illustration 27 (Problem on Forfeiture and Re-issue of shares when issued at premium with
oversubscription using prorata method)
A Limited Company invited applications for 2,00,000 Equity Shares of `10 each at a premium
of 0.50 paise per share on the following terms.
`5 per share payable on application on 31st January 2020
`3 per share including premium payable on allotment on 28th February 2020 and
`2,50 per share on first and final call on 30th June 2020.
Applications were received for 2,50,000 shares. It was decided:
(a) To refuse allotment to the applicants for 10,000 shares
(b) To allot in full to the applicants for 40,000 shares
(c) To allot the balance available shares prorata among the other applicants
(d) To utilise the excess application moneys in part payment of allotment.
One applicant to whom shares had been allotted full did not pay the amount due on call and his
230 shares were forfeited. These shares were re-issued at `9 per share on 31st October 2020.
Issues of Shares 45
Show the Journal and Cash Book entries to record the above transactions and show how they
will appear in the Balance Sheet of the company.
[BU, BBM, April 1998]
Solution:
A Limited
Journal Entries
` `
31.1.2020 Share Application Account Dr. 10,00,000
(Being transfer of application money on 2,00,000 shares
of `5 each)
28.2.2020 Share Allotment Account Dr. 6,00,000
To Share Premium Account 1,00,000
28.2.2020 Share Application Account Dr. 2,00,000
(Being excess application money adjusted towards allotment
money due)
30.6.2020 Share First & Final Call Account Dr. 5,00,000
30.6.2020 Share Capital Account(230×10) Dr. 2,300
To Share Forfeiture Account(230×7.50) 1,725
To Share First & Final Call Account(230×2.50) 575
of First and Final call `2.50)
Cash Book
` `
To Share Application Account 12,50,000 By Share Application Account 50,000
To Share Allotment Account 4,00,000 By Balance c/d 21,01,495
(199770×2.50)
21,51,495 21,51,495
Balance Sheet of A Limited Company

a. Share Capital:
Share Capital 2,00,000 shares of ` 10 each 1 20,00,000
Securities Premium 1,00,000
Capital Reserve 1,495
Total 21,01,495
ASSETS
a. Fixed Assets
2. Current Assets
Bank 10 21,01,495
Total 21,01,495
Illustration 28 (Problem on Issue of shares at premium, forfeiture and re-issue)
Bharath Limited invited public to subscribe to 1,00,000 Equity Shares of `10 each at a premium
of Re.1 per share. Payments to be made as follows:
on application `2
on allotment `4 (including premium)
on First Call `3
on Final Call `2
Applications were received for 1,30,000 shares. Application for 20,000 shares were rejected
and allotment was made proportionately to the remaining applicants. Both the calls were made and
all the moneys were received except final call on 300 shares which were forfeited. Later 200 of the
forfeited shares were issued as fully paid at `8.50 per share.
Give Journal Entries and Balance Sheet of the company.
[BU, BBM, April 1997]
Issues of Shares 47
Solution:
Bharath Limited
Journal Entries
` `
(Being Equity Share application amount received)
(Being equity share application amount transferred to equity
share capital Account)
(Being Excess application amount refunded to applicants)
(Being the equity share application amount adjusted towards allotment)
To Equity Share Premium Account 1,00,000
(Being Equity Share allotment money due including premium)
(Being equity share allotment money received including premium)
(Being equity share first call amount due)
To Equity Share First Call Account 3,00,000
(Being equity share first call amount received)
9 Equity Share Final Call Account Dr. 2,00,000
(Being equity share final call amount due)
To Equity Share Final Call Account 1,99,400
(Being equity share final call amount received except for 300 shares)
11 Equity Share Capital Account Dr. 3,000
To Forfeited Shares Account 2,400
To Equity Share Final Call Account 600
(Being 300 shares forfeited for non-payment of final call amount)

Forfeited Shares Account Dr. 300
(Being forfeited equity shares reissued at `8,50 per share)
13 Forfeited Shares Account Dr. 1,300
(Being the credit balance in forfeiture account transferred to
capital reserve account)
(200×8–200×1.5 = 1,300)
Illustration 29 (Problem on Issue at discount with forfeiture and re-issue)

A company issued 50,000 Equity Shares of `100 each at a discount of 10% (allowed at the time
of allotment). The net amount payable is as follows:
on application `20
on allotment `20
on first call `25
on final call `25
Madhu holding 1,000 shares did not pay final call money. His shares were forfeited. Out of
these 400 shares were reissued to Madhuranath at `70 per share. [BU, BBM, November 2000]
Solution:
A Limited
Journal Entries
` `
(Being equity share application amount received)
(Being equity share application amount transferred to equity
share capital Account)
Discount on issue of Shares Account Dr. 1,00,000
(Being the equity share allotment amount due and discount allowed)
(Being equity share allotment amount received)
(Being equity share first call amount due)
Issues of Shares 49

To Equity Share First Call Account 12,50,000
(Being equity share first call amount received)
7 Equity Share Final Call Account Dr. 12,50,000
(Being equity share final call amount due)
To Equity Share Final Call Account 12,25,000
(Being equity share final call amount received except on
1000 shares)
9 Equity Share Capital Account Dr. 1,00,000
To Forfeited Shares Account 65,000
To Discount on issue of Shares Account 10,000
(Being 1,000 equity shares forfeited for non-payment of final
call amount)
Forfeited Shares Account Dr. 12,000
(Being the forfeited equity shares received)
(Being the profit on forfeiture transferred to capital
reserve account) (400×65–400×30=14,000)
Illustration 30(Problem on Forfeiture of shares originally issued at a discount/with cash book
entries)
AB Company Limited, invited applications for 10,000 shares of `100 each at a discount of 5
per cent, payable on application `25, on allotment `35, on first and final call `35 per share.
The applications received were for 9,000 shares and all of these were accepted. All the money
due were received except the first and final call on 100 shares which were forfeited. Subsequently
60 of the forfeited shares were re-issued at `90 as fully paid.
Pass Entries in Cash Book and Journal of the Company.
Solution:
AB Company Limited
Journal Entries
` `
(Being transfer of application money on 9,000 shares at
`25 per share)
2 Share Allotment Account(9000×35) Dr. 3,15,000

Discount on Shares Account(9000×5) Dr. 45,000
(Being allotment money due on 9000 shares at 35 per share
at a discount of `5 per share)
3 Share First Call Account(9000×35) Dr. 3,15,000
(Being Share first call money due on 9000 shares of `35 per share)
4 Share Capital Account(100×100) Dr. 10,000
To Share First & Final Call(100×35) 3,500
To Discount on Shares Account(100×5) 500
To Forfeited Shares Account(100×60) 6,000
(Forfeiture of 100 shares on first and final call)
5 Re-issue Account(60×90) Dr. 5,400
Forfeited Shares Account(61×10) Dr. 600
(Re-issue of 60 forfeited shares as fully paidup at `90)
(Profit on re-issue of 60 forfeited shares,
transferred to Capital Reserve)
Cash Book
To Share Application Account 2,25,000 By Balance b/c 8,56,900
(8,100×35)
To Share Capital (60×90) 5,400
8,56,900 8,56,900
EXERCISES
Section A Type Questions
1. What is a ‘Share’?
2. What is ‘Share Capital’?
3. Who are ‘Shareholders’?
4. State the different types of shares.
5. What are Preference Shares? How are they different from ordinary shares?
6. State the different types of Share Capital.
7. What is ‘Authorised Share Capital’?
8. What is ‘Issued Share Capital’?

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

CHAPTER 1

Forefeitre of Re-issue of Forefeitre

2. In Case of Issue of Shares for Payment in Installments:

(ii) When Premium is payable with allotment money:

2. Proportionate allotment to all applicants: (Pro-rate)

3. The Allotment Money due

The Books of Raghavendra Ltd.

5 Equity Share First & Final Call Account Dr. 45,000

Illustration 2(Problems on Issue of Shares at Par when Shares Fully Subscribed)

The Books of Ashok Limited

8 Bank Account Dr. 20,000

Illustration 3(Problems on Issue of Shares at Par when their is calls-in-arrears)

7 Share Final Call Account Dr. 24,000

Illustration 4(Problems on Issue of shares at par with calls in arrears)

8. Bank Account Dr. 12,000

Equity Share Allotment Account

Equity Share First Call Account

Equity Share Final Call Account

Equity Share Capital Account

Balance Sheet of the National Trading Company Limited

3. If the premium is payable on call

Illustration 8 (Problme on Issue of shares at Premium with Calls-in-Arrears)

Illustration 9(Problem on Issue of Shares at Par when there is Calls in Advance)

Balance Sheet of XYZ Co. Ltd

Dr. Cash Book Cr.

ISSUE OF SHARES AT A DISCOUNT

PROBLEMS ON ISSUE OF SHARES AT A DISCOUNT

Illustration 12 (Problem on Issue of shares at discount with Calls-in-Arrears)

Illustration 13 (Problem on Issue of shares at discount with Calls-in-Arrears)

2. The entry for recording Re-issues of Forfeiture of shares

Illustration 14 (Problem on Forfeitore of Re-issue of shares)

Illustration 15 (Forfeitore of Re-issue of shares)

Illustration 16 (ProblemsnForfeitore of Re-issue of shares)

Illustration 17 (Problems on Forfeitore of Re-issue of shares)

Illustration 18 (Problems on Forfeitore of Re-issue of shares)

1.2.202 Bank Account Dr. 75,000

Illustration 19 (Problems on Forfeitore of Re-issue of shares)

OVER SUBSCRIBED OF SHARES

Illustration 20 (Problems on Over Subscription when Share are Issued at Par)

5 Bank Account Dr. 3,00,000

2 Share Application Account Dr. 40,000

Balance Sheet of U.B. Co. Ltd

Illustration 22 (Problems on Over Subscription when shares are issued at premium)

Bangalore Infotech Limited

Illustration 23 (Over-subscription with partial allotment on pro-rate basis)

8 Bank Account Dr. 60,000

Illustration 24 (Problems on Over-subscription with Discretionary Allotment)

2 Share Application Account Dr. 40,000

Illustration 25 (Problem on Over-subscription of shares with discretionary allotment)

To the applicants of 70,000 shares-Full

10 Bank Account Dr. 2,94,000

Balance Sheet of A Ltd

Illustration 26(Problem on over subscription with Forfeiture and re-issue)

6 Share Capital Account Dr. 400

Balance Sheet of A Limited Company

12 Bank Account Dr. 1,700

Illustration 29 (Problem on Issue at discount with forfeiture and re-issue)

6 Bank Account Dr. 12,50,000

2 Share Allotment Account(9000×35) Dr. 3,15,000

You might also like