Shares can be issued at par or at a premium

Shares issued at par

When the issue price is exactly equal to the nominal value (face value), e.g. when a share of the nominal value of 100 is issued at ₹ 100, it is said to have been issued at par.

Shares issued at premium

When shares are issued at a price more than its nominal value (face value) shares are said to have been issued at premium, and the excess amount is called premium e.g. when a share of the nominal value of ₹ 100 is issued at ₹  105, it is said to have been issued at a premium of 5 per cent.

Shares issued at discount

When the shares are issued at a price less than the nominal value (face value) of the share e.g. when a share of the nominal value of ₹ 100 is issued at ₹  97, it is said to have been issued at a discount of three per cent.

(Section 53 of the Companies Act,2013 prohibits the issue of Shares at discount except when Sweat Equity Shares are issued)

Share capital of a company is collected in installments to be paid at different stages namely: Share Application, Share Allotment, and Share Call.

 

Journal Entries in respect of the issue of shares can be shown as under:

No. Transaction Journal Entry Amount
1. When Share Applications are received with application money. Bank A/c                        Dr.

To Share Application A/c

No. of shares applied x Application money per share.
2. For Transfer of Application Money. Share Application A/c          Dr.

To Share Capital A/c

Application money per share x No. of shares allotted.
3. For Money refunded on rejected applications. Share Application A/c          Dr.

To Bank A/c

Application money per share x No. of shares rejected.
4. For Amount Due on Allotment. Share Allotment A/c            Dr.

To Share Capital A/c

Allotment money per share x Shares allotted.
5. For Adjustment of Excess Application Money. Share Application A/c          Dr.

To Share Allotment A/c

Excess shares applied x Application money per share.
6. For Receipt of Allotment Amount. Bank A/c                       Dr.

To Share Allotment A/c

Actual Allotment money received.

 

Share Application and Allotment Account

Sometimes a combined account for share application and share allotment called

‘Share Application and Allotment Account’ is opened in the books of a company. When a combined account is maintained, journal entries are recorded in the following manner:

No. Transaction Journal Entry Amount
1. For Receipt of Application and Allotment Bank A/c                      Dr.

To Share Application and Allotment A/c

No. of shares applied x Share application money per share.
2. For Transfer of Application Money and Allotment Amount Due Share App. and Allot. A/c     Dr.

To Share Capital A/c

Application money per share x Shares allotted.
3. For Money Refunded on Rejected Applications Share App. and Allot.A/c     Dr.         To Bank A/c Application money per share x no. of shares rejected.
4. On Receipt of Allotment Amount Bank A/c                     Dr.

To Share App.and Allot.A/c

Balance of Allotment Money Received.

 

Two points are important regarding the calls on shares:

1. The amount on any call should not exceed 25% of the face value of shares.

2. There must be an interval of at least one month between the making of two calls unless otherwise provided by the articles of association of the company.

Journal Entries in respect of Calls can be shown as:

No. Transaction Journal Entry Amount
1. For Call Amount Due Share Call A/c                Dr.

To Share Capital A/c

Call money per share x no. of shares allotted.
2. For Receipt of Call Amount Bank A/c                      Dr.

To Share Call A/c

Actual Call money received.

 

Main points to be kept in mind while issuing the share capital for public subscription:

1. The application money should be at least 5% of the face value of the share.

2. Calls are to be made as per the provisions of the articles of association.

3. Where there is no article of association of its own, the following provisions of Table A will apply:

(a) A period of one month must elapse between two calls.

(b) The amount of call should not exceed 25% of the face value of the share.

(c) A minimum of 14 days’ notice is given to the shareholders to pay the amount.

(d) Calls must be made on a uniform basis on all shares within the same class.

Note: The procedure for accounting for the issue of both equity and preference shares

is the same but the words ‘Equity’ / ‘Preference’ is prefixed to each and every installment.

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