Share is an ownership document. A limited company issues shares to collect capital.
As saying, every long journey starts with first step; every limited company is established with the help of equity shares (common shares, common stocks, ordinary shares).
In other words no equity shares, no limited company.
Share is the fractional part of authorized capital.
Total or authorized capital of the company is divided into small fraction.
The person or firm who purchases shares of the company is known as shareholder.
Shares are transferable to other person and company.
There are two methods for share issue.
They are shares issue for cash and purchase of business.
1. Shares Issue for cash |
2. Shares Issue for business purchase |
(a) Lump sum basis (b) Installment basis |
(a) Only lump sum basis
|
Company can issued shares at par, at discount or at premium.
At par mean issued at face value,
At discount mean issued less than face value,
At premium mean issued more than face value.
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
(Suppose value of one share is $/₹/Rs 100) |
||
Issued at par Rs 100 Issued at discount Rs 100 Issued at premium Rs 100 |
® ® ® |
Rs 100 Rs 90 (maximum discount is 10%) Rs 110, 120 and more (no limit of premium) |
There are two methods to issue shares for cash; (a) lump sum basis; (b) installment basis.
Under lump sum basis, company issues shares in one installment; it may be at par, at discount or at premium.
Journal Entry
for lump sum basis
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Bank account Discount on issue of shares* account To Equity share capital account To Share premium* (security premium) (Being- ….. shares issued of Rs … at par/discount/premium) |
Dr Dr
|
|
xxxx xxxx
|
xxxx xxxx
|
Note: In one question, either discount or premium
Simple rules
Received Due Due Due |
® ® ® ® |
Transfer or due Received Received Received |
Received: Bank account To Equity share application account [first time] To Equity shares allotment account [second time] To Equity shares first call account [third time] To Equity shares second and final call account [fourth time] (Being- amount received on ………. shares @ $ .. each)
Transfer/due/receivable: Equity share application account [first time] Equity shares allotment account [second time] Equity shares first call account [third time] Equity shares second and final call account [fourth time] To Equity share capital account (Being- amount transfer/due/receivable on ………..) |
Keep in Mind (KIM)
Shares can be issued at par, at discount or at premium Many countries cannot issue shares at discount but few countries do. |
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Under installment basis, company issues shares in installments; it may be at par, at discount or at premium.
These installments are application, allotment, first call, second and final call etc.
Journal Entries
For installment basis
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
Received
|
Amount received on application Bank account To Equity share application account (Being- amount received on ……. shares @ $ .. each) |
Dr
|
|
xxxx
|
xxxx
|
Transfer
|
Amount transfer of application Equity share application account To Equity share capital account (Being- amount transfer of application to capital account) |
Dr
|
|
xxxx
|
xxxx
|
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
Due
|
Amount due/receivable on allotment Equity share allotment account To Equity share capital account (Being- amount due/ receivable on allotment)
Note: lack of information, discount is debited, premium is credited with allotment) |
Dr
|
|
xxxx
|
xxxx
|
Received
|
Amount received on allotment Bank account To Equity share allotment account (Being- amount received on ……. shares @ $ .. each) |
Dr
|
|
xxxx
|
xxxx
|
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
Due
|
Amount due/receivable on first call Equity share first call account To Equity share capital account (Being- amount due/ receivable on first call) |
Dr
|
|
xxxx
|
xxxx
|
Received
|
Amount received on first call Bank account To Equity share first call account (Being- amount received on ……. shares @ $ .. each) |
Dr
|
|
xxxx |
xxxx |
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
Due
|
Amount due/receivable on second and final call Equity share second and final call account To Equity share capital account (Being- amount due/ receivable on second and final call) |
Dr
|
|
xxxx |
xxxx |
Received
|
Amount received on second and final call Bank account To Equity share second and final call A/c (Being- amount received on ……. shares @ $ .. each) |
Dr
|
|
xxxx |
xxxx |
Note: It is basic format. In date column, no need to write down due/transfer/received etc
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