Issuance of Stock | Shares Issued for Cash | Issue of Shares

 

 

 

Issuance of Stock | Issue of Shares

When a company issues shares or stocks, these procedures follow:

First of all, the company must be a limited company or limited liabilities company (LLC).

The company must be registered with the Company Registrar or Authorized Statutory.

Second, the company should get a certificate of incorporation or charter.

The company receives its share authorization from the state of incorporation.

Next, the company issues prospectus on national level newspapers for offering shares to the public.

After issuing a prospectus, the company offers stocks for sale, entering into contracts to sells the stocks.

Then, after receiving amounts for the stocks, the company issues stocks or shares.

 

The company prefixes its authorized capital at the time of registration of the company

The founders of the company contribute cash to establish or start the company.

This cash is exchanged for capital stock, paid-in capital or contributed capital.

 

Generally, the company issues shares less than 49% of authorized capital.

The founders of the company hold more than 51% shares of authorized capital.

Because who has more than 51% common stocks of authorized capital, the control over the company.

 

Authorized shares | Registered capital | Nominal capital

Authorized capital is determined when a business firm applies for a limited company.

In other words, a limited company cannot be established without authorized capital.

Generally, common stocks or equity shares are authorized capital.

The maximum capital is mentioned in “the Memorandum of Association.”

The total capital amount is divided by a number of shares to find out the value of one share.

Suppose, the authorized shares are 10,000 common stocks of $10

 

Issued shares | Issued capital

The actual number of stocks (shares) are offered to the public is called issued capital.

Generally, the company does not issue entire stocks at the first time.

A company issues less than authorized shares at the first time.

In some countries, the minimum issued shares should be 50% of authorized capital.

The company can issue its stocks at par value, discount or premium.

Suppose, the issued shares are 6,000 common stocks of $10 out of 10,000 authorized shares.

 

Outstanding shares | Subscribed shares

These are the actual stocks purchased by the stockholders.

These stocks may be less than or equal to issued shares.

Suppose the company issued 6,000 stocks but stockholders purchased only 5,500 stocks.

In this condition, outstanding stocks are 5,500.

 

Paid in capital | Share premium | Contributed capital | Security premium

When a limited company issues its shares (stocks) more than par value, it is known as paid-in capital.

Paid in capital is also known as share premium, security premium or contributed capital etc.

The company issues its shares on fair market value that is based on demand and supply.

There is no limitation of paid-in capital (share premium).

Suppose, the company issued 6,000 common stocks of par value of $10 for $15 per share.

 

Journal Entries

In the book of ABC Company Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
	Issue of shares at a premium
	Bank account	Dr		90,000
	To Common stock account				60,000
	To Additional paid-in capital (share or security premium)				30,000
	(Being: 6,000 stocks of $10 par value issued for $15 each)

 

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

Extracted Balance Sheet

XYZ Company Ltd

As on 31^st December 2021

Liabilities	Amount $	Assets	Amount $
Authorized stocks capital:
10,000 Common stock @ $10	100,000
Issued stocks capital:
6,000 Common stock @ $10	60,000
Outstanding stocks capital:
5,500 Common stock @ $10	55,000

 

 

 

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Shares Issued for Cash | Issue of Stocks | Shares Issued

 

There are three methods for stocks issue; they are:

1. Issue for cash	2. Issue for business purchase	3. Issues for subscription
(a) Lump sum basis	Only lump sum basis	Only lump sum basis
(b) Installment basis

 

Shares can be issued at par, discount or premium.

At par mean issued at par value or face value,

At discount mean issued less than par value,

At premium mean issued more than the par value.

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

(Suppose the value of one share is $/₹/Rs 100)
Issued at par	$100	®	$100
Issued at discount	$100	®	$90 (maximum discount is 10%)
Issued at premium	$100	®	$110, $120 and more      (no limit of premium)

 

Journal Entries

In the book of ABC Company Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
	Issue of new shares at par
	Bank account	Dr		xxxx
	To Common stock account				xxxx
	(Being: xxx stocks of $x issued for cash)
	Issue of new shares at discount
	Bank account	Dr		xxxx
	Discount on issue of stock account	Dr		xxxx*
	To Common stock account				xxxx
	(Being: xxxx stocks of $x issued at discount for cash)
	Issue of new shares at premium
	Bank account	Dr		xxxx
	To Common stock account				xxxx
	To Additional paid in capital (share/security premium)				xxxx*
	(Being: xxxx stocks of $x issued at premium for cash)

 

Journal Entries

In the book of ABC Company Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
	Issue of new shares at par
	Bank account	Dr		xxxx
	To …% Preferred stock account				xxxx
	(Being: xxxx stocks of $x issued at par for cash)
	Issue of new shares at discount
	Bank account	Dr		xxxx
	Discount on issue of stock account	Dr		xxxx*
	To …% Preferred stock account				xxxx
	(Being: xxxx stocks of $x issued at discount for cash)
	Issue of new shares at premium
	Bank account	Dr		xxxx
	To …% Preferred stock account				xxxx
	To Additional paid in capital (share/security premium)				xxxx*
	(Being: xxxx stocks of $x issued at premium for cash)

 

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 1A

EP Company Ltd has authorized capital 200,000 common stocks of $10. The company issued 150,000 stocks for public after completing all legal work.

Required: Journal entry and extracted balance sheet

[Answer: Bank = 15,00,000; BS = 15,00,000]

SOLUTION

Journal Entries

In the book of EP Company Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
	Issue of shares at par
	Bank account	Dr		15,00,000
	To Common stock account				15,00,000
	(Being: 1,50,000 stocks of $10 issued for cash)

 

 

Extracted Balance Sheet under IFRS

In the book of EP Company Ltd

ASSETS		Amount $	Amount $
Current Assets:
	Cash and bank		15,00,000
Intangible Asset:
			Nil
	Total assets		15,00,000
LIABILITIES AND EQUITY
Shareholders’ Equity:
	Common stock of $10; 200,000 authorized; 150,000 issued	15,00,000
	Additional paid-in capital	Nil	15,00,000
	Total liabilities and equities		15,00,000

 

 

 

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 1B

EP Company Ltd has an authorized capital of 200,000 common stocks of $10. The company issued 150,000 stocks at $9 for the public after completing all legal work.

Required: Journal entry and extracted balance sheet

[Answer: Bank = 13,50,000; BS = 15,00,000]

SOLUTION

Journal Entries

In the book of EP Company Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
	Issue of shares at discount
	Bank account	Dr		13,50,000
	Discount on issue of stocks account	Dr		1,50,000
	To Common stock account				15,00,000
	(Being: 1,50,000 stocks of $10 issued at $9 for cash)

 

 

Extracted Balance Sheet under IFRS

In the book of EP Company Ltd

ASSETS		Amount $	Amount $
Current Assets:
	Cash and bank		13,50,000
Intangible Asset:
	Discount on issue of stocks account		1,50,000
	Total assets		15,00,000
LIABILITIES AND EQUITY
Shareholders’ Equity:
	Common stock of $10; 200,000 authorized; 150,000 issued	15,00,000
	Additional paid-in capital	Nil	15,00,000
	Total liabilities and equities		15,00,000

 

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 1C

EP Company Ltd has an authorized capital of 200,000 common stocks of $10. The company issued 150,000 stocks at $12 for the public after completing all legal work.

Required: Journal entry and extracted balance sheet

[Answer: Bank = 18,00,000; BS = 18,00,000]

SOLUTION

Journal Entries

In the book of EP Company Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
	Issue of new shares at premium
	Bank account	Dr		18,00,000
	To Common stock account				15,00,000
	To Additional paid in capital (share/security premium)				3,00,000
	(Being: 1,50,000 stocks of $10 issued at $12 for cash)

 

 

Extracted Balance Sheet under IFRS

In the book of EP Company Ltd

ASSETS		Amount $	Amount $
Current Assets:
	Cash and bank		18,00,000
Intangible Asset:
	Discount on issue of stocks account		Nil
	Total assets		18,00,000
LIABILITIES AND EQUITY
Shareholders’ Equity:
	Common stock of $10; 200,000 authorized; 150,000 issued	15,00,000
	Additional paid in capital	3,00,000	18,00,000
	Total liabilities and equities		18,00,000

 

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

PROBLEM: 1D

EP Company Ltd has authorized capital 200,000 common stocks of $10 divided into 150,000 common stocks and 50,000; 8% preferred stock. The company issued 100,000 common stocks and 40,000 preferred stocks for the public after completing all legal work.

Required: Journal entry and extracted balance sheet

[Answer: Bank = 10,00,000 and 4,00,000; BS = 14,00,000]

SOLUTION

Journal Entries

In the book of EP Company Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
	Issue of common stock
	Bank account	Dr		10,00,000
	To Common stock account				10,00,000
	(Being: 100,000 stocks of $10 issued for cash)
	Issue of preferred stock
	Bank account	Dr		4,00,000
	To 8% Preferred stock account				4,00,000
	(Being: 40,000 stocks of $10 issued for cash)

 

 

Extracted Balance Sheet under IFRS

In the book of EP Company Ltd

ASSETS		Amount $	Amount $
Current Assets:
	Cash and bank		14,00,000
Intangible Asset:
	Discount on issue of stocks account		Nil
	Total assets		14,00,000
LIABILITIES AND EQUITY
Shareholders’ Equity:
	Common stock of $10; 150,000 common stock and 50,000; 8% preferred	10,00,000
	Stocks authorized; 100,000 CS and 40,000 PS issued	4,00,000
	Additional paid-in capital	Nil	14,00,000
	Total liabilities and equities		14,00,000

 

 

 

 

 

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PROBLEMS  AND  ANSWERS  OF  ISSUE  OF  STOCKS  OR  SHARES

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = ₦ = Birr = Currency of your country 

PROBLEM: 1A

EP Company Ltd has an authorized capital of 200,000 common stocks of $10. The company issued 120,000 stocks for the public.

Required: Journal entry and extracted balance sheet

[Answer: Bank = 12,00,000; BS = 12,00,000]

PROBLEM: 1B

EP Company Ltd has an authorized capital of 200,000 common stocks of $10. The company issued 150,000 stocks at a 10% discount for the public.

Required: Journal entry and extracted balance sheet

[Answer: Bank = 13,50,000; BS = 15,00,000]

PROBLEM: 1C

EP Company Ltd issued 450,000; 9% preferred stock stocks of $10 for $12 for public.

Required: Journal entry and extracted balance sheet

[Answer: Bank = 54,00,000; BS = 54,00,000]

 

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