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.
When a company issues its shares less than par or face value, it is called shares issued at discount.
According to Company Act of many countries, a company cannot issue its shares at discount but in few countries, company can issue it shares at discount.
The discount rate is not to exceed more than 10% of face value.
Discount on issue of share is capital loss.
It is debited in journal entry and is shown in assets side of balance sheet.
This discount should be written off in subsequent year as per decision of the board of directors (BOD).
Value of one share $/₹/Rs 100 ® issued at $/₹/Rs 90 |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 3
XYZ Company Ltd has authorized capital 100,000 equity shares (common stock, ordinary shares) @ $/₹/Rs 100. The Company issued 50,000 equity shares $/₹/Rs 90 per share. Amount payable as under:
On application Rs 20
On allotment Rs 30
On first and final call Rs 40
All the shares were issued, called and paid up.
Required: (1) Journal entries; (2) Cash book (bank column); (3) Balance sheet
[Answer: Bank balance = 45,00,000; Balance sheet = 50,00,000]
SOLUTION:
Here, company issued shares at Rs 90; it means 100 – 90 = 10 discount.
Lack of information, company adjusts discount on allotment.
If question indicates to adjust discount on application, we should adjust on application,
If question indicates to adjust discount on allotment, we should adjust on allotment,
If question indicates to adjust discount on first call, we should adjust on first call,
If question indicates to adjust discount on final call, we should adjust on final call,
Given and working note:
If question indicates to adjust discount on application, we should adjust on application,
Shares Issued |
Issued Price |
Installation |
|
Arrears and Advance |
|
Share Applied |
Shares Allotted |
50,000 |
100 –10D |
Application Allotment F&F call |
20 [30C–10D] 30 40 |
|
|
|
|
If question indicates to adjust discount on allotment, we should adjust on allotment,
Shares Issued |
Issued Price |
Installation |
|
Arrears and Advance |
|
Share Applied |
Shares Allotted |
50,000 |
100 –10D |
Application Allotment F&F call |
20 30 [40C–10D] 40 |
|
|
|
|
Note: lack of information, discount is adjusted with allotment. C is capital and D is discount
If question indicates to adjust discount on first call, we should adjust on first call,
Shares Issued |
Issued Price |
Installation |
|
Arrears and Advance |
|
Share Applied |
Shares Allotted |
50,000 |
100 –10D |
Application Allotment F&F call |
20 30 40 [50C–10D] |
|
|
|
|
Journal Entries
In the book of XYZ Company Ltd
Date |
Particulars |
|
LF |
Amount |
Amount |
Received
|
Amount received on application Bank account To Equity share application account (Being- amount received on 50,000 shares @ Rs 20) |
Dr |
|
10,00,000
|
10,00,000
|
Transfer
|
Amount transfer of application Equity share application account To Equity share capital account (Being- amount transfer of application to capital account) |
Dr |
|
10,00,000
|
10,00,000
|
Due
|
Amount due/receivable on allotment Equity share allotment account Discount on issue of shares account To Equity share capital account (Being- amount due/receivable on allotment and discount adjusted) |
Dr Dr |
|
15,00,000 5,00,000
|
20,00,000
|
Received
|
Amount received on allotment Bank account To Equity share allotment account (Being- amount received on 50,000 shares @ Rs 30) |
Dr |
|
15,00,000
|
15,00,000
|
Due
|
Amount due/receivable on first and final call (Being- amount due/ receivable on calls) |
Dr |
|
20,00,000
|
20,00,000
|
Received
|
Amount received on first and final call Bank account To Equity share first and final call account (Being- amount received on 50,000 shares @ Rs 40) |
Dr |
|
20,00,000 |
20,00,000 |
Cash Book (bank column only)
Receipt |
Amount |
Payment |
Amount |
To Equity shares application To Equity shares allotment To Equity shares first and final call |
10,00,000 15,00,000 20,00,000 |
By Balance c/d |
45,00,000
|
45,00,000 |
45,00,000 |
Balance Sheet
XYZ Company Ltd
Liabilities + Capital |
Amount |
Assets |
Amount |
Authorized capital: 100,000 equity share @ Rs 100 Issued and paid up capital: 50,000 equity share @ Rs 100
|
– 1,00,00,000 – 50,00,000 |
Discount on issue of shares Bank balance |
5,00,000 45,00,000
|
50,00,000 |
50,00,000 |
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PROBLEMS AND ANSWERS |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Basic Problem: 3 [shares issued at discount]
DK Spinning Mill Limited had been registered with an authorized capital of $/₹/Rs 10,00,000 divided into 10,000 equity shares of $/₹/Rs 100 each. The Company issued 8,000 equity shares at 10% discount. The amount was payable as following:
On application Rs 20
On allotment Rs 15
On first call Rs 30
On second and final call Rs 25
All the shares were subscribed, allotted and the entire amount was received.
Required: Journal entries and balance sheet
[Answer: Discount on shares = Rs 80,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Basic Problem: 4 [shares issued at discount]
DD Company Limited issued 8,000 equity shares of $/₹/Rs 100 at 10% discount. Discount is adjusted with first call. The amount was payable as following:
On application Rs 20
On allotment Rs 25
On first call Rs 30
On second and final call Rs 15
All the shares were subscribed, allotted and the entire amount was received.
Required: Journal entries
[Answer: Total of cash book = 720,000
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