Issue of Shares Other Than Cash (Numbers of Shares)

 

Shares issued for business purchased

Shares issue for business purchased is also known as issue of shares other than cash or shares issued for non-cash consideration.

Generally, company purchases similar types of business.

When the company purchases business from other company, purchase consideration is fixed.

Company can pay this purchase consideration by issuing equity shares and debentures and partial cash.

While issuing shares, it may be at par, at discount or at premium.

 

Sometimes purchasing company purchases only assets from Vendor Company.

Sometimes, purchasing company purchases both assets and liabilities.

While purchasing business, there may be capital reserve or goodwill; it is calculated as balancing figure.

 

Purchasing company can issue some shares to public for cash.

Company issues these shares on lump-sum basis at par, at discount or at premium.

 

 

Net value or purchase consideration     = Total assets – Total liabilities
Purchase value   = Net value Purchase value   > Net value Purchase value   < Net value	neither goodwill nor capital reserve goodwill capital reserve

  

Sometimes numbers of purchasing shares are given in the question and sometimes purchase consideration is given.

If numbers of shares are not given, following formula can be applied:

Number of shares (If shares are issued at par) = Purchase consideration ÷ Par value per share

Number of shares (If shares are issued at discount) = Purchase consideration ÷ (Par value per share – Discount)

Number of shares (If shares are issued at premium) = Purchase consideration ÷ (Par value per share + Premium)

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

PROBLEM: 33

Sky Company Ltd has authorized capital of 10,000 equity shares of $/₹/Rs 100 each. Company purchased following assets and liabilities from Star Company for Rs 380,000:

Fixed assets           Current assets

Rs 180,000 Rs 150,000

Current liabilities Investment

Rs 50,000 Rs 60,000

Purchase price was discharged by issued equity shares of Rs 100 at 5% discount. Sky Company also issued 1,000 shares to public at par.

Required: (in the book of Sky Company Ltd)

(1) Number of shares for payment; (2) Journal entry; (3) Balance sheet

[Answer: No. of shares = 4,000; Goodwill = Rs 40,000; Balance sheet = Rs 550,000]

SOLUTION:

Number of shares to be issued     

= Purchase consideration ÷ (Par value per share – Discount per share)

= Rs 380,000 ÷ (100 – 5D)

= 4,000 shares

Journal Entries

In the book of Sky Company Ltd 

Date	Particulars		LF	Amount	Amount
	Business purchase
	Business purchase account           To Star Company account (Being- business purchased)	Dr		380,000	380,000
	Assets and liabilities taken
	Fixed assets account Current assets account Investment account  Goodwill account        (b/f)           To Current liabilities           To Business purchase account  (Being- assets and liabilities taken balance as goodwill)	Dr Dr Dr Dr		180,000 150,000 60,000 40,000	50,000 380,000
	Purchase consideration paid
	Star Company account Discount on shares account           To Share capital account (Being- payment made by issuing 4,000 equity shares @Rs 100 each at 5% discount)	Dr Dr		380,000 20,000	400,000
	Shares issued to public
	Bank account            To Share capital account (Being- 1,000 equity shares issued to public at par)	Dr		100,000	100,000

 

Balance Sheet

Sky Company Ltd

Liabilities + capital	Amount	Assets	Amount
Authorized share capital: 10,000 equity shares @ Rs 100 Issued share capital: 5,000 equity shares @ Rs 100 Current liabilities	− 10,00,000 − 500,000 50,000	Fixed assets Current assets Investment Goodwill Discount on shares Bank	180,000 150,000 60,000 40,000 20,000 100,000
	550,000		550,000

#####

Click on link for YouTube videos

SHARE (ACCOUNTING FOR SHARE) http://tiny.cc/889jkz

SHARE IN Nepali  http://tiny.cc/k99jkz

DEBENTURES http://tiny.cc/yeakkz

FINAL ACCOUNT: CLASS 12  http://tiny.cc/e89jkz

FINAL ACCOUNT IN NEPALI http://tiny.cc/w89jkz

WORK SHEET http://tiny.cc/579jkz

RATIO ANALYSIS (ACCOUNTING RATIO) http://tiny.cc/4fakkz

FUND FLOW STATEMENT http://tiny.cc/wiakkz

CASH FLOW STATEMENT http://tiny.cc/8gakkz

THEORY ACCOUNTING XII http://tiny.cc/nfakkz

THEORY: COST ACCOUNTING http://tiny.cc/tfakkz

COST ACCOUNTING http://tiny.cc/p29jkz

LIFO−FIFO http://tiny.cc/dgakkz

COST SHEET, UNIT COSTING http://tiny.cc/w49jkz

COST RECONCILIATION STATEMENT http://tiny.cc/829jkz

#####

***********

PROBLEMS   AND   ANSWERS

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

Basic Problem: 33

AK Company Ltd took over the following assets and liabilities of BK Company Ltd at an agreed purchase price of $/₹/Rs 11,60,400.

Building Sundry creditors Cash and bank

Rs 5,00,000 Rs 3,10,000 Rs 22,000

Stock in trade Sundry debtors Outstanding expenses

Rs 3,60,000 Rs 4,18,000 Rs 10,000

Towards this, the company issued equity shares of Rs 100 each at 20% premium. The company also issued 2,000 shares to public subscription at 10% discount.

Required: Journal entries and opening balance sheet

[Answer: No. of shares = 9,670; Goodwill = Rs 1,80,400; BS = Rs 16,80,400]

 

***********

Thank you for investing your time.

Please comment on article.

You can help me by sharing this article at your social media platform.

 

Jay Google, Jay YouTube, Jay Social Media

जय गूगल, जय युट्युब, जय सोशल मीडिया

***********