Issue of Shares Other Than Cash (Balance Sheet)

 

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: 34

Jagdamba Steels Ltd has 200,000 equity shares of $/₹/Rs 100 each. The company purchased business of Everest Rolling (P) Ltd. Purchase consideration was made by 100,000 equity shares at 5% premium to take over following assets and liabilities:

Land and building                  50,00,000 Current assets                        15,00,000

Plant and machinery          55,00,000 Current liabilities                10,00,000

The company also issued 50,000 equity shares at 5% discount to public

Required: Journal entry and balance sheet

[Answer: Capital reserve = Rs 5,00,000; Balance sheet = Rs 1,70,00,000]

SOLUTION

Journal Entries

In the book of Jagdamba Steels Ltd

Date	Particulars		LF	Amount	Amount
	Business purchase
	Business purchase account           To Everest Rolling Company account (Being- business purchased)	Dr		1,05,00,000	1,05,00,000
	Assets and liabilities taken
	Land and building account Plant and machinery account Current assets account            To Capital reserve (b/f)           To Current liabilities           To Business purchase account (Being- assets and liabilities taken balance as capital reserve)	Dr Dr Dr		50,00,000 55,00,000 15,00,000	5,00,000 10,00,000 1,05,00,000
	Purchase consideration paid
	Everest Rolling Company account           To Share capital account           To Share premium (security premium) (Being- payment made by issuing 100,000 equity shares @ Rs 100 each at 5% premium)	Dr		1,05,00,000	1,00,00,000 5,00,000
	Shares issued to public
	Bank account  Discount on shares account            To Share capital account (Being- 50,000 equity shares issued to public at 5% discount)	Dr Dr		47,50,000 2,50,000	50,00,000

 

Balance Sheet

Jagdamba Steels Ltd

Liabilities + Capital + Profit	Amount	Assets	Amount
Authorized capital: 200,000 Equity shares of Rs 100 Issued and paid up capital: 150,000 Equity shares of Rs 100 Share or security premium Current liabilities Capital reserve	– 2,00,00,000 – 1,50,00,000 5,00,000 10,00,000 5,00,000	Land and building Plant and machinery Current assets Bank balance Discount on debentures	50,00,000 55,00,000 15,00,000 47,50,000 2,50,000
	1,70,00,000		1,70,00,000

#####

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: 34

Zonal Company has been registered with the capital of Rs 40,00,000 divided into 40,000 shares of $/₹/Rs 100 each. The company issued 10,000 shares at a premium of 10% to purchase the following assets and liabilities of a District Company

Land and building              Rs 4,00,000     Sundry creditors                Rs 2,50,000     Sundry debtors                  Rs 4,00,000

Plant and machinery                  Rs 3,00,000 Stock in trade                             Rs 2,50,000 Furniture and fixture                  Rs 3,00,000

The company also issued 10,000 shares for cash at 5% discount

Required:   (1) Entry for purchase of assets and liabilities

           (2) Opening balance sheet for the company after issue of above shares

[Answer: Capital reserve = Rs 300,000; Balance sheet = Rs 26,50,000;

*Purchase consideration = 10,000 x 110 = Rs 11,00,000

 

***********

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

***********