Issue of Shares Other Than Cash

Arjun EP

Published on: July 13, 2020

Shares issued for business purchased

Shares issue for business purchased is also known shares issue for non-cash consideration.

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

This purchase consideration can be paid by cash, equity shares and debentures.

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.

Shares are issued on lump-sum basis.

Shares can be issued 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 per share)

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

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Journal Entries

In the book of Purchasing Company

Date	Particulars		LF	Amount Dr	Amount Cr
	Assets and liabilities taken
	Sundry assets account (by name) Goodwill account To Capital reserve account To Sundry liabilities (by name) To Vendor company account (Being- assets and liabilities taken, balance as goodwill or capital reserve	Dr Dr		xxxx xxxx*	xxxx* xxxx xxxx
	Purchase consideration paid
	Vendor Company account Discount on shares account To Share capital account To Share premium (security premium) To % Preference shares capital To % Debenture account (Being- payment made by issuing ……..shares @ Rs	Dr Dr		xxxx xxxx^#	xxxx xxxx^# xxxx xxxx
	Share issued to public
	Bank account Discount on shares account To Share capital account To Share premium (security premium) (Being- ……. shares issued for public at ……	Dr Dr		xxxx xxxx^#	xxxx xxxx^#