When a company issues shares or debentures, one of the following three (3) scenarios might occur: Issuance AT PAR

PAR Issuance AT A PREMIUM Issuance AT A DISCOUNT

Scenarios Meaning Issuance A share or debenture of (say) $1 each nominal value would be issued AT PAR for $1 each. Issuance At a premium a price above the shares nominal value. For example, AT A if the nominal value of a share is $1, the share would be issued for PREMIU more than $1, say for $1.10 or a $100 debenture for $120 M Issuance AT A Shares of $1 each might be issued at say $0.90 which is below its DISCOU nominal value NT ISSUE SHARE ON INSTALLMENT Usually issues share in full amount or installment. When shares are issued as installment, an APPLICATION and ALLOTMENT Account is created Where shares are issued and money is received from applicants at PAR VALUE (a) Debit: Bank Account Credit: Application & Allotment A/c (b) Debit: Application & Allotment a/c Credit: Shares Capital A/c Where shares are issued at PREMIUM (a) Debit: Bank Account Credit: Application & Allotment Account (b) Debit: Application & Allotment A/c Credit: Share Capital Account Credit: Share Premium Account

 Where shares are issued at DISCOUNT (b) Debit: Bank Account Credit: Application & Allotment Account (b) Debit: Application & Allotment A/c Credit: Discount on Shares Account Credit: Share Capital Account Salient point Note that when shares are issued at Par, Premium or Discount, the Application & Allotment Account is open and then close accordingly. A COMPANY RAISE SHARE CAPITAL using 2 methods namely (a) Bonus Issue (b) Rights Issue BONUS ISSUE ON SHARES Bonus Issue is actually the company CAPITALIZATING its reserve. Therefore, there is NO cash received. Accounting Entry: Debit: Reserve Account Credit: Share Capital Account RIGHTS ISSUE In a Right Issue, cash will be received from shareholder upon issuance of shares Accounting Entry: Debit: Bank Account Credit: Share Capital Account