Notes:issue of shares

1. COMPANY ACCOUNTS
: ISSUE OF SHARES
: ISSUE OF DEBENTURES
: REDEMPTION OF DEBENTURES

2. FINANCIAL STATEMENT ANALYSIS

: FINANCIAL STATEMENT
: FINANCIAL STATEMENT ANALYSIS
: COMPARATIVE STATEMENT
: COMMON SIZE STATEMENT
: TREND ANALYSIS
: RATIO ANALYSIS
: CASH FLOW STATEMENT

COMPANY ACCOUNTS

CHAPTER- 7

ISSUE OF SHARES

A Company is an artificial person created by law, having separate entity with a

perpetual succession and a common seal.
Shares Total Capital of the company is divided into units of small denominations. Each
such unit is called share. For example, if the total capital of the Company is Rs.
1,00,000, divided into 10,000 units of Rs. 10 each, each unit of Rs. 10 will be called a
share.
SHARE CAPITAL: means the capital raised by a company by the issue of shares.
Kinds of share Capital
1. Authorized , Registered and Nominal Capital
2. Issued Capital
3. Subscribed Capital
4. Called-Up Capital
5. Paid-up Capital
6. Reserve Capital

Entries on Issue of Shares

Bank A/c Dr.
To Share Application A/c
(Application money received on……..shares at the rate of Rs….per share)
Share Application A/c Dr.
To Share Capital A/c
(Application money on allotted shares transferred to Share Capital A/c)
Share Application A/c Dr.
To Bank A/c
(Application money returned on un-allotted shares)
Share Application a/c Dr.
To Share Allotment A/c
(Excess amount adjusted on allotment)
Entries on Allotment
Share Allotment A/c Dr.
To Share Capital A/c
(Amount due on allotment on……..shares at the rate of Rs….per share)
Share Allotment A/c Dr.
To Share Capital A/c
To Securities Premium A/c
(Amount due on allotment on……..shares at the rate of Rs….per share)
Share Allotment A/c Dr.
Discount on issue of shares A/c Dr.
To Share Capital A/c
(Amount due on allotment on……..shares at the rate of Rs….per share)
Bank A/c Dr.
To Share Allotment A/c
(Amount received on allotment on…..shares at the rate of Rs….per share)
Entries on First Call
Share First Call A/c Dr.
To Share Capital A/c
(First call due on…….shares at the rate of Rs…per share)
Bank A/c Dr.
To Share First Call A/c
(First call money received on…..shares at the rate of Rs…per share)
Entries on Second and Final Call
Share Second/Final Call A/c Dr.
To Share Capital A/c
(Second call due on……shares at the rate of Rs…per share)
Bank A/c Dr.
To Share Second/ Final Call A/c
(Second call money received on…..shares at the rate of Rs…..per share)
Issue of Shares to Promoters and for Purchase of Assets
Incorporation Costs or Formation Exp. A/c Dr.
To Share Capital A/c
(Share issued to promoters)
Shares issued on Purchase of Assets
Sundry Assets A/c Dr.
To Vendor’s A/c
(Assets are purchased from the vendors)
 Vendor’s A/c Dr.
To Share Capital A/c
(Shares are issued to vendors)
Vendor’s A/c Dr.
To Share Capital A/c
To Securities Premium A/c
(Shares are issued to vendors at Premium)
Vendor’s A/c Dr.
Discount on issue of Shares A/c Dr.
To Share Capital A/c
(Shares are issued to vendors at Discount)

Forfeiture of Shares
If any shareholder fails to pay the amount due on allotment or on any call within the
specified period, the Directors may cancel his shares. This is called Forfeiture of
Shares.
Entries on Forfeiture of Shares
Forfeiture of Shares which were issued at Par:
Share Capital A/c Dr.
To Share Allotment A/c
To Share Call A/c
To Share Forfeiture A/c
(Forfeiture of Shares issued at Par)
Example: R was holding 1000 shares of Rs. 10 each of a Company on which he had
paid Rs. 3 on application and Rs. 2 on allotment, but could not pay Rs. 2 on first call.
Shares of R are forfeited by the Co.

Share Capital A/c Dr. 7000

To Share First Call A/c 2000
To Share Forfeiture A/c 5000
Forfeiture of Shares which were issued at Premium:
: When forfeiture takes place after the premium is received:
Securities Premium A/c will not be debited in the entry for forfeiture.
: When forfeiture takes place before the premium is received:
Share Capital A/c Dr.
Securities Premium a/c Dr.
To Share Allotment A/c
To Share Call A/c
To Share Forfeiture A/c
(Forfeiture of shares issued at Premium)
Example: M Ltd. Issued 1000 shares of Rs. 10 each to B at a premium of Rs. 4 per
share. Only Rs. 3.50 per share has been received on these shares on Application. B
has not paid Rs. 6.50 on Allotment (including premium), Rs. 2 on First Call and Rs. 2 on
Final Call.
Share Capital A/c Dr. 10,000
Securities Premium A/c Dr. 4,000
To Share Allotment A/c 6,500
To Share First Call A/c 2,000
To Share Final Call A/c 2,000
To Share Forfeiture A/c 3,500
Forfeiture of Shares which were issued at discount:
Share Capital A/c Dr.
To Share Discount A/c
To Share Allotment A/c
To Share Call A/c
To Share Forfeiture A/c
(Forfeiture of shares issued at discount)
Example: N Ltd. Forfeited 1000 shares of Rs. 10 each issued at a discount of 10% to C
on which he had paid Rs. 2.50 per share on application and Rs. 2.50 per share on
allotment but on which he had not paid Rs. 2 on first Call.

Share Capital A/c Dr. 8,000

To Share Discount A/c 1,000
To Share First Call A/c 2,000
To Share Forfeiture A/c 5,000

Re-Issue of Forfeited Shares

If the Forfeited Shares are issued at Par:
Bank A/c Dr.
To Share Capital A/c
If the Forfeited Shares are issued at Premium:
Bank A/c Dr.
To Share Capital A/c
To Securities Premium A/c
If the Forfeited Shares are re-issued at Discount:
Bank A/c Dr.
Share forfeiture A/c Dr.
To Share Capital A/c

Credit balance left in the Share Forfeiture A/c is a Capital Gain and must be
transferred to:-
Share Forfeiture A/c Dr.
To Capital Reserve A/c
(Transfer of Share Forfeiture A/c to Capital Reserve A/c