Today in this post we will discuss about Accounting Treatment in case of Issue of Shares .
This post is all about Accounting Treatment in case of Issue of Shares :
✅ Accounting Treatment in case of Issue of Share
✅ Issue of shares for consideration
✅ calls in arrears
✅ calls in advance
✅Issue of shares at premium
✅issue of shares at discount
✅Issue of shares for consideration other than cash
✅issue of shares to promoters
✅issue of shares for purchase of assets
Lets Begin ………………….
Q:- Explain the accounting treatment in case of issue of shares .
Ans. A company can issue shares in two ways (1) for cash and (2) for consideration other than cash .These shares may be issued at par or at premium or at a discount. Accounting entries for issue of shares:
1. issue of shares for cash consideration :
shares payable in lump sum : when shares are issued at nominal value payable full in a single installment, the share so payable are said to have been issued in lump -sum .
2. share payable in installments:- where the company does not require the immediate use of all proceeds from share issue ,the shares issued as payable in installments.
shares issued as payable in installments.
Shares are said to be at par once they are issued at a price adequate to the face value ( nominal value).
Similar entries will be made for the second or third call through share second call account and share third call account respectively.
Call in arrears:- some shareholders failed to pay the amount due on allotment and/or calls on the share hold by them . such unpaid amount on account of one or more installment is called calls in arrears unpaid calls.
Entry:- it is not mandatory to maintain a separate account for calls in arrears. when a separate account is opened in such a case following entry will be made :-
Calls in arrears a/c dr.
To share allotment a/c
To shares | / || /final call A/c
Interest at the rate not exceeding 5% per annum for the period from the date fixed for payment to the date of actual payment.
Calls in advance: Any amount received from a shareholder in excess of the amount due in advance is called “calls in Advance”.
Entry :
Bank A/c Dr.
To calls in Advance A/c
With the amount received in advance.
The amount received in respect of future calls be adjusted when the call received in advance is made due.
Calls in Advance A/c…………………..Dr.
To particular call A/c
Calls in advance: Any amount received from a shareholder in excess of the amount due in advance is called “calls in Advance”.
Entry :
Bank A/c Dr.
To calls in Advance A/c
With the amount received in advance.
The amount received in respect of future calls be adjusted when the call received in advance is made due.
Calls in Advance A/c…………………..Dr.
To particular call A/c
Issue of Shares at premium:- shares are said to be issued at a premium when they are issued at a price higher than the face value. The excess of issue price over the face value is called as the amount of securities premium .It is shown liabilities side of B/S under the heading of “Reserve and Surplus.”
(1) For transferring money to capital A/c :
Share Call A/c………….. Dr. (Particular call)
To share capital A/c. (Amount of capital)
To securities premium A/c (Amount of premium)
(2) On receipt of full amount including premium:
Bank A/c………………Dr. (Amount received)
To share (particular) call A/c
Issue of shares at discount : Shares are said to be issued at discount when they are issued at a price lower than the face value .It is treated as a loss of capital nature:-
(a) on allotment money being due:
Share Allotment A/c. Dr. (Actual amount due,)
Discount on shares A/c Dr. ( Discount on issue)
To share capital A/c (Total amount)
(b) On allotment money received :
Bank A/c………………..Dr.
To share Allotment A/c (allotment money received excluding discount).
(c) on writing off the amount of discount (every year)
Securities premium / P&L A/c ….. Dr .
To discount on issue of share A/c
Issue of shares for a consideration other than cash.
It is not necessary to issue the shares only for cash . Sometimes a corporation issue fully paid shares for consideration aside from cash, within the following cases :-
(1) Issue of share to promoters : promoters are the person who have formed the company and brought it into existence. For the services rendered by them they may be issue shares by the company .The entry would be made:
Goodwill A/c………..Dr.
To Equity or preference share capital A/ c
(For equity or preferred stock issued to its promoters)
(2) Issue of shares for purchases of Assets : Sometimes a company purchases some Assets and make the payment to vendor in fully paid shares. Such shares could also be issued at par, or at premium, or at discount .The journal entries to be made are as under :
1.When asset is purchased:
Sundry Asset A/c…………………dr. (with the purchase price)
To vendor’s A/c (With the purchases price)
2. (a) on issue of shares to vendors at par:
Vendors A/c……..dr. (With the purchase price)
To share capital A/c (Nominal value of Shares)
(b) On issue of shares to vendors at premium:
Vendors A/c ………..dr (with the purchase price)
To share capital A/c (with the par value of Shares)
To security premium A/c (With the amount of premium)
(c) Vendors A/c…… Dr. (with the purchase price)
Discount on issue of share…. Dr .(with the nominal value of Shares
To share capital A/c
Continue……………..