Issue Of Shares Part 1

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Share Capital is one of the main sources of finance for any company. Share capital is a part of the total capital which is contributed by shareholders. In order to raise the capital Company issues shares. While issuing shares company need to follow definite procedure as per Companies Act and Securities Exchange Board of India (SEBI) rules and regulations.

Issue Of Shares

Issue of Shares

Issue Of Shares

Basically, shares are issued in different ways. Two important ways of issuing shares are

  1. Issue of shares for consideration other than cash

  2. Issue of shares for cash

Issue of Shares for Consideration Other Than Cash:

Sometimes shares are issued for consideration other than cash in following cases

  • Issue of shares to promoters in lieu of the services provided by them during incorporation of the company.

    Issue price of these shares is normally debited to ‘Goodwill A/c’

    Shares for Consideration Other Than Cash

    Shares for Consideration Other Than Cash

    Shares for Consideration Other Than Cash

  • When there is shortage of funds shares will be issued in order to get fixed assets like building and machinery and for the payment of creditors/vendors etc.

    Journal Entries:

    Shortage of funds

    Shortage of Funds

    Shortage of funds

Issue of Shares for Cash:

Shares are generally issued for Cash and Companies collect this cash through bankers. The company may call or demand share money either in one installment or in two or more installments.

Receipt of Share Money in One Installment:

The company may receive the share money in one installment along with application.

Journal Entries:

Receipt of share money in one installment

Receipt of Share Money in One Installment

Receipt of share money in one installment

Share Money Received in Two or More Installments:

Instead of collecting share money in single installment company may collect money in different installments. Terms related to installments

  • Application Money – First installment paid by applicants along with applications.

  • Allotment Money – Second installment paid by allotted people.

  • Call Money – Company call the share money in more than two installments. After receipt of Application and Allotment money the remaining unpaid money can be called up by company as call money in one or more phases i.e. first call, second call…and final call.

Journal Entries:

Journal Entries for Money Received in Multiple Installments

Journal Entries for Money Received in Multiple Installments

Journal Entries for Money Received in Multiple Installments

Example:

Fashion Fabrics Ltd. issued 100000 shares of Rs. 10 each on 1st April, 2006.

The amount payable on these shares was as under:

Rs 2 per share on application.

Rs 3 per share on allotment.

Rs 5 per share on call. Make journal entries

Solution:

Journal Entries

Table of Journal Entries
Title: Table of Journal Entries

S.No

Particulars

L.F

Amount (Rs.)

Dr.

Cr.

1.

Bank A/c Dr.

To Share Application A/c

(Application money received @ Rs 2 per share)

200000

200000

2.

Share Application A/c Dr.

To Share Capital A/c

(Share application money for 100000 shares transferred to share capital A/c)

200000

200000

3

Share Allotment A/c Dr.

To Share Capital A/c

(Allotment money made due on 100000 shares @ Rs 3/- per share)

300,000

300,000

4

Bank A/c Dr.

To Share Allotment A/c.

(Allotment money received on 100000 shares @Rs 3 per share.)

300000

300000

5

Share First and Final Call A/c Dr.

To Share Capital A/c.

(Call money on 1,00,000 shares @ Rs 5 per share made due)

500000

500000

6

Bank A/c Dr.

To Share First & Final call A/c

(Call money received on 1,00,000 shares @ Rs 5 per share)

500000

500000

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