Issue of share

Some time a company can decide to issue of shares on premium or on discount. In both situations we must know the basic concept before doing any accounting treatment.
Issue of shares on premium
Issue of shares on premium means that if company wants to get more money of each share. Then the company can demand premium with the face value or nominal value of shares. This is called issue of shares on premium. Suppose if the face value of shares is RS.100 Company can issue of his 10000 @ Rs. 105 it means company is also demanding RS. 5 per share as premium. According to new amendments in Company law 1956, Company must open security premium account, if co. issue shares on premium. All money which got with name of premium will transfer to security premium account . The following entry will passed in the books of company

For the due of share Allotment money
1.
Shares Allotment Account Debit xxxx ( with the total amount )
Shares Capital Account Credit xxxx ( With the face value of shares)
Security Premium Account Credit xxxx( With the amount of premium)

2. For Allotment money Received
Bank Account Debit xxxx ( face value + Premium )
To Share Allotment Account xxxx
If company has demanded the premium with his call money from share holders , then on the place share allotment account we must write share call account , all other journal entry will be same.
According to Section 78 , We will use this fund according to guidelines of law.

Meaning of Issue of shares at discount :-
It means that company demands less amount than face value of shares .This less amount is called discount on issue of shares .
Journal entry of discount on issue of shares
When we receive allotment by giving discount on issue of share
1 Amount due of allotment
Share Allotment Account Debit xxxx( face value of allotment – discount)
Discount on issue of share account Debit xxxx( amount of discount)
To Share capital account
2. When allotment money actually received
Bank account debit xxx( face value of allotment –discount)
To share allotment account

Issue of shares at their nominal value is called Issue at Par. The amount of shares is generally divided into a number of instalments. The amount received along with the applications is called application money. Second instalment called Allotment money is called by the company at the time of Allotment of shares. The remaining part of the share money called call money is further divided into one or two calls called first call, second call etc. If there is only one call it is called first and final call otherwise we use the word first call only. The word ‘final’ is added to the last call whwether it is first or second. The stepwise descripttion and journal entries on the issue of shares at Par is given below.

Step 1. Receipt of Application Money

The first step in case of issue of share is the receipt of application money. On receiving application money the following journal entry is made in the books :

Bank A/c……..Dr. (Amount of Application money received)

To Share Application A/c

Step 2. On allotment of share

After receiving Application Money, the next step is taking decision about allotment of shares. We are assuming here that the company received only as many applications as it has invited. The next journal entry is:

Share Application A/c ……..Dr.

To Share Capital

Step 3. On making Allotment money due

The required Journal entry for making allotment money due is:

Share Allotment A/c…….. Dr. (Total Allotment Money)

To Share Capital A/c

Step 4. On receiving Allotment Money

The Journal entry made on receipt of Allotment Money is:

Bank A/c…….. Dr. (Allotment money received)

To Share Allotmenmt A/c

Step 5. On making Call/Calls Due

The Company make calls from time to time to receive the call money (first call, second call and so on). The journal entry for making First Call due is:

Share First Call A/c……..Dr. (Total Call money)

To Share Capital A/c

Step 6. For Receiving Call money

On the receipt of Fiorst Call money the journal entry made is:

Bank A/c……..Dr. (Call Money Received)

To Share First Call

Notes:

1. In case company makes more than one calls the word first , second , final etc are written

before the respective calls. For example:

On making first call due we write

Share first call A/c…….. Dr.

To Share Capital

On making final Call we write

Share Final Call ……..A/c Dr.

To Share Capital

2. The type of share (equity or preference) has to be mentioned while making entries. For example for equity shares we mention the word Equity before the word Share while making Entries.