Corporate Accounting

Chapter : Issue Of Shares

Compiled By: Akash Das
 Accounting Treatment For Issue Of Equity Shares

 Application Money Received:

Bank A/c ……….Dr.
To Equity Share Application A/c
(Amount received on application for ………shares @ ₹ ______ per
share)

 For Transfer of Application Money:

Equity Share Application A/c…… Dr.
To Equity Share Capital A/c
To Securites Premium A/c
(Application money on _____ Shares allotted transferred to Share
Capital & Premium as per board’s resolution no. …. Dated………)

 For Money Refunded on Rejected Application:

Equity Share Application :A/c…….. Dr.
To Bank A/c
(Application money returned on rejected application for ___shares)

 For Amount Due on Allotment:

Equity Share Allotment A/c……… Dr.
To Equity Share Capital A/c
To Securites Premium A/c
(Allotment money on _____ Shares allotted transferred to Share
Capital & Premium as per board’s resolution no. …. Dated………)

 For Adjustment of Excess Application Money:

Equity Share Application A/c……. Dr.
To Equity Share Allotment A/c
(Application Money on __Shares @ ₹__per shares adjusted to the
amount due on allotment)

 For Receipt of Allotment Money:

Bank A/c………… Dr.
Calls in arrear …… Dr
To Equity Share Allotment A/c
(Being Allotment money received on ___Shares @ ₹ — per share)

 For 1st Call Amount Due:

Equity Share 1st Call A/c….. Dr.
To Equity Share Capital A/c
(1st Call money due on ___Shares @ ₹ ____ /share as per board’s
resolution no. …. Dated………)
 For Receipt of 1st Call Amount:
Bank A/c ………Dr.
Calls in arrear …… Dr
To Equity Share 1st Call A/c
(1st Call money received)

 For Final Call Amount Due:

Equity Share Final Call A/c….. Dr.
To Equity Share Capital A/c
(Final Call money due on ___Shares @ ₹ ____ /share as per board’s
resolution no. …. Dated………)

 For Receipt of Final Call Amount:

Bank A/c …………Dr.
Calls in arrear …… Dr
To Equity Share Final Call A/c
(Final Call money received)

 Forfeiture of Shares Originally Issued at Par:

Equity Share Capital A/c ………..Dr (Called-up Capital)
To Forfeited Shares A/c (Amount received)
To Calls in arrear A/c (Amount not received)
(Being forfeiture of…… shares as per board’s resolution no. ….
Dated………)

 Forfeiture of Shares Originally Issued at Premium and Premium was

Received:
Equity Share Capital A/c ………..Dr (Called-up Capital)
To Forfeited Shares A/c (Amount Received Excl. Premium)
To Calls in arrear A/c (Amount not received)
(Being forfeiture of…… shares as per board’s resolution no. ….
Dated………)

 Forfeiture of Shares Originally Issued at Premium and Premium was

not Received :
Equity Share Capital A/c ………..Dr (Called-up Capital)
Securities Premium A/c….. Dr (Unpaid premium)
To Forfeited Shares A/c (Amount received)
To Calls in arrear A/c (Amount not received)
(Being forfeiture of…… shares as per board’s resolution no. ….
Dated………)

 Re-issue of forfeited shares at par:

Bank A/c ………. Dr
To Equity Share Capital A/c
(Being reissue of …… shares at par as per board’s resolution no. ….
Dated………)
 Re-issue of forfeited shares at discount:
Bank A/c ………. Dr (With the amount received on re-issue)
Share Forfeiture A/c ………. Dr (With the discount allowed on
re-issue)
To Equity Share Capital A/c (With the amount
credited as paid-up)
(Being reissue of …… shares at par as per board’s resolution no. ….
Dated………)
(The amount of discount allowed on the re-issue of forfeited shares must not
exceed the amount forfeited on re-issued shares)

 Re-issue of forfeited shares at Premium:

Bank A/c ………. Dr (With the amount received on re-issue)
To Equity Share Capital A/c (With the amount credited
as paid-up)
To Securities Premium A/c (Re-issued price – paid up
value)
(Being reissue of …… shares at par as per board’s resolution no. ….
Dated………)

 Transfer of Profit on re-issued shares:

Forfeited Shares A/c …………Dr
To Capital Reserve A/c
(Being Profit on re-issued shares transferred to capital reserve
account)

 Issue of Shares to Promoters:

Formation Expenses/Goodwill A/c…………Dr
To Equity Share Capital A/c
(Being … share of … each issued to promoters of the company)

 Purchase of Assets from Vendor in considerartion other than cash:

Assets A/c (Individually) …………Dr.
Goodwill A/c ………………………Dr. (If Amount of Purchase
consideration exceeds Net Assets taken over)
To Liabilities (Individually)
To Vendor (Amount of purchase consideration)
To Capital Reserve A/c (If Purchase consideration is less
than Net Assets taken over)
(Being assets & Liabilites purchased from vendor)

 Issue of shares to vendor:

Vendor …………Dr (Amount of purchase consideration)
Discount of issue on shares/Debentures ……..Dr (if issued on
discount)
To Equity Share Capital A/c (Paid up value)
To Securities Premium A/c (if issued on Premium)
(Being issue of shares to vendor)
 Practical Problems
Question: 1 [2002/2013/2019]
X Ltd. offered 10,000 equity shares of ₹ 10 each for subscription at a
premium of ₹ 2 per share payable as follows: On application ₹ 2 On
allotment ₹ 5 (including premium) On first call ₹ 2 On final call ₹ 3 The
company received applications for 15,000 shares and allotment was made
pro rata to the applicants of 12,000 shares, the remaining applications
being refusal. The excess application money was adjusted on account of
sums due on allotment. Kapil to whom 500 shares were allotted failed to
pay the allotment money and on his subsequent failure to pay the first call
money his shares were forfeited. Srinath who originally applied for 240
shares failed to pay the two calls and his shares were forfeited after the
final call. Subsequently, out of these forfeited shares 600 shares (including
all shares of Kapil) were re-issued to Sharma as fully paid up at ₹ 9 per
share. Show the Journal entries to record the above transactions.
Answer: Transfer To Capital Reserve ₹1,100

Question: 2 [2019 Hons CBCS]

Sunshine Ltd. issued 50,000 Equity shares of ₹ 10 each at a premium of
20% payable as ₹ 3 on application, ₹ 6 on allotment (including premium)
and the balance in one call after 3 months from allotment. Applications
were received for 80,000 equity shares. Allotment was made pro-rata to the
applicants for 75,000 equity shares, the remaining applications being
rejected. Excess money on application (eligible for allotment) was adjusted
with allotment. Sourav, to whom 400 equity were allotted, failed to pay the
allotment and call money. Rahul, who applied for 750 equity shares, failed
to pay call money. These shares were subsequently forfeited and all the
shares of Sourav and 50% shares of Rahul were reissued at a discount of
10% to Sachin as fully paid up. Show the necessary journal entries
(narrations required) in the books of the company.
Answer: Transfer To Capital Reserve ₹2,900

Question: 3 [2019 General]

The directors of KPL Industries Ltd. have invited application for 72,000
Equity Shares of ₹ 10 each to be issued at 20% premium. The money
payable on shares is as follows: 01.05.18: On application ₹ 2 01.06.18: On
allotment ₹ 5 (including premium of ₹ 2) 01.01.19: First and Final Call ₹ 5
Applications were received for 90,000 shares and allotment was made pro-
rata to the applicants. All shareholders are paid their dues within the due
time except Mr. Ranjit, to whom 3,600 shares were allotted, failed to pay
the allotment and call money. His shares are forfeited fulfilling the statutory
provisions. Subsequently these shares are re-issued to Animesh as fully
paid shares at ₹ 8 per share on 01.03.19. Show the necessary journal
entries (including cash transaction)
Answer:
Question: 4 [2000 Hons.]
Cripton Ltd. invited applications for the issue of 50,000 equity shares of ₹
10 each at a premium of ₹ 5 per share payable as under: On application ₹
3 per share On allotment ₹ 6 per share (including premium) On first call ₹
3 per share On final call ₹ 3 per share Applications were received for
90,000 shares and allotment was made pro rata to the applicants of 75,000
shares. Antasri to whom 200 shares were allotted, failed to pay the
allotment and first call money, and her shares were forfeited after the first
call. Naresh to whom 600 shares were allotted, failed to pay the two calls,
and his shares were forfeited after the final call. Subsequently, 500 of the
forfeited shares (including all the shares of Antasri) were re-issued to Anup
as fully paid at ₹ 9 per share. Show the Journal entries to record the above
transactions.
Answer:Transfer To Capital Reserve ₹ 1,500

Question: 5 [2016 Hons.]

Bengal Ltd. was registered with an authorised capital of ₹ 5, 00,000 divided
into 30,000 Equity Shares of ₹ 10 each and 4,000, 10% Preference Shares
of ₹ 50 each. The company made an issue of 15,000 Equity Shares at a
premium of ₹ 5 per share payable as follows: On application ₹ 5 per
share (including ₹ 2 as premium) On allotment ₹ 6 per share
(including ₹ 3 as premium) On first call ₹ 2 per share On final call
Balance Applications were received for 24,000 shares. No allotment was
made to the applicants of 4,000 shares and the amount received thereon
was refunded. The rest of the applicants were issued shares on pro – rata
basis. Mr. A who had applied for 120 shares failed to pay allotment and call
moneys. Mr. B who had applied for 80 shares failed to pay two calls and
Mr. C to whom 45 shares were allotted failed to pay the final call money.
Shares of Mr. A, Mr. B and Mr. C were forfeited after the final call was
made. 160 of the forfeited shares (including whole of A and Balance of B)
were reissued to Mr. D at ₹ 12 per share. Show the Journal entries in the
books of the Company.
Answer:Transfer To Capital Reserve ₹ 1,500

Question: 6 [2021 Hons.]

Adino Television Co. Ltd. invited applications for 20,000 of its equity
shares of ₹ 10 each at a premium of ₹ 2 per share, payable ₹ 3 on
application, ₹ 7 on allotment (including premium) and the balance on first
and final call. Applications for 25,000 shares were received. It was decided
to: (a) refuse allotment to the applicants for 1,000 shares; (b) allot in full to
the applicants for 4,000 shares; (c) allot the balance of the available shares
pro rata among the other applicants; and (d) utilise excess application
money in pan payment of allotment money. Mr. X holding 200 shares to
whom shares had been allotted on pro rata basis failed to pay the amount
due on allotment and call. Mr. Y holding 100 shares to whom full allotment
was made failed to pay amount due on call only. These shares were
forfeited. 160 forfeited shares of Mr. X and 40 forfeited shares of Mr. Y were
re-issued at a discount of ₹ 1 per share to Mr. Z. Pass journal entries in
the books of the company.
Answer:Transfer To Capital Reserve ₹ 720

Question: 7 [2015 Hons.]

K Ltd. made an issue of 20,000 Equity Shares of ₹ 10 each at 20%
premium, payable as under: ₹ 4 on application, ₹ 5 on allotment
(including premium), ₹ 2 on first call and ₹ 1 on final call. Applications
were received for 25,000 shares and allotment was made as follows: a) To
applications for 10,000 shares – in full b) To applications for 9,000 shares –
6,000 shares c) To applications for 6,000 shares - 4,000 shares Applicants
for 200 shares in category (a) and applicants for 150 shares in category (b)
failed to pay the allotment money and these shares were forfeited on their
failure to pay the first call money. Holders of 200 shares under category (c)
failed to pay the first and final call money and those shares were forfeited
after final call was made. 300 shares [200 of category (a) and 100 of
category (b)] were re – issued at ₹ 7 per share as fully paid. Show Journal
entries in the books of K Ltd.
Answer:Transfer To Capital Reserve ₹ 500