ISSUE OF SHARES
Dr. S. Prasanna Kumar
Asst. Professor, Dept. of Commerce (Shift – II)
Loyola College (Autonomous), Chennai – 600 034.
SHARE……??????
• A small portion of something.
• A part of something.
According to Companies Act:
“A Share in the Share Capital of a company including stocks.
In simple words:
The capital of the company is divided into certain divisible “UNITS”.
EACH unit is called a “SHARE”.
Types of Shares
Equity Share Preference Share Sweat Equity Share
Shares that create a Issued to directors /
ownership right in
Payment of employees at discount
the company. Dividend / consideration other
than cash
Right to Vote & take Issued for providing
part in decision Repayment of
Capital tech know-how / IPR
making / value additions
ISSUE OF SHARE……?????
Sale of Shares
Lump sum Installments
Application
Money is raised Allotment
by selling the
shares
instantaneously
Call Stage
ISSUE OF SHARES FOR NON-CASH CONSIDERATION
Buying A
Business
Giving
Buying An
Shares to
Asset
Promoters
ISSUE
BUYING AN ASSET & ISSUING SHARES
PARTICULARS DEBIT CREDIT
Asset A/c Dr XXX
To Equity Share Capital A/c XXX
(Shares given for Asset Purchased)
BUYING AN BUSINESS & ISSUING SHARES
PARTICULARS DEBIT CREDIT
Asset A/c Dr XXX
Goodwill A/c Dr (Balancing Figure) XXX
To Liabilities A/c XXX
To Vendors A/c XXX
To Capital Reserve A/c (Balancing Figure) XXX
(Assets & Liabilities Taken Over)
Vendors A/c Dr XXX
To Equity Share Capital A/c XXX
(Settlement through Shares)
GIVING SHARES TO PROMOTER
PARTICULARS DEBIT CREDIT
Goodwill A/c Dr XXX
To Equity Share Capital A/c XXX
(Shares given to Promoter)
LUMP SUM
PA RT I C U L A R S DEBIT CREDIT
Bank A/c Dr XXX
To Equity Share Application & Allotment A/c XXX
(Shares issued to ___________)
Equity Share Application & Allotment A/c Dr XXX
Discount of Issue A/c Dr XXX
To Equity Share Capital A/c XXX
To Securities Premium A/c XXX
(Money Transferred to Capital)
DISCOUNT / SECURITIES PREMIUM
Below Above
PREMIUM
DISCOUNT Face
Value
• Class already issued;
• After 1 year from commencement of • Amount of Premium is decided
business; by B.O.D as per SEBI
• Authorised by resolution & CLB; Guidelines;
• Max rate should not exceed 10%;
• Capital Profit to the Company;
• Issued within 2 months of sanction by
CLB.
ISSUE OF SHARE IN INSTALLMENTS
• Selling the s h a re s and ra i s i n g the m o n ey at intermittent
intervals;
• T h i s i s d o n e u s u a l l y by c o m p a n i e s t o a t t ra c t l a rg e n u m b e r o f
i n ve s t o r s ;
• T h e p u b l i c c a n p a y f o r l a rg e n u m b e r o f s h a re s by p a y i n g
minimal amounts;
• T h e c o m p a ny might not be able to use the e n t i re funds
i m m e d i a t e l y.
APPLICATION STAGE
Application Money • Bank A/c Dr
Received • To Share Application A/c
Application Money • Share Application A/c Dr
Transferred to
Share Capital • To Share Capital A/c
• Share Application A/c Dr
Refund / Rejection
• To Bank A/c
• Share Application A/c Dr
Pro-Rata
• To Share Allotment A/c
PRO-RATA ALLOTMENT
• P ro p o r t i o n a t e a l l o t m e n t o f s h a re s ;
• E x c e s s m o n ey re c e i ve d o n a p p l i c a t i o n i s a d j u s t e d t ow a rd s t h e
next stage;
• N o a d d i t i o n a l s h a re a re a l l o t t e d .
• A s h a re h o l d e r w h o h a s a p p l i e d o r p a i d f o r m o re n u m b e r o f
s h a re s t h e n t h e e x c e s s m o n ey i s a d j u s t e d t ow a rd s t h e n e x t s t e p
(i.e.,) ALLOTMENT
ALLOTMENT STAGE
• Share Allotment A/c Dr Allotment
• Discount on Issue A/c Dr
• To Share Capital A/c Money
• To Securities Premium A/c Due
Allotment
• Bank A/c Dr
• To Share Allotment A/c
Money
Received
CALL STAGE
• Share 1st / 2nd / Final Call A/c Dr Call
• Discount on Issue A/c Dr
• To Share Capital A/c Money
• To Securities Premium A/c Due
• Bank A/c Dr Call
• Calls-In-Arrears A/c Dr Money
• To Share 1st / 2nd / Final Call A/c Received
CALLS IN ARREARS
• When a shareholder does not pay the money either
on 1st call or 2nd call or Final Call.
• When the company does not receive money on
Allotment / on Calls, then the company reserves the
right to cancel the shares vested in the hands of the
shareholder.
FORFEITURE
• Cancellation of Shares on non-payment by a
shareholder is called FORFEITURE.
• Money so far paid by the shareholder is not repaid;
• On cancellation his relationship with the company
stands NULLIFIED.
ACCOUNTING TREATMENT - FORFEITURE
Particulars Debit Credit
Share Capital A/c Dr (amount so far called) XXX
Securities Premium A/c Dr (if premium is not paid) XXX
To Share Allotment (if allotment is not paid) XXX
To Calls – In – Arrears (if call money is not paid) XXX
To Discount on Issue of Shares (Cancelling Discount) XXX
To Forfeited Shares A/c (Amt so far collected) XXX
(Being Shares Forfeited)
NOTE
• On cancellation of shares, the money so far paid by the
shareholder is not refunded – this is a CAPITAL PROFIT for
the company.
• The share are vested with the COMPANY.
• The Company reserves the right to resell the cancelled
shares to anyone.
REISSUE
• When the shares cancelled / forfeited by the
company is re-sold or reissued to anyone – then it is
called REISSUE of SHARES.
• Shares can be reissued at a price higher or lower than
the face value.
ACCOUNTING TREATMENT - REISSUE
Particulars Debit Credit
Bank A/c Dr (with re-issue price) XXX
Discount on Issue A/c Dr (discount if any) XXX
Forfeited Shares A/c Dr (F V – discount – R P) XXX
To Share Capital A/c (with FV) XXX
To Securities Premium A/c (With Premium) XXX
(Being shares re-issued)
F V – Face Value
R P – Reissue Price
ADJUSTING LOSS ON REISSUE WITH
PROFIT ON CANCELLATION
Particulars Debit Credit
Forfeited Shares A/c Dr XXX
To Capital Reserves A/c XXX
(Transfer)
