Issuance of Shares

• Promotion:
The Persons who form the company are called ‘Promoters’, while promotion
consists of the assessment of capital requirement, choice of first directors,
drafting of the memorandum and articles of association and prospectus.

• Memorandum of Association:
It consists the objectives of the company, the amount of share capital, and
the division of share capital.

• Articles of Association:
It consists the rules and regulations, which govern the internal affairs of the
company.
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 Issuance of Shares

• Prospectus:
A prospectus is a formal document that is required by and filed with the
Securities and Exchange Commission (SEC) that provides details about an
investment offering to the public. (Public Limited)

• Underwriters:
Underwriting is the process through which an individual or institution takes on
financial risk for a fee. This risk most typically involves loans, insurance, or
investments

• Preliminary expenses:
Expenses that are incurred before the incorporation, initial stage and
2-2 commencement of the business.
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 Issuance of Shares

Entries :
Received Shares Application
• Bank xxx
• Ordinary Shares Application xxx

Share Application Transferred to Share Capital

• Ordinary Shares Application xxx
• Ordinary Shares Capital xxx

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 Issuance of Shares

Entries :
Refund Excess Application
• Ordinary Shares Application xxx
• Bank xxx
Issue Shares at Premium
• Bank xxx
• Ordinary Share Capital xxx
• Ordinary Share Premium xxx

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 Issuance of Shares

Entries :
Issue Shares at Discount
• Share Applications xxx
• Share discount xxx
• Share Capital xxx
• Issue Shares to promoters
• Preliminary expenses xxx
• Ordinary Share Capital xxx

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 Issuance of Shares

Q.1 MY Company Ltd. Was registered with the capital of Rs.

5,000,000 divided into ordinary Shares of Rs. 10 each. The company
offered to the public 15,000 shares payable in full on application. The
bank informs that 20,000 shares application were received. The
company allotted the offered shares and refunded the amount
received in excess.

During the year company completed the following transactions:

1. Issued further 5,000 shares at Rs. 18 each fro cash

2. Issued 7,000 shares to the promoters at par
3. Purchased computers for Rs. 40,000 and issued 3,000 shares
4. Purchased a piece of land and issued 50,000 shares at Rs. 15
each.
Required:
5. Pass journal Entries for MY Company Ltd
6. Prepare balance sheet of MY Company Ltd.
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 Issuance of Shares

Q.2 FG Company Ltd. Was registered with the capital of Rs.

9,000,000 divided into ordinary Shares of Rs. 10 each. The company
offered to the public 27,000 shares payable in full on application. The
bank informs that 36,000 shares application were received. The
company allotted the offered shares and refunded the amount
received in excess.

During the year company completed the following transactions:

1. Issued further 9,000 shares at Rs. 18 each fro cash

2. Issued 12,600 shares to the promoters at par
3. Purchased computers for Rs. 72,000 and issued 5,400 shares
4. Purchased a piece of land and issued 90,000 shares at Rs. 15
each.

Required:
5. Pass journal Entries for FG Company Ltd
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6. Prepare balance sheet of FG Company Ltd.
 Issuance of Shares

Q.3 The Following transactions related to Y Company Ltd:

1. The Company received application for 120,000 ordinary shares
of Rs. 10 each. Allotment letters were issued for 100,000
ordinary shares and the amount of 20,000 shares were refunded
2. Land costing Rs. 72,000 was acquired by issuing 6,000 ordinary
shares of Rs. 10 each
3. Office equipment was acquired by issuing 14,000 ordinary
shares of Rs. 10 each fully paid. The market price per share was
Rs. 12.5
Required:
4. Record the above transactions in the general journal form.
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 Issuance of Shares

Q.4 The Following are the extracts from the draft balance sheet of
Star Company Limited as on 31st December 2015.

Authorized Share Capital Rs.

15,000 ordinary shares of Rs. 20 each 300,000

Issued and Subscribed Capital

8,000 ordinary shares of Rs. 20 each fully paid 160,000
Reserve fund 90,000
Profit & Loss Account 60,000

A resolution was passed by the company, determining of 2 ordinary

shares as bonus for every 5 shares held at present.

For this purpose Rs. 35,000 are to be provided out of Reserve fund
and the balance out of Profit & Loss Account.
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 Issuance of Shares

Required:
1. Make necessary Journal entries to give effect to the resolution
and show how they would effect the Balance Sheet.

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 Issuance of Shares

Q.5 The Following are the extracts from the draft balance sheet of
SR Company Limited as on 31st December 2018.

Authorized Share Capital Rs.

27,000 ordinary shares of Rs. 20 each 540,000

Issued and Subscribed Capital

14,400 ordinary shares of Rs. 20 each fully paid 288,000
Reserve fund 162,000
Profit & Loss Account 108,000

A resolution was passed by the company, determining of 2 ordinary

shares as bonus for every 5 shares held at present.

For this purpose Rs. 63,000 are to be provided out of Reserve fund
and the balance out of Profit & Loss Account.
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 Issuance of Shares

Required:
1. Make necessary Journal entries to give effect to the resolution
and show how they would effect the Balance Sheet.

Q.6 A public limited company offers to its Shareholders the right to

buy 2 shares at Rs. 130 each for every 5 shares of Rs. 100 each
held in the company. The Market value of the shares is Rs. 200
each.

Required: Calculate the value of Right.

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Answer 6:

Market value of Shares already held 5 200 1,000

Add: price to be paid for new shares
value of existing and new shares 2 130 260

7 1,260

Average Price = 1260 / 7 = Rs. 180 per share

Value of Right = Market Price – Average Price

Rs. 200 – Rs. 180

= Rs. 20 per Share

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 Issuance of Shares

Q.7 A public limited company offers to its Shareholders the right to

buy 4 shares at Rs. 234 each for every 6 shares of Rs. 100 each
held in the company. The Market value of the shares is Rs. 360
each.

Required: Calculate the value of Right.

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