Module No.

2
ISSUE OF SHARES
Meaning of Share, Types of Shares – Preference shares
and Equity shares – Issue of Shares at par, at Premium, at
Discount: Pro-Rata Allotment; Journal Entries relating to issue of
shares; Preparation of respective ledger accounts; Preparation of
Balance Sheet in the Vertical form (Practical Problems).
MEANING AND DEFINITION:
SHARES: sec. 2(46) Companies Act. 2013
“A share in the share capital of a company and includes stock except
where a distinction between stock and share is expressed or implies”.
A share is a fractional part of the capital of a company which forms
the basis of certain rights of a member of the company as well as his liabilities
as against the company

STOCK:
Fully paid share capital my, if the article so permit, be converted into stock by
an ordinary resolution of the members.
Stock is the aggregate consolidated holdings of the share capital of a
person. It can be divided and transferred in any fraction and sub-divisions
without regard to the original face value of the share for the purpose of
convenient holding into different parts
DIFFERENCE BETWEEN A SHARE AND STOCK:
1. A share may not be fully paid up, but a stock is always fully paid up.
2. A share has a nominal value, whereas a stock has no nominal value.
3. A share cannot be transferred in small fractions, while a stock can be
transferred in any fractions.
4. All share bear distinct numbers, while stock disclose the consolidated
value of the share capital. Fractions of the stock do not bear any number.
5. All share are of equal denomination. Stock may be of unequal amounts.
6. Unlike share, stock cannot be directly offered by the company to the
public in the first instance only fully paid up shares can be converted into
stock by the company
FEATURES OF SHARES:
1. A share is not a sum of money. It is only an interest or right, measured in
a sum of money to participate in the profits of the company.
2. A share is given a face or nominal value, and is paid for in money or
money’s worth
3. The person who holds is called “Shareholder”
4. The title of a member to a share is evidenced by the share certificate.
5. It is a negotiable instruments

KINDS OF SHARES:
PREFERENCE SHARES:
preference shares are having preferential rights(first priority or
preference over other kinds of shares)in respect of payment of dividend during
the existence of the company, and also in respect of repayment or refund of
share capital in the event of winding up of the company.
TYPES:
1. Cumulative preference shares
2. non-cumulative preference shares
3. Participating preference shares
4. non-participating preference shares
5. Convertible preference shares
6. non-convertible preference shares
7. Redeemable preference shares
8. Irredeemable preference shares

EQUITY SHARES:
Equity shares are those shares which don’t preference share. Equity
shares can be of two types
1. With voting rights
2. With differential right as to dividends, voting or otherwise in accordance
with the rules and subject to such conditions as may be prescribed (Sec.
43(a))
SWEAT EQUITY SHARES: amendment Act. 1999, sec. 79(A)
Sweat Equity shares means equity shares issued by a company to its
employees or directors at a discount or for consideration other than cash for
providing know how or making available rights in the nature of intellectual
property rights or value addition
Employees Stock Option Scheme(ESOS)
Employees Stock Option Plan(ESOP)

DEFERRED SHARES OR FOUNDER SHARES:

Deferred Shares are shares whose right to receive dividend is
deferred or postponed to the end.

SHARE CAPITAL:
1. Authorised, Registered or Nominal Capital
2. Issued Capital
3. Subscribed Capital
4. Called-up Capital
5. Paid-up Capital [Reserved Capital]
ENTRIES RELATING TO ISSUE OF SHARES
1. Receipt of application for shares together with application money
Bank a/c……………….Dr.
To Share application a/c
2. Allotment of shares.
Share application a/c……..Dr.
To Share Capital a/c
3. For recording allotment money due
Share allotment a/c……Dr.
To Share capital a/c
4. For recording the receipt of allotment money
Bank a/c……………..Dr.
To Share allotment a/c
5. For recording call money due
First call a/c…………….Dr.
Second call a/c………….Dr.
Final call a/c…………....Dr.
To Share capital a/c
6. For recording receipt of call money
Bank a/c……………Dr.
To First call a/c
“ Second call a/c
“ Final call a/c
CALLS IN ARREARS:
If some of allottees fail to pay any share allotment, call money to the
company, then the unpaid amount by the allottees is called “Calls-in-arrears”
Call in arrears a/c……Dr.
To Share allotment a/c
“ Share Call a/c
CALLS IN ADVANCE:
The amount received by a company before calls are made is called
calls in advance
entry for recording the calls in advance
Bank a/c…………Dr.
To Calls in advance a/c
Entry for transferring the calls in advance to the concerned share call account
Calls in advance a/c………..Dr.
To Share 1st call a/c
“ Share 2nd call a/c
“ Share final call a/c
Full subscription:
when the public has subscribed for all the shares offered by a
company for subscription.
Under subscription:
When the number of shares applied for by the public is less than the
number of shares offered for subscription.
Over subscription:
When the number of share applied for by the public is more than the
number of shares offered for subscription.
When there is over subscription of shares, some applicants may be
allotted less shares than they have applied for. And some applicants may be
refused allotment of shares.
Pro- Rata Allotment:
It means proportionate allotment of share, partial allotment of shares
to applicants in proportion to the number of shares applied for by them.
Total no. of shares allotted under the pro-rata allotment
Total no. of shares applied for under the pro-rata allotment
The entry for adjustment of the excess application money received against the
allotment amount due:
Share application a/c…….Dr.
To Share allotment a/c
“ Bank a/c
The entry for the transfer of the excess application money in excess of the
allotment money due to calls in advance account:
Share application a/c…….Dr.
To Calls in advance a/c
Issue of share at par:
Issue of share at par means the issue of shares at a price equal to the
face value of the shares
Issue of share at premium:
Issue of share at premium means issue of share at a price higher than
the face value of the shares
Security Premium Account – difference between issue price and
face value of the share

Security premium should be used for the following purpose:

1. For the issue of fully paid bonus shares
2. For writing off the preliminary expenses
3. For writing off expenses or the commission paid or discount allowed on
any issue of share or debentures
4. For proving for the premium payable on the redemption of redeemable
preference shares or debentures of the company
Entry for recording security premium:
Share application a/c……Dr.
Share allotment a/c……..Dr.
Share call a/c……………Dr.
To Security premium a/c
“ Share capital a/c

Issue of share at discount:

Issue of share at discount means the issue of shares at a price less
than the face value of the shares. The difference between the face value and
the issue price of the shares is discount on shares.
Entry for recording discount on issue of share
Share allotment a/c……Dr.
Discount on issue of share a/c….Dr.
To Share capital a/c
Forfeiture of share:
If a shareholder fails to pay the allotment money or the call money or
both due on his shares the directors can forfeit his shares.
Entry for recording forfeiture of shares:
Share capital a/c……….Dr.[with the amount called up and not the
face value on the forfeited shares]
To Forfeited shares a/c[with the amount already received on the
forfeited shares]
“ Share allotment a/c[with the amount remaining unpaid on the
“ Share call a/c forfeited shares]

Re-Issue of Forfeited Shares:

the forfeited shares can be re-issued by the company. They can be re-
issued at par, at a premium or at a discount. But when they are re-issued at a
discount, the amount of discount allowed on the re-issued must not be more
than the amount already received on those forfeited shares form the original
shareholders.
Entry for the re-issue of forfeited share:
If the forfeited share are re-issued at par
Bank a/c………Dr.
To Share capital a/c
If the forfeited share are re-issued at a premium
Bank a/c……..Dr.
To Security Premium a/c
“ Share capital a/c
If the forfeited share are re-issued at a discount
Bank a/c………Dr.
Forfeited shares a/c….Dr.
To Share capital a/c
The Vijay Trading Co. Ltd. Issued 10.000 Equity shares of Rs. 10 each at a
premium of Rs. 2 per share. The amount was payable as follows:
Rs. 2 on application
Rs. 5 on allotment including premium
Rs. 3 on first call and
Rs. 2 on final call
All the share were subscribed and the money duly received except the final
call on 1,000 shares. The directors forfeited these shares and re-issued them
as fully paid at Rs. 8 per share.
Give the journal entries