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ISSUE OF SHARES AGAINST PURCHASE OF FIXED ASSET EXAMPLE WITH SOLUTION

EXAMPLE:
* Company purchased an equipment costing Rs.100,000 and issued suitable number of shares of Rs.10 each. Market price of each share was Rs.12.50.
* Company acquired a building by allotting 50,000 ordinary shares of Rs.10 each. At the time of acquisition, the market price was Rs.15 per share.
* Company purchased a land costing Rs.450,000 and issued 50,000 ordinary shares of Rs.10 each.
* Company issued 2,000 ordinary shares of Rs.10 each in settlement of bonds payable of Rs.20,000.


SOLUTION:
(a) Number of shares = Cost price of asset / Market price per share
Number of shares = 100,000 / 12.50
Number of shares = 8,000.

GENERAL ENTRY:
Equipment 100,000 Dr.
Ordinary shares capital (8,000 x 10) 80,000 Cr.
Ordinary shares premium (8,000 x 2.5) 20,000 Cr.


(b) Cost of asset = Number of shares x Market price of each share
Cost of asset = 50,000 x 15
Cost of asset = 750,000

GENERAL ENTRY:
Building 750,000 Dr.
Ordinary shares capital (50,000 x 10) 500,000 Cr.
Ordinary shares premium (50,000 x 5) 250,000 Cr.


(c) Market price of each share = Cost of asset / Number of shares
Market price of each share = 450,000 / 50,000
Market price of each share = Rs.9 per share

GENERAL ENTRY:
Land 450,000 Dr.
Ordinary shares discount (50,000 x 1) 50,000 Dr.
Ordinary shares capital (50,000 x 10) 500,000 Cr.


(d) Market price of each share = Liability amount / Number of shares
Market price of each share = 20,000 / 2,000
Market price of each share = Rs.10 per share

GENERAL ENTRY:
Bonds payable 20,000 Dr.
Ordinary shares capital (2,000 x 10) 20,000 Cr.

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