ISSUE OF SHARES

ISSUE OF SHARES AT PAR (EQUAL SUBSCRIPTION)

Paramount Co. Ltd. has an authorised capital of Rs.250,000 divided into 25,000 ordinary shares of Rs.10 each. The company invites application for 3,000 ordinary shares at par from public along with money. The last day, the banker of the company has informed that only 3,000 ordinary shares applications were received. The management of the company then decided to issue the same to the public.

SOLUTION # 1:
1 Bank (3,000 x 10 30,000 (Dr.)
Ordinary shares applications 30,000 (Cr.)

2 Ordinary shares application 30,000 (Dr.)
Ordinary shares capital (3,000 x 10) 30,000 (Cr.)

EXPLANATION:
when company received application along with money, it increases the bank account of company and increases the liability as well. increase in bank recorded as debit and increase in liability recorded as credit (ordinary share application).

When company allot the shares to the public, it reduces the liability of the company and increases the capital of the company. decrease in liability recorded as debit and increase in capital recorded as credit titled ordinary shares capital.

ISSUE OF SHARES AT PAR (OVER-SUBSCRIPTION) 

Diamond Co. Ltd. is offering 35,000 ordinary shares of Rs.10 each to the public along with money. The banker of the company reported that they have received 55,000 ordinary shares application at par upto the last day. The company has decided to issue 35,000 ordinary shares and instructed to the banker that excess amount refund to whom shares were not allotted.

SOLUTION # 2:
1) Bank (55,000 x 10) 550,000 (Dr.)
Ordinary shares applications 550,000 (Cr.)
(To record the shares applications received at par)

2) Ordinary shares application 350,000 (Dr.)
Ordinary shares capital (35,000 x 10) 350,000 (Cr.)
(To record the shares issued to the public at par)

3) Ordinary shares application 200,000 (Dr.)
Bank (20,000 x 10) 200,000 (Cr.)
(To record the refund of excess money to the public)

EXPLANATION:
Company received application more than offered along with money. it increases the bank account recorded as debit with the amount of applications received (55,000 x 10 = 550,000) and increases the liability recorded as credit titled ordinary shares application,

Company issued 35,000 shares to the public. it reduces the liability of the company recorded as debit and increases the share capital recorded as credit titled ordinary shares capital with the amount of par value of shares issued (35,000 x 10 = 350,000).

Company refunded the excess money to the public to whom shares were not allotted. It reduces the liability of the company recorded as debit and decreases the bank account with the amount of excess application (20,000 x 10 = 200,000) recorded as credit.

ISSUE OF SHARES AT PREMIUM (EQUAL SUBSCRIPTION)

Regal Ltd. has registered capital of Rs.3,000,000 divided into 150,000 ordinary shares of Rs.20 each. The company invites applications for 28,000 ordinary shares of Rs.20 each at Rs.26 each along with money. The banker has reported that they have received 28,000 ordinary shares applications at premium. The company decided to issue the same number of shares to the public.

SOLUTION # 3:

1) Bank (28,000 x 26) 728,000 (Dr.)
Ordinary shares applications 728,000 (Cr.)
(To record the shares applications received at premium)

2) Ordinary shares application 728,000 (Dr.)
Ordinary shares capital (28,000 x 20) 560,000 (Cr.)
Ordinary shares premium (28,000 x 6) 168,000 (Cr.)
(To record the shares issued to the public at premium)

Explanation:
Company received application at premium. it increases the bank account recorded as debit and increases the liability as well recorded as credit.

Company issued shares to the public which reduces the liability of the company recorded as debit and increases the share capital of the company recorded as credit titled ordinary shares capital with par value (28,000 x 20 = 560,000). The company issued share capital more than its part value which is recorded as share premium as credit (28,000 x 6 = 168,000).
Share capital always recorded at its par value.

ISSUE OF SHARES AT PREMIUM (OVER SUBSCRIPTION)

On 10 April, Unilever Ltd. Invites received total 42,000 shares application at Rs.12 each (par value Rs.10). On 18 April the board has decided to issue 26,000 ordinary shares at premium after balloting and instructed to banker that they must refund the amount to whom they have not issued shares.

Solution # 4:
April 10) Bank (42,000 x 12) 504,000 (Dr.)
Ordinary shares applications 504,000 (Cr.)
(To record the shares applications received at premium)

April 18) Ordinary shares application 312,000 (Dr.)
Ordinary shares capital (26,000 x 10) 260,000 (Cr.)
Ordinary shares premium (26,000 x 2) 52,000 (Cr.)
(To record the shares issued to the public at premium)

April 18) Ordinary shares application 192,000 (Dr.)
Bank (16,000 x 12) 192,000 (Cr.)
(To record the refund of excess money to the public at premium)

Explanation:
Company received application with money. It increases the bank account recorded as debit and also increases the liability of company recorded as credit.

Company issued 26,000 shares. It reduces the liability of the company recorded as debit (26,000 x 12 = 312,000), increases the share capital of the company recorded as credit with par value (26,000 x 10 = 260,000) and the difference is recorded as share premium (26,000 x 2 = 52,000).

Company refunded the excess money to the public which reduces the liability of the company recorded as debit (16,000 x 12 = 192,000) and reduces the bank account as well recorded as credit.

ISSUE OF SHARES AT DISCOUNT (UNDER SUBSCRIPTION)

Pepsi Co. Ltd. invites applications for 35,000 ordinary shares of Rs.25 each at Rs.20 each for the public with the agreement by underwriter. Company received 26,000 ordinary shares applications from public. The management then decided to issue the 26,000 ordinary shares to the public and remaining shares will be taken up by the underwriter.

Solution # 5:
1) Bank (26,000 x 20) 520,000 (Dr.)
Ordinary shares applications 520,000 (Cr.)
(To record the shares applications received at discount)

2) Ordinary shares application 520,000 (Dr.)
Ordinary shares discount (26,000 x 5) 130,000 (Dr.)
Ordinary shares capital (26,000 x 25) 650,000 (Cr.)
(To record the shares issued to the public at discount)

3) Bank (9,000 x 20) 180,000 (Dr.)
Ordinary shares discount (9,000 x 5) 45,000 (Dr.)
Ordinary shares capital (9,000 x 25) 225,000 (Cr.)
(To record the shares issued to the underwriter at discount as per agreement)

Explanation:
Company received application which increases the bank account of company recorded as debit (26,000 x 20 = 520,000) and also increases the liability of the company recorded as credit.

Company issued shares to the public which reduces the liability of the company recorded as debit (26,000 x 20 = 520,000). Shares were issued at discount (less than par value) which is recorded as debit with the discount value (26,000 x 5 = 130,000) and it increases the share capital of the company recorded as credit (26,000 x 25 = 650,000). Capital is recorded at its par value.

Remaining shares were taken up by underwriter. It increases the bank account recorded as debit (9,000 x 20 = 180,000). Shares were issued at discount to underwriter (9,000 x 5 = 45,000) recorded as debit titled share discount and increases the share capital of the company recorded as credit (9,000 x 25 = 225,000).

ISSUE OF SHARES AGINST PURCHASE OF FIXED ASSET

Company issue shares for the acquisition of assets. For making general entry for the purchase of asset by issuing shares, following values must be known:
* Cost of the asset.
* Number of shares to be issued against asset.
* Market price of each share at the time of acquisition of asset.

FORMULA:
1) Cost of asset = Number of shares x Market price of each share

2) Number of shares = Cost of asset / Market price of each share

3) Market price of each share = Cost of asset / Number of shares