Page |1

MEANING AND CHARACTERSTIC OF A COMPANY

Meaning
A company or a joint stock company is an enterprise established through a
process of law for undertaking (usually) a business venture. A is an artificial
person existing in the eyes of law and distinct from its members. It has a share
capital divided into shares, the owners of which are known as members or
shareholders. Insolvency of death of a member has no effect on the life of the
company.
Section 3(1) (i) of the companies Act, 1956 defines “A company formed and
registered under this Act or an existing Company.” An existing company means
“A company formed and registered under any of the previous Company Laws.”
The term ‘Company’ has not been much clarified by the Companies Act. Let us
look at some definitions of the term for better understanding.
“A corporation is an artificial being, invisible, intangible, existing only in
contemplation of the law.” -Chief Justice Marshal
“A company is an artificial person created by law, having separate entity with a
perpetual succession and common seal.” -Prof. Haney

Characteristics (Features) of a Company

i. Incorporation: A company is an artificial person created through a process
law, i.e., the Companies Act, 1956 having existence distinct from its
members.
ii. Separate Legal Entity: A company is a separate legal entity from its
shareholders. It can own property, enter to contract, conduct business, sue or
sued. The activities and the working are regulated by its Memorandum,
Association, Articles of Association and provision of the Companies Act.
Anyone taking legal action proceeds against the company and not the
individual shareholder.
iii. Perpetual Existence: A company is not affected by the death, lunacy or
bankruptcy of its members of shareholders.
iv. Limited Liability: Liability of the members of the company is limited
(though not in all cases) to the value of the shares Subscribed by each of
them.
v. Transferability of shares: The shares of company are normally freely
transferable in the case of public companies whereas they are not so in case
of private companies.

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 Page |2

vi. Management and Ownership Separate: A company is not managed

by all the members but by their elected representative called ‘Directors’. In
other words, management and ownership are separate.
vii. Common Seal: Every company has its own common seal which is affixed
on all the important documents of the company.

Kinds of Joint Stock Company

A company may be incorporated as a private company or a public company.

Private Company: A private company is one which as a minimum paid-up

share capital of Rs. 1, 00,000 or such higher paid-up share capital as may be
prescribed & by its Articles of Association:
a) Restricts the right to transfer its shares, if any;
b) Limits the number of its members to 50 not including its present or past
employee members;
c) Prevents the public from subscribing for any shares or debentures of the
company; and
d) Prohibits any invitation or acceptance of deposits from persons other than its
members & directors or their relatives.
The name of a private company ends with the word, ‘Private Limited’.

Public Company: A public company means a company which

a) is not a private company;
b) has a minimum paid-up capital of Rs. 5,00,000 or such higher paid-up capital
as may be prescribed;
c) is a private company, being a subsidiary of a company which is not a private
company.
The name of a public company ends with the word ‘Limited’.

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 Page |3

SHARE CAPITAL OF A COMPANY

Share capital refers to the amount that a company can raise or has raised by issue
of shares. From accounting point of view, share capital can be classified as
follows:

1. Authorized Share Capital

The Authorized Share Capital is started in the Memorandum of Association and is
the maximum share capital that a company can issue. The authorized may or may
not be the same as issued share capital.
The capital of the company is divided into units of small denomination and is
called a ‘share’. As per the provision of Section 85 of the Companies Act, 1956,
share capital of a company consists of two classes of share: (1) Preference shares;
(2) Equity shares. Each share has nominal value or face, whichever may be Re. 1
or Rs 2 or Rs. 5 or Rs. 10 or indeed amount. Thus, company with an authorized
share capital as follows:
Rs.
75000 Equity shares of Rs. 10 each 750000
2500 Preference shares of Rs. 100 each 250000
Or say
150000 Equity shares of Rs. 5 each 750000
5000 Preference shares of Rs. 50 each 250000

2. Issued Share capital

Issued share capital is a part of authorized share capital that is issued for
subscription by the company. Issued share capital cannot exceed the company’s
authorized capital.

3. Subscribed Share Capital

Subscribed share capital is a part of issued share capital which is applied for
subscription. For example, Nokia Ltd. Issued 20000 equity shares of Rs. 10 each
and 17500 equity shares are applied; the subscribed share capital is Rs. 175000.

4. Called-up Share capital

Called-up share capital is nominal value of share that has been called-up by the
company for payment by the subscriber towards the share. For example, the
company has subscribed capital of 200000 equity shares of Rs. 10 each, out of
this value of Rs. 10 each, the company has called-up capital will be 1000000
(i.e., 2000000 equity shares x 5).

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 Page |4

5. Paid-up capital
Paid up capital is a part of called up capital that the members of the company
have paid. Continuing the above example if the members fail to pay Rs. 10000
out of the called up capital of Rs. 1000000, paid up capital shall be 990000 and
calls arrears shall be Rs. 10000. It should be remembered that paid-up capital is
equal called up capital less call-in- arrears.

Call-in-arrears
Call-in-arrears is the part of the called-up Capital that remains unpaid by the
subscribers. In the balance sheet it is shown under the sub-head ‘Paid-up share
capital’ is follows:
Paid-up share capital
….Equity shares of Rs…each
Rs….Called-up ….
Less: Calls-in-arrears (Unpaid Calls) …. …..
Call-in-Advance
A company, if its Articles of Association permit, may receive unpaid amount
from the shareholders even when that amount has not seen called. The amount
so received is known as Call-in-advance. In the balance sheet it is shown
separately as Calls-in-Advance as current liability.

6. Reserve capital
Reserve capital is a part of subscribed capital remaining uncalled that company
resolves, by special resolution, not to call except in the approved circumstances,
say in the event of the winding up of the company.

Illustration 1. (Different types of shares capital). The particulars of the shares

capital of X Ltd. are as follows:
i. The authorized capital is Rs. 1000000 divided into equity shares of Rs. 10
each.
ii. 20000 equity shares were allotted in payment of a plant purchased by the
company.
iii. 60000 equity shares were allotted in payment of cash, on which Rs. 8 per
was called-up. The amount on 40000 equity shares was received at Rs. 8 per
share and Rs. 6 per shares on 20000 equity shares.
State the amount of different classes of share capital.

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 Page |5

Solution:
SHARE CAPITAL
Authorized capital Rs.
100000 Equity shares of Rs. 10each 1000000
Issued capital
80000 equity shares of Rs. 10 each 800000
Subscribed capital
20000 equity shares issued as fully paid for consideration other than cash 200000
60000 equity shares issued for cash 600000
800000

Called-up Capital
20000 equity shares fully paid-up 200000
60000 equity shares of Rs. 10 each-Rs. 8 called-up 480000
680000
Paid-up Capital
20000 equity shares of Rs. 10 each fully paid-up—issued for
consideration other the cash 200000
60000 equity shares of Rs. 10 each—Rs. 8 called-up; paid-up in cash 480000
680000
Less: Call-in-arrears on 20000 shares at Rs. 2 per shares. 40000
640000

DISCLOUSER OF SHARE CAPITAL IN COMPANY’S BALANCE SHEET

Following information is disclosed under the head ‘Share Capital’ on the
liabilities of the company’s Balance sheet.

AN EXTRACT OF BALANCE SHEET OF ...LTD.

Rs. Rs.
Capital
Authorized capital:
Equity shares of Rs. …each
Preference share of Rs. …each
Issued capital:
Equity shares of Rs. …each
Preference share of Rs. …each
Subscribed. Called-up and paid-up capital:
Equity shares of Rs. … each, Rs. …called-up
Preference shares of Rs. … each, Rs. …called-up
(of the above shares ….shares are allotted as fully paid up pursuant
a contract without payment being received in cash)
Calls unpaid
(a) By directors Rs…
(b) By others Rs…

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 Page |6

Note: The information on subscribed, called-up and paid-up share paid-up share
capital is to be then for each class of shares.

Illustration 2. Suman Ltd., registered with a nominal capital of Rs. 1000000

divided 100000 equity shares of Rs. 10 each. Out of these 20000 equity shares
were issued the vendor as fully paid as purchase consideration for a building
acquired. 65000 equity shares were offered to the public and of these 60000
equity shares were applied for and allotted. The directors called Rs. 6 per share
and received the entire amount expect a call of Rs. 2 per share on 5000 equity
shares.
How would you show the relevant items in the Balance sheet of Suman Ltd.?
Solution:
Suman Ltd.
BALANCE SHEET
as on...
Liabilities Rs. Assets Rs.
Share Capital Fixed Assets
Authorized capital: Building 2,00,000
100000 Equity shares of Rs. Current Assets
10 each 10,00,000 Cash at bank 3,50,000
Issued Capital:
85000 shares of Rs. 10 each 8,50,000
Subscribed, Called-up &
Paid-up Capital:
20,000 shares of Rs. 10 each 2,00,000
(Issued as fully paid for
consideration other than
cash)
60,000 shares of Rs. 10 each
Rs. 6 called up 3,60,000 3,50,000
Less: Calls unpaid
@ Rs.2 on 5,000
shares 10,000 5,50,000 5,50,000

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 Page |7

CLASSES OR KINDS OF SHARES

Capital of a company is divided into units of small denomination called a share.
Preference share and equity shares are defined by the companies Act, 1956 as
follows:
1. Preference Shares [section 85(1)]
Preference shares are the shares that carry the following two rights:
i. Preferential right of dividend to be paid as fixed amount calculated at a fixed
rate; and
ii. On winding up or repayment of capital, a preferential right to be repaid the
amt. of capital before any amt. is paid to the equity shareholders.

Classes of Preference Shares

We may broadly classify the Preference Shares as follows:
i. With Reference to Dividend;
ii. With Reference to Participation in Profits;
iii. With Reference to Convertibility; &
iv. With Reference to Redemption.

2. Equity Shares [Section 85(2)]

Equity shares mean those shares which are not preference shares, i.e., these shares
do not enjoy any preferential rights. Thus, for the purpose of divided &
repayment of capital, the equity shares rank after the preference shares. Their rate
of dividend is not fixed. It may vary from year to year depending upon the profits
of the company. Equity shareholders may get higher dividend if the profits are
large & may get nothing if there are no profits. Directors have the sole right of
recommending dividends to such they may not get any dividends if directors so
choose, in spite of large profits. That is why in financial terminology the share
capital raised through such capital is called as ‘Risk Capital’.

ISSUE OF SHARES
A Company collects its capital by issue of shares. A public company can issue
shares only after it has met the legal compliances that is obtaining certificate for
commencement of business, filing of prospectus with the Registrar of Companies,
etc. Private companies, on the other, do not have to meet any such legal
compliance.

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 Page |8

Accounting Treatment
A company can issue its shares in two ways:
I. For cash, &
II. For consideration other than cash.

I. ISSUE OF SHARES FOR CASH

Shares are said to be issued for cash when a company receives cash against the
shares issued. These shares may be issued at par (at face value) or at premium
(above the face value) or at discount (below the face value). Issue price may be
payable either in lump sum along with the application, or in installments at
different stages; it means, partly on application, partly on allotment & balance in
one or more calls.
i. Shares Payable in Lump Sum: When shares are issued at par
payable in one installment, the shares so payable are said to have been issued
in lump sum. Shares now-a-days, are issued against payment in lump-sum.

Accounting Entries for Issue of Shares

For Receiving Share Application Money:
Bank A/c …Dr.
To Shares Application A/c

For Allotment of Shares:

Share Application A/c …Dr.
To Share Capital A/c

Illustration 3. A Ltd. Proposed for application to public on 1st April, 2009,

10,000 equity shares of Rs. 10 each at par. The whole of the amount was payable
on application. The public applied for all the shares by 30 th April, 2009 & the
shares were allotted on 15th May, 2009. Pass the necessary Journal entries in the
books of the company.

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 Page |9

Solution:
JOURNAL

Date Particulars L.F Dr.(Rs.) Cr.(Rs.)

2009
April 30 Bank A/c …Dr. 1,00,000
To Equity Share Application A/c 1,00,000
(Being the application money received on
10,000 equity shares @ Rs. 10 each.)

May 15 Equity share application A/c …Dr. 1,00,000

To Equity Share Capital 1,00,000
(Being the share allotted and application
money transferred to share capital account)

ii. Shares Payable in Installments: The amount against the share can
be taken in installments also. First installment on a share is paid along with
the applications. Hence, the amount to be paid by intending shareholders
(who apply for shares) is called ‘Application Money’ [Application money on
the shares after allotment (allotment mean acceptance of share application)
becomes a part of share capital.]. Second installment is called by the
company at the time of allotment; it is called ‘Allotment Money’. After
allotment of share remaining part of share money, when called up is called
‘Call money’. Call money may be collected in one or more installments. If
only one call is made then it is called ‘First and Final call’ in place of First
call, otherwise the word final will be added to the last installments. Entries
passed are follows:
Transaction Journal Entry Amount
On Receipt of Application Bank A/c …Dr. Amount received with
Money To Shares Application A/c application.
On Allotment of Shares Share Application A/c …Dr. Application money on shares
Shares Application Money is To Share Capital A/c allotted.
transferred to Share Capital A/c
Amount due on Allotment Share Allotment A/c …Dr. Money due on shares allotted.
To Share Capital A/c
On Receipt of Allotment Bank A/c …Dr. Amount received on share
Money To Share Allotment A/c allotted.
On First Call Being Due Share First Call A/c …Dr. Amount payable on First Call.
To Share Capital A/c
On Receipt of First Call Bank A/c …Dr. Amount received on First
To Share First Call A/c Call.

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 P a g e | 10

Terms of Issue of Shares

Shares of a company may not be issued in any of the following three ways:
1. Issue of Share at Par,
2. Issue of Share at Premium (Section 78), and
3. Issue of Shares at a Discount (Section 79).
The accounting treatment of issue of shares in case of each of the above is
different.

1. Issue of Share at Par

Shares are said to have been issued at par when an application has to pay sum
equal to the face value of share, i.e. issue price Rs. 10 and face value is also Rs.
10.
The journal entries passed in case issue of shares at par are explained here with
the help of the following illustration.

Illustration 4. (Issue of Shares at Par; Fully Subscribed). X Co. Ltd. Invited

applications for 10,000 shares of the value of Rs. 10 each. The amount is payable
as Rs. 3 on application & Rs. 4 on allotment & balance Rs. 3 on First & Final
Call. The whole of the above issue was applied for & cash duly received. Give the
Journal entries for the above transactions.
Solution:
JOURNAL ENTRIES IN THE BOOKS OF X CO. LTD.
Date Particulars L.F. Dr. Cr.
Date of Bank A/c Dr. 30,000
Receipt To Share Application A/c 30,000
(Being the application money received on
10,000 shares at Rs. 3 per share)
Date of Share Application A/c Dr. 30,000
Allotment To Share Capital A/c 30,000
(Being the transfer of application money on
10,000 shares on allotment to Share Capital
Account)
Date of Share Allotment A/c Dr. 40,000
Allotment To Share Capital A/c 40,000
(Being Amount Due on 10,000 shares at
Rs. 4 per share)

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 P a g e | 11

Date of Bank A/c Dr. 40,000

Receipt To Share Allotment A/c 40,000
(Being the receipt of Rs. 4 per share on
10,000 shares)
Date of Share First & Final A/c Dr. 30,000
Call To Share Capital A/c 30,000
(Being the amount due on 10,000 shares at
Rs. 3 per share)
Date of Bank A/c Dr. 30,000
Receipt To Share First & Final Call A/c 30,000
(Being the receipt of Rs. 3 per share on
10,000 shares)

2. Issue of Shares at a Premium (Section 78)

Shares may be issued at an amount more than the face value, e.g. a Rs. 10 share
may be issued, say, at Rs. 20. It is a case of issue of shares at a premium- the
premium being Rs. 10 per share.

According to the Companies Act, the amount of the premium should be credited
to Securities Premium Account. Securities Premium is treated as a capital receipt.

Presentation: Securities Premium Account is shown on liabilities side of balance

sheet under the head Reserves & Surplus.

Utilization of Securities Premium

Section 77A &78 of the Companies Act restricts the use of the amount collected as
premium on securities for the following purpose:
i. Issuing fully paid bonus shares to the members;
ii. Writing off preliminary expenses of the company;
iii. Writing off the expenses of, or the commission paid or discount allowed on
any issue of securities or debentures of the company; or
iv. Providing for the premium payable on the redemption of any redeemable
preference shares or of any debentures of the company;
v. In purchasing its own shares (buy back) [Section 77A].

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 P a g e | 12

Accounting Treatment: a company may collect the amount of securities

premium in lump sum or in installments. Premium on shares may be collected by
a company either with application money or with the allotment money or even
with one of the calls money depending on the terns of issue. If the question is
silent, it is assumed that the amount of the securities premium becomes due along
with the allotment money. The accounting treatment in different cases is as given
below:
i. When amount of premium is payable with the application money, Journal
entry passed on receipt of application money is:
Bank A/c Dr. [With the total application money
To Share Application A/c including premium money]
It may be observed from the above entry that securities premium account is not
credited although it is received. The reason being that application money is in the
nature of deposit & it is not certain whether the shares will be allotted to the
applicant or the amount shall be refunded to the applicant. If securities premium
account is credited & the shares are not allotted to the applicant the amount shall
have to be refunded. The amount once credited to Securities Premium A/c cannot
be debited except when utilized for the purpose specified in Section 77A & 78 of
the Companies Act, 1956.

When the shares are allotted, the entry is:

Share Application A/c Dr. [With the total application money
payable including premium]
To Share capital A/c [With the application money payable
towards share capital]
To Securities Premium A/c [With the amount of premium paid
with application money]
ii. When amount of money is payable with allotment money:
Suppose the amount due on allotment is Rs. 60,000 including a premium of Rs.
10,000, the Journal entry is:
Share Allotment A/c Dr. Rs. 60,000
To Share Capital A/c Rs. 50,000
To Securities Premium A/c Rs. 10,000
When the amount due on allotment is received, it should be credited for the
amount of premium due, i.e. on the allotted shares. It means amount of premium
collected shall not be refunded &, therefore, the provisions of Section 77A & 78
shall not be violated.

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 P a g e | 13

Illustration 5. (Issue of Shares at Premium, Fully Subscribed) Y Ltd. Issued

10,000 shares of Rs. 10 each at a premium of Rs. 2 per share payable as follows:
Rs. 3 on application; Rs. 6 on allotment; & Rs. 3 on first & final calls.
All the shares were applied for & duly allotted. Pass necessary Journal entries.
Solution:
In the Books of Y Ltd.
JOURNAL
Date Particulars L.F. Dr. Cr.
? Bank A/c Dr. 30,000
To Share Application A/c 30,000
(Being the application money on 10,000 shares
at Rs. 3 per share)
? Share Application A/c Dr. 30,000
To Share Capital A/c 30,000
(Being the transfer of application money to
Share Capital A/c on allotment)
Share Allotment A/c Dr. 60,000
? To Share Capital A/c 40,000
To Securities Premium A/c 20,000
(Being the amount due on 10,000 shares at Rs.6
per share, Rs. 4 towards Share Capital A/c &
Rs. 2 towards Securities Premium Account)
Bank A/c Dr. 60,000
? To Share Allotment A/c 60,000
(Being the receipt of Rs. 6 per share on 10,000
Share)
Share First & Final Call A/c Dr. 30,000
? To Share Capital A/c 30,000
(Being the amount due on 10,000 shares at Rs.3
Per share)
Bank A/c Dr. 30,000
? To Share First & Finals Call A/c 30,000
(Being the receipt of Rs. 3 per share on 10,000
Share)

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 P a g e | 14

3. Issue of Shares at a Discount (Section 79)

When shares are issued at a price less than its face value, (nominal value or par
value), it is said that shares are issued at a discount. For example, if a Rs. 10 share
is issued for Rs. 9, then it is issued at a 10% discount. When shares are issued at a
discount, the company suffers a loss. The discount allowed to shareholders is
debited to an account titled Discount on Issue of Shares Account. The entry is:
Share Allotment A/c Dr. [With the Amount due]
Discount on Issue of Shares A/c Dr. [With the amount of Discount]
To Share Capital A/c
Conditions for Issue of Shares at a Discount
Issue of shares at a discount is governed by Section 79 of the Companies Act, 1956.
It prescribed the following conditions:
1. The shares are of a class already issued.
2. The issue of shares at a discount is authorized by a resolution passed by the
company in its general meeting & sanctioned by the Central Government.
3. The resolution specifies the maximum rate of discount at which the shares are to
be issued.
4. Not less than one year has, at the date of issue, elapsed since the date on which
the company was entitled to commence business.
5. The shares are issued within two months of the date on which the issue is
sanctioned by the Central Government or within such extended time as the
Central Government may allow.
It can be concluded from the above conditions that shares cannot be issued at a
discount if:
a) It is a new company; or
b) Shares issued are of a new class even though issued by an old company.

When shares are issued at a discount, the Share Capital A/c is credited with the
face value of the share in full & Discount on Issue of Shares is shown on the
assets side of the balance sheet under the head ‘Miscellaneous Expenditure’. It
preferably, should be written off as early as possible through the Profit and Loss
A/c or Securities Premium A/c. The balance amount not written off will appear in
the Balance Sheet as fictitious asset.
Illustration 6. XYZ Ltd. Issued 10,000 equity shares of Rs. 10 each at a discount
of 10%. The amount is payable as follows: On application Rs. 2; on allotment Rs.
4; on the final call Rs. 3. All the shares offered were subscribed for & the money
was duly received. You are required to pass the necessary Journal entries
(including cash) in the books of the company and also show the Balance Sheet of
the company.

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 P a g e | 15

Solution:
In The Books of XYZ Ltd.
JOURNAL
Date Particulars L.F. Debit(Rs.) Credit(Rs.)
Bank A/c Dr. 20,000
To Equity Share Application A/c 20,000
(Being the application money received on
10,000 equity shares @ Rs. 2 per share.)
Equity Share Application A/c Dr.
To Equity Share Capital A/c 20,000
(Being the application money on 10,000 equity 20,000
shares @ Rs. 2 per share transferred to Equity
Share Capital A/c)
Equity Share Allotment A/c Dr.
Discount in Issue of Shares A/c Dr. 40,000
To Equity Share Capital A/c 10,000
(Being the allotment money due on 10,000 50,000
shares @ Rs. 4 per share)
Bank A/c Dr.
To Equity Share Allotment A/c 40,000
(Being the allotment money received on 10,000 40,000
equity shares @ Rs. 4 each)
Equity Share Final Call A/c Dr.
To Equity Share Capital A/c 30,000
(Being the first call money due on 10,000 30,000
equity shares @ Rs. 3 each)
Bank A/c Dr.
To Equity Share Final Call A/c 30,000
(Being the final call money received on 10,000 30,000
equity shares @ Rs. 3 each)

BALANCE SHEET
Liabilities Rs. Assets Rs.
Share Capital Current Assets
Authorized Capital: Cash at Bank 90,000
…Equity Shares of Rs…. … Miscellaneous Expenditure
Issued & Subscribed, Discount on Issue of Shares 10,000
Called-up & Paid-up
Capital:
10,000 Equity Shares of
Rs. 10 each 1,00,000
1,00,000 1,00,000

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 P a g e | 16

OVER-SUBSCRIPTION OF SHARES
Shares are said to be over-subscribed when the number of shares applied for is
more than the number of shares offered for subscription. However, the company
cannot allot shares more than those offered for subscription.
In the case of over-subscription, the company cannot allot shares to all the
applicants in full. To deal with the situation, three alternatives are available to it:
i. First Alternative: Some applications are accepted in full and excess
application is rejected outright and their application money is refunded. This
is known as Rejection of Applications. For example, applications are invited
for 50,000 shares and applications received are for 70,000 shares.
Applications for shares in excess of 50,000 shares, i.e. 20,000 shares are not
accepted and application money is refunded.
ii. Second Alternative: applicants may be allotted shares in fixed proportion.
This is called Partial or Pro-rata Allotment. For example, considering the
above example, shares are allotted to all the applicants in the ratio of 5 shares
for 7 applied.
iii. Third Alternative: A combination of the above two alternatives may be
adopted. Some applications may be accepted in full, some applications may
be out rightly rejected and hence proportional allotment may be made to the
remaining. For example, applications for allotted shares as follows:
Applications for 20,000 shares are accepted in full, applications for 10,000
shares are rejected and the balance applications are allotted on pro rata basis,
i.e. in ratio of 3 shares for every 4 shares applied.

STATEMENT SHOWING DETAILS OF APPLICATION MONEY

Categories Shares Shares Application Disposition of Application Money
Applied Allotted Money Share Received
Shares Calls-in- Refund
Received Capital Allotment Advance or Bank

Accounting Entries in Case of Over- Subscription

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 P a g e | 17

For Application Money Received

Bank A/c Dr.
To Share Application A/c

Application Money for Allotted Shares Excess Application Money

Share Application A/c Dr.
To Share Capital A/c

Refund Adjustment
Share Application A/c Dr. Share Application A/c Dr.
To Bank A/c To Share Allotment A/c
To Calls-in- Advance A/c

Combined Entry

Share Application A/c Dr.

To Share Capital A/c
To Bank A/c
To Share Allotment A/c
To Calls-in-Advance A/c

Illustration 7. A company invited applications for 50,000 equity shares of Rs. 10

each on the following terms:
Rs.
On Application 3
On Allotment 3
On First & Final Call 4
Applications were received for 1, 10,000 shares. It was decided (i) to refuse
allotment to the applications for 10,000 shares, (ii) to allot 50% to Mr. X who has
applied for 20,000 shares, (iii) to allot in full to Mr. Y who has applied for 10,000
shares, (iv) to allot balance of the available shares pro-rata among the other

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 P a g e | 18

applicants and (v) to utilize excess application money in part payment of

allotment and final call.
Give Journal entries till the stage of allotment assuming that assuming that the
entire sum due on allotment is received in full.
Solution:
JOURNAL
Date Particulars L.F. Dr. Cr.

Bank A/c Dr. 3,30,000

To Share Application A/c 3,30,000
(Being receipt of application money @ Rs. 3 per
on 1,10,000 shares)
Share Application A/c Dr.
To Share Capital A/c 1,50,000
(Being allotment money due on 50,000 shares 1,50,000
@ Rs. per shares to Share Capital Account)
Share Allotment A/c Dr. 1,50,000
To Share Capital A/c 1,50,000
(Being allotment money due on 50,000 shares
@ Rs. 3 per share)
Share Application A/c Dr. 30,000
To Bank A/c 30,000
(Being the refund of Application money on
10,000 shares @ Rs. 3 per share)
Share Application A/c Dr. 1,50,000
To Share Allotment A/c 1,20,000
To Calls-in-Advance A/c 30,000
(Being the excess application money
transferred to Share Allotment Account and
Calls-in-Advance Account)
Bank A/c Dr. 30,000
To Share Allotment A/c 30,000
(Being the receipt of allotment money @ Rs. 3
per share on 10,000 shares of Mr. Y who was
allotted in full)

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 P a g e | 19

II. SHARES ISSUED FOR CONSIDERATION OTHER

THAN CASH
If shares are issued to vendors of assets in payment of consideration or to
promoters of company for their services or to underwriters against commission,
the issue is called issue of shares for a consideration other than cash. According to
the Companies Act, shares issued for consideration other than cash are disclosed
separately under the head “paid up capital”. The following entries will be passed
for the issue of shares under the above conditions:-

Transactions Journal Entries

When assets are Respective Assets A/c Dr. (with purchase price)
bought from To Vendor’s A/c
vendor (Assets purchased)
Issue of share to Vendor’s Dr. (with face value of shares
vendors at par To Share Capital A/c Allotted)
(Share issued to vendor)
Issue of shares Vendor’s A/c Dr. (with purchase price)
to vendors at To share Capital A/c (face value of shares allotted)
premium To Securities Premium A/c (amount of premium)
(Shares issued at discount to Vendors)
Issue of shares Vendor’s A/c Dr. (with purchase price)
to vendors at Discount on issue of Shares A/c Dr. (with amount of discount)
discount To Share Capital A/c (with face value of share allotted)
(Share issued to promoters)
Issue of share to Preliminary Expenses/Goodwill A/c Dr.
promoters To Share Capital A/c (with face value of shares)
towards (Share issued to promoters)
remuneration
Issue of shares Underwriting Commission A/c Dr.
for underwriting To Share Capital A/c (with face value of shares)
commission (Shares issued to underwriters for commission)

Illustration 8. (Various cases for shares issued for consideration other than
cash). X Ltd. Purchased the business of Ram Bros. for Rs. 1, 80,000 payable in
fully paid equity shares of Rs. 100 each. What will be made in the books of X
Ltd. If such issue is: (i) at par, (ii) at a premium of 20% & (iii) at a discount 10%.
Solution:

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)

 P a g e | 20

In the Books of X Ltd.

JOURNAL
Date Particulars L.F. Dr.(Rs.) Cr.(Rs.)
Sundry Assets A/c Dr. 1,80,000
To Ram Bros. 1,80,000
(Being the purchase of business from Ram
Bros. as per agreement dated…)
(i)When shares are issued at par:
Ram Bros. Dr. 1,80,000
To Equity Shares Capital A/c 1,80,000
(Being issue of fully paid shares of Rs. 100
each to the Vendors)
(ii)When shares are issued at premium:
Ram Bros. Dr. 1,80,000
To Equity Share Capital A/c 1,50,000
To Securities Premium A/c 30,000
(Being issue of 1,500 fully paid shares of Rs.
100 each at a premium of 20%)
(iii)When shares are issued at discount:
Ram Bros. Dr. 1,80,000
Discount on Issue of Shares Capital A/c Dr. 20,000
To Equity Share Capital A/c 2,00,000
(Being issue of 2,000 fully paid shares of Rs.
100 each at a discount of 10%)

Working Notes:
1. When Equity Shares are issued at a premium of 20%:
Number of Shares to be issued= Purchase Price = Rs. 1,80,000= 1,500 shares
Issue Price 120

2. When Equity Shares are issued at a discount of 10%:

Number of Equity Shares to be issued= Purchase Price
Issue Price
= Rs. 1, 80,000
90

= 2,000 Shares

COMPANY ACCOUNTS – ISSUE OF SHARES (PAR, PREMIUM & DISCOUNT)