A share is a unit of the share capital of a company. The total capital of a company is divided into equal parts, and each part is called a share. Ownership of shares is shown through a share certificate. In simple terms, shares are the divisions of a company’s capital.
Example:
If ABC Ltd. has a capital of ₹10,00,000 divided into 10,000 equal parts of ₹100 each, then each ₹100 unit is called one share.
To identify each share separately, they are numbered. Shares are movable property, and their transfer takes place as per the provisions of the Articles of Association of the company.
Issue of Shares at Par:
Issue of Shares at Par means the company issues its shares at a price equal to their face value or nominal value. In other words, the issue price of the share is the same as its face value, so there is neither any premium nor any discount involved. For example, if the face value of a share is ₹10 and the company issues it at ₹10, it is called issue of shares at par
Accounting Entries on Issue of Shares at Par:
1. Entries on Receiving Application Money: The applicants who want to invest in a company deposit the application money directly in the bank. The bank then sends the application forms to the company's office.
A. For entry is made by the company on receiving the application money:
B. For Application money is transferred to Share Capital A/c (When a share application is accepted, it is an allotment of shares):
2. Entries on Allotment: The applicants who are allotted shares are sent a letter of allotment. The letter consists of information regarding the number of shares allotted and the amount due to allotment. Once the allotment letter is sent to the applicants, the allotment money becomes due on the allotment and becomes a part of the share capital.
A. For making allotment for money due:
B. For receipt of allotment money:
3. Entries on First Call:
A. For entry is passed for call money due:
B. For receipt of first call money:
4. Entries of Second and Final Call:
A. For the second call money due as follows:
B. For receipt of Second Call Money:
Illustration 1:
Akanksha Ltd. was formed with an Authorised Share Capital of ₹1,00,000 divided into 10,000 shares of ₹10 each, payable ₹2 on Application, ₹3 on Allotment, ₹4 on First Call, and ₹1 on Second & Final Call. Expenses on the issue of shares amounted to ₹7,000. Pass the Journal Entries in the books of Akanksha Ltd.
Solution:
The amount payable will be as follows:
Illustration 2:
Nupur Ltd. was formed with an Authorised Share Capital of ₹7,00,000 divided into 70,000 shares of ₹10 each. The company issued a prospectus inviting application for 60,000 shares @ ₹10 each payable as ₹4 on Application, ₹1.5 on Allotment, ₹2 on First Call, and ₹2.5 on Second & Final Call. Applications were received for 50,000 shares. Allotments were made to all applicants and all dues were duly received. Pass Journal Entries in the books of Nupur Ltd.
Solution:
The amount payable will be as follows:
