Question

full journal entries for the issues of shares?

Answer 1

Journal Entries:

Issue of Share at par. Amount payable in Installments:

(a) When Application Money is Received:

ADVERTISEMENTS:

Bank A/c …Dr.

To Share Application A/c

(Being the application money received on … shares)

Notes:

ADVERTISEMENTS:

1. Share Application A/c is a collective account of various applicants. It is a representative personal account.

2. In actual practice this entry is made directly in Cash Book.

3. Unless shares are allotted by the company, the receipt of applications is simply an offer and cannot be credited to Share Capital A/c. The applicants are treated as creditors of company.

(b) When Allotment is Made:

The application money is transferred to Share Capital Account.

Share Application A/c … Dr. (No. of Shares allotted x application money per shares)

To Share Capital A/c

(Being the application money on……………………………….. shares @ Rs…. per share transferred to share capital account)

Notes:

ADVERTISEMENTS:

1. Allotment means acceptance of application. Therefore, on acceptance of application the money is transferred to ‘Share Capital Account’ on share allotted.

2. Share Capital Account is personal account.

3. When offer is accepted the applicant becomes shareholder.

4. It may be noted that application money received is treated as deposit money. It cannot be directly transferred to ‘share capital A/c’ for the reason that the Board of Directors may refuse allotment to some applicants or it may not go ahead with the allotment if minimum subscription is not received.

(c) When Applications are Rejected and Money is Refunded:

If some applications are rejected by the directors, the money received on such applications is refunded to the applicants.

The entry will be:

Share Application A/c … Dr.

To Bank A/c

(Being application money on shares returned)

(d) When Allotment Money becomes Due:

Share Allotment A/c Dr. (No. of Shares allotted x allotment money per share)

To Share Capital A/c

(Being allotment money due on shares @ Rs… per share)

Notes:

1. Share Allotment Account is a Personal Account

2. Allotment money is made due on all the shares which have been allotted.

3. The above entry is a recognition of the fact that whatever is required to be paid on allotment has already become share capital (indicated by credit to share capital account) and the allottees owes this amount to the company (indicated by debit to share allotment account)

(e) When Allotment Money is Received:

Bank A/c

To Share Allotment A/c

(Being allotment money received on… shares @ Rs… per share)

(f) When First Call Becomes Due:

(It is a stage subsequent to allotment)

Share First Call A/c ….Dr (No. of Shares allotted x First call money per share)

To Share Capital A/c

(Being the first call money due on … shares @ Rs… per share)

(g) When First Call Money is Received:

Bank A/c … Dr.

To Share First Call A/c

(Being 1st call money received on … shares @ Rs … per share)

(h) When Second Call Money is Made Due:

Share Second Call A/c ….Dr (No. of Shares allotted x Second call money per share)

To Share Capital A/c

(Being the 2nd call due on … shares @ Rs… per share)

(i) When Second Call Money is Received:

Bank A/c Dr.

To Share Second Call A/c

(Being the 2nd call money received on… share @ Rs… per share)

Similar entires are passed for the remaining calls (if any).

Illustration 1:

Punjab Steel Company Limited has been incorporated. Its capital is divided into 8,000 equity shares of Rs. 100. The company issued 6,000 shares to the public payable Rs. 30 per share on application, Rs. 20 per share on allotment, Rs. 30 per share on first call and the balance Rs. 20 on the final call. All money was duly received. Make journal entries to record the issue of shares. Also draw the balance sheet.

Answer 2

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