Question

Shares are issued at par,at premium or at discount ,what do you understand by this? What accounting entries are made in this connection?

Answer 1

Journal entry and issue of Shares are issued at par,at premium or at discount

Explanation:

Share can be issued at

AT PAR

AT PREMIUM

AT DISCOUNT

• AT PAR -When Share are issued equal to its face value

           Example  share of Rs 10/- issue at Rs 10/-

• AT PREMIUM  -When Share are issued more than to its face value

           Example  share of Rs 10/- issue at Rs 12/-

• AT DISCOUNT - When Share are issued less than to its face value

            Example share of Rs 10/- issue at Rs 9/-

Accounting entries

For Considering Accounting Entries

Let us try to Learn some Basic  Rules

Increase in Asset (Debit)

Decrease in Asset (Credit)

Increase in Liability  (Credit)

Decrease in Liability (Debit)

Expenses and Losses (Debit)

Income and Gain  (Credit)

AT PAR

When Share application money is Received

first of all

we discussed Dual Aspect

Aspect 1. on the date of Money Received : Bank is Increase , Bank is our Asset  Increase in Asset means debit

Aspect 2. Till the amount not transfer to share capital because we are currently transfer the shares , till then we use a temporary Account

name, Share application Account (It's our liability)

and Share Application is Increase and Increase in Liability means Credit

the entry will be

1. Bank A/C    Dr.

      To Share Application A/C

When Share Application money transfer to share capital

Aspect 1 . on the date of share transfer , Share Application money transfer to share capital so share Application money is decreased and it's liability

According  to rule decrease in liability (debit)

Aspect 2.  Share capital is increase and share capital is liability and Increase in Liability means Credit

2. Share Application A/C   Dr.

        To Share Capital A/C

AT PREMIUM

1. When Share application money is Received

Aspect 1.  why Bank Debit ? the above explanation is same for this entry

Aspect 2.  Why Share Application is credit ? the above explanation is same for this entry

Bank A/C    Dr.

      To Share Application A/C

2. When Share Application money transfer to share capital

Aspect 1. why share application is Debit ?  the above explanation is same for this entry

Aspect 2. why share Capital is Credit ?  the above explanation is same for this entry

Aspect 3. why   Security Premium Reserve A/C is credited

Because it's issue price is more than it's face value

and it's income for company and  we know very well income will be credited

Share Application A/C   Dr.

        To Share Capital A/C

        To Security Premium Reserve A/C

AT DISCOUNT

According to Companies Act, 2013 Share cannot be issued at discount

but entry may be :

1. When Share application money is Received

Aspect 1.  why Bank Debit ? the above explanation is same for this entry

Aspect 2.  Why Share Application is credit ? the above explanation is same for this entry

Bank A/C    Dr.

      To Share Application A/C

2. When Share Application money transfer to share capital

Aspect 1. why share application is Debit ?  the above explanation is same for this entry

Aspect 2. why share Capital is Credit ?  the above explanation is same for this entry

Aspect 3. why  Discount on issue of Shares A/C is Debited

Because it's issue price is less  than it's face value

and it's loss  for company and  we know very well income will be credited

Share Application A/C   Dr.

    Discount on issue of Shares A/C

            To Share Capital A/C

Note: we cannot do single entry for share issue , Because there is gap

between share issue and money received

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