Shares Issued at Par

Shares of a company are actually ownership of a company. So every shareholder is a part owner of the company in which he owns shares. But it would be impossible to main capital accounts for so many shareholders. So there is unique share capital account and accounting treatment for the issue of shares. Let us take a look.

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Issue of Shares

A company can issue its shares either at par, at a premium or even at a discount. The shares will be at par is when the shares are sold at their nominal value. Shares sold at a premium cost more than their nominal value, and the amount in excess of the face value is the premium. And of course, shares sold at discount cost less than the face/nominal value.

Learn Shares Issued at Premium here. 

Now the accounting treatment of all these issues will be slightly different. The money for these shares may also be collected in instalments – on the application, allotment, first call, final call etc. The shares will be fully paid up only after the last instalment has been called and paid up.

(Source: novojuris)

Browse more Topics under Accounting For Share Capital

• Features of a Company, Kinds of Company and Share Capital of a Company
• Nature and Classes of Shares and Issue of Shares
• Shares Issued at Premium
• Forfeiture of Shares

Shares Issued at Par – Share Capital Account

On Application Money Received

Application of shares does not guarantee allotment of shares. Some applications will be rejected. So when the application money is received we do not credit the share capital account. For the sake of convenience, we open a new account- share application account.

This money collected on the application must be deposited in the bank account in a Schedule Bank according to the Companies Act. This account is exclusively opened to deal with the application money. The journal entry for this transaction in the books of the company is as follows,

Date	Particulars		Amount	Amount
	Bank A/c	Dr	xxx
	To Share Application A/c			xxx
	(Being share application amount received for ___ shares @ Rs ___ per share)

On Allotment of Shares

After the company receives minimum subscriptions, it may start allotting the shares. Once the shares are allotted, the applicants now become stakeholders in the company, i.e. they get into a contract with the company. Let us see the journal entries passed in the books of the company in event of allotment.

The first step is that the money received on the application for shares can now finally be transferred to the Share Capital Account since now the allotment has been finalized.

Date	Particulars		Amount	Amount
	Share Application A/c	Dr	xxx
	To Share Capital A/c			xxx
	(Being Application money of ___ shares being transferred to Share Capital A/c)

Then there may be the case that certain applications were rejected for any reasons. So the money received on the application must now be refunded within the stipulated time frame. The entry for the same will be,

Date	Particulars		Amount	Amount
	Share Application A/c	Dr	xxx
	To Bank A/c			xxx
	(Being Application money of ___ shares being refunded)

If the allotment was done on pro-rata basis than the excess application money received must be taken into account. But instead of refunding the money, it can simply be adjusted against the allotment payment due on such allotted shares. Such an adjustment entry will be,

Date	Particulars		Amount	Amount
	Share Application A/c	Dr	xxx
	To Share Allotment A/c			xxx
	(Being Application money of ___ shares being adjusted against allotment)

Then the final entry of this stages will be the allotment money becoming due, and finally being paid by the allottee. We will pass two entries for a better understanding of the process. But take note that one combined entry can also be passed instead of two.

Date	Particulars		Amount	Amount
	Share Allotment A/c	Dr	xxx
	To Share Capital A/c			xxx
	(Being Allotment money becoming due)

Date	Particulars		Amount	Amount
	Bank A/c	Dr	xxx
	To Share Allotment A/c			xxx
	(Being allotment money received on __ shares)

On Calls

The instalments after the allotment are known as calls, i.e. first call, second call, final call etc. If the shares are not fully paid up at the time of allotment, then several calls can be made until the shares are fully paid up. However, no call can exceed 25% of the nominal value of shares, and there must be at least one month between two calls.

Date	Particulars		Amount	Amount
	Share Call A/c	Dr	xxx
	To Share Capital A/c			xxx
	(Being call amount due)

Date	Particulars		Amount	Amount
	Bank A/c	Dr	xxx
	To Share Call A/c			xxx
	(Being call amount received)

Calls in Arrears

Sometimes when the company makes a call, the shareholder is unable to pay the call money. In this case, this stakeholder becomes in arrears, and it is called an unpaid call. The company may choose to simply debit the amount from the paid-up capital in the balance sheet. But companies choose to maintain a call-in-arrears account. The following entries are passed in the journal.

Date	Particulars		Amount	Amount
	Calls in Arrears A/c	Dr	xxx
	To Share Call A/c			xxx
	(Being calls in arrears brought into the books)

Then there are certain times when the calls in arrears are paid by the shareholder. However, the shareholder will have to pay an interest for the time delay.

Date	Particulars		Amount	Amount
	Bank  A/c	Dr	xxx
	To Calls in Arrears A/c			xxx
	To Interest A/c			xxx
	(Being call in arrear paid with interest)

Calls in Advance

Then at times, shareholders pay more than the call amount. Such cases are called calls in advance. The excess amount received is a liability for the company. The following entry is passed when such advance is received and then is adjusted against the next call.

Date	Particulars		Amount	Amount
	Bank A/c	Dr	xxx
	To Calls in Advance A/c			xxx
	(Being amount received as calls in advance)

Date	Particulars		Amount	Amount
	Calls in Advance A/c	Dr	xxx
	To Share Call A/c			xxx
	(Being calls in advance adjusted against call)

Learn the forfeiture of shares here. 

Solved Question for You

Q: On an equity share of Rs.20, the company has called up Rs,18 but actually received Rs.16 only. The share capital would be credited by _______.

1. Rs.18
2. Rs.16
3. Rs.20
4. None of the above

Ans: The correct option is A. Share Capital will be credited with the entire amount called up, i.e. Rs 18/-. The Rs 2/- not received may be in Calls-in-Arrears A/c.