Issue of Share for Cash: Issue of share at Par and Premium

Joint stock companies carry their business on a large scale. Hence, these companies require a huge amount of capital. They fulfill their requirement by issuing shares and debentures to the public. Moreover, after receiving the certificate of incorporation, they can offer shares to the public under different methods. In this article, we will discuss the issue of share for cash.

Issue of share

Methods of Issue

Mostly, a company issues equity shares to the general public. When the capital raised through ordinary shares is not enough, the company can also go for preference shares. They can issue it either by collecting the full par value of shares at the time of issue or collecting the face value in different calls. It includes application, allotment, first call, etc.

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Issue of share at Par

Par value is the value given or mentioned on the certificate of share. Each company can mention its own par value like Rs.10, Rs.20, etc. When the company asks the total par value of at the time of application; it is called the issue of shares on a lump sum basis.

E.g., if a share of Rs.20 is issued at Rs.20 and the whole amount is collected with the application, it is called the issue of share at par on a lump sum basis. The following entries are made for issuing shares.

Date	Particulars	Amount (Dr.)	Amount (Cr.)
1. Application money	Bank A/c (actual amount received) Dr.
	To Share Application A/c
	(Being application money received on shares)
2. Application Money trasnfer	Share Application A/c Dr.
	To Share Capital A/c
	(Being share application money transferred to share capital)
3. Share Allotment	Share Allotment A/c (amount due on allotment) Dr.
	To Share Capital A/c
	(Being share allotment due)
4. Money received	Bank A/c (actual amount received) Dr.
	To Share Allotment A/c
	(Being share allotment money received)
5. Share call due	Share Call A/c Dr.
	To Share Capital A/c
	(Being money on share call due)
6. Call amount received	Bank A/c Dr.
	To Share Call A/c
	(Being share call amount received)

Issue of share at Premium

When a share is issued at a price which is more than the par value, it is called the issue of share at a premium. For example, if a share of Rs.10 is issued t Rs. 12, then it is called the issue of share at a premium. Here Rs. 2 is the premium amount per share.

Solved Question on Issue of Share for Cash

Question: Bansal Ltd. raises capital through the issue of 10000 equity shares of ₹100 each at 25% premium. The amount payable is as follows:
Jan 2018: On Application ₹20
Feb 2018: On Allotment ₹75
Mar 2018: On First and Final Call ₹30.
Show necessary journal entries of issuing shares.

Solution:

Date	Particulars	Amount (Dr.)	Amount (Cr.)
1 Jan	Bank A/c Dr.	200000
	To Share Application A/c		200000
	(Hence, application money received on 10000 shares @20 per share)
1 Feb	Share Application A/c Dr.	200000
	To Share Capital A/c		200000
	(Hence, share application money transferred to share capital)
1 Feb	Share Allotment A/c Dr.	750000
	To Share Capital A/c		500000
	To Securities Premium A/c		250000
	(Hence, share allotment due on 10000 shares @50 per share)
1 Feb	Bank A/c Dr.	750000
	To Share Allotment A/c		750000
	(Hence, share allotment money received)
Mar 1	Share First and Final Call A/c Dr.	300000
	To Share Capital A/c		300000
	(Hence, money on share call due for 10000 shares @30 per share)
1 Mar	Bank A/c Dr.	300000
	To Share First and Final Call A/c		300000
	(Hence, share call received)