রবিবার, ৩০ জুলাই, ২০২৩

Issue of Shares Practical Problems and Solutions- Sotterchaya

Synopsis on Joint Stock Company- Share Issue

Shares Issued for Cash

This is the simplest scenario: shares will be issued to the holder in exchange for a cash payment. For example, if 1,00,000 common shares are issued at a price of BDT10 each, the journal entry would be:

Cash Account Dr.             (1,00,000*10)                      10,00,000

Common Share Capital Account Cr.    (1,00,000*10)                               10,00,000

Balance Sheet

Capital & Liabilities

 

Assets & Properties

 

Authorized Capital:

2,00,000 common shares @Tk 10 each

Issued Capital:

1,00,000 common shares @Tk 10 each

Subscribed Capital:

1,00,000 common shares @Tk 10 each

Called up Capital:

1,00,000 common shares @Tk 10 each

Paid up Capital:

1,00,000 common shares @Tk 10 each

 

 

20,00,000

 

 

10,00,000

 

 

10,00,000

 

 

10,00,000

 

10,00,000

Cash

10,00,000

 

10,00,000

 

10,00,000

 

Shares Issued at Premium for Cash          

For example- A company issued 50,000 common shares with face value per share BDT 10.00 at a premium per share BDT. 2.00

Cash Account      Dr.           (50,000*12)                          6,00,000   

Common Share Capital Account Cr.  (50000*10)                                       5,00,000

Share Premium Account                Cr.  (50000*2)                                       1,00,000   

  Balance Sheet

Capital & Liabilities

 

Assets & Properties

 

Authorized Capital:

2,00,000 common shares @Tk 10 each

Issued Capital:

50,000 common shares @Tk 10 each

Subscribed Capital:

50,000 common shares @Tk 10 each

Called up Capital:

50,000 common shares @Tk 10 each

Paid up Capital:

50,000 common shares @Tk 10 each

Share Premium

 

 

20,00,000

 

 

5,00,000

 

 

5,00,000

 

 

5,00,000

 

5,00,000

 

1,00,000

Cash

6,00,000

 

6,00,000

 

6,00,000

                                      

Shares Issued at Discount for Cash           

For example- A company issued 50,000 common shares with face value per share BDT 10.00 at a discount per share BDT. 2.00

Cash Account      Dr.           (50,000*8)                           4,00,000

Share Discount Account  Dr. (50,000*2)                      1,00,000   

Common Share Capital Account Cr.  (50000*10)                                     5,00,000

  Balance Sheet

Capital & Liabilities

 

Assets & Properties

 

Authorized Capital:

2,00,000 common shares @Tk 10 each

Issued Capital:

50,000 common shares @Tk 10 each

Subscribed Capital:

50,000 common shares @Tk 10 each

Called up Capital:

50,000 common shares @Tk 10 each

Paid up Capital:

50,000 common shares @Tk 10 each

 

 

 

20,00,000

 

 

5,00,000

 

 

5,00,000

 

 

5,00,000

 

5,00,000

 

 

Cash

Share Discount Account 

 

4,00,000

1,00,000

 

5,00,000

 

5,00,000

 

Subscribed Shares

Sometimes a company may offer shares on a subscription basis, allowing the holder to pay for the shares in a series of payments. The accounting for these types of transactions will depend on local legislation, the terms of the subscription contract, and corporate policy. We will look at a few different examples of these types of transactions.

Example-1:

A Company has registered with authorized capital of BDT 100,00,00,000 divided into 10,00,00,000 common shares of BDT 10.00 per share. The BoD of the company decided to issue 5,00,00,000 shares at par in the following payment instalments:

At application BDT 2.00 per share

At subscription/ allotment BDT 3.00 per share

At 1st call BDT 3.00 per share and

At final call BDT 2.00 per share.

The company received 5,10,00,000 shares application. Consequently the company issued 5,00,00,000 shares to the applicants at proportionately and the excess application amount refunded. The allotment money received duly but when 1st call called 2 shareholders holding 50,000 shares could not to pay 1st call instalment amount and subsequently they failed to pay their 2nd call instalment amount. Other shareholders paid their calls money duly.

You are required to prepare necessary journals and Balance sheet considering the above transactions.

Solution:

1.      Bank Account   Dr.  (5,10,00,000*2)                      10,20,00,000

       Share Application Account   Cr.   (5,10,00,000*2)                            10,20,00,000

2.      Share Application Account Dr. (5,10,00,000*2)   10,20,00,000

      Share Capital Account         Cr.  (5,00,00,000*2)                                 10,00,00,000

      Bank Account                        Cr.   (10,00,000*2)                                         20,00,000

3.      Bank Account                        Dr. (5,00,00,000*3)    15,00,00,000

Share Allotment Account   Cr.  (5,00,00,000*3)                                 15,00,00,000

4.      Share Allotment Account    Dr. (5,00,00,000*3)    15,00,00,000

Share Capital Account          Cr. (5,00,00,000*3)                                 15,00,00,000

5.      Bank Account                         Dr. (4,99,50,000*3)    14,98,50,000

1st Call in Arrear Account      Dr. (50,000*3)                    1,50,000

Share 1st Call Account            Cr. (5,00,00,000*3)                                 15,00,00,000

6.      Share 1st Call Account            Dr. (5,00,00,000*3)   15,00,00,000

Share Capital Account            Cr. (5,00,00,000*3)                                 15,00,00,000

7.      Bank Account                          Dr. (4,99,50,000*2)     9,99,00,000

Final Call in Arrear Account      Dr. (50,000*2)                    1,00,000

Share Final Call Account            Cr. (5,00,00,000*2)                                 10,00,00,000

8.      Share Final Call Account            Dr. (5,00,00,000*2)   10,00,00,000

Share Capital Account               Cr. (5,00,00,000*2)                                 10,00,00,000

 

Bank account

Dr.                                                                                                                                            Cr.

Date

Particulars

Tk.

Date

Particulars

Tk.

1.

3.

5.

7.

To Share Application

To Share Allotment

To Share 1st Call

To Share Final Call

 

10,20,00,000

15,00,00,000

14,98,50,000

  9,99,00,000

2.

By Share Application

 

 

 

Balance c/d

20,00,000

 

 

 

49,97,50,000

 

 

50,17,50,000

 

 

50,17,50,000

 

 

 

 

  Balance Sheet

Capital & Liabilities

Tk.

Assets & Properties

Tk.

Authorized Capital:

10,00,00,000 common shares @Tk 10 each

Issued Capital:

5,00,00,000 common shares @Tk 10 each

Subscribed Capital:

5,00,00,000 common shares @Tk 10 each

Called up Capital:

5,00,00,000 common shares @Tk 10 each

Paid up Capital:

Called up capital         50,00,00,000

Less: Calls in Arrear            2,50,000

 

 

100,00,00,000

 

 

50,00,00,000

 

 

50,00,00,000

 

 

50,00,00,000

 

 

49,97,50,000

 

Bank

 

49,97,50,000

 

 

49,97,50,000

 

49,97,50,000

 

Share Capitals:

Authorized Capital

Issued Capital

Subscribed Capital

Called up Capital

Paid up Capital

Example-2:

A Company has registered with authorized capital of BDT 100,00,00,000 divided into 10,00,00,000 common shares of BDT 10.00 per share. The BoD of the company decided to issue 5,00,00,000 shares at a premium of BDT 2.00 in the following payment instalments:

At application BDT 2.00 per share

At subscription/ allotment BDT 5.00 per share (including BDT 2.00 premium per share)

At 1st call BDT 3.00 per share and

At final call BDT 2.00 per share.

The company received 5,10,00,000 shares application. Consequently the company issued 5,00,00,000 shares to the applicants at proportionately and the excess application amount refunded. The allotment money received duly but when 1st call called 2 shareholders holding 50,000 shares could to pay 1st call instalment amount and subsequently they failed to pay their 2nd call instalment amount. Other shareholders paid their calls money duly.

You are required to prepare necessary journals and Balance sheet considering the above transactions.

Solution:

1.      Bank Account   Dr.  (5,10,00,000*2)                      10,20,00,000

       Share Application Account   Cr.   (5,10,00,000*2)                            10,20,00,000

2.      Share Application Account Dr. (5,10,00,000*2)   10,20,00,000

      Share Capital Account         Cr.  (5,00,00,000*2)                                 10,00,00,000

      Bank Account                        Cr.   (10,00,000*2)                                         20,00,000

3.      Bank Account                        Dr. (5,00,00,000*5)    25,00,00,000

Share Allotment Account   Cr.  (5,00,00,000*5)                                 25,00,00,000

4.      Share Allotment Account    Dr. (5,00,00,000*5)    25,00,00,000

Share Capital Account          Cr. (5,00,00,000*3)                                 15,00,00,000

Share Premium Account      Cr. (5,00,00,000*2)                                 10,00,00,000

5.      Bank Account                         Dr. (4,99,50,000*3)    14,98,50,000

1st Call in Arrear Account      Dr. (50,000*3)                    1,50,000

Share 1st Call Account            Cr. (5,00,00,000*3)                                 15,00,00,000

6.      Share 1st Call Account            Dr. (5,00,00,000*3)   15,00,00,000

Share Capital Account            Cr. (5,00,00,000*3)                                 15,00,00,000

7.      Bank Account                          Dr. (4,99,50,000*2)     9,99,00,000

Final Call in Arrear Account      Dr. (50,000*2)                    1,00,000

Share Final Call Account            Cr. (5,00,00,000*2)                                 10,00,00,000

8.      Share Final Call Account            Dr. (5,00,00,000*2)   10,00,00,000

Share Capital Account               Cr. (5,00,00,000*2)                                 10,00,00,000

 

Bank account

Dr.                                                                                                                                            Cr.

Date

Particulars

Tk.

Date

Particulars

Tk.

1.

3.

5.

7.

To Share Application

To Share Allotment

To Share 1st Call

To Share Final Call

 

10,20,00,000

25,00,00,000

14,98,50,000

  9,99,00,000

2.

By Share Application

 

 

 

Balance c/d

20,00,000

 

 

 

59,97,50,000

 

 

60,17,50,000

 

 

60,17,50,000

 

  Balance Sheet

Capital & Liabilities

Tk.

Assets & Properties

Tk.

Authorized Capital:

10,00,00,000 common shares @Tk 10 each

Issued Capital:

5,00,00,000 common shares @Tk 10 each

Subscribed Capital:

5,00,00,000 common shares @Tk 10 each

Called up Capital:

5,00,00,000 common shares @Tk 10 each

Paid up Capital:

Called up capital         50,00,00,000

Less: Calls in Arrear            2,50,000

Share Premium Account

 

 

100,00,00,000

 

 

50,00,00,000

 

 

50,00,00,000

 

 

50,00,00,000

 

 

49,97,50,000

10,00,00,000

 

Bank

 

59,97,50,000

 

 

59,97,50,000

 

59,97,50,000

 

Example-3:

A Company has registered with authorized capital of BDT 100,00,00,000 divided into 10,00,00,000 common shares of BDT 10.00 per share. The BoD of the company decided to issue 5,00,00,000 shares at a discount of BDT 2.00 in the following payment instalments:

At application BDT 2.00 per share

At subscription/ allotment BDT 2.00 per share (excluding BDT 2.00 discount per share)

At 1st call BDT 2.00 per share and

At final call BDT 2.00 per share.

The company received 5,10,00,000 shares application. Consequently the company issued 5,00,00,000 shares to the applicants at proportionately and the excess application amount refunded. The allotment money received duly but when 1st call called 2 shareholders holding 50,000 shares could to pay 1st call instalment amount and subsequently they failed to pay their 2nd call instalment amount. Other shareholders paid their calls money duly.

You are required to prepare necessary journals and Balance sheet considering the above transactions.

Solution:

1.      Bank Account   Dr.  (5,10,00,000*2)                      10,20,00,000

       Share Application Account   Cr.   (5,10,00,000*2)                            10,20,00,000

2.      Share Application Account Dr. (5,10,00,000*2)   10,20,00,000

      Share Capital Account         Cr.  (5,00,00,000*2)                                 10,00,00,000

      Bank Account                        Cr.   (10,00,000*2)                                         20,00,000

3.      Bank Account                        Dr. (5,00,00,000*2)    10,00,00,000

Share Discount Account      Dr. (5,00,00,000*2)    10,00,00,000

Share Allotment Account   Cr.  (5,00,00,000*4)                                 20,00,00,000

4.      Share Allotment Account    Dr. (5,00,00,000*4)    20,00,00,000

Share Capital Account          Cr. (5,00,00,000*4)                                 20,00,00,000

5.      Bank Account                         Dr. (4,99,50,000*2)    9,99,00,000

1st Call in Arrear Account      Dr.       (50,000*2)            1,00,000

Share 1st Call Account            Cr. (5,00,00,000*2)                                 10,00,00,000

6.      Share 1st Call Account            Dr. (5,00,00,000*2)   10,00,00,000

Share Capital Account            Cr. (5,00,00,000*2)                                 10,00,00,000

7.      Bank Account                          Dr. (4,99,50,000*2)     9,99,00,000

Final Call in Arrear Account      Dr. (50,000*2)                    1,00,000

Share Final Call Account            Cr. (5,00,00,000*2)                                 10,00,00,000

8.      Share Final Call Account            Dr. (5,00,00,000*2)   10,00,00,000

Share Capital Account               Cr. (5,00,00,000*2)                                 10,00,00,000

 

Bank account

Dr.                                                                                                                                            Cr.

Date

Particulars

Tk.

Date

Particulars

Tk.

1.

3.

5.

7.

To Share Application

To Share Allotment

To Share 1st Call

To Share Final Call

 

10,20,00,000

10,00,00,000

9,99,00,000  9,99,00,000

2.

By Share Application

 

 

 

Balance c/d

20,00,000

 

 

 

39,98,00,000

 

 

40,18,00,000

 

 

40,18,00,000

 

 

 

 

  Balance Sheet

Capital & Liabilities

Tk.

Assets & Properties

Tk.

Authorized Capital:

10,00,00,000 common shares @Tk 10 each

Issued Capital:

5,00,00,000 common shares @Tk 10 each

Subscribed Capital:

5,00,00,000 common shares @Tk 10 each

Called up Capital:

5,00,00,000 common shares @Tk 10 each

Paid up Capital:

Called up capital         50,00,00,000

Less: Calls in Arrear            2,00,000

 

 

100,00,00,000

 

 

50,00,00,000

 

 

50,00,00,000

 

 

50,00,00,000

 

 

49,98,00,000

 

Bank

Share Discount

 

39,98,00,000

10,00,00,000

 

49,98,00,000

 

49,98,00,000

 

Example-4:

A Company Ltd. has registered with authorized capital of BDT 100,00,00,000 divided into 10,00,00,000 common shares of BDT 10.00 per share. The BoD of the company decided to issue 5,00,00,000 shares at a premium of BDT 2.00 in the following payment instalments:

At application BDT 2.00 per share

At subscription/ allotment BDT 5.00 per share (including BDT 2.00 premium per share)

At 1st call BDT 3.00 per share and

At final call BDT 2.00 per share.

The company received 5,10,00,000 shares application on 1st January, 2023. Consequently the company issued 5,00,00,000 shares to the applicants at proportionately on 1st February, 2023 and the excess application amount refunded. The allotment money received duly but when 1st call called on 1st March, 2023 2 shareholders holding 50,000 shares could not to pay 1st call instalment amount and subsequently they failed to pay their 2nd call instalment amount on 1st April, 2023. Other shareholders paid their calls money duly. The BoD of the company decided to forfeit the shares of the shareholders who could not paid their 2 calls money on 1st May, 2023. The forfeited shares are reissued at a price of BDT 10 per share on 1st June, 2023.

 

You are required to prepare necessary journals and Balance sheet as on 30 June, 2023 considering the above transactions.

 

Solution:

 

A Company Ltd.

Journal Entries

Date

Particulars

L.F

Debit Tk.

Credit Tk.

2023

Jan 1

Bank Account   Dr.  (5,10,00,000*2)                     

Share Application Account   Cr.   (5,10,00,000*2)

 

10,20,00,000

 

10,20,00,000

Jan 1

Share Application Account Dr. (5,10,00,000*2)  

      Share Capital Account         Cr.  (5,00,00,000*2)                                

      Bank Account                        Cr.   (10,00,000*2)                                        

 

10,20,00,000

 

 

10,00,00,000

 

20,00,000

Feb 1

Share Allotment Account    Dr. (5,00,00,000*5)

Share Capital Account          Cr. (5,00,00,000*3)                                

Share Premium Account      Cr. (5,00,00,000*2)                                

 

 25,00,00,000

 

 

15,00,00,000

 

10,00,00,000

Feb 1

Bank Account                        Dr. (5,00,00,000*5)   

Share Allotment Account   Cr.  (5,00,00,000*5)                                

 

25,00,00,000

 

 

25,00,00,000

March 1

Share 1st Call Account            Dr. (5,00,00,000*3)  

Share Capital Account            Cr. (5,00,00,000*3)                                

 

15,00,00,000

 

 

15,00,00,000

March 1

Bank Account                         Dr. (4,99,50,000*3)   

1st Call in Arrear Account      Dr. (50,000*3)                   

Share 1st Call Account            Cr. (5,00,00,000*3)                                

 

14,98,50,000

 

1,50,000

 

 

 

 

15,00,00,000

April 1

Share Final Call Account            Dr. (5,00,00,000*2)  

Share Capital Account               Cr. (5,00,00,000*2)                                

 

10,00,00,000

 

 

10,00,00,000

April 1

Bank Account                          Dr. (4,99,50,000*2

Final Call in Arrear Account      Dr. (50,000*2)                   

Share Final Call Account            Cr. (5,00,00,000*2)                                

 

   9,99,00,000

1,00,000

 

 

 

 

10,00,00,000

May 1

Share Capital Account                Dr.        (50,000*10)          

Share Premium Account            Dr.         (50,000*2)           

1st Call in Arrear Account           Cr.          (50,000*3)                                        

Final Call in Arrear Account       Cr.          (50,000*2)                                         

Share Forfeiture Account           Cr.           (50,000*7)                                       

 

5,00,000

 

1,00,000

 

 

 

 

1,50,000

 

1,00,000

 

3,50,000

June 1

Bank Account                                Dr.          (50,000*10)        

Share Capital Account                Cr.     (50,000*10)

 

5,00,000

 

 

5,00,000

 

 

Bank account

Dr.                                                                                                                                            Cr.

Date

Particulars

Tk.

Date

Particulars

Tk.

Jan 1

Feb 1

Mar 1

Apr 1

Jun 1

To Share Application

To Share Allotment

To Share 1st Call

To Share Final Call

To Share Capital

10,20,00,000

25,00,00,000

14,98,50,000

  9,99,00,000

5,00,000

Jan 1

By Share Application

 

 

 

Balance c/d

20,00,000

 

 

 

60,02,50,000

 

 

60,22,50,000

 

 

60,22,50,000

 

  Balance Sheet

Capital & Liabilities

Tk.

Assets & Properties

Tk.

Authorized Capital:

10,00,00,000 common shares @Tk 10 each

Issued Capital:

5,00,00,000 common shares @Tk 10 each

Subscribed Capital:

5,00,00,000 common shares @Tk 10 each

Called up Capital:

5,00,00,000 common shares @Tk 10 each

Paid up Capital:

Called up capital         50,00,00,000

Less: Calls in Arrear            0

Share Premium Account

Share Forfeiture Account

 

 

100,00,00,000

 

 

50,00,00,000

 

 

50,00,00,000

 

 

50,00,00,000

 

 

50,00,00,000

9,99,00,000

3,50,000

Bank

 

60,02,50,000

 

60,02,50,000

 

60,02,50,000

When a company is first incorporated, it will be authorized to issue a certain number of shares. This authorization does not, in and of itself, create any accounting transaction that needs to be recorded. However, after the shares are authorized they can be issued, which creates an accounting transaction. We will look at several examples of different types of share issuances.

Source: 

Mohammad Shahajahan FCS

Financial Management Specialist

NATP-2 Project, Ministry of Agriculture

-End-

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