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 1^st 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 1^st call called 2 shareholders holding 50,000 shares could not to pay 1^st call instalment amount and subsequently they failed to pay their 2^nd 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

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

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

6.      Share 1^st 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 1^st 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 1^st call called 2 shareholders holding 50,000 shares could to pay 1^st call instalment amount and subsequently they failed to pay their 2^nd 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

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

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

6.      Share 1^st 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

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

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

6.      Share 1^st 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 1^st January, 2023. Consequently the company issued 5,00,00,000 shares to the applicants at proportionately on 1^st February, 2023 and the excess application amount refunded. The allotment money received duly but when 1st call called on 1^st 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 1^st 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 1^st May, 2023. The forfeited shares are reissued at a price of BDT 10 per share on 1^st 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-