Read everything about Issue of Shares at Premium, Expenses, Par best notes
In previous Article We have read about shares and its Types after
that now I am posting how the share Allotted and Treatment for issue of
Share at Premium .
Allotment of Shares.
Allotment is the allocation of shares to the successful applicants
by the directors of a company. The applications for shares by the members
of the public are proposals. They may be accepted by the Board of Directors in
full, rejected in full or accepted in part.
When an offer is accepted, the successful applicants are sent
letter of allotment, stating the number of shares allotted and the amount of
allotment money. Acceptance of the offer brings a contract into Existence
and the applicants become
shareholders. These Shareholders are liable to pay the unpaid
amount of share capital (that is, nominal value minus application money) as and
when called or required. A letter of allotment must be stamped, as required by
the Indian Stamp Act.
Those applicants whom shares could not be allotted are sent
letters of regret together with refunds of their application money.
Issue of Shares at Premium, Expenses, Par...
Issue of Shares at Par.
Each share has a face value, e.g., Rs. 10, Rs. 100 etc. When
shares are issued for an amount equal to the face value of share, they are said
to be issued at par. For example, if shares of the face value of Rs. 10 each
are issued to the public at Rs. 10 each, the issue is called issue of shares at
par. The issue price of a share may be payable either in lumpsum along with the
application or in installments.
Share Issue Expenses.
Share Issue Expenses are a capital loss, therefore, they should be
written off against "Securities Premium A/c' or Profit & Loss A/c'
.The balance of 'Share Issue Expenses A/c' is shown on the assets side of
the Balance Sheet under the heading Miscellaneous Expenditure.
Issue of Shares at Premium.
A company is authorized
to issue its shares at a price which is more than its face value, it is
said to be issue at premium. Fox example, if a share of Rs. 10 is issued
at Rs. 12 Rs 2 will be the premium on share. It is a common practice for
the financially strong, profitable and professionally efficient companies to
issue their shares at a premium. There is not restriction on issue of shares at premium
and on the amount of premium, but according to Section 78 of the Companies Act,
1956, the amount of premium can be utilized for some specific purpose only.
Treatment for Issue of Share at premium.
When shares are issued
at premium, the amount of premium is credited to a separate account called,
'Securities Premium A/c. The balance of 'Securities Premium A/c' must be shown
separately on the liabilities sides of the Balance Sheet, under the heading
Reserves and Surplus' because it is not a part of share capital rather if
represent a gain of capital nature for the company,
(i) For making allotment due with premium:
Share Allotment A/c Dr.
To Share Capital A/c
(Being allotment due, along with premium)
(ii) For receipt of allotment money:
Bank A/c Dr
To Share Allotment A/c
(Being allotment money received, including premium)
The amount of security premium may technically be called at any
state, i.e. At application or at allotment or at calls, but generally or
in the absence of any information it is assumed that premium is due along with
allotment money.
Issue the Shares at a Discount.
When the issue price of share is less than the face value, the
issue is said to have been made at a discount. For example, when a share
of the face value of Rs. 10 is issued is Rs. 9, it is said to have been issued
at a discount of Re. 1 per share.
Calls in Arrears.
Sometimes, some of the shareholders may fail to pay the amount due
from them on allotment or on call. The amount remaining unpaid on allotment or
on calls is called calls-in-arrears or unpaid calls. Calls-in-Arrears account
is technically, an asset account but it is shown in the Balance Sheet by way of
deduction from the called-up capital. A company is authorized to charge
interest at the rate of prescribed in the Articles of Association from the due
date to the date of payment.
Calls -In - Advance.
When a company accepts
money paid by some of the allottess for the calls not due or retains the excess
application money note exceeding the amount due on allotment, such amount is
known as 'calls-in-advance Calls -in-Advance is a liability of the company and
therefore, it is subject to interest. The company has to pay interest at the
rate prescribed in its Articles of Association or at the rate of 6% p.a.
in the absence of Article. Calls-in-Advance is shown in the Balance Sheet as a
separate item under the heading 'Share Capital.
Full-Subscription.
When the public has subscribed equal to share offered by a company
for subscription, this is said to be full subscription. For example, a
company has offered 1, 00,000 share to the public, and the public has
applied for the 1, 00,000 shares, this is said to be full subscription. When
there is full subscription, it does require any special accounting treatment.
Under-Subscription.
When the number of
shares applied for is less than the number of shares offered for issue, it is
known as under-subscription. This is subject to the qualification that minimum
subscription has at least been received. Without such subscription, the
procedure of share issue cannot take place legally. Under-subscription does not
require any special treatment. The accounting for under-subscription is done in
the usual way with the number of shares applied for by the public.
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