Issue of Shares at A Discount

Issue of Shares at A Discount :

When shares are issued at a price lower than the face value, they are said to be issued at discount. Thus, the excess of the face value over the issue price is the amount of discount. For example, if a share of Rs.10 is issued at Rs.9 then Rs. (10 – 9) = Re. 1 is the discount.

As per companies Act 2013, a company shall not issue shares at a discount except as provided in section 54 for issue of sweat equity shares. Any share issued by a company at a discounted price shall be void.

Where a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.

Illustration :
P Ltd. was registered with an authorised capital of Rs. 10,00,000 divided into 1,00,000 equity shares of Rs.10 each out of which 50,000 equity shares were offered to the public for subscription. The shares were payable as under:
Rs. 3 per share on application
Rs.2 per share on allotment
Rs.2 per share on 1st call
Rs.3 per share on 2nd and final call
The shares were fully subscribed for and the money was duly received.
Show the journal and cash book entries.

Solution:

In the books of P Ltd.
Journal Entries

Date	Particulars	Rs.	Rs.
	Equity Share Application A/c Dr.	1,50,000
	Equity Share Allotment A/c Dr.	1,00,000
	To Equity Share Capital A/c		2,50,000
	(Capitalization of application money @Rs.3 per share and allotment money due on 50,000 equity shares transferred as per Boards resolution dated…..)

	Equity Share First Call A/c Dr.	1,00,000
	To Equity Share Capital A/c		1,00,000
	(First call money on 50,000 equity shares @ `2 per share due as per Board’s resolution dated…..)

	Equity Share Second & Final Call A/c Dr.	1,50,000
	To Equity Share Capital A/c		1,50,000
	(Second and final call money due on 50,000 Equity Shares @ 3 per share as per Board’s resolution dated…..)

Cash Book (Bank Columns)

Dr. Cr.

Particulars	Rs.	Particulars	Rs.
To Equity Share Application A/c	1,50,000	By Balance c/fd	5,00,000
To Equity Share Allotment A/c	1,00,000
To Equity Share First Call A/c	1,00,000
To Equity Share Second & Final Call A/c	1,50,000		_________
	5,00,000		5,00,000

Illustration :
Wonder Ltd. issued 10,000, 12% Preference Shares of ` 100 each at a premium of ` 10 per share payable as follows:
On Application Rs. 30

On Allotment Rs.30 (including premium)

On First Call Rs.25

On Final Call Rs. 25

Applications were received for 12,000 shares and the directors allotted 10,000 shares and rejected applications for 2,000 shares and the money received thereon was refunded.

The allotment money was duly received while the first call money was received on 9,000 shares and the final call money on 8,000 shares.

Show the cash book and journal entries.

Solution:

In the books of Wonder Ltd.
Journal Entries

Particulars	Rs.	Rs.
12% Preference Share Application and Allotment A/c Dr.	6,00,000
To 9% Preference Share Capital A/c		5,00,000
To Securities Premium A/c		1,00,000
(Capitalisation of application money @ Rs.30 per share and allotment money due @ Rs.30 per share shares including Rs.10 as premium on 10,000, 12% preference as per Board’s resolution dated…..)

12% Preference Share First Call A/c Dr.	2,50,000
To 12% Preference Share Capital A/c		2,50,000
(First call money due @ Rs.25 per share on 10,000, 12% Preference Shares as per Board’s resolution dated…….)

Calls-in-Arrear A/c Dr.	25,000
To 12% Preference Share First Call A/c		25,000
(First call money due on 1,000, 12% Pref. Shares @ Rs.25 per share transferred to Call-in-Arrear A/c)

12% Preference Share Final Call A/c Dr.	2,50,000
To 12% Preference Share Capital A/c		2,50,000
(Final call money due @Rs.25 per share on 10,000, 12% Pref. shares as per Board’s resolution dated…)

Calls-in-Arrear A/c Dr.	50,000
To 12% Preference Share Final Call A/c		50,000
(Final call money due on 2,000, 12% Pref. Shares @ Rs.25 per share transferred to Calls-in-Arrear A/c)

Cash Book (Bank Columns)

Dr. Cr.

Particulars	Rs.	Particulars	Rs.
To 12% Preference Share Application and Allotment A/C	3,60,000	By 12% Preference Share Application and Allotment A/c	60,000
(Application money on 12,000, 12% Pref. Shares @ Rs.30 per share)		(Refund of Application money on 2000, 12% Pref. Shares @ Rs.30 per share)
To 12% Preference Share Application and Allotment A/c	3,00,000	By Balance c/d	10,25,000
(Allotment money @ RS.30 per share on 10,000, 12% preference shares)
To12% Preference Share First Call A/c	2,25,000
(First call money @ RS. 25 per share on 9,000, 12% Pref. Shares)

To 12% Preference Share Final Call A/c	2,00,000
(Final call money @ ` 25 per share on 8,000, 12% Pref. shares)
	10,85,000		10,85,000

12% Preference Share Application and Allotment A/c Dr.

6,00,000

To 9% Preference Share Capital A/c

5,00,000

To Securities Premium A/c

1,00,000

(Capitalisation of application money @ Rs.30 per share and allotment money due @ Rs.30 per share shares including Rs.10 as premium on 10,000, 12% preference as per Board’s resolution dated…..)

12% Preference Share First Call A/c Dr.

2,50,000

To 12% Preference Share Capital A/c

2,50,000

(First call money due @ Rs.25 per share on 10,000, 12% Preference Shares as per Board’s resolution dated…….)

Calls-in-Arrear A/c Dr.

25,000

To 12% Preference Share First Call A/c

25,000

(First call money due on 1,000, 12% Pref. Shares @ Rs.25 per share transferred to Call-in-Arrear A/c)

12% Preference Share Final Call A/c Dr.

2,50,000

To 12% Preference Share Capital A/c

2,50,000

(Final call money due @Rs.25 per share on 10,000, 12% Pref. shares as per Board’s resolution dated…)

Calls-in-Arrear A/c Dr.

50,000

To 12% Preference Share Final Call A/c

50,000

(Final call money due on 2,000, 12% Pref. Shares @ Rs.25 per share transferred to Calls-in-Arrear A/c)

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