Issue of Shares to Vendors
A company may purchase assets from the vendors and instead of paying the vendors cash, may settle the purchase price by issuing fully paid shares of the company. This type of issue of shares to the vendors is called issue of shares for consideration other than cash. Such shares may be issued by the vendors either (i) at par, or (ii) at a premium.
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Journal Entries
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(i) When assets are acquired from the vendors –
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Sundry Assets A/c (individually) Dr. (with the purchase price payable for the assets acquired) To Vendors
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(ii) When fully paid shares are issued to vendors at par –
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Vendors Dr. (with the nominal value of the shares allotted) To Share Capital A/c |
(iii) When fully paid shares are issued to vendors at a premium –
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Vendors Dr. (with the purchase price) To Share Capital A/c (with the nominal value of the shares allotted) To Securities Premium A/c (with the amount of premium) |