Page 14 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 1: Share Capital – Issue of Shares

Accounting Treatment Regarding Issue of Shares Notes

1. On receipt of application money:
Bank Account Dr. (with the total application money)
To Share Application Account

(Being the receipt of application money on ——shares @————per share)
The nature of share application account is a personal account which represents the total of
all those people who have applied for shares. This application money is treated as deposit
money of the applicants. These applicants are treated as creditors of the company until
they are allotted some shares. If no share is allotted to them, their application money has
to be returned. Upon the acceptance of application for shares, the boards of directors
proceed to allot the shares. As soon as the shares are allotted, the creditors (applicants)
become the shareholders of the company and their deposits are transferred into share
capital account.
2. On the acceptance of applications for share:

Share Application Account Dr. (with application money due on shares allotted)
To Share Capital Account
(Being the transfer of application money to share capital account.)
When a company issues different types of shares, a separate share capital account will be
opened for each type of shares. In order to distinguish one type of share from the other
one, the name of the share must be prefixed with the word share i.e., Preference share
capital, Equity share capital and Equity share application account.
3. On making the allotment money due:

Share Allotment Account Dr. (With allotment money due)
To Share Capital Account
(Being share allotment money due on _______ shares @_______per share.)

Here, the nature of share allotment account is a personal account which represents all the
applicants. (now shareholders/debtors of the company).
4. On receipt of allotment money:

Bank Account Dr. (with actual allotment money received)
To Share Allotment Account

(Being the receipt of allotment money)
If any shareholder does not pay the allotment money, this unpaid amount is known as
calls-in-arrear and shown in the liabilities side of Balance Sheet of the company.

5. On making the first call due:
Share First Call Account Dr. (with first call money due)
To Share Capital Account

(Being first call money due ________shares @_______per share)

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