Page 38 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 1: Share Capital – Issue of Shares

Self Assessment Notes

True or False:
7. Share application account is a nominal account.
8. Right shares are those which are issued to the existing shareholder.

Fill in the blanks:
9. Rate of dividend for equity shares is .................... fixed.
10. The .................. of the company defines the objectives of the company.
11. Minimum subscription has been determined at ................... of the total issue.
12. The nature of share application account is .........................

1.6 Issue of Shares for Consideration Other than Cash

Sometimes, a company may issue fully paid shares to any person or firm from whom it purchases
any assets such as land, plant and machinery, building etc. This type of issue is called issue of
shares for consideration other than cash because this issue does not involve the receipt of cash.
If such shares are issued, it must be clearly stated in the balance sheet and must be distinguished
from the issue made for cash. Such an issue can be as follows:
1. Issue of Shares to Vendors: For the payment of purchase price of assets, the company may
issue fully paid shares to vendors of assets. Such an issue can be at par, discount or premium.
In such a case the following entries will be purchased:
(a) When assets are purchased:

Assets Account Dr. (with the purchase price of assets)
To Vendors’ Account
(Being assets purchased)
(b) When shares are issued for payment –

(i) if this issue of shares is at par –
Vendors account Dr. (with the nominal value of shares allotted)
To Share Capital Account
(ii) if this issue of shares is at discount –

Vendors’ Account Dr. (with purchase price)
Discount on shares Account Dr. (with the amount of discount)
To Share Capital Account (with the nominal value of shares allotted)
(c) If the issue of shares is at premium –

Vendors’ Account Dr. (with the purchase price)
To Share Capital Account (with the nominal value of shares allotted)
To Share Premium Account (with the amount of premium)
2. Issue of shares to promoters: A company may issue its fully paid shares to its promoters in
recognition of their services to the company. Similarly a company may also issue shares

LOVELY PROFESSIONAL UNIVERSITY 31