Page 39 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes to other persons who might render technical information, engineering services, plant
layout etc. Being are capital expenditure, these are therefore debited to the goodwill
account. Its accounting record can be understood with the help of following journal entry.
Goodwill Account Dr. (with the nominal value of shares allotted)
To Share Capital Account
3. Issue of shares to under-writers: A company may issue its fully-paid shares to underwriters
for the payment of underwriting commission.
(a) When commission is due–
Underwriting Commission Account Dr. (with the amount of commission)
To underwriter’s account
(b) When commission is paid by shares –

Underwriters Account Dr. (with the nominal value of shares issued)
To share capital account

Example 12: Sikander Ltd. acquired the business of Subhash and Brothers for 5,40,000.
The payment was made by the issue of fully paid shares of 100 each. What entries will be made
in the books of Sikander Ltd. if such issue is (i) at par, (ii) at a premium of 20% and (iii) at a
discount of 10%.
Solution:
Sikander Ltd.Journal
Date Particualars L.F.
(i) Sundry Assets A/c Dr. 5,40,000
To Subhash & Brothers 5,40,000
(Being Business purchased)
(ii) When issue is at par:
Subhash & Brothers Dr. 5,40,000
To Share Capital Account 5,40,000
(Being issue of 5400 shares of 100 each to
Vendor)
(iii) When issue is at premium:
Subhash & Brothers Dr. 5,40,000
To Share Capital Account 4,50,000
To Share Premium Account 90,000
(Being issue of 4500 shares of Rs 100 each at
a premium of 20% to vendor)
(iv) When issue is at discount:
Subhash & Brothers Dr. 5,40,000
Discount on Issue of Shares A/c Dr. 60,000
To Share Capital Account 6,00,000
(Being issue of 6,000 shares to vendor at a
discount of 10%)

Working Note: In order to find out the number of shares allotted to vendor, first of all discounted
price or price with premium, of one share which is issued to vendor, is calculated. Here it is 120
in the case of premium and 90 in the case of discount. The following formula is used:
Purchase Price
(i) No of shares issued at premium of 20% =
Issue price of one share

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