1. ISSUE OF SHARES AT PREMIUM
Shares are issued At premium to the public by
well managed and financially strong companies
through the IPO.
Called Value > Face Value
Securities Premium A/c is made for this purpose.
This Premium can be called with any installment
like (Application, Allotment, Ist Call, IInd Call……)
In absence of information the amount of
Premium is to be recorded at the time Allotment.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 1
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2. ISSUE OF SHARES AT PREMIUM
 Securities Premium is a Capital Gain.
 It shows on Liabilities side under Reserve &
Surplus.
 To issue fully paid up bonus shares to the
shareholders.
 To Buy-back its on shares as per section 77A.
 To Write off:
 Preliminary Expenses.
 commission paid, Discount Allowed on issue of shares
or debentures.
 Premium on the Redemption of preference shares or
debentures.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 2
Mobile: +91-9760-888-626

3. ISSUE OF SHARES AT DISCOUNT
Called Value < Face Value
 Section 79 provides the conditions to issue the shares at
discount:
 This class of shares has already been issued. OR A New
Company or New Class Shares cannot be issued at Discount.
 Authorised by an ordinary resolution passed by the company
in its General Meeting.
 Sanctioned by the Central Government.
 Issued within 2 months from the date of receiving sanction.
 Issued at least 1 year expiry of commence the business.
 Rate of Discount <= 10% of Nominal Value of Share
 It may be > 10% after the permission of Central Govt.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 3
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4. ISSUE OF SHARES AT DISCOUNT
For allotment money due excluding discount:
Share Allotment A/C Dr.
Discount on Issue of Shares A/C Dr.
To Share Capital A/C
For allotment money received:
Bank A/C Dr.
To Share Allotment A/C
Discount on shares is recorded at the time of
allotment by debiting “Discount on Issue of Shares
A/C”.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 4
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5. ISSUE OF SHARES AT DISCOUNT
 Discount Allowed on shares is a Capital Loss.
 It shows on the Assets side under Miscellaneous
Expenditure.
 It can be written off by:
 Capital Reserve (straight way)
 Securities Premium A/C (straight way)
 Profit & Loss A/C (gradually over the period of years)
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 5
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6. FORFEITURE OF SHARES
Shareholder fails to pay the called up money on
allotment & further calls.
Shares can be cancelled & amount already paid
may be forfeited.
SEBI guidelines- The subscription money must
be received within 12 months from the date of
allotment.
Defaulting shareholder must be given a
minimum 14 days notice requiring him to pay the
amount due on his shares along with interest on it.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 6
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7. FORFEITURE OF SHARES
The name of the shareholder is removed from
the register of members.
Amount already received on these shares as
forfeited to the company.
The forfeited amount should be transferred to
newly opened “Share Forfeiture Account”.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 7
Mobile: +91-9760-888-626

8. FORFEITURE OF SHARES
• Case 1 when shares are issued originally at
PAR or at PREMIMUM (RECEIVED)
Share Capital A/C Dr. (Called UP Money)
To Share Allotment A/c (Arrear on Allot)
To Share Calls in Arrear A/C (Arrear on Calls)
To Share Forfeiture A/C (Money Received)
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 8
Mobile: +91-9760-888-626

9. FORFEITURE OF SHARES
• Case 2 when shares are issued originally at
PREMIMUM (NOT RECEIVED)
Share Capital A/C Dr. (Called UP Money)
Securities Premium A/C Dr. (Called UP Prem.)
To Share Allotment A/c (Arrear on Allot)
To Share Calls in Arrear A/C (Arrear on Calls)
To Share Forfeiture A/C (Money Received)
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 9
Mobile: +91-9760-888-626

10. FORFEITURE OF SHARES
• Case 3 when shares are issued originally at
DISCOUNT
Share Capital A/C Dr. (Called UP Money)
Discount on Issue of Shares Dr. (discount amount)
To Share Allotment A/c (Arrear on Allot)
To Share Calls in Arrear A/C (Arrear on Calls)
To Share Forfeiture A/C (Money Received)
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 10
Mobile: +91-9760-888-626

11. RE-ISSUE OF FORFETED SHARES
• Case 1 when shares are Re-Issued at PAR
Bank A/C Dr.
To Share Capital A/c
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 11
Mobile: +91-9760-888-626

12. RE-ISSUE OF FORFETED SHARES
• Case 2 when shares are Re-Issued at
PREMIMUM
Bank A/C Dr.
To Share Capital A/c
To Securities Premium A/C
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 12
Mobile: +91-9760-888-626

13. RE-ISSUE OF FORFETED SHARES
• Case 3 when shares are Re-Issued at
DISCOUNT
Max Discount on Re-issue allowed:
Forfeited Amount – Discount Allowed on original issue
Discount = Original Issue Price – Re-issue Price
(10+2) – (10+1) = 1
(10+1) – (10-1) = 2
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 13
Mobile: +91-9760-888-626

14. RE-ISSUE OF FORFETED SHARES
• Case 3 when shares are Re-Issued at DISCOUNT
Bank A/C Dr.
Share Forfeiture A/c Dr.
To Share Capital A/C
Discount Amount will be Written Off from the
“Share Forfeiture A/C”
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 14
Mobile: +91-9760-888-626

15. RE-ISSUE OF FORFETED SHARES
• Transfer the Balance of Share Forfeiture A/C
The Balance must be Credit.
Share Forfeiture A/C Dr.
To Capital Reserve A/C
(The Forfeited Amount must be of the forfeited
shares which are Re-Issued to Transfer the CR
A/C)
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 15
Mobile: +91-9760-888-626

16. RE-ISSUE OF FORFETED SHARES
• CAPITAL RESERVE
 Originates from sources other than the regular activities of
the business.
 Created out of capital profit.
 Used to meet capital losses or to declare a bonus on shares.
Sources are:
 Profit on sale of a fixed asset.
 Profit on revaluation of assets and liabilities.
 Profit on forfeiture and re-issue of forfeited shares.
 Profit on redemption of debentures at a discount.
 Profit earned by a co. prior to its incorporation.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 16
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17. OVER SUBSCRIPTION
Shares are issued to the public by well
managed and financially strong companies
through the IPO.
Over Subscription is a situation when
Shares applied > Shares Offered
The board of directors cannot allot shares
more than that offered to the public for
subscription.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 17
Mobile: +91-9760-888-626

18. OVER SUBSCRIPTION
Three alternatives are available to the directors in
this situation.
Alternative 1:
Full Allotment to some Applicants and
Totally rejected the others.
Issued 20,000 shares
Offered 50,000 shares
Full Allotment to 20,000 applications.
Remaining 30,000 applications are rejected.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 18
Mobile: +91-9760-888-626

19. OVER SUBSCRIPTION
• Accounting Treatment in the case of Alternative 1:
Share Application A/C Dr. (App. Money Received on total Apps)
To Share Capital A/C (App. Money Due on allotted Shares)
To Bank A/C (Refund excess Money for rejected apps)
 Due Application money is transferred to “Share Capital A/C”.
 Excess money of rejected applications is refund.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 19
Mobile: +91-9760-888-626

20. OVER SUBSCRIPTION
Alternative 2:
 Pro-Rata Allotment
 It means the proportion is determined by the ratio which the
number of shares to be allotted bear to the number of shares
applied
Issued 20,000 shares
Offered 50,000 shares
Ratio = (20000:50000) OR (2:5)
Full Allotment to 5,000 applications.
20,000 applications are rejected.
Applicants who offered 500 shares got 200 shares.
So, Applicants may be allotted less number of shares than they have
applied for.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 20
Mobile: +91-9760-888-626

21. OVER SUBSCRIPTION
• Accounting Treatment in the case of
Alternative 2:
Share Application A/C Dr. (App. Money Received on total Apps)
To Share Capital A/C (App. Money Due on allotted Shares)
To Share Allotment A/C (Adjusted excess money for allotment)
To Calls in Advance A/C (Adjusted excess money for calls)
 Due Application money is transferred to “Share Capital A/C”.
 Excess money on application transferred to “Share Allotment A/C” and
the balance transferred to “Calls in Advance A/C”.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 21
Mobile: +91-9760-888-626

22. OVER SUBSCRIPTION
Alternative 3:
 Combines Alternatives 1 & 2
 It means Full Allotment + Allotment on Pro-Rata basis
+ Full Rejections to others applicants.
Issued 20,000 shares
Offered 50,000 shares
Full Allotment to 5,000 applications.
20,000 applications are rejected.
Applicants who offered remaining 25,000 shares got
15000 shares on the basis of Proportion (15000:25000).
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 22
Mobile: +91-9760-888-626

23. OVER SUBSCRIPTION
• Accounting Treatment in the case of
Alternative 3:
Share Application A/C Dr. (App. Money Received on total Apps)
To Share Capital A/C (App. Money Due on allotted Shares)
To Share Allotment A/C (Adjusted excess money for allotment)
To Calls in Advance A/C (Adjusted excess money for calls)
To Bank A/C (Refund excess Money for rejected apps)
 Due Application money is transferred to “Share Capital A/C”.
 Excess money on application transferred to “Share Allotment A/C” and the
balance transferred to “Calls in Advance A/C”.
 Excess money of rejected applications is refund.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 23
Mobile: +91-9760-888-626

24. OVER SUBSCRIPTION
• Categorization of Applications
Disposition of Application Money Received
Categories Shares Shares App Share Share Calls in Refund
Applied Allotted Money Capital Allotment Advance
Received
<1000 5,000 0 25,000 - - - 25000
>=1000<2 20,000 20,000 1,00,000 1,00,000 - - -
000
>=2000 50,000 30,000 2,50,000 1,50,000 90,000 10,000 -
Company Demands: Application Rs. 5, Allotment Rs. 3 Calls Rs. 2
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 24
Mobile: +91-9760-888-626

25. UNDER SUBSCRIPTION
Over Subscription is a situation when
Shares applied < Shares Offered
The number of shares applied for is less than
shares offered to the public for subscription.
All the applications for shares are accepted.
Accounting entries are made on the basis of
number of shares applied for by the public
rather than shares offered for.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 25
Mobile: +91-9760-888-626

26. RIGHT SHARES
 A Ltd. company already issued shares.
 A Ltd. Wishes to raise capital through the further issue of shares.
It comes under following legal obligation:
 Company has to First offer the fresh shares to its existing
shareholders. It means:
 Existing shareholders have Right to apply for these shares on
Priority Basis.
 Right Issue by 15 days notice.
 Right shares issue must not be opened more than 60 days
under SEBI guidelines.
 If existing shareholders are not interested, such remaining
right shares are offered to common public.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 26
Mobile: +91-9760-888-626

27. RIGHT SHARES
Section 81 of the companies Act, 1956 provides
 If a Public Limited Company wishes to increase its
subscribed capital at any time, (after the expiry of 2 years
of the formation or after the expiry of 1 year from the First
Allotment of shares), whichever is earlier, by allotment of
further shares, then
 Such fresh shares shell be offered to the existing
shareholders of the company, in Proportion of their Equity
Holding on that date.
If a company which has already issued 3,00,000 shares wishes
to issue fresh 1,00,000 shares,
It shall have to offer the existing shareholders a Right to
subscribe for 1 NEW SHARE for every 3 OLD SHARES held.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 27
Mobile: +91-9760-888-626

28. RIGHT SHARES
• Value of Right =
Market Price of a Share – Average Price of a Share
Where,
Average Price of a Share =
(Market Price of a Existing Share * No. of Shares held) + Issue Price of a Right share)
No. of Existing Shares + No. of Right Shares
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 28
Mobile: +91-9760-888-626

29. RIGHT SHARES
• Why A Company Go For Right Issue
 Raising of capital is more certain- than IPO.
 Improves the image of the company – shows the management
concern towards the shareholders.
 Provides opportunity- to the existing shareholders to invest in the
well conversant company.
 Expenses of Right issue is lower- than IPO.
 Right Shares are issued to existing shareholders in Proportion of
their Equity Holding, So It :
 Ensures directors do not misuse their position – to issue new shares
to their relatives/friends.
 Preserves the control of the company – in hands of the existing
shareholders.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 29
Mobile: +91-9760-888-626

30. SWEAT EQUITY SHARES
 Issued by the company to its directors or employees at a
discount.
 Issued for consideration other than cash.
 Makes available rights to use intellectual property.
 Section 79A provides the conditions to issue Sweat Shares:
 Authorised by an special resolution passed by the company
in its General Meeting.
 Resolution specifies No. of Shares, Current Market Price,
Consideration, Classes of directors or employees.
 Issued at least 1 year expiry of commence the business.
 Shares are listed on a recognized stock exchange.
A Presentation By Himanshu Arya,
2/11/2012 Daksh Professional Education Meerut 30
Mobile: +91-9760-888-626