A Basic of Advance Accounting operations With TALLY Working (shares Accounting Operations)

A Basic of Advance Accounting operations With TALLY Workings

Index

S.NO	Title
1	Introduction
2	The procedure of issuing shares
3	Shares accounting operation- full and non-cash considerations (premium & Discount)
4	Shares accounting operation-allotment basis with premium &discount
5	Forfeiture and re-issue of shares with premium &discount
6	oversubscription of shares
7	Under subscription of shares
8	Sweat shares
9	Bonus shares
10	Split & Rights issues of shares
11	Dividend payable for shares
11	Shares buyback

Introduction:

This paper is based on how to prepare accounting entries for share issuing, capitalizing, and how the shares effects the balance sheet. Before entering into an accounting entry, we have to know what is share capital, what is the purpose of this share capital, how the share capital accumulates by issuing shares, and how to issue shares for the company. And what is the procedure for issuing shares to a company? which firms are eligible to raise funds from the public, and who determines the basic rules and regulations these questions we need to know. The essential or fundamentals we have to understand and know how the public and private companies have accumulated share capital, and how they fulfil their funds by the public.  Share capital is known as the firm collecting amount from the public is called share capital amount. The amount collected from various public is divided As a small amount basis. The collecting way is only an issuing shares and it can received through the issuing of debenture also. In the beginning, how do They raised funds for developing their business? if sole proprietors raise capital funds from their investments or get loans from friends and relatives? In a Partnership partners invest their amount from two or more partners and maintain the business in a joint stock company borrowing a loan from a bank and financial institution and issuing shares and debentures. Most of the joint stock companies prefer to raise capital by shares and debentures. Some eligibility criteria are for issuing shares to public or financial institutions. Besides that, every company cannot list its shares on the stock exchange. A firm applying to SEBI for Authorizing shares must submit an MOA (memorandum of association). The MOA contains a name clause, capital clause, liability clause, and objectives of the company. SEBI analyses the MOA it’s under the rules and regulations of the company act, then the SEBI authorizes the shares mentioned in the MOA. If the company needs to issue more shares again, it can re-create the MOA and apply it to SEBI. Before knowing about the procedure of issuing shares must understand about basic types of shares and debentures. Shares and debentures are one of the parts of the accounting method for raising capital for business growth. However, this is the liability of the company but its contribution is too important for the high growth of the entity. each one has individual uniqueness, it may be a method of accounting or issuing procedure and process has a difference. The shares of equity and preference have differences. Equity shares are a long-term investment and irredeemable nature of shares. the equity shareholders were considered as owners of the firm. They have the right to vote for decision-making and select a board of directors. Equity shareholders accept the company has profit or loss, and equity shareholders' dividends have fluctuated.

    The preference shares are entirely different from equity shares. the preference shareholders to get first preference and they get fixed dividends. if the company goes bankrupt or winds up, the company has to be responsible for paying the preference shareholders fund. somehow, if needed to pay through the sources of assets too. The preference shareholders can change their shares to equity shares. and the preference shareholders have no right to vote.

    Debentures are issued on a percentage basis like 12% of debentures or 15% of debentures, it is like borrowed capital. debenture investment as like interest basis. who are holding the debentures are called debenture holders. If the company gets a profit or loss company should pay the interest to the debenture holders. The debenture holders were like creditors. The company is liable to debenture holders.  

    The above-mentioned Details are a basic understanding of accumulating capital from the public. We will see The below details are how the transaction is Accrued into the book of accounts.

The procedure of issuing shares:

                       Initially, if any company is willing to issue shares for the first time, some eligibility criteria must be followed. If it lists the shares by IPO (Initial public offering) have to follow the SEBI guidelines. The eligibility for applying IPO (Initial public offering) to SEBI is the company must have 3 crores of tangible assets in the last 3 financial years, and should not be more than 50% of tangible asset cash or cash equivalent out of these 3 crores. a company must exist minimum three years, out of these 3 years two years an operating profit must be 15 crore. The issuing of shares should not exceed five times of company's net worth (Net worth = assets – liabilities). A company promoter or board of directors must individually or collectedly own 20% of the share. that company should not be met with insolvency and bankruptcy during that period.

    FPO (follow-up public offer), is the method of issuing shares like a same of IPO. But the FPO is a bit different from the IPO. A company issued shares at first through IPO, but the same company again Offering share  to the public, it can issuing  through following on public offer. The eligibility criteria are the same. The eligible company must submit the DRHP (Draft Red Herring Prospectus), the DRHP contains the company details, financial statement, risk factors, and what information the company disclose to the investors it’s all placed in DRHP. the price and no of shares have not mentioned in the documents. If need to download DRHP it's available on SEBI and NSE (National Stock Exchange) websites under IPO/FPO.

If investors want to know about the prices of shares and the number of shares available for bidding, the price type fixed or book building basic is available on the NSE and SEBI Websites. And apply the share as lots basis though the website too. The book-building method is a share price must have 20% between the cap and floor price. A total number of shares should be allotted to Investors As per the SEBI Guidelines. as the minimum range to maximum range, an investor name is called as follows, NII (Non-institutional investors), QIB (qualified institutional investors), RII (Retail individual investors). It contains the financial statement, risk factors, industry overview, the period of collecting subscriptions, and allotment of the share according to the issuing ratio of investors basis, and refund the amount to investors if shares are not allocated to them. And the date of a share listing in the stock exchange for trading. The above-mentioned details, producer and method of issuing and allocating shares we will  see by  method of accounting.

The accounting method of entries is given below,

Full consideration of share:

 price as cash accounting operations:

A share issued to shareholders and received the full amount for shares is called full consideration of shares.

If the shares are at par value,

s.no	Particular	Dr	Cr
1	Bank A/c	XXX
	To Share Capital A/c		XXX
	Share capital amount received

 If a share is issued at a premium,

s.no	Particular	Dr	Cr
1	Bank A/c	XXX
	To Share Capital A/c		XXX
	To share premium A/C		XXX
	Share capital amount received

If shares are issued at a discount,

s.no	Particular	Dr	Cr
1	Bank A/c	XXX
	Share discount A/c
	To Share Capital A/c		XXX
	Share capital amount received

For a calculation,

1)     AI LLC. issued 100000 shares at ₹ 10 face value. The amount received by Arab Bank. the shares issued at par value,

s.no	Particular	Dr	Cr
1	Arab Bank A/c	1000000
	To Equity Share Capital A/c		1000000
	Share capital amount received

 

2) AI LLC issued 100000 shares issuing at ₹ 10 face value and the issue price of ₹50 a balance amount of ₹40 as a premium. The amount received by Arab Bank. the shares issued at premium value,

s.no	Particular	Dr	Cr
1	Arab Bank A/c	5000000
	To Equity Share Capital A/c		1000000
	To share premium A/C		4000000
	Share capital amount received with premium

3) AI LLC issued 100000 shares at ₹ 10 face value and the issue price ₹9 a balance amount of ₹1 as a discount. The amount received by Arab Bank. the shares issued at a discount value,

s.no	Particular	Dr	Cr
1	Arab Bank A/c	900000
	Share discount A/c	100000
	To Share Capital A/c		1000000
	Share capital amount received

Issue of Shares for consideration of other than cash.

    Shares are issued to the supplier instead of cash to purchase the assets.

s.no	Particular	Dr	Cr
1	Asset A/c	XXX
	To Vendor A/c		XXX
	Share issued to the vendor for assets purchased.

s.no	Particular	Dr	Cr
1	vendor A/c	XXX
	To Share Capital A/c		XXX
	Share issued for assets purchased.

   For a calculation,

AI LLC Purchased an Asset from XYZ Company for Manufacturing Machinery Value of ₹ 500000/-. AI LLC decided to Provide 5000 equity shares instead of cash. The company share face value is ₹10 Issuing price is ₹ 100. 

1. Raising PO Against XYZ  

2. GRN Entry for asset

3. purchase Entry

s.no	Particular	Dr	Cr
1	Purchase (machinery) A/c	5,00,000
	To XYZ Vendor A/c		5,00,000
	Assets purchased from XYZ Company
2	Asset A/C	5,00,000
	To purchase A/c		5,00,000
	Asset transfer to relevant A/c
s.no	Particular	Dr	Cr
1	XYZ Vendor A/c	5,00,000
	To Share Capital A/c		50,000
	To Share premium A/C		4,50,000
	Share issued for assets purchased.

For a calculation a Discount

            AI LLC Purchased an Asset from XYZ Company for Manufacturing Machinery Value of ₹ 500000/-. the company Decided to issue 6800 shares for purchased machinery. Share face value @₹ 100 Issuing as discount ₹ 20. 

s.no	Particular	Dr	Cr
1	Purchase (machinery)A/C	500000
	To XYZ Vendor A/c		500000
	assets purchased from A Company
2	Asset A/C	5,00,000
	To purchase A/c		5,00,000
	Asset transfer to relevant A/c
S.no	Particular	Dr	Cr
1	XYZ Vendor A/c (6800× 80)	500000
	Shares discount   A/C (6800× 20)	136000
	To Share Capital A/c		636000
	Share issued for assets purchased as a discount.

Balance sheet:

 

	Particular	Amt	Amt
	Liabilities:
	Share capital	₹ 636000
A	Total liabilities	₹ 636000	₹ 636000
	Assets:
	Asset or Machinery A/C	₹ 500000
	Share Discount	₹ 136000
B	Total Assets	₹636000	₹636000
	Difference(A-B)		₹ 0

Shares Issued on an Allotment basis,

 

 Issue Of Shares by,

1.      Application money,

2.      Allotment money,

3.      First Call money,

4.      Second call money,

5.      Forfeiture or surrender of share.

For example,

                        Per share value ₹10 out of which

                        Application amount ₹3

                        Allotment amounts to ₹4

                        First call Amount ₹2

                        Second Call Amount ₹1

                        Total ₹10

If the firm decides to issue the share as a discount, The firm deducts the amount of any one above-mentioned instalments. For example, the firm decides to issue shares at a discount ₹ 10 from the first call amount.

Per share value ₹10 out of which

                        Application Amount ₹3

                        Allotment Amount ₹4

                        First call Amount ₹2 - ₹1 = ₹1

                        Second Call Amount ₹1

                        Total Amount ₹9

                        ₹ 1 is discount

In case the firm decides to issue shares as a premium, the firm adds the amount above mentioned instalment. The firm decides to issue shares as a premium ₹ 1 from the allotment amount.  

Per share value ₹10 out of which

                        Application Amount ₹3

                        Allotment Amount ₹4 +₹1 = ₹5

                        First call Amount ₹2

                        Second Call Amount ₹1

                        Total Amount ₹11

                        ₹ 1 is premium  

In the book of the firm’s journal entries:

Shares issued at par value,

S.No	Particular	Dr	Cr
1	Bank A/C	XXX
	To Share Application A/C		XXX
	Being shared application amount received`

S.No	Particular	Dr	Cr
2	Share Application A/C	XXX
	To Share capital A/C		XXX
	Being short application amount Transfer to share capital A/C

S.No	Particular	Dr	Cr
3	Share allotment A/C	XXX
	To Share capital A/C		XXX
	Being share Allotment (due) amount Transfer to share capital A/C

S.No	Particular	Dr	Cr
4	Bank A/C	XXX
	To Share Allotment A/C		XXX
	Being shared Allotment amount received`

S.No	Particular	Dr	Cr
5	Share first call A/C	XXX
	To Share capital A/C		XXX
	Being share first call (due) amount Transfer to share capital A/C

S.No	Particular	Dr	Cr
6	Bank A/C	XXX
	To Share the first call A/C		XXX
	Being shared first call amount received`

S.No	Particular	Dr	Cr
7	Share second & final call A/C	XXX
	To Share capital A/C		XXX
	Being share second & final (due) amount Transfer to share capital A/C

S.No	Particular	Dr	Cr
8	Bank A/C	XXX
	To Share the second & final call A/C		XXX
	Being shared second & final call amount received`

Shares issued at premium value,

 The firm decided to issue shares at a premium in the allotment amount,

S.No	Particular	Dr	Cr
1	Share allotment A/C	XXX
	To Share capital A/C		XXX
	To share premium A/C		XXX
	Being share Allotment (due) amount with premium amount Transfer to share capital A/C

S.No	Particular	Dr	Cr
2	Bank A/C	XXX
	To Share Allotment A/C		XXX
	Being shared Allotment amount received`

Premium entry comes on the credit side cause premium is excess income at the share value.

Income has to enter in credit side.

 

NOTE: This entry has to be used only for the shares issued at a premium.

Shares issued at discount value,

 The firm decided to issue shares at a discount in the first call amount,

S.No	Particular	Dr	Cr
1	Share first call A/C	XXX
	Discount of shares A/C	XXX
	To Share capital A/C		XXX
	Being share first call (due) amount Transfer to share capital A/C

S.No	Particular	Dr	Cr
2	Bank A/C	XXX
	To Share the first call A/C		XXX
	Being shared first call amount received`

Discount entry comes on the debit side cause the discount is lost for at the share value.

loss has to be entered on the debit side.

NOTE: This entry has to be used only for the shares issued at a discount.

Example calculation with accounting method,

One of the finest firms in India decide to start a business in Tamil Nadu, the budget of the business ₹ 10,00,000. the company decided to issue shares to raise capital. per share value at ₹100 as 10000 shares ₹10 premium in allotment.

1.      Application Money ₹ 30

2.      Allotment money ₹ 20 +10

3.      First call money ₹ 30

Second and final call money ₹ 20

S.No	Particular	Dr	Cr
1	Arab Bank A/C	₹ 3,00,000.00
	To Share Application A/C		₹ 3,00,000.00
	Being shared application amount received`
2	Share Application A/C	₹ 3,00,000.00
	To Share capital A/C		₹ 3,00,000.00
	Being short application amount Transfer to share capital A/C
3	Share allotment A/C	₹ 3,00,000.00
	To Share capital A/C		₹ 2,00,000.00
	To share premium A/C		₹ 1,00,000.00
	Being share Allotment (due) amount premium amount Transfer to share capital A/C
4	Bank A/C	₹ 3,00,000.00
	To Share Allotment A/C		₹ 3,00,000.00
	Being shared first call amount received`
5	First call A/C	₹ 3,00,000.00
	To share capital A/C		₹ 3,00,000.00
	Being first call (due) amount transfer to share capital account
6	Bank A/C	₹ 3,00,000.00
	To first call A/C		₹ 3,00,000.00
	Being the first call amount received
7	The second and final call A/C	₹ 2,00,000.00
	Top share capital A/C		₹ 2,00,000.00
	Being the second and final call (due) amount transfer to the share capital account
8	Bank A/C	₹ 2,00,000.00
	To the Second and final call A/C		₹ 2,00,000.00
	Being the second and final call received

Ledgers:

 

Bank Ledger:

S.No	Particular	Amt	S.No	Particular	Amt
	Share Application A/C	₹ 3,00,000.00
	Share Allotment A/C	₹ 3,00,000.00
	First call A/C	₹ 3,00,000.00
	The second and final call A/C	₹ 2,00,000.00		Balance c/d	₹ 11,00,000.00
	Total	₹ 11,00,000.00		Total	₹ 11,00,000.00

Share capital ledger:

S.No	Particular	Amt	S.No	Particular	Amt
1				Share Application A/C	₹ 3,00,000.00
				Share allotment A/C	₹ 2,00,000.00
				First call A/C	₹ 3,00,000.00
				The second and final call A/C	₹ 2,00,000.00
	Balance c/d	₹ 10,00,000.00
	Total	₹ 10,00,000.00		Total	₹ 10,00,000.00

Share premium ledger:

S.No	Particular	Amt	S.No	Particular	Amt
				Share allotment A/C	₹ 1,00,000.00
	Balance c/d	₹ 1,00,000.00
		₹ 1,00,000.00			₹ 1,00,000.00

Balance sheet:

	Particular	Amt	Amt
	Liabilities:
	Share capital	₹ 10,00,000
	Share premium	₹ 1,00,000
A	Total liabilities	₹ 11,00,000	₹ 11,00,000
	Assets:
	Bank A/C	₹ 11,00,000
B	Total Assets	₹ 11,00,000	₹ 11,00,000
	Difference(A-B)		₹ 0

The same company issued shares at a discount of RS 10 in allotment

1.      Application Money ₹ 30

2.      Allotment money ₹ 20 - ₹10 = ₹10

3.      First call money ₹ 30

4.      Second and final call money ₹ 20

S.No	Particular	Dr	Cr
1	Bank A/C	₹ 3,00,000.00
	To Share Application A/C		₹ 3,00,000.00
	Being shared application amount received`
2	Share Application A/C	₹ 3,00,000.00
	To Share capital A/C		₹ 3,00,000.00
	Being short application amount Transfer to share capital A/C
3	Share allotment A/C	₹ 1,00,000.00
	Share discount A/C	₹ 1,00,000.00
	To share capital A/C		₹ 2,00,000.00
	Being share Allotment (due) amount premium amount Transfer to share capital A/C
4	Bank A/C	₹ 1,00,000.00
	To Share Allotment A/C		₹ 1,00,000.00
	Being shared first call amount received`
5	First call A/C	₹ 3,00,000.00
	To share capital A/C		₹ 3,00,000.00
	Being first call (due) amount transfer to share capital account
6	Bank A/C	₹ 3,00,000.00
	To first call A/C		₹ 3,00,000.00
	Being the first call amount received
7	The second and final call A/C	₹ 2,00,000.00
	Top share capital A/C		₹ 2,00,000.00
	Being the second and final call (due) amount transfer to the share capital account
8	Bank A/C	₹ 2,00,000.00
	To the Second and final call A/C		₹ 2,00,000.00
	Being the second and final call received

Ledgers:

 

Bank Ledger:

 

S.No	Particular	Amt	S.No	Particular	Amt
	Share Application A/C	₹ 3,00,000.00
	Share Allotment A/C	₹ 1,00,000.00
	First call A/C	₹ 3,00,000.00
	The second and final call A/C	₹ 2,00,000.00		Balance c/d	₹ 9,00,000.00
	Total	₹ 9,00,000.00		Total	₹ 9,00,000.00

 

Share capital ledger:

 

S.No	Particular	Amt	S.No	Particular	Amt
				Share Application A/C	₹ 3,00,000.00
				Share allotment A/C	₹ 2,00,000.00
				First call A/C	₹ 3,00,000.00
				The second and final call A/C	₹ 2,00,000.00
	Balance c/d	₹ 10,00,000.00
	Total	₹ 10,00,000.00		Total	₹ 10,00,000.00

 

Share discount ledger:

 

S.No	Particular	Amt	S.No	Particular	Amt
	Share allotment A/C	₹ 1,00,000.00
				Balance c/d	₹ 1,00,000.00
		₹ 1,00,000.00			₹ 1,00,000.00

 

Balance sheet:

 

	Particular	Amt	Amt
	Liabilities:
	Share capital	₹ 10,00,000
A	Total liabilities	₹ 10,00,000	₹ 10,00,000
	Assets:
	Bank A/C	₹ 9,00,000
	Share discount	₹ 1,00,000
B	Total Assets	₹ 10,00,000	₹ 10,00,000
	Difference(A-B)		₹ 0

Forfeiture and re-issue of share:

the forfeiture of shares is If the Shareholder fails to pay after receiving notice from the Company, the Company shall retain all amounts previously received by the Company. And reissue the particular share as per the norms and the Company Act. It should not be necessary to issue as per the share value, the company Can re-issue at a discount. The amount will be balanced when the entry accounting in the book of accounts. The balance amount of shares that got from the forfeit was adjusted from the reissue of the amount and the balance amount was transferred to capital reserve.

The reserve amount will be utilized for unexpected loss or debt.

Difference between the forfeiture and surrender of shares,

• Meaning of forfeiture share is, If the Shareholder fails to pay after receiving notice from the Company, the Company shall retain all amounts previously received by the Company.  The firm need not repay the money to the shareholders. That is called forfeiture. The firm can re-issue the shares according to the procedure, premium, or discount its firm’s wish. 

•        Surrendering of a share is not a big different than forfeiture, the shareholders are unable to pay or fail to pay any instalment the shareholders raise the advance notice to the firm as the cause of their inability to pay. The firm repays the shareholder's amount which the firm collects by the instalment. And the firm re-issues the shares.

It has a separate additional journal entry is mentioned below,

If a forfeiture share is issued by premium just adjust the premium amount.

S.No	Particular	Dr	Cr
	As premium issued share’s forfeiture entry: (while the premium amount wasn’t received)
1	Share capital A/C	XXX
	Share premium A/C	XXX
	To calls in arrear account A/C (Arear amount)		XXX
	To forfeiture of shares A/C (received amount)		XXX
	Being forfeiture of shares as premium issued adjustment entry
	As premium issued share’s forfeiture entry: (while the premium amount received)
2	Share capital A/C	XXX
	To call account A/C (Arear amount)		XXX
	To forfeiture of shares A/C (received amount)		XXX
	Being forfeiture of shares adjustment entry
	Re-issue of shares as premium entry:
2	Bank A/C	XXX
	To Share capital A/C		XXX
	To share premium A/C		XXX
	Being reissued share amount received
3	Forfeiture of shares A/C	XXX
	To capital reserve A/C		XXX
	Being forfeiture amount was transferred to the general reserve

These types of transactions have to be understood is an easy way, never get confused when the transition is entered in the book of ledger just readjust and transfer the entry to the relevant ledger. Get clarification through the example,

    AI LLC issuing 100000 shares @ Rs 10/-. The shares decide to issue as application money ₹ 2, allotment money ₹ 4 (including 1Rs of premium) first call money ₹3 second and final call amount ₹2. Out of these 100000 shares, 5000 shares did not pay the second and final call money when after the company issued the due notice. So, 5000 shares have to be forfeited and re-issued at a discount of ₹8. Then the balance amount is transferred to the capital reserve.

.

S.No	Particular	Dr	Cr
1	Bank A/C	₹     2,00,000.00
	To Share Application A/C		₹     2,00,000.00
	Being shared application amount received`
2	Share Application A/C	₹     2,00,000.00
	To Share capital A/C		₹     2,00,000.00
	Being short application amount Transfer to share capital A/C
3	Share allotment A/C	₹     4,00,000.00
	To Share capital A/C		₹     3,00,000.00
	To share premium A/C		₹     1,00,000.00
	Being share Allotment (due) amount premium amount Transfer to share capital A/C
4	Bank A/C	₹ 4,00,000.00
	To Share Allotment A/C		₹ 4,00,000.00
	Being shared first call amount received`
5	First call A/C	₹ 3,00,000.00
	To share capital A/C		₹ 3,00,000.00
	Being first call (due) amount transfer to share capital account
6	Bank A/C	₹ 3,00,000.00
	To first call A/C		₹ 3,00,000.00
	Being the first call amount received
7	The second and final call A/C	₹     2,00,000.00
	Top share capital A/C		₹     2,00,000.00
	Being the second and final call (due) amount transfer to the share capital account
8	Bank A/C	₹     1,90,000.00
	To the Second and final call A/C		₹ 1,90,000.00
	Being the second and final call received
9	Share capital A/c	₹    50,000.00
	To the Second and final call A/C		₹    10,000.00
	To forfeiture of shares A/C		₹    40,000.00
	Being a forfeiture entry for 5000 shares
	Reissue of the share as a discount
10	Bank A/C	₹    40,000.00
	Forfeiture of shares (discount)	₹    10,000.00
	To share capital A/C		₹    50,000.00
	being reissued of shares as a discount
11	Forfeiture of shares A/C	₹    30,000.00
	To capital reserve A/C		₹    30,000.00
	being the forfeiture amount transferred to the capital reserve

Bank ledger:

S.No	Particular	Amt	S.No	Particular	Amt
	Share Application A/C	₹   2,00,000.00
	Share Allotment A/C	₹ 4,00,000.00
	First call A/C	₹ 3,00,000.00
	The second and final call A/C	₹   1,90,000.00		Balance c/d	₹   11,30,000.00
	Share capital A/C	₹    40,000.00
	Total	₹ 11,30,000.00		Total	₹   11,30,000.00

Share capital ledger

S.No	Particular	Amt	S.No	Particular	Amt
	The second and final call A/C	₹    50,000.00		Share Application A/C	₹     2,00,000.00
				Share allotment A/C	₹     3,00,000.00
				First call A/C	₹   3,00,000.00
				The second and final call A/C	₹     2,00,000.00
	Balance c/d	₹ 10,00,000.00		Bank A/C	₹      50,000.00
	Total	₹ 10,50,000.00		Total	₹ 10,50,000.00
				Balance B\D	₹ 10,00,000.00

Premium ledger

S.No	Particular	Amt	S.No	Particular	Amt
				Share allotment A/C	₹   1,00,000.00
	Balance c/d	₹ 1,00,000.00
		₹ 1,00,000.00			₹   1,00,000.00

Forfeiture ledger

S.No	Particular	Amt	S.No	Particular	Amt
	Share capital A/C	₹    10,000.00		Share capital A/c	₹      40,000.00
	capital reserve A/C	₹30000
	Total	₹    40,000.00		Total	₹      40,000.00

Capital reserve ledger

 

S.No	Particular	Amt	S.No	Particular	Amt
				Forfeiture of shares A/C	₹      30,000.00
	Balance c/d	₹    30,000.00
		₹    30,000.00			₹      30,000.00

 

Balance sheet

	Particular	Amt	Amt
	Liabilities:
	Share capital	₹ 10,00,000
	Share premium	₹ 1,00,000
	capital reserve	₹ 30,000
A	Total liabilities	₹ 11,30,000	₹ 11,30,000
	Assets:
	Bank A/C	₹ 11,30,000.00
B	Total Assets	₹   11,30,000.00	₹ 11,30,000.00
	Difference(A-B)		₹ 0

If a forfeiture share is issued by discount just adjust the discount amount.

 

S.No	Particular	Dr	Cr
	As discount issued share’s forfeiture entry:
1	Share capital A/C	XXX
	To Share discount A/C		XXX
	To calls in arrear account A/C (receivable amount)		XXX
	To forfeiture of shares A/C (received amount)		XXX
	Being forfeiture of shares As discount issued adjustment entry
	Re-issue of shares as discount entry:
2	Bank A/C	XXX
	Forfeiture of Share A/C	XXX
	To share capital A/C		XXX
	Being reissued share amount received
3	Forfeiture of shares A/C	XXX
	To capital reserve A/C		XXX
	Being forfeiture amount was transferred to the general reserve

 

 Shares Oversubscription :

  Oversubscription of shares means, that shareholders subscribed to a greater number of shares on the issue of shares. for example, the company issued 100000 shares for fundraising. It is one of the finest profitable companies. So, lots of shareholders were ready to buy that company share, when the share was listed at IPO/FPO shareholders subscribed to 120000 shares. the balance of 20000 shares is oversubscription. The company will decide to refund to the shareholders or it will Consider As allotment. If the excess amount is refunded to shareholders enter the receipt entry and then enter the payment entry. If the company decides to allot the shares the amount will adjust in allotment.

For a calculation

The AI LLC company issued 50000 shares at ₹100.

1.      Application amount ₹ 30

2.      Allotment amount ₹40

3.      First and final call amount ₹30

Application amount received for 65000 shares, so the company decided to reject 5000 shares

A balance of 10000 adjusts the shareholder’s allotment amount.

 

S.No	Particular	Dr	Cr
1	Bank A/C	₹ 1950000
	To Share Application A/C		₹ 1950000
	Being shared application amount received`
2	Share Application A/C	₹ 1950000
	To Share capital A/C		₹ 1500000
	To Bank A/C		₹ 150000
	To share Allotment		₹ 300000
	Being short application amount Transfer to share capital A/C bank a/c and allotment
3	Share allotment A/C	₹ 2000000
	To Share capital A/C		₹ 2000000
	Being share Allotment (due) amount premium amount Transfer to share capital A/C
4	Bank A/C	₹ 1700000
	To Share Allotment A/C		₹ 1700000
	Being shared first call amount received`
5	First and final call A/C	₹ 1500000
	To share capital A/C		₹ 1500000
	Being first call (due) amount transfer to share capital account
6	Bank A/C	₹ 1500000
	To first and final call A/C		₹ 1500000
	Being the first and final call amount received

Bank ledger:

S.No	Particular	Amt	S.No	Particular	Amt
	Share Application A/C	₹ 19,50,000		Share Application A/C	₹ 1,50,000
	Share Allotment A/C	₹ 17,00,000
	First and final call A/C	₹ 15,00,000
				Balance c/d	₹   50,00,000
	Total	₹   51,50,000		Total	₹   51,50,000
	Balance b/d	₹   50,00,000

 

Share capital ledger:

S.No	Particular	Amt	S.No	Particular	Amt
				Share Application A/C	₹ 15,00,000
				Share allotment A/C	₹ 20,00,000
				First and final call A/C	₹ 15,00,000
	Balance c/d	₹   50,00,000		Bank A/C
	Total	₹   50,00,000		Total	₹ 50,00,000
				Balance B\D	₹ 50,00,000

 

Allotment Amount ledger :

S.No	Particular	Amt	S.No	Particular	Amt
	Share capital A/C	₹ 20,00,000		Share Application A/C	₹ 3,00,000
				Bank A/C	₹ 17,00,000
		₹ 20,00,000			₹ 20,00,000

 

Balance sheet:

	Particular	Amt	Amt
	Liabilities:
	Share capital	₹ 50,00,000
A	Total liabilities	₹ 50,00,000	₹ 50,00,000
	Assets:
	Bank A/C	₹ 50,00,000
B	Total Assets	₹   50,00,000	₹50,00,000
	Difference(A-B)		₹ 0

 

Under subscription of shares:

The under-subscription of shares means the company issued shares for capital raising but shareholder doesn’t subscribe to full shares. this is called under subscription. If the company gets 90% of the subscription as per the Company Act, then the company can allot a share to the shareholders. In case the company fails to get 90% of the subscription the company has to refund the shareholders. 

AI LLC issued an Equity share of 10000 shares of ₹100. but shareholders subscribed to 9000 shares only. amount fully received those 9000 shares. 

S.No	Particular	Amt	Amt
1	Bank A/C	900000
	To Equity Share Application A/C		900000
	Subscription amount received
2	Equity Share Application A/C	900000
	To Share Capital A/C		900000
	Amount transfer to share capital A/C

Sweat Equity Shares: 

Sweat equity shares are shares issued either to employees or Directors. The sweat equity shares are issued at consideration of other than cash. Shares issued to employees instead of salary are either issued to directors instead of issuing profit. 

For a calculation,

                        AI LLC, Company has decided to issue shares to Employees in their salary out of 50% Balance 50% of salary transferred to employees through the bank. 100 employees have been working in the company. Employees' Average salary ₹50,000. They will Accumulate capital through Employees ₹ 25,00,000 Each share Rs ₹500. Then 5000 No of Share issue to Employees each one gets 50nos of share.

Journal Entry,

 

S.No	Particulars	Dr	Cr
	Salary A/C	₹ 50,00,000
	To Salary Payable A/C		₹ 50,00,000
	XXX Month Salary Payable to employees.
	Salary Payable A/C	₹ 50,00,000
	To Bank A/C (50% of salary)		₹ 25,00,000
	To share capital A/C (50% for share capital)		₹ 25,00,000
	Share and salary issued to employees.

Bonus shares.

                 

Bonus shares are, a reserve & surplus and the profit amount is converted to share capital by issuing a bonus to an existing shareholder. The reserve amount pulls out to the capitalization, so that is no impact on net assets or net worth.  

Effects of bonus shares have increased and decreased the value of the reserve, EPS value comes down, a market share price falls cause of bonus. There is no cash flow transaction, the amount is utilized from reserves and profit. an entity issuing As two types of bonus shares.,

1.     * Issuing fully paid bonus shares

2.     * Partly paid shares into fully paid. 

Issuing fully paid bonus shares is

    It is common issuing of bonus shares is issuing additional shares to the existing shareholders according to a ratio of 1:5. For example, the company issued 1 bonus share for every 5 shares. A Company has 500000 shares. it issued one bonus share in every 5 shares.   

500000 × 1/5=100000 shares,

 

(500000+100000)

Total number shares 600000.

Partly paid shares into fully paid,

in this type of shares issuing are utilized from the amount of the reserve for allotment of the final call amount.

For example, XYZ company issued 13000 shares @ ₹ 10/-. An application amount ₹3/- an allotment amount ₹3/-, a first call amount ₹2/- and a final call amount ₹2/- when the share is allotted and received up to the first call amount. then a company utilize the reserves amount for final call amount. That is called partly paid bonus shares or bonus calls.

There are some sources for issuing bonus shares. partly issuing shares get some difference from fully paid bonus shares. Fully paid bonus shares sources are utilized from capital redemption reserve, securities premium in cash, capital reserves in cash, general reserves, and profit & loss. However, the partly paid share is only utilized from capital reserves in cash, general reserve, and profit & loss.

One most important is issuing bonus shares must be under the authorization of shares by SEBI. It never excess from several authorization shares. If it is excess the company must alter the Article of Association and get authorization from SEBI. For example, AI companies have authorized shares @ 600000 Nos. But issued shares of 500000 Nos. They decided to issue shares only a balance of 100000 shares like 1:5. If they decided 2:5 ratio a company must alter the Articles of Association to balance 100000 shares. 

Journal entries for fully paid bonus shares,

 

S.No	Particulars	Dr	Cr
1	Capital redemption reserve A/C	XXX
	Security premium A/C	XXX
	Capital reserve A/C	XXX
	General reserve A/C	XXX
	P&L A/C	XXX
	To shareholders A/C		XXX
2	Shareholders A/C	XXX
	To share capital A/C	`	XXX

 Journal entries for Partly paid shares

S.No	Particulars	Dr	Cr
1	Share final call A/C	XXX
	To share capital A/C		XXX
2	Capital reserve A/C	XXX
	General reserve A/C	XXX
	P&L A/C	XXX
	To shareholders A/C		XXX
	Shareholders A/C	XXX
	To share the final call A/C	`	XXX

The calculation for fully paid bonus shares,

IA Company has 10,00,000 shares, the company issued 80% of shares @ ₹10 face value out of that. The company has decided in a board meeting to issue a balance of 20% of shares as a bonus shares 1:4 Ratio.

800000×1/4=200000

 

200000×10= ₹20,00,000

 

Capital redemption reserve ₹10,00,000

Security premium ₹ 5,00,000

Capital reserve ₹ 3,00,000

General reserve ₹ 2,00,000

Profit & loss ₹3,00,000

 

S.No	Particulars	Dr	Cr
1	Capital redemption reserve A/C	₹10,00,000
	Security premium A/C	₹ 5,00,000
	Capital reserve A/C	₹ 3,00,000
	General reserve A/C	₹ 2,00,000
	To shareholders A/C		₹20,00,000
2	Shareholders A/C	₹20,00,000
	To share capital A/C	`	₹20,00,000

 

The calculation for Partly paid bonus shares,

IA company issued 800000 shares of 80% out of the authorized share capital. It has decided to issue a balance of 20% of shares as partly paid bonus shares. that means the final call amount hasn’t been collected from shareholders, that amount is utilized from the company reserves account. Per share face value @ ₹10/-

Application amount ₹3

Allotment amount ₹ 3

First call amount ₹2

Final call amount ₹2

Reserves a/c

            Capital reserve ₹ 2,00,000

            General reserve ₹1,50,000

            Profit & loss ₹2,00,000

S.No	Particular	Dr	Cr
1	Bank A/C	₹ 6,00,000
	To Share Application A/C		₹ 6,00,000
	Being shared application amount received`
2	Share Application A/C	₹ 6,00,000
	To Share capital A/C		₹ 6,00,000
	Being short application amount Transfer to share capital A/C
3	Share allotment A/C	₹ 6,00,000
	To Share capital A/C		₹ 6,00,000
	Being share Allotment (due) amount Transfer to share capital A/C
4	Bank A/C	₹ 6,00,000
	To Share Allotment A/C		₹ 6,00,000
	Being shared first call amount received`
5	First call A/C	₹ 4,00,000
	To share capital A/C		₹ 4,00,000
	Being first call (due) amount transfer to share capital account
6	Bank A/C	₹ 4,00,000
	To first call A/C		₹ 4,00,000
	Being the first call amount received
7	The second and final call A/C	₹ 4,00,000
	Top share capital A/C		₹ 4,00,000
	Being the second and final call (due) amount transfer to the share capital account
8	Capital reserve A/c	₹ 2,00,000
	General reserve A/C	₹1,50,000
	Profit & loss A/c	₹50,000
	To shareholders A/c		₹ 4,00,000
9	Shareholders A/c	₹ 4,00,000
	To second & final call A/C		₹ 4,00,000

Split & Rights issues of shares:

 

            Spilt shares are called splits one share is two or multiple shares. it’s never affected in the book of accounts. the number of shares only increased. Small-scale investors are willing to invest in shares. But the EPS value comes down.

              XYZ company has 10000 outstanding shares @₹100 a company spilled the shares

It has a net income of ₹100000. Shares have split a 2:1 ratio.

 

EPS value before spilt,

 EPS=Net Income / total outstanding shares.

EPS= 100000/10000= ₹10/-

Split shares as per ratio,

     10000 shares *2/1=20000 shares

Now the outstanding shares are 20000 No and the share value also comes down the ratio 1:2 per share value ₹50/- so the small-scale investors buy more shares while the share value comes down. They have bought shares at an affordable price. 

 

EPS value After spilt,

     EPS= 100000/20000= ₹5/-

Rights issue, 

A company issuing shares again to increase share capital while the company issued a rights letter to the exciting shareholders for offering new shares, it’s not free of cost, it’s also a cash-relevant transaction. It is subscribed or without interest buying this shares is the shareholders' own decision. However, a company has to prefer the first preference to the existing shareholders. Cause a shareholders’ ownership percentage has to be stable. For example,

One shareholder accumulates 5000 shares in one company, a company’s total outstanding shares is 50000 Nos,

5000/50000*100 = 10%

The shareholder has held 10% of ownership in that company,

If the company issued additional 50000 shares the total number of shares has to be increasing 100000 shares. in this situation, the shareholder ownership comes down if that person didn’t buy the shares.

 5000/100000*100 = 5%

So, the companies issued the rights letter to the exciting shareholders, that’s called rights issues.

Dividend payable for shares

The dividend is paid to shareholders from the surplus amount of the company according to a shareholder holding the shares. the shares issued to the shareholders have been decided and disclosed by the directors of a company after the board of direct meeting. The dividend is paid at year-end or partly paid the year. While the company paid dividends have to pay corporate dividend tax to the tax department as per the norms. 

The following journal entries appear in the books of accounts.

S.No	Particulars	Dr	Cr
1	P&L A/C	XXX
	Income tax payable		XXX
	Provision entry for tax payable
2	P&L A/C	XXX
	To surplus (reserve) A/C		XXX
	Amount transfer to surplus A/C
3	Surplus A/C	XXX
	To corporate dividend tax payable A/c		XXX
	To dividend payable A/C		XXX
	Payable entry for dividend and tax
4	Corporate dividend tax payable A/C	XXX
	To Bank A/C		XXX
	CDT paid entry
5	Dividend payable A/C	XXX
	To Bank A/C		XXX
	Dividend paid entry

For calculation, IA P.LTD decide to pay a dividend of 100% of face value. Face value @ ₹10. The company has 500000 outstanding shares.

Net profit of the company ₹ 1 crore

Income tax 15%

CDT 21%

 

15% of income tax in 1 crore ₹1500000

 Balance surplus Amount ₹8500000

100% dividend payable from face value ₹5000000

21% of CDT from dividend ₹ 1050000

 

S.No	Particulars	Dr in ₹	Cr in ₹
1	P&L A/C	1500000
	Income tax payable		1500000
	Provision entry for tax payable
2	P&L A/C	8500000
	To surplus (reserve) A/C		8500000
	Amount transfer to surplus A/C
3	Surplus A/C	6050000
	To corporate dividend tax payable A/c		1050000
	To dividend payable A/C		5000000
	Payable entry for dividend and tax
4	Corporate dividend tax payable A/C	1050000
	To Bank A/C		1050000
	CDT paid entry
5	Dividend payable A/C	5000000
	To Bank A/C		5000000
	Dividend paid entry

Shares buy Back:

Shares buyback is when a company gets back and cancels the outstanding shares from the shareholders at market price with a premium according to the SEBI guidelines. There are some advantages of share buyback. That is EPS value increases, and the promoter's Holding gets increased, then a share value gets increased, and the surplus value gets Decreased.

The special resolution has been passed by the general meeting.  Buyback shares are authorized by its articles. 3 tests have decided how many shares the company can buy back. That is a resource test that means buyback must be less than 25% of paid-up capital and free reserve. Shares outstanding test- a company cannot buy back more than 25% of shares outstanding. Debt-equity ratio test- after the buyback debt debt-equity ratio cannot be more than the 2:1 ratio.  Which is the lowest share that is applicable for buyback.

Resource Test: 

      Buy back Shares= (Free Reserve + paid up capital ) 25%/ buyback Price

Share outstanding test:         

    Buy back Shares= Total Outstanding shares *25%

Debt-equity ratio test: .

    =Total Debt / 2 - Existing Equity

    Buyback amount/buyback price = Total buyback shares

For the buyback of shares, the company has to arrange funds for paying to shareholders. The capital has to be replaced the equalize the paid-up capital. So, the company has to fresh issue shares.  if they buy back equity shares, they reissue preference shares. Or equalize the CRR capital redemption reserve. The CRR only can used to issue bonus shares.

Journal entries:

 

S.No	Particular	Dr	Cr
1	Equity shares final call A/C
	To Equity share capital A/C
2	Bank A/C
	To equity share final call
3	Sell investment for arranging cash
	Bank A/C
	P&L A/C	Loss
	Investment A/C
	P&L A/C		Profit
4	Equity shares capital A/C
	Premium A/c
	Equity share Buyback A/C
5	Securities premium A/C
	General reserve A/C
	Profit & Loss A/C
	To premium A/C
6	Replacement of capital CRR:
	Profit & loss A/C
	General reserve A/C
	Revenue reserve A/C
	Securities premium A/C
	To capital redemption reserve A/C
7	Fresh issue:
	Bank A\C
	Preference shares application A/C
8	Pref shares application A/C
	To Pref share capital A/C
	To Securities premium A/C

Illustration:1

 

            AI LLC has buyback Partly paid outstanding shares. Company total outstanding shares 100000 Nos. final call ₹ 10 has been received. 25% of shares have to buy back. Share face value @ ₹ 50 + 30% premium. Security premium ₹ 200000, general reserve₹300000, profit & loss ₹ 500000, outstanding shares ₹ 50,00,000. CRR ₹ 625000 & Fresh issue preference shares 6000×104 = ₹625000 + ₹ 20 premium per share.

 

Total no of shares that need to be bought back:

 

100000×25%=25000

 

Required funds for buyback.

 

25000×65=1625000/-

 

 

S.No	Particular	Dr	Cr
1	Equity shares final call A/C	1000000
	To Equity share capital A/C		1000000
2	Bank A/C	1000000
	To equity share final call		1000000
4	Equity shares capital A/C	1250000`
	Premium A/c	3,75,000
	Equity share Buyback A/C		1625000
5	Securities premium A/C	200000
	General reserve A/C	175000
	To premium A/C		375000
6	Replacement of capital CRR:
	Profit & loss A/C	500000
	General reserve A/C	125000
	To capital redemption reserve A/C		625000
7	Fresh issue:
	Bank A\C	745000
	Preference shares application A/C		745000
8	Pref shares application A/C	745000
	To Pref share capital A/C		625000
	To Securities premium A/C		120000

Opening balance on balance sheet:

     

           Journal entry for buyback:

Closing balance after buyback:

Illustration:2

 

AI LLC has buyback fully paid outstanding shares. Company total outstanding shares 100000 Nos. Share face value @ ₹ 50. By back prices and buyback no of shares not confirmed.

 

Particular	Amount	Amount
Liability:
Outstanding shares 100000*50/100		5000000
Reserves and surplus:
General reserve	500000
Security premium	500000
P&L	300000	1300000
Loan funds		2500000
Total		8800000
Asset:
Fixed asset		4000000
Investment		2000000
Cash at bank		2800000
Total		8800000

 

Share price and shares have to be found through resources, outstanding, debt equity test basis.

Resource Test: 

      Buy back Shares= (Free Reserve + paid up capital ) 25%/ buyback Price.

       (500000+500000+300000+5000000)25%

buyback amount =6300000/25%

buyback amount =1575000

Share outstanding test:       

    =Total Outstanding Shares*25%

    =100000/25%

Total buyback shares = 25000 Nos

=1575000/25000

buy back prices= 63/-

Debt-equity ratio test:

 

               Total Debt: 2500000

               Target equity (50% of debt):1250000

               Existing Equity: 6300000

 

               =6300000-1250000=5050000

               Face value=50

               Buyback prices=63

 

               5050000*50/113=2234513

               5050000*63/113=2815486

 

               Buyback amount/buyback price = Total buyback shares

              

               2815486/63= 44690 shares

 

Now we take a share which one is lower above 3 calculation.

Shares outstanding test get 25000 shares is lower than others.

 

S.No	Particular	Dr	Cr
1	Sell investment for arranging cash
	Bank A/C	1500000
	Investment A/C		1000000
	P&L A/C		500000
2	Equity shares capital A/C	1250000
	Premium A/c	325000
	Equity share Buyback A/C		1575000
3	Securities premium A/C	325000
	To premium A/C		325000
4	Replacement of capital CRR:
	Profit & loss A/C	575000
	General reserve A/C	500000
	Securities premium A/C	175000
	To capital redemption reserve A/C		1250000