Revision Notes On Limited Companies: Issue Shares On Installment & Method Of Raising Share Capital

September 18th, 2008 Comments off
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ISSUE SHARE ON INSTALLMENT

Usually issues share in full amount or installment. When shares are issued as installment, an APPLICATION and ALLOTMENT Account is created

· Where shares are issued and money is received from applicants at PAR VALUE

(a)  Debit: Bank Account

     Credit: Application & Allotment A/c

 (b) Debit: Application & Allotment a/c

     Credit: Shares Capital A/c

 

· Where shares are issued at PREMIUM

(a)  Debit: Bank Account

     Credit: Application & Allotment Account

(b) Debit: Application & Allotment A/c

     Credit: Share Capital Account

     Credit: Share Premium Account

·  Where shares are issued at DISCOUNT

(b)  Debit: Bank Account

     Credit: Application & Allotment Account

(b)  Debit: Application & Allotment A/c

     Credit: Discount on Shares Account

     Credit: Share Capital Account

Salient point

Note that when shares are issued at Par, Premium or Discount, the Application & Allotment Account is open and then close accordingly.

A COMPANY RAISE SHARE CAPITAL using 2 methods namely

(a) Bonus Issue

(b) Rights Issue

BONUS ISSUE ON SHARES

Bonus Issue is actually the company CAPITALIZATING it’s reserve. Therefore, there is NO cash received.

Accounting Entry:

Debit: Reserve Account  Credit: Share Capital Account

RIGHTS ISSUE

 

In a Right Issue, cash will be received from shareholder upon issuance of shares

 

Accounting Entry:

Debit: Bank Account Credit: Share Capital Account

 

 

 

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Financial Accounting

 
 

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