issue of shares
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A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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ISSUE OF SHARES AT PREMIUMShares are issued At premium to the public by well managed and financially strong companies through the IPO.Called Value > Face ValueSecurities 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.
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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.2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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ISSUE OF SHARES AT DISCOUNTCalled 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.
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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ISSUE OF SHARES AT DISCOUNTFor allotment money due excluding discount:Share Allotment A/C Dr.Discount on Issue of Shares A/C Dr.
To Share Capital A/CFor allotment money received:Bank A/C Dr.
To Share Allotment A/CDiscount on shares is recorded at the time of allotment by debiting “Discount on Issue of Shares A/C”.2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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)
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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FORFEITURE OF SHARESShareholder 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.2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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”.
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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)
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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)
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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)
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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RE-ISSUE OF FORFETED SHARES
• Case 1 when shares are Re-Issued at PAR
Bank A/C Dr. To Share Capital A/c
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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RE-ISSUE OF FORFETED SHARES
• Case 2 when shares are Re-Issued at PREMIMUM
Bank A/C Dr. To Share Capital A/cTo Securities Premium A/C
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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RE-ISSUE OF FORFETED SHARES
• Case 3 when shares are Re-Issued at DISCOUNTBank 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”
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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RE-ISSUE OF FORFETED SHARES
• Transfer the Balance of Share Forfeiture A/CThe 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)
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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.
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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.
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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 sharesOffered 50,000 sharesFull Allotment to 20,000 applications.Remaining 30,000 applications are rejected.2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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.
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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OVER SUBSCRIPTIONAlternative 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 appliedIssued 20,000 sharesOffered 50,000 sharesRatio = (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.
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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”.
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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 sharesOffered 50,000 sharesFull Allotment to 5,000 applications.20,000 applications are rejected.Applicants who offered remaining 25,000 shares got15000 shares on the basis of Proportion (15000:25000).
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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.
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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OVER SUBSCRIPTION
• Categorization of Applications
Disposition of Application Money Received
Company Demands: Application Rs. 5, Allotment Rs. 3 Calls Rs. 2
Categories Shares Applied
Shares Allotted
App MoneyReceived
Share Capital
Share Allotment
Calls in Advance
Refund
<1000 5,000 0 25,000 - - - 25000
>=1000<2000
20,000 20,000 1,00,000 1,00,000 - - -
>=2000 50,000 30,000 2,50,000 1,50,000 90,000 10,000 -
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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UNDER SUBSCRIPTION
Over Subscription is a situation when Shares applied < Shares Offered
The number of shares applied for is less thanshares offered to the public for subscription.All the applications for shares are accepted.Accounting entries are made on the basis ofnumber of shares applied for by the publicrather than shares offered for.2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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.
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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.2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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RIGHT SHARES
• Value of Right = Market Price of a Share – Average Price of a ShareWhere,
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
2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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.2/11/2012
A Presentation By Himanshu Arya, Daksh Professional Education Meerut Mobile: +91-9760-888-626
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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.
2/11/2012