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Accounting Treatment of issue of shares on premium and discount

>> October 31, 2008

Some time a company can decide to issue of shares on premium or on discount. In both situations we must know the basic concept before doing any accounting treatment.
Issue of shares on premium
Issue of shares on premium means that if company wants to get more money of each share. Then the company can demand premium with the face value or nominal value of shares. This is called issue of shares on premium. Suppose if the face value of shares is RS.100 Company can issue of his 10000 @ Rs. 105 it means company is also demanding RS. 5 per share as premium. According to new amendments in Company law 1956, Company must open security premium account, if co. issue shares on premium. All money which got with name of premium will transfer to security premium account . The following entry will passed in the books of company

For the due of share Allotment money
Shares Allotment Account Debit xxxx ( with the total amount )
Shares Capital Account Credit xxxx ( With the face value of shares)
Security Premium Account Credit xxxx( With the amount of premium)

2. For Allotment money Received
Bank Account Debit xxxx ( face value + Premium )
To Share Allotment Account xxxx
If company has demanded the premium with his call money from share holders , then on the place share allotment account we must write share call account , all other journal entry will be same.
According to Section 78 , We will use this fund according to guidelines of law.

Meaning of Issue of shares at discount :-
It means that company demands less amount than face value of shares .This less amount is called discount on issue of shares .
Journal entry of discount on issue of shares
When we receive allotment by giving discount on issue of share
1 Amount due of allotment
Share Allotment Account Debit xxxx( face value of allotment – discount)
Discount on issue of share account Debit xxxx( amount of discount)
To Share capital account
2. When allotment money actually received
Bank account debit xxx( face value of allotment –discount)
To share allotment account

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Anonymous,  January 10, 2010 at 3:30 AM  

This is very nice

Anonymous,  January 11, 2013 at 3:49 AM  

Very easy to understand.

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