Corporate Accounting Chapter-1 | Part-2 | Issue of Shares | BCom/BBA

Summary

This lecture covers essential accounting concepts related to equity shares, including over-subscription, share premium, and final calls. It explains the procedures for handling over-subscription, the impact of premium on share allotment, and the journal entries involved in share issuance. Special attention is given to recording the final call and the receipt of funds, with step-by-step examples of accounting entries. The lecturer also encourages practice through a specific question and promises to further explore advanced topics in upcoming classes. Viewers are urged to support the channel and subscribe for more quality content.

Takeaways

• 😀 The session covers accounting for equity share capital, focusing on calls for capital (first and final calls).
• 😀 First and final call amounts are received and recorded as bank account debits and equity share calls credits.
• 😀 The concept of 'Calls in Arrears' is discussed, emphasizing that no calls are outstanding in this case.
• 😀 Final calls for capital are recorded when they become due, using entries like 'Equity Share Capital' and 'Final Call Due'.
• 😀 The lesson includes examples of handling over-subscription and the implications for share allotment.
• 😀 Premiums and their impact on share transactions are explained, particularly how they affect accounting entries.
• 😀 A basic understanding of how to process share capital calls is established for beginners.
• 😀 The session encourages students to try out practical exercises at home, reinforcing the concepts learned in class.
• 😀 Students are prompted to practice a specific question, which will be solved in the next lecture.
• 😀 The instructor engages with viewers, requesting support through likes, shares, and subscriptions to sustain the content quality.
• 😀 The instructor promotes their app for accessing more educational content and live/premium classes.

Q & A

What is oversubscription in the context of equity shares?

Oversubscription occurs when the demand for shares exceeds the number of shares available for subscription. In this case, a company may have to scale back the number of shares allotted to each applicant, or prioritize based on certain criteria.

How is over-subscription handled in share issuance?

In the case of oversubscription, the shares are allotted on a pro-rata basis, meaning the shares are distributed proportionally among the applicants based on the number of shares they applied for.

What is the difference between 'inclusive' and 'exclusive' premium in equity share allotments?

In an inclusive premium, the premium is included in the total price of the share, whereas in an exclusive premium, the premium is added separately to the face value of the share. This affects the accounting treatment of the premium amount.

How is the premium accounted for in share issuance?

When a premium is involved, it is accounted for separately from the face value of the shares. The premium is recorded in a separate account, which could be 'Share Premium' or 'Securities Premium.' This premium is typically treated as part of the capital of the company.

What is the entry when final call money is received?

The entry when the final call money is received is: Debit 'Bank Account' and Credit 'Equity Share Final Call Account.' This reflects the payment of the final call money on shares issued by the company.

What does 'calls in arrear' refer to?

'Calls in arrear' refers to the unpaid amounts of the share calls that were due but not paid by shareholders. It reflects amounts that remain unpaid from the total called-up amount on shares.

How is the final call amount calculated?

The final call amount is calculated by multiplying the number of shares outstanding by the per-share final call amount. For example, if there are 20,000 shares and the final call amount per share is 20, the final call amount would be 4 lakh.

What is the journal entry for receiving the first call money?

The journal entry for receiving the first call money is: Debit 'Bank Account' and Credit 'Equity Share First Call Account.' This reflects the receipt of the first installment of the share capital.

How do you handle share calls if there is no premium involved?

If there is no premium involved in the share issue, the process of calling money and making the respective journal entries remains the same. Only the nominal value of the shares is considered for calls.

What is the significance of preparing a pro-rata table in share issuance?

A pro-rata table helps to clearly illustrate how shares are allocated when there is oversubscription. It ensures that the allotment is done fairly and in proportion to the applications received.