Issue of Shares | Journal Entries | Class 12 | Part 2 | Accounts

Summary

In this educational lecture, the instructor explains the accounting procedures for issuing shares, detailing the entries involved at each stage—from initial applications to final calls. Using a practical example, the instructor outlines how companies collect funds through share applications, allotments, and calls, emphasizing the necessary journal entries for each step. The session also covers related expenses and commissions for underwriters. The goal is to ensure students grasp the essential concepts of share issuance accounting, preparing them for practical applications in real-world scenarios.

Takeaways

• 😀 Understanding the basics of share issuance and its accounting procedures is crucial for companies.
• 😀 Companies collect funds through a structured process involving applications, allotments, and calls.
• 😀 The initial application money is recorded as a debit to the bank account and a credit to the share application account.
• 😀 Once shares are allotted, the application money is transferred to share capital, demonstrating the flow of funds.
• 😀 Companies may face uncertainty regarding share allotment due to high demand exceeding available shares.
• 😀 Subsequent calls for payment (allotments and final calls) also require specific journal entries.
• 😀 Companies often hire underwriters to ensure that shares are sold, incurring underwriting commission costs.
• 😀 Each stage of the share issuance process requires careful recording of transactions to maintain accurate financial statements.
• 😀 Understanding the natures of entries (debits and credits) is fundamental in accounting for share transactions.
• 😀 Practice through exercises and homework is encouraged to solidify understanding of share issuance accounting.

Q & A

What is the primary topic of the class discussed in the transcript?

The primary topic is the accounting procedures related to the issuance of shares by a company.

How does the company raise funds when issuing shares?

The company raises funds by collecting payments from investors in stages: an application fee, allotment fee, and subsequent calls.

What is the first entry made when the application money is received?

The first entry is a debit to the bank account and a credit to the share application account.

What happens after the application money is received?

After receiving the application money, it is transferred to the share capital account.

What are the stages of payment mentioned for share issuance?

The stages of payment are the application money, allotment money, first call, and final call.

What entry is made when the allotment money is due?

The entry made is a debit to the share allotment account and a credit to the share capital account.

How does the company ensure that shares are sold?

The company may hire an underwriter, who guarantees the sale of shares and is compensated with an underwriting commission.

What is the entry for underwriting commission?

The entry for underwriting commission is a debit to the underwriting commission account and a credit to the underwriter's account.

What challenges might a company face when issuing shares?

Challenges include not knowing how many shares will be sold, the risk of insufficient funds from applicants, and the need to manage multiple stages of payment.

Why is it important to record share issuance entries accurately?

Accurate recording ensures proper financial reporting, compliance with regulations, and effective management of shareholder equity.