Issue of Shares | Premium and Par | Class 12 | Part 3

Rajat Arora
20 Dec 202213:43

Summary

TLDRThe video explains the basics of share issuance, focusing on the different scenarios involving share premium and discount. It covers the journal entries related to share applications, allotments, and calls, emphasizing the importance of security premium. The instructor discusses how companies may issue shares at par, premium, or occasionally at a discount, clarifying that discount issuance is no longer permitted under current regulations. Additionally, the video provides practical examples and homework tasks, encouraging viewers to understand the accounting treatment of these transactions.

Takeaways

  • 😀 The basics of share issuance include understanding the journal entries involved.
  • 😀 Shares can be issued at par, at a premium, or at a discount, with specific accounting treatments for each case.
  • 😀 When shares are issued at a premium, the extra amount collected is known as security premium.
  • 😀 Security premium can be collected at any stage of the share issuance process, not just at allotment.
  • 😀 Companies are prohibited from issuing shares at a discount under the Companies Act 2013.
  • 😀 Sweet equity shares are issued to recognize contributions of employees or key individuals at a discount.
  • 😀 Journal entries for share issuance need to reflect the amounts collected for capital and premium distinctly.
  • 😀 In accounting, security premium is treated as a capital nature item and recorded in the balance sheet under reserves and surplus.
  • 😀 When recording premium in journal entries, it is credited at the time of allotment.
  • 😀 Practical exercises, like calculating amounts for different stages of share issuance, help reinforce understanding of the concepts.

Q & A

  • What are the basic concepts of share issuance discussed in the video?

    -The video covers the basics of share issuance, including how shares can be issued at par, at a premium, or at a discount.

  • What is a security premium and how is it applied?

    -A security premium is the extra amount a company charges over the nominal value of a share when demand is high. For example, if a share has a nominal value of ₹10 and the company charges ₹12, the ₹2 is the security premium.

  • How does a company collect funds during the share issuance process?

    -A company collects funds through different stages: application, allotment, first call, and final call, with each stage potentially requiring different payment amounts.

  • What happens if a company issues shares at a discount?

    -Under the Companies Act of 2013, companies are prohibited from issuing shares at a discount, meaning they can only issue shares at par or at a premium.

  • What are sweet equity shares and when are they issued?

    -Sweet equity shares are shares given to employees or contributors at a discount to appreciate their long-term contributions to the company.

  • How should journal entries be recorded for share premium?

    -For share premium, journal entries should include debiting the share allotment account and crediting both the share capital and the security premium accounts.

  • What is the significance of the allotment stage in share issuance?

    -The allotment stage is crucial as it determines how much capital the company receives beyond the nominal value of the shares issued, including any premiums.

  • Can companies issue shares with different premium amounts?

    -Yes, companies can issue shares with different premium amounts across various stages of payment, such as application or allotment.

  • What should students remember regarding security premium during their exams?

    -Students should remember that security premium is always credited during the allotment stage and must be recorded accurately in the journal entries.

  • What homework was assigned at the end of the class?

    -Students were assigned to calculate the amounts received at each stage of a hypothetical share issuance and provide the journal entries for those amounts.

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