#1 ISSUE OF SHARES | CORPORATE ACCOUNTING AND REPORTING | UNIT-01 | NEP

Summary

In this video, the instructor introduces Corporate Accounting and Reporting, focusing on share capital and debentures. The lesson covers the basics of share issuance, explaining equity and preference shares, their rights, and the process of issuing shares at par and at premium. The instructor goes through accounting entries for share applications and allotments, using practical examples. Key concepts like equity shareholders' voting rights and preference shareholders' priority in dividends and liquidation are explained. The lesson concludes with examples of share issuance, highlighting the difference between lump sum and installment payments.

Takeaways

• 😀 Corporate Accounting and Reporting is a subject that focuses on the accounting process and financial reporting, with a new emphasis on reporting.
• 😀 The syllabus now includes a focus on share capital and debentures, with an introductory lesson on share capital in the first unit.
• 😀 A company raises capital by issuing shares, dividing its total capital into small units known as shares.
• 😀 Two primary types of shares are equity shares (owners of the company with voting rights) and preference shares (with certain priority rights).
• 😀 Equity shareholders are the true owners of the company, receiving profits after all other expenses and liabilities are met.
• 😀 Preference shareholders receive dividends first, followed by equity shareholders, and have priority in case the company is wound up.
• 😀 The key difference between equity and preference shareholders is the right to vote and the priority in dividend distribution and capital reimbursement.
• 😀 When a company issues shares, the process begins with an advertisement (prospectus) inviting the public to apply for shares.
• 😀 The company collects application money and, once verified, allots shares to the applicants.
• 😀 The 'at par' issue means shares are issued at their nominal value (e.g., ₹10), while the 'at premium' issue means shares are sold for more than their nominal value (e.g., ₹12).
• 😀 Entries for issuing shares at par and at premium differ. For at premium, the additional money collected is credited to a security premium account.

Q & A

What is the main focus of this class on Corporate Accounting and Reporting?

The class focuses on the syllabus for Corporate Accounting and Reporting, specifically starting with Unit 1, which includes Accounting for Share Capital and Accounting for Debentures.

What new element has been added to Corporate Accounting compared to earlier syllabi?

The new element added is the reporting part, which is distinct from the previous Corporate Accounting syllabus that only focused on accounting.

How are the total capital of a company and shares related?

The total capital of a company is divided into small units called shares. When a person buys shares, they essentially invest money in the company, making them a part-owner.

What is the difference between equity shares and preference shares?

Equity shares are the most common type, giving shareholders voting rights and a claim to the residual profits of the company. Preference shares, on the other hand, give priority to dividends and capital repayment in case of liquidation, but preference shareholders do not have voting rights.

What rights do equity shareholders have in comparison to preference shareholders?

Equity shareholders have voting rights and receive residual profits after dividends are paid to preference shareholders. Preference shareholders, however, get dividends before equity shareholders and have priority in capital reimbursement during liquidation, but they do not have voting rights.

What happens when the company issues shares for money?

When a company issues shares, it raises capital from the public. The company issues an advertisement (prospectus), receives applications and money from the public, and then allocates shares to the applicants.

What is the meaning of 'At Par' in share issuance?

'At Par' means that the share is issued at its nominal value. For example, a share with a nominal value of ₹10 is issued for ₹10.

How does the entry for issuing shares at par differ from shares issued at a premium?

When shares are issued at par, the entry involves debiting the bank and crediting the share application account. For shares issued at a premium, the premium amount is credited to a separate account called the 'Security Premium.'

What is the general entry when shares are issued at a premium?

For shares issued at a premium, the general entry includes debiting the bank to the equity share application account (with the total amount), crediting the equity share capital for the nominal value of the shares, and crediting the security premium account for the additional premium amount.

Can you explain the lump sum process for share issuance using an example?

In a lump sum process, the full amount for the shares is paid at once. For example, Dynamic Limited issues 10 lakh shares of ₹10 each at par. The entire amount is received with the application, and the shares are issued once the payment is received.