1. 1
Accounting Entries Regarding Issue of Shares at Par
Par value does not indicate a stocks market value. Therefore, the cash proceeds
from issuing par value stock may be equal to, greater than or less than par value.
When the issuance of common stock faro cash is recorded, the par value of the
shares can be credited to common stock.
The portion of proceeds that is above or below the par value is recorded in a
separate paid in Capital a/c
Example 1
Kerio flowers issues 1000 shares of Shs 1 par value common stock at par for cash
Required: Record the above entry in a journal
On receipt of application Money
Date Details DR CR
02.03.2023 Bank
Share Application
a/c
(Being Share
application money
received)
1,000
1,000
2. 2
On Allotment of Shares
Date Details DR CR
02.03.2023 Share Application a/c
Share Capital A/c
(Being appropriation of application Money
towards Share capital)
1,000
1,000
Issue of Shares at a premium
Example 2
If Kerio flowers issues another 1000 shares of Shs 1 par value at Shs 5 for cash.
Required: Journalize the above transaction
Date Details DR CR
02.03.2023 Cash
Share Capital
Share Premium
(To record the issuance of shares at a
premium)
5,000
1,000
4,000
The total Paid in capital from these two transactions is Kes 6,000 and the legal
capital is 2,000. If Kerio flowers has retained earnings of Kes 500, the stockholders
equity will be Kes 6,500 and it will be presented as follows in the balance sheet.
3. 3
Equity
Share Capital 2,000
Premium A/c 4,000
Total Paid in Capital 6,000
Retained Earnings 500
Total Stakeholders Equity 6,500
Shares issued at a Discount
When Shares are issued at a price lower than their face value, they are said to have
been issued at a discount. For example, if a share of Kes 100 is issued at Kes 95,
then Kes 5 (Kes 100—95) is the amount of discount. It is a loss to the company.
It should be noted that the issue of share below the market price but above face
value is not termed as ‘Issue of Share at Discount’ Issue of Share at Discount is
always below the nominal value of shares.
It is debited to separate account called ‘Discount on Issue of Share’ Account.
Disclosure in Balance Sheet
It is deducted from securities premium reserve account from the liabilities side.
Conditions to Issue Share at Discount
Shares can be issued at discount subject to the following conditions:
1) The shares must belong to a class already issued.
2) Discount rate should not be more than 10%.
3) One year must have passed since the date at which the company was allowed
to commence business.
4. 4
4) The issue of such shares must take place within two months after the date of
court’s sanction or within such extended time as the court may allow.
Accounting Treatment for Shares issued at a Discount
Trendy Shoe Company invited applications for 12,000 equity shares of Kes. 100
each at a discount Kes. 4 per share (allowed at the time of allotment). The amount
was payable as follows: On Application Kes 30, on allotment Kes 36, on first and
final call Kes. 30.
The public applied for 10,000 shares and these were allotted. All money due was
with the exception the first and final call on 400 shares.
On Application
Date Details DR CR
02.03.23 Bank (10,000@30)
Share Application
(Being the receipt of application money
for issue of shares)
300,000
300,000
02.03.23 Share Application
Share Capital
(Being transfer from the share
allocation to the share capital)
300,000
300,000
02.03.23 Share Allotment a/c (10,000@36)
Share Discount a/c (10,000@4)
Share Capital a/c
(Being allotment of shares @36)
360,000
40,000
400,000
02.03.23 Bank (10,000@36)
Share Allotment
(Being the issue of Shares at a discount)
360,000
360,000
02.03.23 Equity First & Final call@30
Equity Share Capital
(Being the record of first and final call
of 10,000 shares)
300,000
300,000
02.03.23 Bank (9600@30) 288,000
5. 5
Calls in Arrears (400@30)
Equity first & Final Call A/c
(Being the payment of shares remaining
after the first and final call)
12,000
300,000
