Issue of shares

22,339 views

Published on

Published in: Education, Sports, Business
  • Be the first to comment

Issue of shares

  1. 1. ISSUE OF SHARES AT PREMIUMShares are issued At premium to the public bywell managed and financially strong companiesthrough the IPO.Called Value > Face ValueSecurities Premium A/c is made for this purpose.This Premium can be called with any installmentlike (Application, Allotment, Ist Call, IInd Call……)In absence of information the amount ofPremium is to be recorded at the time Allotment. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 1 Mobile: +91-9760-888-626
  2. 2. ISSUE OF SHARES AT PREMIUM Securities Premium is a Capital Gain. It shows on Liabilities side under Reserve & Surplus. To issue fully paid up bonus shares to the shareholders. To Buy-back its on shares as per section 77A. To Write off:  Preliminary Expenses.  commission paid, Discount Allowed on issue of shares or debentures.  Premium on the Redemption of preference shares or debentures. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 2 Mobile: +91-9760-888-626
  3. 3. ISSUE OF SHARES AT DISCOUNTCalled Value < Face Value Section 79 provides the conditions to issue the shares at discount: This class of shares has already been issued. OR A New Company or New Class Shares cannot be issued at Discount. Authorised by an ordinary resolution passed by the company in its General Meeting. Sanctioned by the Central Government. Issued within 2 months from the date of receiving sanction. Issued at least 1 year expiry of commence the business. Rate of Discount <= 10% of Nominal Value of Share It may be > 10% after the permission of Central Govt. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 3 Mobile: +91-9760-888-626
  4. 4. ISSUE OF SHARES AT DISCOUNTFor allotment money due excluding discount:Share Allotment A/C Dr.Discount on Issue of Shares A/C Dr. To Share Capital A/CFor allotment money received:Bank A/C Dr. To Share Allotment A/CDiscount on shares is recorded at the time ofallotment by debiting “Discount on Issue of SharesA/C”. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 4 Mobile: +91-9760-888-626
  5. 5. ISSUE OF SHARES AT DISCOUNT Discount Allowed on shares is a Capital Loss. It shows on the Assets side under Miscellaneous Expenditure. It can be written off by: Capital Reserve (straight way) Securities Premium A/C (straight way) Profit & Loss A/C (gradually over the period of years) A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 5 Mobile: +91-9760-888-626
  6. 6. FORFEITURE OF SHARESShareholder fails to pay the called up money onallotment & further calls.Shares can be cancelled & amount already paidmay be forfeited.SEBI guidelines- The subscription money mustbe received within 12 months from the date ofallotment.Defaulting shareholder must be given aminimum 14 days notice requiring him to pay theamount due on his shares along with interest on it. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 6 Mobile: +91-9760-888-626
  7. 7. FORFEITURE OF SHARESThe name of the shareholder is removed from the register of members.Amount already received on these shares as forfeited to the company.The forfeited amount should be transferred to newly opened “Share Forfeiture Account”. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 7 Mobile: +91-9760-888-626
  8. 8. FORFEITURE OF SHARES• Case 1 when shares are issued originally at PAR or at PREMIMUM (RECEIVED)Share Capital A/C Dr. (Called UP Money) To Share Allotment A/c (Arrear on Allot) To Share Calls in Arrear A/C (Arrear on Calls) To Share Forfeiture A/C (Money Received) A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 8 Mobile: +91-9760-888-626
  9. 9. FORFEITURE OF SHARES• Case 2 when shares are issued originally at PREMIMUM (NOT RECEIVED)Share Capital A/C Dr. (Called UP Money)Securities Premium A/C Dr. (Called UP Prem.) To Share Allotment A/c (Arrear on Allot) To Share Calls in Arrear A/C (Arrear on Calls) To Share Forfeiture A/C (Money Received) A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 9 Mobile: +91-9760-888-626
  10. 10. FORFEITURE OF SHARES• Case 3 when shares are issued originally at DISCOUNTShare Capital A/C Dr. (Called UP Money)Discount on Issue of Shares Dr. (discount amount) To Share Allotment A/c (Arrear on Allot) To Share Calls in Arrear A/C (Arrear on Calls) To Share Forfeiture A/C (Money Received) A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 10 Mobile: +91-9760-888-626
  11. 11. RE-ISSUE OF FORFETED SHARES• Case 1 when shares are Re-Issued at PARBank A/C Dr. To Share Capital A/c A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 11 Mobile: +91-9760-888-626
  12. 12. RE-ISSUE OF FORFETED SHARES• Case 2 when shares are Re-Issued at PREMIMUMBank A/C Dr. To Share Capital A/c To Securities Premium A/C A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 12 Mobile: +91-9760-888-626
  13. 13. RE-ISSUE OF FORFETED SHARES• Case 3 when shares are Re-Issued at DISCOUNTMax Discount on Re-issue allowed:Forfeited Amount – Discount Allowed on original issueDiscount = Original Issue Price – Re-issue Price (10+2) – (10+1) = 1 (10+1) – (10-1) = 2 A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 13 Mobile: +91-9760-888-626
  14. 14. RE-ISSUE OF FORFETED SHARES• Case 3 when shares are Re-Issued at DISCOUNTBank A/C Dr.Share Forfeiture A/c Dr. To Share Capital A/C Discount Amount will be Written Off from the “Share Forfeiture A/C” A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 14 Mobile: +91-9760-888-626
  15. 15. RE-ISSUE OF FORFETED SHARES• Transfer the Balance of Share Forfeiture A/CThe Balance must be Credit.Share Forfeiture A/C Dr. To Capital Reserve A/C(The Forfeited Amount must be of the forfeited shares which are Re-Issued to Transfer the CR A/C) A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 15 Mobile: +91-9760-888-626
  16. 16. RE-ISSUE OF FORFETED SHARES• CAPITAL RESERVE Originates from sources other than the regular activities of the business. Created out of capital profit. Used to meet capital losses or to declare a bonus on shares.Sources are: Profit on sale of a fixed asset. Profit on revaluation of assets and liabilities. Profit on forfeiture and re-issue of forfeited shares. Profit on redemption of debentures at a discount. Profit earned by a co. prior to its incorporation. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 16 Mobile: +91-9760-888-626
  17. 17. OVER SUBSCRIPTIONShares are issued to the public by well managed and financially strong companies through the IPO.Over Subscription is a situation when Shares applied > Shares OfferedThe board of directors cannot allot shares more than that offered to the public for subscription. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 17 Mobile: +91-9760-888-626
  18. 18. OVER SUBSCRIPTIONThree alternatives are available to the directors in this situation.Alternative 1:Full Allotment to some Applicants andTotally rejected the others.Issued 20,000 sharesOffered 50,000 sharesFull Allotment to 20,000 applications.Remaining 30,000 applications are rejected. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 18 Mobile: +91-9760-888-626
  19. 19. OVER SUBSCRIPTION• Accounting Treatment in the case of Alternative 1:Share Application A/C Dr. (App. Money Received on total Apps) To Share Capital A/C (App. Money Due on allotted Shares) To Bank A/C (Refund excess Money for rejected apps) Due Application money is transferred to “Share Capital A/C”. Excess money of rejected applications is refund. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 19 Mobile: +91-9760-888-626
  20. 20. OVER SUBSCRIPTIONAlternative 2: Pro-Rata Allotment It means the proportion is determined by the ratio which the number of shares to be allotted bear to the number of shares appliedIssued 20,000 sharesOffered 50,000 sharesRatio = (20000:50000) OR (2:5)Full Allotment to 5,000 applications.20,000 applications are rejected.Applicants who offered 500 shares got 200 shares.So, Applicants may be allotted less number of shares than they haveapplied for. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 20 Mobile: +91-9760-888-626
  21. 21. OVER SUBSCRIPTION• Accounting Treatment in the case of Alternative 2:Share Application A/C Dr. (App. Money Received on total Apps) To Share Capital A/C (App. Money Due on allotted Shares) To Share Allotment A/C (Adjusted excess money for allotment) To Calls in Advance A/C (Adjusted excess money for calls) Due Application money is transferred to “Share Capital A/C”. Excess money on application transferred to “Share Allotment A/C” and the balance transferred to “Calls in Advance A/C”. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 21 Mobile: +91-9760-888-626
  22. 22. OVER SUBSCRIPTIONAlternative 3: Combines Alternatives 1 & 2 It means Full Allotment + Allotment on Pro-Rata basis + Full Rejections to others applicants.Issued 20,000 sharesOffered 50,000 sharesFull Allotment to 5,000 applications.20,000 applications are rejected.Applicants who offered remaining 25,000 shares got15000 shares on the basis of Proportion (15000:25000). A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 22 Mobile: +91-9760-888-626
  23. 23. OVER SUBSCRIPTION• Accounting Treatment in the case of Alternative 3:Share Application A/C Dr. (App. Money Received on total Apps) To Share Capital A/C (App. Money Due on allotted Shares) To Share Allotment A/C (Adjusted excess money for allotment) To Calls in Advance A/C (Adjusted excess money for calls) To Bank A/C (Refund excess Money for rejected apps) Due Application money is transferred to “Share Capital A/C”. Excess money on application transferred to “Share Allotment A/C” and the balance transferred to “Calls in Advance A/C”. Excess money of rejected applications is refund. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 23 Mobile: +91-9760-888-626
  24. 24. OVER SUBSCRIPTION• Categorization of Applications Disposition of Application Money ReceivedCategories Shares Shares App Share Share Calls in Refund Applied Allotted Money Capital Allotment Advance Received<1000 5,000 0 25,000 - - - 25000>=1000<2 20,000 20,000 1,00,000 1,00,000 - - -000>=2000 50,000 30,000 2,50,000 1,50,000 90,000 10,000 - Company Demands: Application Rs. 5, Allotment Rs. 3 Calls Rs. 2 A Presentation By Himanshu Arya, 2/11/2012 Daksh Professional Education Meerut 24 Mobile: +91-9760-888-626
  25. 25. UNDER SUBSCRIPTIONOver Subscription is a situation when Shares applied < Shares OfferedThe number of shares applied for is less thanshares offered to the public for subscription.All the applications for shares are accepted.Accounting entries are made on the basis ofnumber of shares applied for by the publicrather than shares offered for. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 25 Mobile: +91-9760-888-626
  26. 26. RIGHT SHARES A Ltd. company already issued shares. A Ltd. Wishes to raise capital through the further issue of shares.It comes under following legal obligation: Company has to First offer the fresh shares to its existing shareholders. It means: Existing shareholders have Right to apply for these shares on Priority Basis. Right Issue by 15 days notice. Right shares issue must not be opened more than 60 days under SEBI guidelines. If existing shareholders are not interested, such remaining right shares are offered to common public. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 26 Mobile: +91-9760-888-626
  27. 27. RIGHT SHARESSection 81 of the companies Act, 1956 provides If a Public Limited Company wishes to increase its subscribed capital at any time, (after the expiry of 2 years of the formation or after the expiry of 1 year from the First Allotment of shares), whichever is earlier, by allotment of further shares, then Such fresh shares shell be offered to the existing shareholders of the company, in Proportion of their Equity Holding on that date.If a company which has already issued 3,00,000 shares wishesto issue fresh 1,00,000 shares,It shall have to offer the existing shareholders a Right tosubscribe for 1 NEW SHARE for every 3 OLD SHARES held. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 27 Mobile: +91-9760-888-626
  28. 28. RIGHT SHARES• Value of Right =Market Price of a Share – Average Price of a ShareWhere,Average Price of a Share =(Market Price of a Existing Share * No. of Shares held) + Issue Price of a Right share) No. of Existing Shares + No. of Right Shares A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 28 Mobile: +91-9760-888-626
  29. 29. RIGHT SHARES• Why A Company Go For Right Issue Raising of capital is more certain- than IPO. Improves the image of the company – shows the management concern towards the shareholders. Provides opportunity- to the existing shareholders to invest in the well conversant company. Expenses of Right issue is lower- than IPO. Right Shares are issued to existing shareholders in Proportion of their Equity Holding, So It : Ensures directors do not misuse their position – to issue new shares to their relatives/friends. Preserves the control of the company – in hands of the existing shareholders. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 29 Mobile: +91-9760-888-626
  30. 30. SWEAT EQUITY SHARES Issued by the company to its directors or employees at a discount. Issued for consideration other than cash. Makes available rights to use intellectual property. Section 79A provides the conditions to issue Sweat Shares: Authorised by an special resolution passed by the company in its General Meeting. Resolution specifies No. of Shares, Current Market Price, Consideration, Classes of directors or employees. Issued at least 1 year expiry of commence the business. Shares are listed on a recognized stock exchange. A Presentation By Himanshu Arya,2/11/2012 Daksh Professional Education Meerut 30 Mobile: +91-9760-888-626

×