Issue of Shares Meaning: When a company needs capital (money), it can issue shares to the public or private investors. Investors who buy shares become part-owners of the company. Types of Shares: Equity Shares – carry voting rights and get variable dividends. Preference Shares – fixed dividends, priority over equity shares during payment of dividends and repayment of capital. Process of Issue: Prospectus issued to invite public to subscribe. Application Money collected. Allotment Money requested after shares are allotted. Call Money collected in instalments. Accounting Entry Example: At Application stage: css Copy Edit Bank A/c Dr. To Share Application A/c At Allotment stage: css Copy Edit Share Allotment A/c Dr. To Share Capital A/c 2️⃣ Issue of Debentures Meaning: Debentures are long-term debt instruments issued by a company to borrow money from the public. Debenture holders are creditors of the company (not owners). Features: Fixed interest paid to debenture holders. No voting rights. Can be secured (with collateral) or unsecured. Types of Debentures: Convertible Debentures (can be converted into shares) Non-convertible Debentures Redeemable and Irredeemable Debentures Accounting Entry Example: css Copy Edit Bank A/c Dr. To Debentures A/c Interest Payment: css Copy Edit Interest on Debentures A/c Dr. To Bank A/c 3️⃣ Forfeiture of Shares Meaning: When a shareholder fails to pay the required money (allotment or call money), the company can cancel (forfeit) their shares. Consequences: The amount already paid by the shareholder is forfeited. The company can re-issue the forfeited shares. Accounting Entry for Forfeiture: css Copy Edit Share Capital A/c Dr. (for amount called up) To Share Forfeiture A/c (amount paid) To Calls in Arrear A/c (amount unpaid) On Re-issue of Forfeited Shares: css Copy Edit Bank A/c Dr. Share Forfeiture A/c Dr. (if any discount given) To Share Capital A/c

1. Capital Raising: Shares
and Debentures
This presentation explores the fundamental concepts of issuing shares
and debentures, crucial methods for companies to raise capital. We will
cover their definitions, types, issuance processes, and key accounting
entries.
Dr.P.Manochithra

2. Issuing Shares: Equity and
Ownership
Meaning
Companies issue shares
to raise capital. Investors
become part-owners.
Equity Shares
Carry voting rights with
variable dividends.
Preference Shares
Fixed dividends, priority in payments.
Issuing shares transforms investors into company part-owners. Equity
shares provide voting power and variable dividends, while preference
shares offer fixed dividends and payment priority.

3. Share Issuance: The Application Process
Prospectus Issued
Companies invite public subscriptions.
Application Money
Initial funds collected from applicants.
Allotment Money
Requested after shares are allotted.
Call Money
Collected in subsequent installments.
The share issuance process begins with a prospectus invitation. Funds are collected in stages: application, allotment, and subsequent calls. This structured approach manages capital inflow
effectively.

4. Accounting for Share
Applications
Application Stage Bank A/c Share Application
A/c
Allotment Stage Share Allotment
A/c
Share Capital A/c
At the application stage, cash received is debited to the Bank account
and credited to Share Application. Upon allotment, the Share Allotment
account is debited, and Share Capital is credited, reflecting the transfer
of ownership.

5. Debentures: Company Borrowing
Meaning
Long-term debt instruments. Companies borrow from the
public. Debenture holders are creditors, not owners.
Key Features
• Fixed interest payments.
• No voting rights.
• Can be secured or unsecured.
Debentures serve as crucial long-term borrowing instruments for companies. They provide fixed interest to holders, who
function as creditors without any voting rights. Their structure can be secured or unsecured.

6. Types of Debentures
Convertible Debentures
These can be converted into company
shares. They offer flexibility for investors.
Conversion terms are usually predefined.
Non-convertible Debentures
Cannot be converted into shares. They
remain debt instruments. Investors
receive only fixed interest payments.
Redeemable & Irredeemable
Redeemable debentures are repaid on a
specific date. Irredeemable debentures
have no fixed repayment date.
Debentures offer diverse structures: convertible for potential equity, non-convertible for pure debt, and redeemable or irredeemable based on
repayment terms. This variety caters to different financial strategies and investor preferences.

7. Accounting for Debentures and Interest
1
Issuance Entry
Bank A/c Dr. To Debentures A/c
2
Interest Payment
Interest on Debentures A/c Dr. To Bank A/c
When debentures are issued, the bank account is debited, and the debentures account is credited. For interest payments, the
Interest on Debentures account is debited, and the bank account is credited, ensuring accurate financial recording.

8. Forfeiture of Shares: Consequences
Meaning
Company cancels shares if shareholder fails to pay. This action is a legal recourse.
Funds Forfeited
Amount already paid by the shareholder is kept by the company.
Re-issuance
The company can re-issue the forfeited shares to new investors.
Share forfeiture occurs when payments are missed, leading to cancellation. The company retains previously paid amounts and can then re-issue these shares to
new investors, mitigating losses from non-payment.

9. Accounting for Share Forfeiture
1
Share Capital Dr.
For the total amount called up on the shares.
2
To Share Forfeiture A/c
For the amount already paid by the defaulting shareholder.
3
To Calls in Arrear A/c
For the amount that remained unpaid on the shares.
Forfeiture entries involve debiting Share Capital for the called-up amount. The Share Forfeiture account is credited for
payments received, and Calls in Arrear is credited for unpaid amounts, balancing the books.

10. Re-issuing Forfeited Shares
Re-issue Entry
• Bank A/c Dr.
• Share Forfeiture A/c Dr. (if discount)
• To Share Capital A/c
Upon re-issue, the Bank account is debited for cash
received. If a discount is given, the Share Forfeiture
account is debited. Share Capital is credited, reflecting the
new share issuance to the market.
Re-issuing forfeited shares involves a debit to Bank for cash received. Any discount granted debits the Share Forfeiture
account. The Share Capital account is then credited, completing the transaction and bringing the shares back into
circulation.