change management

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Session 4
Advanced Accounting & Taxation
Topic to be covered in this session:
Journal Entries relating to issue of equity shares

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Session Learning Objectives
At the end of this session you will be able to understand:
The manner in which a journal entry relating to issue
of equity shares, effects the balance sheet;
Journal entries to pass when equity shares are issued at
par or at a premium
Journal entries to pass when money due from
subscribers are not paid by them within the stipulated
time

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Modus Operandi
 Journal Entries
 Change in Balance Sheet items as a result of passing
of the Journal Entries
 Key Ratios effected by such changes in Balance Sheet
items
 Reference to necessary provisions of The Companies
Act, 2013 and SEBI Rules, Regulations & Guidelines

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Share Issue Journal Entries: Effect on Balance Sheet
Equity & Liabilities Assets
Shareholders’ Funds
Share Capital
Reserves & Surplus
Money Received against Share Warrants
Shareholders’ Money Pending Allotment
Non-Current Liabilities
Current Liabilities
Non-Current Assets
Current Assets
JOURNAL
ENTRIES
This concept will be required to
assess the effect of a Journal Entry on
the Balance Sheet items and the
associated Financial Ratios

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Share Capital details: As in Notes to Accounts
Particulars Current Year Previous Year
SHARE CAPITAL
Authorized Capital $$$$$$$$$$$$ $$$$$$$$$$$$
XXX Equity Shares of INR XXX each $$$$$$$$$$$$ $$$$$$$$$$$$
XXX Preference Shares of INR XXX each $$$$$$$$$$$$ $$$$$$$$$$$$
Issued Capital
XXX Equity Shares of INR XXX each $$$$$$$$$$$$ $$$$$$$$$$$$
XXX Preference Shares of INR XXX each $$$$$$$$$$$$ $$$$$$$$$$$$
Subscribed Capital
Subscribed & Fully Paid
XXX Equity Shares of INR XXX each $$$$$$$$$$$$ $$$$$$$$$$$$
XXX Preference Shares of INR XXX each $$$$$$$$$$$$ $$$$$$$$$$$$
Subscribed but not Fully Paid
XXX Equity Shares of INR XXX each $$$$$$$$$$$$ $$$$$$$$$$$$
XXX Preference Shares of INR XXX each $$$$$$$$$$$$ $$$$$$$$$$$$
Less: Calls-in-Arrear (if any) $$$$$$$$$$$$ $$$$$$$$$$$$
Add: Forfeited Shares (if any) $$$$$$$$$$$$ $$$$$$$$$$$$
TOTAL $$$$$$$$$$$$ $$$$$$$$$$$$

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Issue of Equity Shares at par
Note 1: In case of a Fixed-Price Issue, the proceeds may be
collected entirely at the time of application or in installments
Note 2: In case of a Book-Building Issue, the entire proceeds
are collected at the time of application
If the proceeds are collected in Installments, the steps
involved are:
1. Collection of Application Money
2. Allotment of Shares
3. Receipt of Allotment Money
4. Call on Shares
5. Receipt of Share Call Money

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Journal Entries:
On Receipt of Share Application Money:
Bank A/c ……………… Dr
To Share Application A/c
Share Application A/c ……………… Dr
To Share Capital A/c

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On Allotment of Shares:
Share Allotment A/c ……………… Dr
To Share Capital A/c
On Receipt of Allotment Money:
Bank A/c ……………… Dr
To Share Allotment A/c

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When such due is not received by the due date :
Calls-in-Arrear A/c ……………… Dr
To Share Allotment A/c
When Calls are made:
Share Call A/c ……………… Dr
To Share Capital A/c

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When Money is received against Calls:
Bank A/c ……………… Dr
To Share Call A/c
When Money on Call is not received by the due date :
Calls-in-Arrear A/c ……………… Dr
To Share Call A/c

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When Call Money is received even before the call is
made:
Bank A/c ……………… Dr
To Calls-in-Advance A/c
When such Calls-in-Advance are adjusted against Share
Call:
Calls-in-Advance A/c ……………… Dr
To Share Call A/c

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In case of Oversubscription in Application:
Bank A/c ……………… Dr
To Share Application A/c
In case the excess money is retained to be adjusted
against further Calls and balance refunded:
Share Application A/c ……………… Dr
To Share Allotment A/c
To Calls-in-Advance A/c
To Bank A/c

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Illustration 1: Green Fields Ltd. made a Public Issue of
100,000 Equity Shares of Face Value of INR 10 each. The
details of the amounts payable on the shares were:
Application of INR 2/- per share by 21st August 2021,
Allotment of INR 3 per share by 21st October 2021 and
Final Call of INR 5/- per share by 21st December 2021.
Application were received for 120,000 shares. Excess
Application Money was refunded immediately. All
other payments were received by the stipulated due
dates except Final Call on 1,000 shares. Pass all journal
entries including cash / bank transactions in the books
of Green Fields Ltd.

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Solution:
Equity Share Application A/c ……………….. Dr.
To Equity Share Capital A/c
To Bank A/c
2,40,000
2,00,000
40,000
Date Particulars Dr. (Amt) Cr. (Amt)
Equity Share Allotment A/c ……………….. Dr.
To Equity Share Capital A/c
3,00,000
3,00,000
21 Oct Bank A/c ……………….. Dr.
To Equity Share Allotment A/c
3,00,000
3,00,000
Equity Share Final Call A/c ……………….. Dr.
To Equity Share Capital A/c
5,00,000
5,00,000
21 Dec Bank A/c ……………….. Dr.
Calls-in-Arrear A/c …. Dr.
To Equity Share Final Call A/c
4,95,000
5,000
5,00,000

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Issue of Equity Shares at a Premium
Journal Entries:
On Receipt of Premium with Share Application Money:
Bank A/c ……………… Dr
To Share Application A/c
Share Application A/c ……………… Dr
To Share Capital A/c
To Share Premium A/c

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On Receipt of Premium with Share Allotment Money:
Bank A/c ……………… Dr
To Share Application A/c
Share Application A/c ……………… Dr
To Share Capital A/c
Share Allotment A/c ……………… Dr
To Share Capital A/c
To Share Premium A/c
Bank A/c ……………… Dr
To Share Allotment A/c
All Other Journal Entries will remain the same

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Illustration 2: Red Bull Ltd. issued 50,000 Equity Shares
of Face Value of INR 10/- each at a Premium of INR 2/-
each 10th August 2021. The money payable was INR 5/-
on application (inclusive of the premium amount), INR
3/- on allotment, INR 2/- on 1st Call and INR 2/- on
Final Call. All the money was received in full by the
stipulated due dates except Allotment Money on 500
shares and Final Call Money on 200 Shares. Pass all
journal entries including cash / bank transactions in the
books of Red Bull Ltd. What will be the net increase in
the cash and Cash Equivalents balance of the company
after all the transaction?

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Bank A/c ……………….. Dr.
To Equity Share Application A/c
2,50,000
2,50,000
Date Particulars Dr. (Amt) Cr. (Amt)
Equity Share Application A/c ……………….. Dr.
To Equity Share Capital A/c
To Equity Share Premium A/c
2,50,000
1,50,000
1,00,000
Equity Share Allotment A/c ……………….. Dr.
To Equity Share Capital A/c
1,50,000
1,50,000
Bank A/c ……………….. Dr.
Calls in Arrear A/c …. Dr.
To Equity Share Allotment A/c
1,48,500
1,500
1,50,000
Equity Share 1st Call A/c ……………….. Dr.
To Equity Share Capital A/c
1,00,000
1,00,000

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Bank A/c ……………….. Dr.
Calls-in-Arrear A/c …. Dr
To Equity Share 1st Call A/c
99,000
1,000
1,00,000
Date Particulars Dr. (Amt) Cr. (Amt)
Equity Share Final Call A/c ……………….. Dr.
To Equity Share Capital A/c
1,00,000
1,00,000
Bank A/c ……………….. Dr.
Calls-in-Arrear A/c …. Dr
To Equity Share Final Call A/c
98,600
1,400
1,00,000
Net Increase in Cash & Cash Equivalents is INR
250,000 + INR 148,500 + INR 99,000 + INR 98,600 = INR
596,100/-
Total Calls-In-Arrear = INR 1,500 + INR 1,000 + INR
1,400 = INR 3,900/-

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U/s 52 of The Companies Act, 2013, the Securities Premium
amount may be utilized for :
 Issuing unissued shares of the company to the
members of the company as fully paid bonus shares;
 Writing-Off Preliminary Expenses of the Company;
 Writing off the expenses of / commission paid /
discount allowed on any issue of shares or debentures of
the company;
 Purchasing its own shares or other securities (buy-
back of shares) u/s 68 of The Companies Act

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Crib Sheet
In case of a Fixed-Price Issue, the proceeds may be collected entirely at the time of
application or in installments
In case of a Book-Building Issue, the entire proceeds are collected at the time of
application
 Receipt of Application Money is accounted for on cash basis.
 All journal entries for allotment and calls, whereby Equity Share Capital and Share
Premium are credited, are accounted for as per accrual basis
If the proceeds are collected in Installments (i.e. other than by Book-Building process),
the steps involved are:
1. Collection of Application Money
2. Allotment of Shares
3. Receipt of Allotment Money
4. Call on Shares
5. Receipt of Share Call Money

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THANK YOU…