Accounting entries for issued shares

Normally, the share premium is recognized at allotment stage. However, the premium can also be recognized at a call stage. Accounting entries to record premium on issue are as follows:

1. When the premium is recognized at allotment stage Dr. Allotment account xx Cr. Share Premium account xx (With the premium element relating to the allotment money received)
2. When the premium is recognized at the call stage Dr. Call account xx Cr. Share Premium account xx (With the premium element relating to the call money received)

Example

BINAMU Ltd. has an authorized capital of 25,000,000 equity shares of TZS 1,000 each, of these 1,000,000 shares were issued to the public for subscription at TZS 1,100 per share. All shares were subscribed and fully paid for at application stage on 15th January, 2022.

Required: Prepare ledger accounts to record the above transactions in books BINAMU Ltd. for the year ended 31st December, 2022.

Solution

Bank Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th Jan., 2022	Equity Share Capital	1,000,000	31st Dec., 2022	Balance c/d	1,100,000
15th Jan., 2022	Share Premium	100,000
1st Jan., 2023	Balance b/d	1,100,000

Equity Share Capital Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th Jan., 2022	Bank	1,000,000	31st Dec., 2022	Balance c/d	1,000,000
1st Jan., 2023	Balance b/d	1,000,000

Share Premium Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th Jan., 2022	Bank	100,000	31st Dec., 2022	Balance c/d	100,000
1st Jan., 2023	Balance b/d	100,000

Example

BINAMU Ltd. has an authorized capital of 25,000,000 equity shares of TZS 1,000 each, of these 1,000,000 shares were issued to the public for subscription at TZS 1,100. All shares were subscribed for and the payments were as follows:

• TZS 500 at application stage on 15th January, 2022;
• TZS 400 (including premium) at allotment stage on 15th February, 2022; and
• TZS 200 at first call stage on 15th March, 2022;

Required: Open up ledger accounts to record the above transactions in books BINAMU Ltd. for the year ended 31st December, 2022.

Solution

Bank Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th Jan., 2022	Application	500,000	31st Dec., 2022	Balance c/d	1,100,000
15th Feb., 2022	Allotment	400,000
15th March, 2022	First Call	200,000
1st Jan., 2023	Balance b/d	1,100,000

Application Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th Feb., 2022	Equity Share Capital	500,000	15th Jan., 2022	Bank	500,000

Equity Share Capital Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
31st Dec., 2022	Balance c/d	1,000,000	15th Feb., 2022	Application	500,000
			15th Feb., 2022	Allotment	300,000
			15th March, 2022	First Call	200,000
			1st Jan., 2023	Balance b/d	1,000,000

Allotment Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th Feb., 2022	Share Capital	300,000	15th Feb., 2022	Bank	400,000
15th Feb., 2022	Share Premium	100,000

Share Premium Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
31st Dec., 2022	Balance c/d	100,000	15th Feb., 2022	Allotment	100,000

First Call Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th March, 2022	Equity Share Capital	200,000	15th March, 2022	Bank	200,000

Accounting entry to record amount of discount on issue of shares is as follows:

Recognition of discount on issues in the share price

Dr. Discount on Issue of shares account xx Cr. Allotment or call account xx (With discount offered on the shares issued)

Example

BINAMU Ltd. has an authorized capital of 25,000,000 equity shares of TZS 1,000 each, of these 1,000,000 shares were issued to the public at TZS 850. All shares were subscribed for, and the payments were as follows:

• TZS 500 at application stage on 15th January, 2022;
• TZS 300 at allotment stage on 15th February, 2022; and
• TZS 50 at first call stage on 15th March, 2022.

Required: Open the ledger accounts to record the above transactions for the year ended 31st December, 2022.

Solution

Bank Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th Jan., 2022	Application	500,000	31st Dec., 2022	Balance c/d	850,000
15th Feb., 2022	Allotment	300,000
15th March, 2022	First Call	50,000
1st Jan., 2023	Balance b/d	850,000

Application Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th Feb., 2022	Equity Share Capital	500,000	15th Jan., 2022	Bank	500,000

Equity Share Capital Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
31st Dec., 2022	Balance c/d	1,000,000	15th Feb., 2022	Application	500,000
			15th Feb., 2022	Allotment	300,000
			15th Feb., 2022	Discount on Issue	150,000
			15th March, 2022	First Call	50,000
			1st Jan., 2023	Balance b/d	1,000,000

Allotment Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th Feb., 2022	Equity Share Capital	300,000	15th Feb., 2022	Bank	300,000

Share Discount Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th Feb., 2022	Equity Share Capital	150,000	1st Jan., 2023	Balance b/d	150,000
31st Dec., 2022	Balance c/d	150,000

First Call Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th March, 2022	Equity Share Capital	50,000	15th March, 2022	Bank	50,000

When a call is due, the company will remind shareholders to pay money related to the specific stage. However, on due date it may happen that some shareholders may fail to pay the related call money. The amount unpaid is called call in arrears and is recognized in the calls in arrears account. Basically, calls in arrears account is a receivable's account, representing the amount shareholders are owed by the company. Thus the calls in arrears account should always have a debit balance. At the statement of financial position date, if the arrears are still outstanding, should be shown in the statement of financial position as a reduction to the issued share capital.

Accounting entries to record amount of call unpaid by shareholders are as follows:

1. Recognition of unpaid amount of the share price in the call in arrears account, when the unpaid amount relates to allotment stage. Dr. Calls in arrears account xx Cr. Allotment account xx (With unpaid amount related to allotment stage)
2. Recognition of unpaid amount of the share price in the call-in arrears account, when the unpaid amount relates to call stage. Dr. Calls in arrears account xx Cr. Call account xx (With unpaid amount related to call stage)

Example

BINAMU Ltd. has an authorized capital of 25,000,000 equity shares of TZS 1,000 each, of these 1,000,000 shares were issued to the public at TZS 1,100. All shares were subscribed and the payments were as follows:

• TZS 500 at application stage on 15th January, 2022;
• TZS 400 (including premium) at allotment stage on 15th February, 2022; and
• TZS 200 at first call stage on 15th March, 2022

Shareholders who applied for 2,000 shares failed to pay allotment and first call money on due date

Required: Open up the ledger accounts to record above transactions in books of BINAMU Ltd. for the year ended 31st December, 2022.

Solution

Bank Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th Jan., 2022	Application	500,000	31st Dec., 2022	Balance c/d	1,098,800
15th Feb., 2022	Allotment (W1)	399,200
15th March, 2022	First Call (W2)	199,600
1st Jan., 2023	Balance b/d	1,098,000

Application Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th Feb., 2022	Equity Share Capital	500,000	15th Jan., 2022	Bank	500,000

Equity Share Capital Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
31st Dec., 2022	Balance c/d	1,000,000	15th Feb., 2022	Application	500,000
			15th Feb., 2022	Allotment	300,000
			15th March, 2022	First Call	200,000
			1st Jan., 2023	Balance b/d	1,000,000

Allotment Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th Feb., 2022	Share Capital	300,000	15th Feb., 2022	Bank	399,200
15th Feb., 2022	Share Premium	100,000
15th Feb., 2022	Call in Arrears	800

Share Premium Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
31st Dec., 2022	Balance c/d	100,000	15th Feb., 2022	Allotment	100,000

First Call Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th March, 2022	Equity Share Capital	200,000	15th March, 2022	Bank	199,600
15th March, 2022	Calls in Arrears	400

Call in Arrears Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th Feb., 2022	Allotment	800	15th March, 2022	First Call	400
1st Jan., 2023	Balance b/d	1,200

When a demand for payment is made, some shareholders may decide to pay at that stage the whole or the next calls money ahead of time, i.e. before the time fixed for the calls to accrue for their payment. The amount paid ahead of time should not be treated as share capital but as liability and it should be accounted for in the 'calls in advance account'. The account will always have a credit balance. The advance payment can be paid together with the allotment and/or on calls stages. When the time for the call becomes due, the advance payment will be recognized as share capital or share premium as the case may be and would be transferred from calls in advance account to the respective call account. If at the end of the period, the calls in advance have not yet matured, it should be shown separately as a liability in the statement of financial position.

Accounting entries to record amount paid in advance by shareholders are as follows:

1. If the amount of advance received with respect to allotment stage Dr. Allotment account xx Cr. Calls in Advance account xx (With amount paid ahead of time at allotment stage)
2. If the amount of advance received with respect to call stage Dr. Allotment/Nth Calls account xx Cr. Calls in Advance account xx (With the amount paid ahead of time at a calls stage)
3. On due date for receiving respective call money Dr. Calls in Advance account xx Cr. Allotment/Nth Calls account xx

Example

BINAMU Ltd. has an authorized capital of 25,000,000 equity shares of TZS 1,000 each, of these 1,000,000 shares were issued to the public at TZS 1,100. All shares were subscribed for, and the payments were as follows:

• TZS 500 at application stage on 15th January, 2022;
• TZS 400 (including premium) at allotment stage on 15th February, 2022;
• TZS 200 at first and final call stage on 15th March, 2022.

Shareholders with 4,000 shares paid first call money at the allotment stage.

Bank Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th Jan., 2022	Application	500,000	31st Dec., 2022	Balance c/d	1,100,000
15th Feb., 2022	Allotment (W1)	400,800
15th March, 2022	First Call (W2)	199,200
1st Jan., 2023	Balance b/d	1,100,000

Application Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th Feb., 2022	Equity Share Capital	500,000	15th Jan., 2022	Bank	500,000

Equity Share Capital Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
31st Dec., 2022	Balance c/d	1,000,000	15th Feb., 2022	Application	500,000
			15th Feb., 2022	Allotment	300,000
			15th March, 2022	First Call	200,000
			1st Jan., 2023	Balance b/d	1,000,000

Allotment Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th Feb., 2022	Equity Share Capital	300,000	15th Feb., 2022	Bank	400,800
15th Feb., 2022	Share Premium	100,000
15th Feb., 2022	Call in Advance	800

Share Premium Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
31st Dec., 2022	Balance c/d	100,000	15th Feb., 2022	Allotment	100,000

First Call Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th March, 2022	Equity Share Capital	200,000	15th March, 2022	Bank	199,200
15th March, 2022	Call in Advance	800

Call in Advance Account

Date	Details	Amount (TZS '000)	Date	Details	Amount (TZS '000)
15th March, 2022	First Call	800	15th Feb., 2022	Allotment	800