(211)-ISSUE OF SHARES

Issue of Shares

Whenever an allotment of shares is made, an entry should be made in the journal, debiting an application and allotment account with the amount payable on application and allotment in respect of the shares so allotted, and crediting share capital account. If more than one class of capital is being issued, separate accounts must be opened in the ledger for each class.

Similar entries must be made debiting the vendor or other persons, and crediting share capital account, in respect of all shares issued for a consideration other than cash.

When calls are made, an entry must be made debiting call account and crediting share capital account with the total amount due in respect of all call.

Shares issued at a premium

A company may issue shares at a premium, for an amount in excess of their nominal value. Such an issue might be made by a successful company which has paid high dividends on its existing capital and where shares, as a result, already stand at a premium on the market. When shares are issued at a premium, whether for cash or otherwise, the premium must be credited to an account called “the share premium account” unless the manager reserve provisions of the companies act. The amount credited to share premium account can only be applied as follows:

1. Subject to the conformation of the court, in a scheme for reduction of capital, as if it were paid-up share capital of the company;
2. In paying up unissued shares of the company to be issued to the members as fully paid bonus shares;
3. In writing off preliminary expenses or the expenses of, or commission paid or discount allowed on, any issue of shares or debentures of the company;
4. In providing for the premium payable on the redemption of the company.
   

The premium is usually payable with the installment due on allotment, and where this is so, the journal entry for allotment must show the amount payable for the premium, which must be credited direct to the share premium account, only the proportion of the amount due representing a payment on account of the nominal value of the shares being credited to share capital account.