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Question
Answer in one Sentence only :
What is meant by share premium?
Solution 1
As per Section 78 of the Companies Act, 1956, when the shares are issued to the public at a price more than their par value, i.e. face value, the shares are said to be issued at a premium. The amount of premium received is credited to a separate account known as Securities Premium Account. It can be used for the following purposes:
a. For writing-off preliminary expenses of the company
b. For writing-off expenses of commission paid or discount allowed on issue of shares or debentures of the company
c. For issuing bonus shares
Solution 2
Issue of shares at a premium means the issue of shares by a company at a price higher than the face value of the shares. (The difference between the issue price, i.e., the price at which the shares are issued, and the face value of the shares is called share premium) for example, when shares of the face value of Rs.10 each are issued at a price of Rs.12 per share, the shares are said to be issued at a premium.
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RELATED QUESTIONS
What do you mean by ‘issue of shares at premium’?
If shares are issued at its face value, it is called as issue at
B' Ltd. took over the assets of Rs.14,00,000 and liabilities of Rs.4,00,000 of C Ltd. for a purchase consideration of Rs.9,19,000. Rs.17,000 were paid by a bank draft in favour of C Ltd. and the balance was paid by issue of equity shares of Rs.10 each at a premium of 10% in favour of C Ltd.
Pass necessary journal entries for the above transactions in the books of B Ltd.
JS Ltd. invited applications for issuing 80,000 equity shares of Rs.10 each at a premium of Rs.6 per share. The amount was payable as follows:
On application - Rs.4 per share (including premium Rs.1 per share)
On Allotment - Rs.6 per share (including premium Rs.3 per share)
On First and Final Call — Balance
Applications for 1,60,000 shares were received. Applications for 40,000 shares were rejected and application money refunded. Shares were allotted on pro-rata basis to the remaining applicants. Excess money received with applications was adjusted towards sums due on allotment. Raman holding 400 shares failed to pay the allotment money. His shares were forfeited immediately after allotment. Afterwards the final call was made. Veer who had applied for 1,200 shares failed to pay the final call. His shares were also forfeited. Out of the forfeited shares 500 shares were re-issued at Rs.8 per share fully paid-up. The re-issued shares included all the forfeited shares of Raman.
Pass necessary journal entries for the above transactions in the books of J.S. Ltd.
RS Ltd. has issued 25000 equity shares of Rs. 10 each at a premium of Rs. 2 per hares payable with application money. The incomplete journal entries related to the issue are given below. You are required to complete these blanks.
Books of RS Ltd.
Journal
| Date | Particulars | L.F. | Dr.(Rs.) | Cr.(Rs.) |
|
2015 Jan 10
|
_ _ _ _ _ _ _ _ _ _ _ Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ (Amount received on application for 35,000 shares @ Rs.5 per share) |
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Jan 16
|
_ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ To _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ To _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ To _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ (Transfer of application money to share capital securities premium, money refunded for 4,000 shares for rejected application and balance adjusted towards amount due on allotment as shares were allotted on Pro-rata basis) |
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Jan 31
|
_ _ _ _ _ _ _ _ _ _ Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ (Amount due on allotment @ Rs.4 per share) |
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Feb 20
|
_ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ (Balance amount received on allotment) |
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April 01
|
_ _ _ _ _ _ _ _ _ Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ (First and Final Call money due) |
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April 20
|
_ _ _ _ _ _ _ _ _ _ Dr Calls – in – arrears A/c Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ (Money received on First and Final Call except on 500 shares) |
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Aug 27
|
_ _ _ _ _ _ _ _ _ Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ To _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ (Forfeited the shares on which call money was not received) |
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Oct 3
|
_ _ _ _ _ _ _ _ _ _ Dr _ _ _ _ _ _ _ _ _ _ Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ (Re-issued the forfeited shares @ 8 per share fully paid - up) |
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| _ _ _ _ _ |
_ _ _ _ _ _ _ _ __ Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ (_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ __ ) |
Sandesh Ltd. took over the assets of Rs.7,00,000 and liabilities of Rs.2,00,000 from Sanchar Ltd. for a purchase consideration of Rs.4,59,500. Rs.8,500 were paid by accepting a draft in favour of Sanchar Ltd. payable after three months and the balance was paid by issue of equity shares of `10 each at a premium of 10% in favour of Sanchar Ltd.
Pass necessary journal entries for the above transactions in the books of Sandesh Ltd.
SK Ltd. invited applications for issuing 3,20,000 equity shares of Rs.10 each at a premium of Rs.5 per share. The amount was payable as follows:
On application Rs.3 per share (including premium Rs.1 per share)
On allotment Rs.5 per share (including premium Rs.2 per share)
On First and Final Call - Balance
Applications for 4,00,000 shares were received. Applications for 40,000 shares were rejected and application money refunded. Shares were allotted on pro-rata basis to the remaining applicants. Excess money received with applications was adjusted towards sums due on allotment. Jeevan holding 800 shares failed to pay the allotment money and his shares were immediately forfeited. Afterwards final call was made. Ganesh who had applied for 2,700 shares failed to pay the final call. His shares were also forfeited. Out of the forfeited shares 1,500 shares were re-issued at Rs.8 per share fully paid up. The re-issued shares included all the forfeited shares of Jeevan.
Pass necessary journal entries for the above transactions in the books of the company.
BBG Ltd. had issued 1,00,000 equity shares of Rs.10 each at a premium of Rs.3 per share payable with application money. While passing the journal entries related to the issue, some blanks are left. You are required to complete these blanks.
Books of BBG Ltd
Journal
| Date | Particulars | L.F. | Dr.(Rs.) | Cr.(Rs.) |
|
2015 Jan 05
|
_ _ _ _ _ _ _ _ _ _ _ Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ (Amount received on application for 1,40,000) shares @ Rs.6 per share including premium) |
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|
Jan 17
|
Equity Share Application A/c Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ To _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ To _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ To _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ (Transfer of application money to share capital securities premium, money refunded for 20,000 shares for rejected application and balance adjusted towards amount due on allotment as shares were allotted on Pro-rata basis) |
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|
Jan 17
|
_ _ _ _ _ _ _ _ _ _ Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ (Amount due on allotment @ Rs.4 per share) |
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|
Feb 20
|
_ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ (Balance amount received on allotment) |
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|
April 01
|
_ _ _ _ _ _ _ _ _ Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ (First and Final Call money due) |
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|
April 20
|
_ _ _ _ _ _ _ _ _ _ Dr Calls – in – arrears A/c Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ (Money received on First and Final Call) |
3,000
|
||
|
May 20
|
_ _ _ _ _ _ _ _ _ Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ To _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ (Forfeited the shares on which call money was not received) |
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|
June 15
|
_ _ _ _ _ _ _ _ _ _ Dr _ _ _ _ _ _ _ _ _ _ Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ (Re-issued the forfeited shares) |
3,000
|
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| _ _ _ _ _ |
_ _ _ _ _ _ _ _ __ Dr To _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ (_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ __ ) |
Y. Ltd forfeited 1,00 equity shares of Rs 10 each for the non-payment of the first call of Rs 2 per share. The final call of Rs2 per share was yet to be made.
Calculate the maximum amount of discount at which these shares can be reissued.
State any three conditions for the issue of shares at discount.
What is meant by ' Securities Premium '?
Pass necessary journal entries for the following transactions in the books of Sewak Ltd.:
(i) Sewak Ltd. acquired assets of Rs 5,00,000 and liabilities of Rs 3,00,000 of Goodwill Ltd. for a purchase consideration of Rs 1,35,000. Payment to Goodwill Ltd. was made by issuing equity shares of 10 each at a discount of 10%.
(ii) Purchase furniture of Rs 5,00,000 from Ramprastha Ltd. The payment to Ramprastha Ltd. was made by issuing equity shares of Rs 10 each at a premium of 25%.
Answer in one Sentence only :
What is meant by discount on issue of shares?
Give one word / Term / phrase for the following statement :
Issue of share above face value.
Select the most appropriate answer from the alternatives given below and rewrite the sentence :
As per SEBI guidelines, the minimum amount payable on share application should be ____________ of nominal value of share.
Select the most appropriate answer from the alternatives given below and rewrite the sentence :
If shares are issued at its face value, it is called as issue at __________________.
(Issue at premium and calls in arrears)
Hindusthan Petroleum Ltd., invited application for 40,000 Equity shares of Rs 100 each payable as under including 20% premium:
| On Application | Rs 30 | On Allotment | Rs 40 (including premium) |
| On First Call | Rs 20 | On Final Call | Rs 30 |
All the shares were applied for and also allotted. One share holder who was allotted 500 shares failed to pay first and final call.
Record the above transactions in the journal of the company.
(Issue at discount and Pro-rate allotment)
Global IT Ltd. issued 1,00,000 shares of 10 each at a discount of 10% payable as follows-
| On Application | Rs 3 | On Allotment | Rs 3 (Discount) |
| On First Call | Rs 2 | On Second Call | Rs 1 |
Public applied for 1,20,000 shares and the directors made pro-rata allotment to the applicants.
Show the journal of the company assuming that all money received on allotment and calls.
State, whether the following statements is True or False.
Shares are always issued at par.
Premier Tools Ltd. invited applications for issuing 2,00,000 equity shares of ₹ 10 each at a premium of ₹ 2 per share. The amount was payable as follows:
On application - ₹ 5 per share (including premium)
On allotment - ₹ 3 per share
On first & final call – Balance
Applications were received for 2,50,000 shares. Applications for 10,000 shares were rejected and pro-rata allotment was made to the remaining applicants. Over payments received on application were adjusted towards sums due on allotment.
All calls were made and duly received except allotment and first and final call from Naveen who applied for 7,200 shares. His shares were forfeited. Half of the forfeited shares were reissued for ₹ 48,000 as fully paid.
Pass the necessary journal entries for the above transactions in the books of Premier Tools Ltd. Open calls-in-arrears account wherever required.
