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Intermediate accounting
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Lesson FourIntroduction
This lesson continues with the issue of shares. In the previous lesson we looked at the various
methods that can be used in recording the issue of shares. In this lesson we are going to look
illustrations demonstrating the two methods
Expected learning outcomes
At the end of this lesson the leaner should be able to
1. Explain the meaning of issue of shares at par
2. Explain the meaning of issue of shares at a premium
3. Prepare journal entries to illustrate issue of shares
4. Prepare ledger accounts to record issue of shares
Issue of shares at par
Shares are issued at par if the issue price is equal t the nominal or the par value i.e. the par value
of the share is 10 and they’re issued at Shs 10.
Example one
Makers LTD issued 100,000 shares to the public at Shs10 each payable as follows:-
Application Sh 2.00
Allotment sh 3.00
1st call sh 3.00
2nd and final sh 2.00
Applications were received for 120,000 shares and the company decided to refund application
money for the excess 20,000 applications. Allotment was made and money was received for the
successful applicants. Subsequently the company made calls. Money on both 1st and 2nd calls was
Page 1 of 8
, received except for 5000 shares whose holder did not pay on both 1st and 2nd call. The shares
were forfeited and later re-issued at the price of Shs 7 each
Required:
i) Journal entries to record the above transactions
ii) Ledger entries to record the above transactions
iii) Trial balance
Solution
(i) Journal entries
Details Dr Cr
1 Bank A/C 240,000
Application A/C 240,000
Being application money received.
2. Application A/C 40,000
Bank A/C 40,000
Being excess application money refunded to
Unsuccessful applicants.
3. Application A/C 200,000
Share capital A/C 200,000
To close application A/C to share
Capital A/C
4. Allotment A/C 300,000
Share capital A/C 300,000
Being Money due on allotment
5. Bank A/C 300,000
Allotment A/C 300,000
Being money received on allotment
6. 1st call A/C 300,000
Share capital 300,000
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