Issue of Shares: Meaning, Types, Issue at Par/Premium/Discount, Oversubscription and Pro-Rata Allotment (Basics) Questions

Question 1

Define a share.

Accepted Answer

A share is the smallest unit of ownership in a company representing the shareholder’s interest in its capital.

Question 2

What is authorised share capital?

Accepted Answer

Authorised share capital is the maximum share capital a company is permitted to issue as per its Memorandum of Association.

Question 3

What is securities premium?

Accepted Answer

Securities premium is the amount received over and above the face value of shares when shares are issued at a premium.

Question 4

What is oversubscription?

Accepted Answer

Oversubscription occurs when the number of shares applied for exceeds the number of shares offered by the company.

Question 5

State one type of share capital.

Accepted Answer

Issued share capital is one type of share capital.

Question 6

Differentiate between called-up capital and paid-up capital.

Accepted Answer

Called-up capital is the amount demanded from shareholders, whereas paid-up capital is the amount actually received from them.

Question 7

Explain types of share capital (any three) with meaning.

Accepted Answer

Any three types of share capital:

- **Authorised capital**: maximum capital permitted by MOA.
- **Issued capital**: part of authorised capital offered to the public.
- **Subscribed capital**: part of issued capital applied for and accepted.

(You may also write called-up and paid-up with meanings.)

Question 8

Differentiate between equity shares and preference shares (any three points).

Accepted Answer

Equity vs preference shares:

| Basis | **Equity shares** | **Preference shares** |
|---|---|---|
| Dividend | generally **variable** | generally **fixed** |
| Rights | voting rights (generally) | priority in dividend/capital |
| Risk/return | higher risk & return | lower risk, fixed return |

Thus, preference shareholders get priority, equity shareholders are real owners.

Question 9

Explain issue of shares at par and at premium with examples.

Accepted Answer

If face value is ₹10:

- **Issue at par**: issue price = ₹10.
- **Issue at premium**: issue price > ₹10 (e.g., ₹12). Premium = ₹2 credited to **Securities Premium** A/c.

Thus, premium is the excess amount received over face value.

Question 10

Explain oversubscription and state any three treatments of oversubscription.

Accepted Answer

**Oversubscription** arises when applications received exceed shares offered.

Treatments (any three):
- **Rejection** of some applications and refund.
- **Full allotment** to some applicants and rejection to others.
- **Pro-rata allotment** (proportionate allotment).

Excess application money is either refunded or adjusted against allotment/calls.

Question 11

Write the journal entry for issue of shares at premium when premium is payable on allotment (concept).

Accepted Answer

When shares are issued at premium and **premium is due on allotment**, the allotment due entry is:

**Share Allotment A/c Dr** (including premium)  
  To **Share Capital A/c** (face value portion)  
  To **Securities Premium A/c** (premium portion)

| Portion | Credit |
|---|---|
| Face value | **Share Capital** |
| Premium | **Securities Premium** |

Question 12

Explain calls in arrears and give the basic journal entry for calls in arrears.

Accepted Answer

**Calls in arrears** are unpaid call amounts due from shareholders.

Basic entry:
**Calls in Arrears A/c Dr**  
  To **Share Call A/c** (Allotment/Call)

Flow (write): Call due → Non-payment → Calls in arrears created

Question 13

Pass journal entries for receipt of share application money and transfer of application money to share capital (issue at par).

Accepted Answer

### (1) Receipt of application money
**Bank A/c Dr**  
  To **Share Application A/c**

(Being application money received.)

### (2) Transfer of application money on allotment
**Share Application A/c Dr**  
  To **Share Capital A/c**

(Being application money transferred to share capital for shares allotted.)

| Entry stage | **Keyword** |
|---|---|
| Receipt | **Bank** increases |
| Transfer | **Capital** recognised |

### Conclusion
These entries record collection and capitalisation of application money for allotted shares.

Question 14

Explain pro-rata allotment with a worked example showing adjustment of excess application money.

Accepted Answer

### Meaning
**Pro-rata allotment** means shares are allotted in proportion to applications.

### Worked example
Company offered 10,000 shares; applications received for 12,000 shares.

Pro-rata ratio = 10,000 / 12,000 = **5/6**.

Applicant applied for 600 shares. Application money = ₹2 per share.

- Shares allotted = 600 × 5/6 = **500 shares**
- Application money received = 600 × ₹2 = **₹1,200**
- Application money required (for allotted shares) = 500 × ₹2 = **₹1,000**
- **Excess application money** = ₹200

### Adjustment
Excess ₹200 is either:
- **refunded**, or
- **adjusted** against allotment/calls due.

| Particulars | Amount |
|---|---:|
| Received | 1,200 |
| Required | 1,000 |
| Excess | 200 |

### Conclusion
Correct ratio and excess adjustment is the key scoring part of pro-rata problems.

Question 15

Explain calls in arrears and calls in advance with accounting treatment (basics).

Accepted Answer

### Calls in arrears
**Calls in arrears** are call amounts due but not paid by shareholders.
- It represents **amount receivable** from shareholders.
- Presentation: often shown as deduction from called-up capital (format-based).

### Calls in advance
**Calls in advance** is money received from shareholders before a call is made.
- It is a **liability** until the call becomes due and is adjusted.

| Item | **Nature** | Meaning |
|---|---|---|
| Calls in arrears | **receivable** | unpaid call money |
| Calls in advance | **liability** | money received early |

### Conclusion
Arrears indicate non-payment; advance indicates early payment—both affect the final paid-up position of share capital.

Issue of Shares: Meaning, Types, Issue at Par/Premium/Discount, Oversubscription and Pro-Rata Allotment (Basics)

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