Issue and allotment of shares

The essentials

Shares may be issued at par (at face value) or at a premium (above face value). The amount is usually collected in instalments: application, allotment and one or more calls. If applications exceed the shares offered (over-subscription), the company may reject some applications, allot on a pro-rata basis, or do both; excess application money is adjusted against allotment or refunded. Shares may also be issued to vendors for assets bought (consideration other than cash).

Key points

• Application received: Bank A/c Dr; To Share Application A/c.
• Premium is credited to Securities Premium A/c, usually with allotment money.
• Calls in arrears: amount called but unpaid. Calls in advance: amount received before it is called.
• Under Table F, interest may be charged on calls in arrears at up to 10% per annum and paid on calls in advance at up to 12% per annum.
• Shares to vendors: Vendor A/c Dr; To Share Capital A/c; To Securities Premium A/c. Number of shares = Amount payable ÷ Issue price.
• A company cannot allot shares unless the minimum subscription (90% of the issue, under SEBI rules) is received.

Exam tips

Track per-share amounts: applied, allotted, excess. For pro-rata allotment, excess application money = (shares applied − shares allotted) × application money per share, if not refunded.

Common mistakes

• Crediting premium to Share Capital Account.
• Dividing purchase consideration by face value instead of issue price.