Issue of Shares

Chapter # 1
Accounting for Company

Issuance of Shares & Debentures
Sameer Hussain
www.a4accounting.weebly.com
Accounting for Company Issuance of Shares & Debentures

Chapter # 1
SYLLABUS ACCORDING TO UNIVERSITY OF KARACHI:
Accounting for companies.

Issuance of shares and bonds.
Appropriation of retained earnings.
Declaration and payment of dividends.
WHAT THE EXAMINER USUALLY ASK?
General Journal entries for issuance of shares.

General Journal entries for issuance of debentures/bonds.
Appropriation of retained earnings.
Sameer Hussain
Page 2

Chapter # 1
COMPANY
A corporate enterprise that has a legal identity separate from that of its members; it operates as
one single unit, in the success of which all the members participate. A company may have
limited liability (limited company), so that the liability of the members of the companys debt is
limited. An unlimited company is one in which the liability of the members is not limited in any
way. A company may be registered as a public limited company or a private company. The
shares of a private company may not be offered to the public for sale.
KINDS OF COMPANY
On the Basis of Incorporation:

A company incorporated under a special charter granted by the Queen
of England is called Chartered Company. The company is regulated
Chartered Company: by its charter and companies act does not apply to this kind of
company. The charter also prescribes the nature of business and the
power of the company. Example: Bank of England.
A statutory company is one which is created by a special act of
parliament or a state legislature. The nature and power of such
companies are laid down in the special act under which they are
Statutory Company:
created. Memorandum of association is not required for statutory
company. The word limited is not required after companys name.
Example: State Bank of Pakistan.
A registered company is one which is registered in accordance with
the provision of Companies Ordinance, 1984 and includes the existing
companies formed under any other law. Company comes into
Registered Company:
existence by receiving the certificate of incorporation and governed by
the Companies Ordinance, 1984. Registered company may be public
company or private company.
Private Company:
Private company must be registered under companys law.
The legal position (status) of private company is similar to that of public company.
A private company cannot invite subscription from the public.
Transfer of shares is restricted in a private company.
A private company should have at least two (2) members and maximum number cannot
exceed fifty (50).
A private company is not required to hold a statutory meeting.
Public Company:
Public company is also registered under companys law.
A public company can invite subscription from public.
A public company does not have restriction on transfer of shares.
A public company should have at least seven (7) members. There is no restriction on
upper limit of the members.
A public company has to seek certificate for commencement of business.
A public company is required to file its accounts with the registrar.
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Sameer Hussain

Chapter # 1
On the Basis of Liability:
A company limited by shares is a company in which the liability of its
members is limited by its memorandum to the amount unpaid on the
Limited by Shares:
shares respectively held by them. It may either public or private
company.
A company in which the liability of its members is limited by its
memorandum to such amount as the members may respectively
Limited by Guarantee:
undertake to contribute to the assets of the company in the event of its
being wound up.
Private firm (such as a sole proprietorship or general partnership)
whose owner(s), partners, or stockholders accept personal and
unlimited liability for its debts and obligations in return for avoiding
Unlimited Company: double taxation of a limited company. Unlimited liability firms are
exempt from filing their annual accounts with a public authority (such
as Registrar of Companies) unless they are subsidiaries of limited
liability holding companies. It is also called unlimited company.
SHARE
A unit of ownership that represents an equal proportion of a companys capital is called share. It
entitles its holders (shareholders) to an equal claim on the companys profit and an equal
obligation for the companys debts and losses.
KINDS OF SHARE
There are different kinds of shares which can be raised by companies are:
Ordinary shares.
Preference shares.
1-
ORDINARY SHARES (COMMON STOCKS)
The equity shares or ordinary shares are those shares on which the dividend is paid after the
dividend on fixed rate has been paid on preference shares.
CHARACTERISTICS OF ORDINARY SHARES
2-
No fixed rate of dividend.

Dividend is paid after dividend at a fixed rate is paid on preference shares.
At the time of liquidation, capital on equity is paid after preference shares have been
paid back in full.
Non-redeemable.
Equity shareholders have voting rights & thus, control the working of the company.
Equity shareholders are the virtual owners of the company.
PREFERENCE SHARES (PREFERRED STOCKS)
Preference shares are those shares which carry with them preferential rights for their holders,
i.e. preferential right as to fixed rate of dividend and as to repayment of capital at the time of
winding up of the company.
CHARACTERISTICS OF PREFERENCE SHARES
Fixed rate of dividend.

Priority as to payment of dividend.
Preference as to repayment of capital during liquidation of the company.
Sameer Hussain
Page 4

Chapter # 1
Generally preference shareholders do not have voting rights.
KINDS OF PREFERENCE SHARES
On the Basis of Dividend:

Cumulative Preference They are those shares on which the dividend at a fixed rate goes on
Shares: cumulating till it is all paid.
Non Cumulative These are those shares on which the dividend does not cumulate.
Preference Shares:
On the Basis of Conversion:
Convertible Preference The owners of these shares have the option to convert their preference
Shares: shares into ordinary shares as per the terms of issue.
Non Convertible The owners of these shares do not have any right of converting their
Preference Shares: shares into ordinary shares.
On the Basis of Redemption:
Redeemable Preference These are to be purchased back by the company after a certain period
Shares: as per the terms of issue.
Irredeemable These are not to be purchased back by the company during its lifetime.
Preference Shares:
SHARE CAPITAL
Share capital is the part of the finance of a company received from its members or shareholders
in exchange for shares.
TYPES OF SHARE CAPITAL
The maximum amount of shares capital that may be issued by a

company, as detailed in the companys memorandum of association is
Authorized Share
called authorized capital or registered capital. The authorized share
Capital:
capital must be disclosed on the face of the balance sheet or
alternatively in the notes to the accounts.
Issued Share Capital:
The amount of the authorized share capital of a company for which

shareholders have subscribed is called issued share capital.
Called up capital is the part of the issued share capital of a company

payment for which has either been received (paid up share capital) or
Called Up Share requested but not yet received. Some shares are paid for in part at the
Capital: time of issue, with subsequent requests for the outstanding payment.
When all requests have been paid, the called-up share capital will
equal the paid-up share capital.
The part of the issued share capital of a company that shareholders
Paid Up Share
have paid into the company for their fully paid or partly paid shares is
Capital:
called paid up share capital.
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Sameer Hussain

Chapter # 1
SHARE PREMIUM
Share premium is the amount payable for shares in a company and issued by the company itself
in excess of their nominal value. Share premium received by a company must be credited to a
share premium account, which cannot be used for paying dividends to the shareholders.
SHARE DISCOUNT
A share issued at a price below its par value. The discount is the difference between the par
value and the issue price.
PRELIMINARY EXPENSES
Expenses incurred for the registration and documentation in the setting up of a company is
called preliminary expenses. It is treated as current asset in the balance sheet.
ARTICLES OF ASSOCIATION
Article of association is the document that governs the running of a company. It sets out voting
rights of shareholders, conduct of shareholders and directors meetings, power of management,
etc.
MEMORANDUM OF ASSOCIATION
Memorandum of association is an official document setting out the detail of a companys

existence. It must be signed by the first subscribers and must contain the following information:
The name of company.
The address of the registered office.
The objects of the company.
A statement that the company is a public company.
A statement of limited liability.
Amount of the guarantee.
The amount of authorized share capital and its division.
GENERAL JOURNAL ENTRIES

ISSUE OF SHARES AT PAR
Bank
DR. (with amount received)

Ordinary shares application
CR. (with amount received)
(To record the cash received from general public at par)
----------------------------------------------------------------------------------------------------------------Ordinary shares application
DR. (with the amount of shares issued)
Ordinary shares capital
CR. (with the amount of shares issued)
(To record the shares issued to general public at par)
-----------------------------------------------------------------------------------------------------------------
ILLUSTRATION # 1:
(ISSUED AT PAR)
Paramount Co. Ltd. has an authorized capital of Rs.250,000 divided into 25,000 ordinary shares
of Rs.10 each. The company invites application for 3,000 ordinary shares at par from public
along with money. The last day, the banker of the company has informed that only 3,000
ordinary shares applications were received. The management of the company then decided to
issue the same to the public.
REQUIRED
Prepare necessary journal entries.
Sameer Hussain
Page 6

Chapter # 1
SOLUTION # 1:
Date
1
2
Paramount Co. Ltd.

General Journal
Particulars
P/R
Bank (3,000 x 10)

Ordinary shares applications
(To record the shares applications received at par)
Ordinary shares capital (3,000 x 10)
(To record the shares issued to the public at par)
ILLUSTRATION # 2:
Debit
30,000
Credit
30,000
30,000
30,000
(ISSUED AT PAR)
Diamond Co. Ltd. is offering 35,000 ordinary shares of Rs.10 each to the public along with
money. The banker of the company reported that they have received 55,000 ordinary shares
application at par upto the last day. The company has decided to issue 35,000 ordinary shares
and instructed to the banker that excess amount refund to whom shares were not allotted.
REQUIRED
SOLUTION # 2:
Date
1
2
3
Diamond Co. Ltd.

General Journal
Particulars
P/R
Bank (55,000 x 10)

(To record the shares applications received at par)
(To record the shares issued to the public at par)
Bank (20,000 x 10)
(To record the refund of excess money to the public
at par)
Debit
550,000
Credit
550,000
350,000
350,000
200,000
200,000
ISSUE OF SHARES AT PREMIUM

Bank

(To record the cash received from general public at premium)
DR. (amount of shares issued at par plus premium)
CR. (with the amount of shares issued at par)
Ordinary shares premium
CR. (with the premium amount)
(To record the shares issued to the public at premium)
DR. (with the amount refund to public)
Bank
CR. (with the amount refund to public)
(To record the refund of excess money to public)
-----------------------------------------------------------------------------------------------------------------
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Sameer Hussain

Chapter # 1
ILLUSTRATION # 3:
(ISSUED AT PREMIUM)
Regal Ltd. has registered capital of Rs.3,000,000 divided into 150,000 ordinary shares of Rs.20
each. The company invites applications for 28,000 ordinary shares of Rs.20 each at Rs.26 each
along with money. The banker has reported that they have received 28,000 ordinary shares
applications at premium. The company decided to issue the same number of shares to the
public.
REQUIRED
SOLUTION # 3:
Date
1
Regal Ltd.
General Journal
Particulars
Bank (28,000 x 26)
(To record the shares applications received at
premium)
Ordinary shares premium (28,000 x 6)
(To record the shares issued to the public at
premium)
ILLUSTRATION # 4:
P/R
Debit
728,000
728,000
Credit
728,000
560,000
168,000
(ISSUED AT PREMIUM)
Unilever Ltd. invites shares applications from 1 April to 10 April for 26,000 ordinary shares of
Rs.10 each with the premium of Rs.2 each. On 10 April, the banker of the company informed to
the company that they have received total 42,000 shares application along with money. On 18
April the board has decided to issue 26,000 ordinary shares at premium after balloting and
instructed to banker that they must refund the amount to whom they have not issued shares.
REQUIRED
SOLUTION # 4:
Date
10
April
18
April
18
April
Unilever Ltd.
General Journal
Particulars
Bank (42,000 x 12)
premium)
Ordinary shares premium (26,000 x 2)
premium)
Bank (16,000 x 12)
(To record the refund of excess money to the public
at premium)
Sameer Hussain
Page 8
P/R
Debit
504,000
Credit
504,000
312,000
260,000
52,000
192,000
192,000

Chapter # 1
ISSUE OF SHARES AT DISCOUNT

Bank

(To record the amount received from public at discount)
DR. (with the amount of shares issued at discount)
Ordinary shares discount
DR. (with the amount of discount)
(To record the shares issued to public at discount)
----------------------------------------------------------------------------------------------------------------Bank
DR. (with the amount of shares issued at discount)
Ordinary shares discount
DR. (with the amount of discount)
(To record the shares issued to underwriter as per agreement)
-----------------------------------------------------------------------------------------------------------------
ILLUSTRATION # 5:
(ISSUED AT DISCOUNT)
Pepsi Co. Ltd. has an authorized capital of Rs.2,500,000 divided into 100,000 ordinary shares of
Rs.25 each. The company invites applications for 35,000 ordinary shares of Rs.25 each at Rs.20
each for the public with the agreement by underwriter. On the last day, the banker has reported
that they have received 26,000 ordinary shares applications from public. The management then
decided to issue the 26,000 ordinary shares to the public and remaining shares will be taken up
by the underwriter as per agreement.
REQUIRED
SOLUTION # 5:
Date
1
Pepsi Co. Ltd.

General Journal
Particulars
Bank (26,000 x 20)
discount)
Ordinary shares discount (26,000 x 5)
discount)
Bank (9,000 x 20)
Ordinary shares discount (9,000 x 5)
(To record the shares issued to the underwriter at
discount as per agreement)
P/R
Debit
520,000
Credit
520,000
520,000
130,000
650,000
180,000
45,000
225,000
DEBENTURES
Debentures are the most common form of long-term loan taken by a company. It is usually a
loan repayable at a fixed date, although some debentures are irredeemable securities. Most
debentures also pay a fixed rate of interest, and this interest must be paid before a dividend is
paid to shareholders.
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Sameer Hussain

Chapter # 1
ISSUE OF DEBENTURES AT PAR & PAYBACK AT PAR

Bank
DR. (with the amount received)

Debentures payable
CR. (with nominal value)
(To record the debentures issued at par and payback at par)
-----------------------------------------------------------------------------------------------------------------
ILLUSTRATION # 6:
(ISSUED AT PAR & PAYBACK AT PAR)
The company has issued 15,000 7% debentures of Rs.100 each at par and agreed to payback
after 3 years at par.
REQUIRED
SOLUTION # 6:
Date
1
General Journal
Particulars
P/R
Bank (15,000 x 100)

7% Debentures payable (15,000 x 100)
(To record the issue of 7% debentures at par and
payback at par after 3 years)
Debit
1,500,000
Credit
1,500,000
ISSUE OF DEBENTURES AT PREMIUM & PAYBACK AT PAR

Bank

Debentures payable
CR. (with par value)
Premium on debenture
CR. (with amount received in premium)
(To record the debentures issued at premium and payback at par)
-----------------------------------------------------------------------------------------------------------------
ILLUSTRATION # 7:
(ISSUED AT PREMIUM & PAYBACK AT PAR)
The company has issued 23,000 10% debentures of Rs.100 each at Rs.105 and agreed to
payback after 5 years at Rs.100 each.
REQUIRED
SOLUTION # 7:
Date
1
General Journal
Particulars
P/R
Bank (23,000 x 105)

Premium on debentures (23,000 x 5)
(To record the issue of 10% debentures at premium
and payback at par after 5 years)
Debit
2,415,000
Credit
2,300,000
115,000
ISSUE OF DEBENTURES AT DISCOUNT & PAYBACK AT PAR
Bank
Discount on debenture
DR. (with discount amount)
Debentures payable
CR (with par value)
(To record the debentures issued at discount and payback at par)
-----------------------------------------------------------------------------------------------------------------
Sameer Hussain
Page 10

Chapter # 1
ILLUSTRATION # 8:
(ISSUED AT DISCOUNT & PAYBACK AT PAR)
The company has issued 30,000 8% debentures of Rs.100 each at Rs.95 and redeemable after 5
years at Rs.100 each.
REQUIRED
SOLUTION # 8:
Date
1
General Journal
Particulars
Bank (30,000 x 95)
Discount on debentures (30,000 x 5)
(To record the issue of 8% debentures at discount
and payback at par after 5 years)
P/R
Debit
2,850,000
150,000
Credit
3,000,000
ISSUE OF DEBENTURES AT PAR & PAYBACK AT PREMIUM
Bank
Loss on redemption
DR. (with amount of loss at the time of payback)
Debentures payable
Premium on redemption
CR. (the amount will be paid as premium)
(To record the debentures issued at par and payback at premium)
-----------------------------------------------------------------------------------------------------------------
ILLUSTRATION # 9:
(ISSUED AT PAR & PAYBACK AT PREMIUM)
The company has issued 26,000 6% debentures of Rs.100 each at par and redeemable after 6
REQUIRED
SOLUTION # 9:
Date
1
General Journal
Particulars
Bank (26,000 x 100)
Loss on redemption (26,000 x 6)
Premium on redemption (26,000 x 6)
(To record the issue of 6% debentures at par and
payback at premium after 6 years)
P/R
Debit
2,600,000
156,000
Credit
2,600,000
156,000
ISSUE OF DEBENTURES AT DISCOUNT & PAYBACK AT PREMIUM
Bank
Loss on redemption
DR. (with amount of loss at the time of payback)
Discount on debenture
DR. (with the discount amount)
Debentures payable
Premium on redemption
CR. (the amount will be paid as premium)
(To record the debentures issued at discount and payback at premium)
-----------------------------------------------------------------------------------------------------------------
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Sameer Hussain

Chapter # 1
ILLUSTRATION # 10:
(ISSUED AT DISCOUNT & PAYBACK AT PREMIUM)
The company has issued 35,000 9% debentures of Rs.100 each at Rs.93 and redeemable after 8
REQUIRED
SOLUTION # 10:
Date
1
General Journal
Particulars
Bank (35,000 x 93)
Loss on redemption (35,000 x 6)
Discount on debentures (35,000 x 7)
Premium on redemption (35,000 x 6)
(To record the issue of 9% debentures at discount
and payback at premium after 8 years)
P/R
Debit
3,255,000
210,000
245,000
Credit
3,500,000
210,000
RETAINED EARNINGS
Retained earnings are accumulated earnings that have not been distributed to shareholders but
rather reinvested in the business. A company's retained earnings are disclosed at or near the
bottom of the shareholders equity section of the balance sheet. Accountants may prepare a
separate "statement of retained earnings" that shows the change in retained earnings during the
accounting period; however, the statement of retained earnings is often combined with the
income statement.
RESERVES AND FUNDS

RESERVE
1. It is created out of retained earnings.
2. Reserve is a voluntary provision made
out of net income.
3. Reserve is part of owners equity.
4. It is shown on the credit side of the
balance sheet under owners equity.
5. It represents a portion of profits or
liability.
6. Reserve has normally credit balance.
7. It is part of retained earnings.
FUND
1. It is created out of cash.
2. A provision is a change expense and
revenue.
3. Fund is an asset.
4. It is shown on the debit side of the
balance sheet among assets.
5. It represents on assets.
6. Fund has normally debit balance.
7. It is not part of retained earnings.
CAPITAL RESERVE
Capital reserves are the reserves that may not be distributed according to Company Act 1985.
They include share capital, share premium, capital redemption reserve, certain unrealized
profits, or any other reserves that the company may not distribute according to some other act
or its own article of association.
SECRET RESERVE
Funds held in the reserve but not disclosed in the balance sheet. They arise when an asset is
deliberately either undisclosed or undervalued.
VALUATION RESERVE
Allowance, created by a charge against earnings, to provide for changes in the value of a
company's assets. Examples include accumulated depreciation and allowance for bad debts.
Sameer Hussain
Page 12

Chapter # 1
SURPLUS RESERVE
Amount appropriated out of earned surplus (retained earnings) for future planned or
unforeseen expenditure.
LIABILITY RESERVE
Liability reserve is used to reflect a known liability.
RESERVES
No.
Purpose
Entry to Create
Reporting on
Balance Sheet
Nature of Reserve: Contra Assets or Valuation Reserve
1. To decrease
Bad debts expense
Deduction in
accounts receivable (Dr.)
accounts
to their realizable
Allowance for bad
receivable
value
debts (Cr.)
2. To accumulate
Depreciation expense Deduction in
expired cost of
(Dr.)
related fixed
fixed assets
Allowance for
asset
depreciation (Cr.)
Nature of Reserve: Estimated Liability
3. To recognize
Income tax expense
Shown as a
estimated liability
(Dr.)
current liability
Reserve for income
tax (Cr.)
Nature of Reserve: Appropriation of Retained Earnings
4. To restrict
Retained earnings
Shown as a part
distributable profit (Dr.)
of retained
for building
Reserve for building
earnings
extension
extension (Cr.)
5. To restrict
Retained earnings
Shown as a part
of retained
for plant expansion Reserve for plant
earnings
expansion (Cr.)
6 To restrict
Retained earnings
Shown as a part
of retained
for debenture
Reserve for debenture earnings
redemption
redemption (Cr.)
7 To restrict
Retained earnings
Shown as a part
of retained
for contingencies
Reserve for
earnings
contingencies (Cr.)
Entry to Write Off

Allowance for bad
debts (Dr.)
Accounts receivable
(Cr.)
Allowance for
depreciation (Dr.)
Fixed asset (Cr.)
Reserve for income tax
(Dr.)
Bank (Cr.)
Reserve for building
extension (Dr.)
Retained earnings
(Cr.)
Reserve for plant
expansion (Dr.)
Retained earnings
(Cr.)
Reserve for debenture
redemption (Dr.)
Retained earnings
(Cr.)
Reserve for
contingencies (Dr.)
Retained earnings
(Cr.)
FUNDS
No.
Purpose
Entry to Create
Nature of Reserve: Petty Cash

1. To set aside cash
Petty cash fund (Dr.)
for petty expenses
Bank (Cr.)
Nature of Reserve: Sinking
2. To set aside cash
Sinking fund (Dr.)
for sinking fund
Bank (Cr.)
Page 13
Reporting on
Balance Sheet
Entry to Write Off
Shown as a part
of cash
All expenses (Dr.)

Petty cash fund (Cr.)
Shown as a part
of cash
Bonds payable (Dr.)

Sinking fund (Cr.)
Sameer Hussain

Chapter # 1
ILLUSTRATION # 11:
(RETAINED EARNINGS)
The retained earnings account on ABC Company Ltd. showed a credit balance of Rs.400,000 on
December 31, 2010. The expense and revenue summary for the year ending on that date
showed a net income of Rs.150,000 which is transferred to retained earnings account. The
company decided on December 31, 2010 as under:
(a) To declare a cash dividend of Rs.50,000 and stock dividend of Rs.40,000.
(b) To appropriate Rs.40,000 for reserve for plant expansion.
(c) To appropriate Rs.27,000 for reserve for contingencies.
(d) To establish reserve for building extension for Rs.80,000.
(e) Cash dividend paid through bank & 4,000 shares issued in settlement of stock dividend.
REQUIRED
Give entries in General Journal to give effect to the above decisions.
SOLUTION # 11:
Date
1
2
3
4
5
6
7
8
ABC Company Ltd.

General Journal
Particulars
Expense and revenue summary
Retained earnings
(To record the transfer of net income to the retained
earnings account)
Retained earnings
Cash dividend payable
(To record the declaration of cash dividend)
Retained earnings
Stock dividend payable
(To record the declaration of stock dividend)
Retained earnings
Reserve for plant expansion
(To record the reserve for plant expansion)
Retained earnings
Reserve for contingencies
(To record the reserve for contingencies)
Retained earnings
Reserve for building extension
(To record the reserve for building extension)
Bank
(To record the payment of cash dividend)
Stock dividend payable
(To record the issue of shares against of stock dividend)
Sameer Hussain
Page 14
P/R
Debit
150,000
Credit
150,000
50,000
50,000
40,000
40,000
40,000
40,000
27,000
27,000
80,000
80,000
50,000
50,000
40,000
40,000

Chapter # 1
PRACTICE QUESTIONS
Question # 1:
1998 Private (Principles of Accounting B.Com I) UOK
Mind Corporation completed the following transaction for the month of January 1998.
Jan. 1 Purchased land for Rs.100,000 and in consideration issued shares of Rs.10 each. The
market price of the share was Rs.12.50.
Jan. 5 Purchased machinery and issued 12,500 shares of Rs.10 each. The market price of share
was Rs.12.00.
Jan. 10 The Corporation allotted 20,000 shares of Rs.10 each to the promoters in consideration
of services rendered.
Jan. 20 The Corporation issued 9,000 share of Rs.10 each in full settlement of bonds payable
Rs.100,000.
Jan. 25 Issued 1,000 debentures of Rs.100 each redeemable after five years at Rs.105.
Jan. 30 Issued 2,000 debentures of Rs.100 each at Rs.95 redeemable after five years.
Jan. 31 Paid preliminary expenses Rs.10,000.
REQUIRED
Give dated entries in the General Journal with narration to record the above transactions.
Question # 2:
2004 Private (Principles of Accounting B.Com I) UOK
Nishat Co. Ltd. made the following issuance of shares and debentures:
(a) The company offered 60,000 ordinary shares of Rs.10 each at Rs.12 per share to public;
applications were received for 70,000 shares. 60,000 shares were allotted and the
excess money was refunded.
(b) Land was acquired by issuing 40,000 ordinary shares of Rs.10 each. The market price
per share was Rs.15.
(c) The promoters of the company were allotted 6,000 ordinary shares of Rs.10 each in
consideration of their services rendered.
(d) Mortgage payable of Rs.60,000 was settled by the issue of ordinary shares of Rs.10 each.
The market value of the share was Rs.15.
(e) Received Rs.95,000 against the issue of 3,000 10% debentures each redeemable at par
after 5 years.
REQUIRED
Record the above transactions in the General Journal of the company.
Question # 3:
2005 Private (Principles of Accounting B.Com I)UOK
Chuhan & Co. Ltd. was registered with a capital of Rs.20,000,000 ordinary shares of Rs.10 each.
It was incorporated by acquiring the running business of Yasir, a sole trader. The balance sheet
of the business of Yasir as of January 01, 2005 was as under:
ASSETS
EQUITIES
Cash
40,000 Accounts payable
40,000
Accounts receivable
120,000 Notes payable
40,000
Merchandise inventory
160,000 Allowance for bad debts
8,000
Office supplies
8,000 Accumulated depreciation
240,000
Furniture
400,000 Yasir Capital
400,000
728,000
728,000
Chuhan & Co. Ltd. took over the business assets other than cash and assumed the liabilities. In
exchange, the company issued 30,000 shares of Rs.10 each at Rs.15 per share. The company also
made an additional issue of 10,000 shares of Rs.10 each at Rs.15 per share to the public, which
were subscribed and paid for.
REQUIRED
(i) Give the necessary entries in the General Journal of Chuhan & Company.
(ii) Prepare initial balance sheet.
Page 15
Sameer Hussain

Chapter # 1
Question # 4:
1989 Regular & Private (Principles of Accounting B.Com I)UOK
Adnan & Co. Ltd. was registered with a capital of Rs.1,000,000 divided into 100,000 ordinary
shares of Rs.10 each. It started functioning by acquiring the business of Naeem, a sole trader.
The balance sheet of the business of Naeem as of the date of purchase was as under:
ASSETS
EQUITIES
Cash
10,000 Accounts payable
20,000
Accounts receivable
30,000
Naeem Capital
100,000
Less: All for bad debts
(2,000)
28,000
Merchandise inventory
40,000
Office supplies
2,000
Equipment
100,000
Less: All for depreciation
(60,000)
40,000
120,000
120,000
Adnan & Co. Ltd. takes over the business assets other than cash and assumed the liabilities. In
exchange, the company issued 9,000 shares of Rs.10 each as fully paid. The company also made
an additional issue of 15,000 shares of Rs.10 each at Rs.12 per share to the public, which were
fully subscribed and paid for. The company also paid for preliminary expenses amounting to
Rs.10,000.
REQUIRED
(i) Give entries in the General Journal of Adnan & Co. Ltd.
(ii) Prepare balance sheet of Adnan & Co. Ltd.
Question # 5:
Karim Company Ltd. completed the following transactions:
(1) The company offered 70,000 shares of Rs.10 each at Rs.12 but received applications for
80,000 shares. The company finalized the allotment and refunded the excess amount.
(2) The company purchased a running business and acquired the following assets and
liabilities:
Merchandise inventory Rs.15,000; Office equipment Rs.50,000; Machinery Rs.40,000;
Accounts payable Rs.5,000. Purchase consideration of the above business was paid by
issue of 9,000 shares of Rs.10 each fully paid-up.
(3) Purchased a machine worth Rs.200,000 and in consideration issued shares of Rs.10
each. Each share had a market value of Rs.12.50.
(4) Purchased office equipment and in consideration issued 10,000 shares of Rs.10 each.
The market value of the share was Rs.13.
(5) Issued 2,000 10% debentures of Rs.100 each at Rs.95 redeemable after five years at
Rs.105.
(6) The company declared stock dividend Rs.50,000 and issued 4,500 shares of Rs.10 each.
REQUIRED
Give journal entries in proper form of the above transactions on the books of Karim Co. Ltd.
Question # 6:
1995 Regular (Principles of Accounting B.Com I)UOK
Najeeb & Company Ltd. made the following issuance:
1) The company allotted 35,000 ordinary shares of Rs.10 each in consideration of acquiring
assets and liabilities of a running business. The agreed value of assets and liabilities
acquired is as follows:
Accounts receivable Rs.70,000; Furniture Rs.40,000; Building Rs.230,000; Machinery
Rs.100,000 and Accounts payable Rs.50,000.
2) The company allotted 8,500 ordinary shares of Rs.10 each in full settlement of
debentures payable of Rs.90,000.
Sameer Hussain
Page 16

Chapter # 1
3) The company allotted ordinary shares of Rs.10 each in consideration of stock dividend
of Rs.60,000. The share had a market price of Rs.12 per share.
4) The promoters of the company were allotted 15,000 ordinary shares of Rs.10 each in
consideration of the services rendered to the company.
5) Purchased equipment by issuing 6,000 ordinary shares of Rs.10 each. The market value
of share was Rs.14 per share.
6) Received cash Rs.110,000 by issue of 12,000, 10% debentures of Rs.10 each, redeemable
after 5 years at Rs.113 each.
REQUIRED
Question # 7:
2007 Regular (Advanced & Cost Accounting)UOK
Following are the some of the transactions completed by Asif Corporation Ltd. The corporation
has an authorized capital of Rs.5,000,000 divided into 500,000 shares of Rs.10 each.
Acquired office equipment costing Rs.500,000 and in payment issued sufficient number of
shares of Rs.10 each fully paid upto the vendor. The market price of the share is Rs.12.50 each.
Issued 2,000 6% debentures of Rs.100 each at Rs.103 redeemable at Rs.105 each.
The company issued 40,000 shares to capitalize profit of Rs.500,000.
Building extension reserve was increased by Rs.300,000.
Restriction imposed on retained earnings in the form of contingencies was removed
Rs.600,000.
REQUIRED
Give entries in the General Journal to record the above transactions.
Question # 8:
The following transactions relate to Bhutto Limited.
(a) Received applications for 100,000 ordinary shares of Rs.10 each. Issued allotment
letters for 80,000 shares and refunded the excess application money.
(b) Issued 6,000 ordinary shares of Rs.10 each at a market price of Rs.12 per share for
acquiring land.
(c) Issued ordinary shares of Rs.10 each at a premium of Rs.2 per share, in settlement of
bonds payable Rs.60,000.
(d) Declared cash dividend of Rs.30,000 and stock dividend of Rs.50,000.
(e) Appropriate Rs.150,000 for contingencies.
(f) Issued ordinary shares of Rs.10 each in payment of stock dividend of Rs.50,000.
(g) Issued dividend warrants in payment of cash dividend of Rs.30,000.
(h) Unclaimed dividend of Rs.5,000 as per bank statement.
REQUIRED
Give general journal entries for the above transactions.
Question # 9:
Al-Azam Ltd. entered into the following transactions:
(1) Issued 50,000 ordinary shares of Rs.10 par at Rs.12 each for cash.
(2) Issued 10,000 ordinary shares of Rs.10 in acquisition of machinery costing Rs.120,000.
(3) Declared cash dividend Rs.150,000 and stock dividend Rs.200,000. Retained earnings
account is having sufficient balance.
(4) Bank reported that the cash dividend in the amount of Rs.30,000 was unclaimed.
(5) Issued 17,500 ordinary shares of Rs.10 in settlement of stock dividend.
(6) Issued to directors 15,000 shares of Rs.10 each in recognition of their services rendered
to the company.
(7) Issued 1,000 debentures of Rs.100 each at Rs.110 payable after 5 years at Rs.120.
REQUIRED
Give the necessary journal entries to record the above transactions in proper form.
Page 17
Sameer Hussain

Chapter # 1
Question # 10:
The shares issue transactions of Safeer Co. Ltd. for the year ended on 30th September 2003:
(a) The company issued for cash 400,000 shares of Rs.10 each at Rs.13 each.
(b) The promoters were allotted 10,000 shares of Rs.10 each for services.
(c) The company bought equipment costing Rs.100,000. Rs.10 shares were issued in
exchange. The market value per share was Rs.12.50.
(d) For land purchased worth Rs.750,000, 80,000 shares of Rs.10 each were issued.
(e) Declared dividend 25% on the shares issued above.
(f) Paid the dividend through bank.
REQUIRED
(i) Journalize the above transactions.
(ii) Prepare initial balance sheet of the company.
Question # 11:
2004 Regular (Principles of Accounting B.Com I) UOK
The following transactions related to Salman Co. Ltd.:
1. The company offered 50,000 shares of Rs.10 each at Rs.15. The company received
application for 65,000 shares. The company finalized the allotment and the excess
money was refunded.
2. The company declared stock dividend of Rs.100,000. The company issued 9,000 shares
of Rs.10 each in settlement of stock dividend.
3. The company purchased land worth Rs.500,000 and issued 45,000 shares of Rs.10 each
to vendor.
4. The company purchased machine and in consideration thereof issued 16,000 shares of
Rs.10 each. The market price of the share was Rs.12.50.
5. The company issued 2,000 debentures of Rs.100 each at par, repayable after five years
at 5% redemption premium.
6. The company issued 1,000 debentures of Rs.100 each at Rs.95 repayable after five years
at Rs.105.
REQUIRED
Question # 12:
The following transactions relate to Khan & Co. Ltd.
(a) The company received application for 200,000 ordinary shares of Rs.10 each. Allotment
letters were issued for 150,000 shares and the excess subscription amount was
refunded.
(b) The promoters paid Rs.20,000 for printing of Memorandum of Association of the
company.
(c) A computer was acquired by issuing 4,000 ordinary shares of Rs.10 each fully paid up.
The market price per share was Rs.18.
(d) Declared a cash dividend of Rs.200,000 and stock dividend of Rs.300,000.
(e) Created reserve for debenture redemption in the amount of Rs.15,000
(f) Issued 5,000 debentures of Rs.100 each at Rs.90 redeemable after 7 years.
(g) The bank reported that the amount of dividend paid was Rs.150,000 and the unclaimed
dividend was Rs.50,000.
(h) The company issued 3,000 12% 5 years debentures of Rs.100 at par redeemable after 5
years at Rs.105.
REQUIRED
Give journal entries for the above transactions.
Sameer Hussain
Page 18

Chapter # 1
Question # 13:
Siddique Company Ltd. is registered with an authorized capital of Rs.1,000,000 divided into
100,000 ordinary shares of Rs.10 each. The company issued its shares as under:
(a) The company offered to the public 50,000 shares at par. Applications for 40,000 shares
were received. As per agreement the underwriters subscribed for the balance of their
shares. The directors finalized the allotment of 40,000 shares to the public and 10,000
shares to the underwriters. The company paid 2% underwriting commission on shares
subscribed to them.
(b) The company purchased a machine costing Rs.72,000 and issued sufficient shares. The
shares had a market value of Rs.8/= each.
(c) The company allotted necessary shares in consideration of stock dividend Rs.50,000.
The shares had a market value of Rs.12.50.
(d) The company issued 1,000 shares in exchange for services rendered to the company.
The stock holders agreed that these services were worth Rs.15,000.
REQUIRED
Question # 14:
1992 Private (Principles of Accounting B.Com I)UOK
The equities section of Ghani Ltd. at December 31, 1991 was as under:
Authorized Capital:
200,000 shares of Rs.10 par
Rs.
2,000,000
Paid Up Capital:
100,000 shares of Rs.10 par
Rs.
1,000,000
Premium on shares
Rs.
150,000
Retained earnings
Rs.
450,000
Reserve for asset replacement
Rs.
100,000
Stock dividend to be distributed
Rs.
120,000
Rs.
80,000
Accounts payable
Rs.
50,000
Bonds payable
Rs.
150,000
In the succeeding year, the Co. performed the following transactions, in addition to routine
business:
(1) The dividend payable was paid.
(2) 12,000 shares of Rs.10 par were allotted in settlement of the stock dividend.
(3) 10,000 shares of Rs.10 were allotted in full settlement of bonds payable of Rs.150,000.
(4) The reserve for asset replacement was disposed-off because the asset was replaced.
(5) Created a reserve for contingencies in the amount of Rs.40,000.
(6) Purchased a machinery for Rs.75,000 by allotting sufficient number of shares of Rs.10
par at a premium of Rs.5 per share.
REQUIRED
(a) Record the above transactions in the General Journal giving explanation below each
entry.
(b) Reproduce the equities section in proper form after incorporating the effects of the
above transactions.
Page 19
Sameer Hussain

Chapter # 1
Question # 15:
The shareholders equity section of balance sheet of Wasim Ltd. as on June 30, 2000 was as
under:Authorized capital (2,000,000 shares of Rs.10 par)
Rs.
20,000,000
Paid up capital 90,000 shares of Rs.10 par
Rs.
900,000
Premium on shares
Rs.
180,000
Retained earnings
Rs.
520,000
Reserve for building extension
Rs.
150,000
During the quarter ended September 30, the company performed the following transactions in
addition to normal business:
(a) The company received application along with application money for 80,000 shares in
response to the issue of 100,000 shares of Rs.10 par at Rs.15/= to the public. The board
of directors finalized the allotment by allotting 80,000 shares to the public and 20,000
shares to the underwriters.
(b) Closed the reserve for building extension account as the purpose is over.
(c) A computer costing Rs.90,000 was acquired by allotting 7,000 shares of Rs.10/= par.
(d) Purchased a fax machine for Rs.75,000 by allotting shares at the price of Rs.12.50 per
share as quoted at the stock exchange.
(e) Issued 5,000 10% 5 year bonds of Rs.100 par for cash to be redeemed at Rs.110 at
maturity.
(f) Created a reserve for redemption of bonds by Rs.40,000.
(g) Declared interim stock dividend of Rs.150,000 and cash dividend of Rs.200,000.
(h) Allotted shares of Rs.10 par at a premium of Rs.5 per share in settlement of the stock
dividend.
REQUIRED
(i) Record the above transactions in General Journal.
(ii) Prepare a partial Balance Sheet reporting the above facts.
Sameer Hussain
Page 20

Issue of Shares

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Chapter # 1

Accounting for Company

Accounting for Company Issuance of Shares & Debentures

SYLLABUS ACCORDING TO UNIVERSITY OF KARACHI:

Accounting for companies.

WHAT THE EXAMINER USUALLY ASK?

General Journal entries for issuance of shares.

Accounting for Company Issuance of Shares & Debentures

On the Basis of Incorporation:

Accounting for Company Issuance of Shares & Debentures

ORDINARY SHARES (COMMON STOCKS)

CHARACTERISTICS OF ORDINARY SHARES

No fixed rate of dividend.

PREFERENCE SHARES (PREFERRED STOCKS)

CHARACTERISTICS OF PREFERENCE SHARES

Fixed rate of dividend.

Accounting for Company Issuance of Shares & Debentures

Generally preference shareholders do not have voting rights.

KINDS OF PREFERENCE SHARES

On the Basis of Dividend:

TYPES OF SHARE CAPITAL

The maximum amount of shares capital that may be issued by a

Issued Share Capital:

The amount of the authorized share capital of a company for which

Called up capital is the part of the issued share capital of a company

Accounting for Company Issuance of Shares & Debentures

Memorandum of association is an official document setting out the detail of a companys

GENERAL JOURNAL ENTRIES

DR. (with amount received)

Accounting for Company Issuance of Shares & Debentures

Paramount Co. Ltd.

Bank (3,000 x 10)

Diamond Co. Ltd.

Bank (55,000 x 10)

ISSUE OF SHARES AT PREMIUM

DR. (with amount received)

Accounting for Company Issuance of Shares & Debentures

Accounting for Company Issuance of Shares & Debentures

ISSUE OF SHARES AT DISCOUNT

DR. (with amount received)

Pepsi Co. Ltd.

Accounting for Company Issuance of Shares & Debentures

ISSUE OF DEBENTURES AT PAR & PAYBACK AT PAR

DR. (with the amount received)

(ISSUED AT PAR & PAYBACK AT PAR)

Bank (15,000 x 100)

ISSUE OF DEBENTURES AT PREMIUM & PAYBACK AT PAR

DR. (with amount received)

(ISSUED AT PREMIUM & PAYBACK AT PAR)

Bank (23,000 x 105)

ISSUE OF DEBENTURES AT DISCOUNT & PAYBACK AT PAR

Accounting for Company Issuance of Shares & Debentures

(ISSUED AT DISCOUNT & PAYBACK AT PAR)

ISSUE OF DEBENTURES AT PAR & PAYBACK AT PREMIUM

(ISSUED AT PAR & PAYBACK AT PREMIUM)

ISSUE OF DEBENTURES AT DISCOUNT & PAYBACK AT PREMIUM

Accounting for Company Issuance of Shares & Debentures

(ISSUED AT DISCOUNT & PAYBACK AT PREMIUM)

RESERVES AND FUNDS

Accounting for Company Issuance of Shares & Debentures

Liability reserve is used to reflect a known liability.

Entry to Write Off

Nature of Reserve: Petty Cash

Entry to Write Off