Issue of Shares for Cash at Par — Application, Allotment and Calls

When a company wants to raise capital, it invites the public through a prospectus to apply for shares. The amount payable on a share is almost never collected in one lump sum — it is collected in stages, each stage requiring its own journal entries. This section covers the par (face-value) case; issue at a premium is covered in the next section.

Stage 1 — Application. Prospective investors submit an application form along with the application money (a portion of the face value) to the company's bank. Two entries are passed:

Stage 2 — Allotment. Once shares are allotted — assuming, for now, applications exactly equal the shares offered, i.e. no over-subscription (that case is covered separately later in this chapter) — the next instalment, the allotment money, becomes due and is then received:

Stage 3 — Calls. Any remaining balance of the face value is collected through one or more calls (First Call, Second and Final Call, and so on, as decided by the Board), each following the identical two-entry pattern — a 'due' entry, then a 'received' entry: