Book-Keeping and Accountancy · Ch 8 — Company Accounts – Issue of Shares
Issue of Shares for Consideration Other than Cash
Issue of Shares for Consideration Other than Cash
Not every share is issued for cash received through the bank. A company may issue shares directly to vendors or promoters in exchange for assets purchased, or a running business taken over, instead of paying them in cash.
Issue to vendors for purchase of assets. When a company buys assets (machinery, building, and so on) from a vendor and, instead of paying cash, allots shares to the vendor in settlement:
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Sundry Assets A/c ...Dr | XXX (agreed purchase price) | |
| To Vendor A/c | XXX | |
| (Being assets purchased from ___) |
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Vendor A/c ...Dr | XXX | |
| To Share Capital A/c | XXX (face value of shares allotted) | |
| To Securities Premium A/c | XXX (if shares are allotted at a premium) | |
| (Being ___ shares allotted to the vendor in full settlement) |
How many shares are allotted? The number of shares issued to the vendor is worked out by dividing the agreed purchase consideration by the issue price per share (face value, or face value plus premium, whichever the company has decided) — e.g., a vendor owed ₹2,20,000, settled by shares of ₹10 each issued at a premium of ₹1, receives 2,20,000 ÷ 11 = 20,000 shares.
Issue to promoters for services rendered. Similarly, a company may allot shares to its promoters in consideration of the services they rendered in forming the company, instead of paying them a cash fee:
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Goodwill A/c / Incorporation (Preliminary) Expenses A/c ...Dr | XXX | |
| To Share Capital A/c | XXX | |
| (Being ___ shares allotted to promoters for services rendered in forming the company) |
Shares issued in exchange for something other than a cash payment through the bank — e.g., allotted to a vendor in settlement of assets purchased, or to prom …
Equity shares issued by a company to its employees or directors at a discount, or for consideration other than cash, for providing know-how or making value additions, under Section 54 of the Companies Act, 2013 — one of the very few situations in …