Bansal Heavy Machine Ltd. purchased machine worth Rs. 3,80,000 from Handa Trader. Payment was made as Rs. 50,0

Numerical Questions · Q10

Q. Bansal Heavy Machine Ltd. purchased machine worth Rs. 3,80,000 from Handa Trader. Payment was made as Rs. 50,000 cash and remaining amount by issue of equity shares of the face value of Rs. 100 each fully paid at an issue price of Rs. 110 each. Give journal entries to record the above transaction.

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Concept understanding — Share Capital Accounting

Let’s begin with something you already know from everyday life.

Imagine you and two friends decide to start a small business — say, a tiffin service. You each put in some money to buy utensils, a stove, and ingredients. That money you all contributed is the capital of the business. The business doesn’t own that money; it owes it back to you, the owners. In accounting, we call you the shareholders, and the money you put in is share capital.

Now scale that up to a company. A company needs huge amounts of money to build factories, buy machinery, or develop software. It raises this money by selling shares — small units of ownership. When you buy a share, you become a part-owner of that company. The total money collected from all shareholders is the company’s share capital.

Why does share capital matter in accounting?

Because the company is a separate legal person. It does not own the money — the shareholders do. So the company must record exactly how much it has collected from whom, and in what form. This affects the balance sheet (where share capital appears under Equity and Liabilities) and the cash flow (money coming in from shareholders is a financing activity).

The precise meaning (NCERT Class 12)

Share Capital is the money raised by a company by issuing shares to the public or to promoters. It is shown under the head Shareholders’ Funds in the Balance Sheet.

There are two main types of shares:

Equity shares – ordinary shares; owners get dividends only if the company makes profit.
Preference shares – owners get a fixed dividend before equity shareholders, but usually have no voting rights.

Accounting treatment — the journal entries

When a company issues shares, it follows a standard sequence. Let’s say a company issues 10,000 equity shares of ₹10 each at par (i.e., at face value). The money is received in two instalments: ₹4 on application, ₹6 on allotment.

Step 1: Application money received

Date	Particulars	Debit (₹)	Credit (₹)
	Bank A/c Dr.	40,000
	To Share Application A/c		40,000
(Being application money received on 10,000 shares @ ₹4 each)

Step 2: Transfer application money to Share Capital

Date	Particulars	Debit (₹)	Credit (₹)
	Share Application A/c Dr.	40,000
	To Share Capital A/c		40,000
(Being application money transferred to Share Capital)

Step 3: Allotment money due

Date	Particulars	Debit (₹)	Credit (₹)
	Share Allotment A/c Dr.	60,000
	To Share Capital A/c		60,000
(Being allotment money due on 10,000 shares @ ₹6 each)

Step 4: Allotment money received

Date	Particulars	Debit (₹)	Credit (₹)
	Bank A/c Dr.	60,000
	To Share Allotment A/c		60,000
(Being allotment money received)

Note

If shares are issued at a premium (e.g., ₹10 face value, issued at ₹12), the extra ₹2 goes to a separate account called Securities Premium Reserve A/c. It is not part of share capital.

The Balance Sheet format (as per NCERT)

Under Equity and Liabilities, share capital appears like this:

Particulars	Note No.	Amount (₹)
1. Shareholders’ Funds
(a) Share Capital	1	1,00,000
(b) Reserves and Surplus	2	20,000
2. Non-Current Liabilities	...	...
3. Current Liabilities	...	...

And Note 1 (Share Capital) is typically shown as:

Particulars	Amount (₹)
Authorised Capital
1,00,000 Equity Shares of ₹10 each	10,00,000
Issued Capital
80,000 Equity Shares of ₹10 each	8,00,000
Subscribed and Paid-up Capital
80,000 Equity Shares of ₹10 each fully paid	8,00,000

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The company is purchasing a machine and paying partly in cash and partly by issuing shares. The key point here is that shares are issued at a premium — the face value is ₹100 but the issue price is ₹110. The vendor (Handa Trader) is accepting shares as payment, so the amount credited to the Share Capital account is only the face value (₹100 per share), and the excess (₹10 per share) goes to Securities Premium Reserve.

First, calculate the amount to be paid by shares:

Total cost of machine = ₹3,80,000

Cash paid = ₹50,000

Balance payable by shares = ₹3,80,000 − ₹50,000 = ₹3,30,000

Each share is issued at ₹110 (₹100 face value + ₹10 premium).

Number of shares to be issued = ₹3,30,000 ÷ ₹110 = 3,000 shares

Now, the journal entries:

Entry 1 — Purchase of machine and part payment by cash

Particulars	Debit (₹)	Credit (₹)
Machinery A/c Dr.	3,80,000
To Cash A/c		50,000
To Handa Trader A/c		3,30,000
(Being machine purchased; ₹50,000 paid in cash and balance payable)

Entry 2 — Issue of shares to Handa Trader …

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Bansal Heavy Machine Ltd. purchased a machine for ₹3,80,000, paid ₹50,000 cash, and issued 3,000 equity shares of ₹100 each at a premium of ₹10 per share (issue price ₹110) to settle the balance of ₹3,30,000.

Concept and Accounting Treatment

When a company purchases an asset and issues shares as consideration, the transaction is recorded under Share Capital Accounting. The key principle is that the asset is recorded at its purchase price (the cost to the company), and the shares are issued at their issue price (which may include a premium).

Here, the machine costs ₹3,80,000. The company pays ₹50,000 in cash — this is straightforward: debit the asset, credit the bank/cash. The remaining ₹3,30,000 is settled by issuing shares. But the shares have a face value of ₹100 each and are issued at ₹110 each. That ₹10 extra per share is securities premium (share premium), which is credited to a separate account called Securities Premium Reserve.

The number of shares issued is determined by dividing the amount to be settled (₹3,30,000) by the issue price per share (₹110). That gives 3,000 shares. The face value of these shares is 3,000 × ₹100 = ₹3,00,000, and the premium is 3,000 × ₹10 = ₹30,000.

The journal entry will:

Debit the Machinery Account with the full cost (₹3,80,000) — because the asset is coming in.
Credit Cash/Bank with ₹50,000 — because cash is going out.
Credit Share Capital Account with the face value of shares issued (₹3,00,000).
Credit Securities Premium Reserve Account with the premium amount (₹30,000).

Watch out

A common mistake is to credit Share Capital with the issue price (₹3,30,000) instead of the face value. Remember: Share Capital is always recorded at face value; any excess is premium. Also, never debit the asset at the face value of shares — the asset is recorded at its actual cost, not the share value.

Journal Entries

Particulars	Debit (₹)	Credit (₹)
Machinery A/c Dr.	3,80,000
To Cash/Bank A/c		50,000
To Share Capital A/c		3,00,000
To Securities Premium Reserve A/c		30,000
(Being machine purchased; payment made by cash ₹50,000 and by issue of 3,000 equity shares of ₹100 each at a premium of ₹10 per share)

Working Notes

Working Note 1: Calculation of Number of Shares Issued …

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Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

PSEB Punjab Class 12 (Commerce) 2026Set ANNUAL1 markMCQ
$Q. Case: Goldy Ltd. invited applications for 1,00,000 shares of ₹ 10 each at 10% premium, payable as ₹ 3 on application, ₹ 3 on allotment and balance amount on first and final call. Applications were received for 2,40,000 shares and shares were allotted on pro-rata basis. The excess money received on application was to be adjusted against allotment only. A shareholder who applied for 12,000 shares, could not pay the first and final call money and his shares were accordingly forfeited. Company reissued 2,000 shares @ ₹ 6 per share as fully paid up. (Question 4(ii)(1)) The amount refunded will be:$
(a) ₹ 60,000
(b) ₹ 1,20,000
(c) ₹ 80,000
(d) ₹ 1,00,000
›Reveal solutionSolution

(b) Rs 1,20,000.

Applications 2,40,000 x Rs 3 = 7,20,000; required for 1,00,000 shares = 3,00,000; excess = 4,20,000.

The excess is adjusted against ALLOTMENT only. Allotment due = 1,00,000 x 3 = 3,00,000. After adjusting 3,00,000 against allotment, the balance 4,20,000 - …

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PSEB Punjab Class 12 (Commerce) 2026Set ANNUAL1 markMCQ
$Q. Case: Goldy Ltd. invited applications for 1,00,000 shares of ₹ 10 each at 10% premium, payable as ₹ 3 on application, ₹ 3 on allotment and balance amount on first and final call. Applications were received for 2,40,000 shares and shares were allotted on pro-rata basis. The excess money received on application was to be adjusted against allotment only. A shareholder who applied for 12,000 shares, could not pay the first and final call money and his shares were accordingly forfeited. Company reissued 2,000 shares @ ₹ 6 per share as fully paid up. (Question 4(ii)(4)) The excess application money adjusted towards allotment will be:$
(a) ₹ 4,20,000
(b) ₹ 2,20,000
(c) ₹ 3,00,000
(d) ₹ 2,50,000
›Reveal solutionSolution

(c) Rs 3,00,000.

Allotment money due = 1,00,000 shares x Rs 3 = 3,00,000. The excess application money (4,20,000) is adjusted against allotment only, so the full Rs 3,00,000 of allotment is met fro …

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PSEB Punjab Class 12 (Commerce) 2026Set ANNUAL1 markMCQ
$Q. Case: Goldy Ltd. invited applications for 1,00,000 shares of ₹ 10 each at 10% premium, payable as ₹ 3 on application, ₹ 3 on allotment and balance amount on first and final call. Applications were received for 2,40,000 shares and shares were allotted on pro-rata basis. The excess money received on application was to be adjusted against allotment only. A shareholder who applied for 12,000 shares, could not pay the first and final call money and his shares were accordingly forfeited. Company reissued 2,000 shares @ ₹ 6 per share as fully paid up. (Question 4(ii)(5)) State the amount of application money received:$
(a) ₹ 9,60,000
(b) ₹ 3,50,000
(c) ₹ 4,10,000
(d) ₹ 7,20,000
›Reveal solutionSolution

(d) Rs 7,20,000.

Application money received = Shares applied x Application money per share = 2,40,000 x 3 = 7,20 …

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PSEB Punjab Class 12 (Commerce) 2025Set ANNUAL1 markMCQ
$Q. A company purchased machinery for ₹ 18,00,000 and in consideration issued shares at 20% premium. What will be the face value of shares issued?$
(a) ₹ 21,60,000
(b) ₹ 18,00,000
(c) ₹ 14,40,000
(d) ₹ 15,00,000
›Reveal solutionSolution

(d) Rs 15,00,000.

Shares are issued at a 20% premium for machinery worth 18,00,000, so the issue price = Face value + 20% premium = 1.20 x Face value.

Face value of shares issued = 18,00,000 / 1.20 = 15,00,000. …

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Concept and Accounting Treatment

Journal Entries

Working Notes

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