ACCOUNTS FOR

JOINT STOCK
COMPANIES
EQUITY FINANCING

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JOINT STOCK COMPANY
An artificial person recognized by law, with a distinctive name, a common seal, a common
capital comprising transferable shares carrying limited liability and having a perpetual
succession.

Characteristics:

 Separate legal entity

 Financing

 Limited liability

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SHARE CAPITAL OF A JOINT
STOCK COMPANY
 Share: Total amount of capital is divided into smaller units, these units are known as shares.
Each share has assigned a value that is known as Par value / Face value.

 Share Capital: The pool of all shares / stocks is known as share capital.

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 TYPES OF SHARE CAPITAL
1. Authorized Capital
It is the amount with which the company is registered.
2. Issued Capital
Share offered to the general public for contribution are known as shares issued.
3. Subscribed Capital
Out of the total number of shares issued/offered by the company, that number of shares which is taken up by
the public.
4. Called Up Capital
A company may require payment of the par value either in installment or in one lump sum amount.
5. Paid Up Capital
The total amount received by the company out of the total called up amount is known as paid up capital.

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Important Matters:
PRELIMINARY EXPENSES

Expenses which are incurred in the initial stages of incorporation. For instance, legal fees, remuneration of
promoters, cost of preparing and printing of various documents etc. These are also known as organization
cost.

UNDERWRITING COMMISSION

Underwriting may be defined as a contract made by the promoters with persons like brokers, banks, insurance
companies who are willing to take the whole or portion of such of the offered shares as may not be
subscribed for by the public. Hence, commission paid to underwriters is known as underwriting commission.

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CASES – EQUITY FINANCING
1. Exactly, Under and Over Subscription

2. Preliminary expenses

3. Shares taken up by the directors or underwriters

4. Shares issued at discount

5. Shares issued at premium

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Question 1.
XYZ Company was issued with an authorized capital of Rs. 2,000,000 divided into 200,000
ordinary shares of Rs. 10 each. The Limited subscription limited stated in the memorandum
was Rs. 800,000. The company offered 80,000 shares of Rs. 10 each at par value. Record the
above transactions in the journal. Also prepare Balance Sheet if;

A) Applications for exactly 80,000 shares were received.

B) Applications for 95,000 shares were received.

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 (A) JOURNAL
Date Particulars L/F Rs. Rs.
Bank A/C 800,000
Ordinary Share Application A/C 800,000
(Bank received 80,000 shares @ Rs. 10 each from
general public)
Ordinary Share Application A/C 800,000
Ordinary Share Capital A/C 800,000
(Company issued 80,000 shares @ Rs. 10 each to
general public)

Total 1,600,000 1,600,000

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 XYZ Company
Balance Sheet
As on ________
Assets Rs. Liabilities + Share Capital Rs.
Bank 800,000 Authorized Capital
200,000 shares of Rs. 10 each 2,000,000

Issued & Subscribed Capital

80,000 shares of Rs. 10 each 800,000

800,000
800,000

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 (B) JOURNAL
Date Particulars L/F Rs. Rs.
Bank A/C 950,000
Ordinary Share Application A/C 950,000
(Bank received 95,000 shares @ Rs. 10 each from
general public)
Ordinary Share Application A/C 800,000
Ordinary Share Capital A/C 800,000
(Company issued 80,000 shares @ Rs. 10 each to
general public)

Ordinary Share Application A/C 150,000

Bank A/C 150,000
(Company refund excess applications on 15,000
shares @ Rs. 10 each to general public)

Total 1,900,000 1,900,000

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 XYZ Company
Balance Sheet
As on ________
Assets Rs. Liabilities + Share Capital Rs.
Bank (Rs. 950,000 – Rs. 150,000) 800,000 Authorized Capital
200,000 shares of Rs. 10 each 2,000,000

Issued & Subscribed Capital

80,000 shares of Rs. 10 each 800,000

800,000
800,000

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Question 2.
On September 1, John & Company Ltd offered 40,000 ordinary shares of Rs. 10 each for public
subscription. On September 11, John & Company received applications in total 35,000 shares.
Remaining balancing amount of shares were taken up by the underwriters as per the
agreement. On September 22, John & Company allotted the shares. Prepare journal and
Balance Sheet.

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 JOURNAL
Date Particulars L/F Rs. Rs.
Bank A/C 350,000
Ordinary Share Application A/C 350,000
11/9 (Bank received 35,000 shares @ Rs. 10 each from
general public)

Bank A/C 50,000

Ordinary Share Capital A/C 50,000
11/9 (Company issued 5,000 shares @ Rs. 10 each to
underwriters as per the agreement)

Ordinary Share Application A/C 350,000

Ordinary Share Capital A/C 350,000
22/9 (Company issued 35,000 shares @ Rs. 10 each to
general public)

Total 750,000 750,000

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 John & Company
Balance Sheet
As on ________
Assets Rs. Liabilities + Share Capital Rs.
Bank (Rs. 350,000 + Rs. 50,000) 400,000 Authorized Capital
-

Issued & Subscribed Capital

35,000 shares of Rs. 10 each 350,000
(Public)

5,000 shares of Rs. 10 each 50,000

(Underwriters)

400,000
400,000

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Question 3.
A company is registered with an authorized capital of Rs. 1,000,000 divided into 100,000
shares of Rs. 10 each. On July 2nd, 20XX company issued 15,000 shares to promoters in context
with their services and preliminary expense. Whereby, company issued 50,000 shares to
investor in the market. Company received 60,000 share applications from the bank on 12 th
July, 20XX. Company issued shares as per its requirement on 29th July, 20XX.

Prepare Journal and Balance Sheet.

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 JOURNAL
Date Particulars L/F Rs. Rs.
Preliminary Expenses A/C 150,000
Ordinary Share Capital A/C 150,000
2/7 (Company issued 15,000 shares @ Rs. 10 each to
promoters)

Bank A/C 600,000

Ordinary Share Application A/C 600,000
12/7 (Bank received 60,000 shares @ Rs. 10 each from
general public)

Ordinary Share Application A/C 500,000

Ordinary Share Capital A/C 500,000
29/7 (Company issued 50,000 shares @ Rs. 10 each to
investors)

Ordinary Share Application A/C 100,000

Bank A/C 100,000
29/7 (Company returned 10,000 shares @ Rs. 10 each
to general public)

Total 1,350,000 1,350,000

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 XYZ Company
Balance Sheet
As on ________
Assets Rs. Liabilities + Share Capital Rs.
Bank 500,000 Authorized Capital
Preliminary Expenses 150,000 100,000 shares of Rs. 10/- 1,000,000

Issued & Subscribed Capital

50,000 shares of Rs. 10 each 500,000
(Public)

15,000 shares of Rs. 10 each 150,000

(Promoters)

650,000
650,000

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Practice Question 1:
Lean Company was registered with an authorized capital of $37,500,000 divided into 375,000
common shares of $100/-. The company issued 175,000 shares to the investors in the market.
Prepare journal and balance sheet if:

1. Share applications of 175,000 were received.

2. Share applications of 105,000 were received.

3. Share applications of 235,000 were received.

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Question 4.
File textile company was formed with an authorized capital of 20,000 shares of $50 each. 5000

shares were issued to the directors of the company and 10,000 shares were issued to the

investors. The applications were received for only 8,000 shares. Shares were allotted to the

investors whereas, remaining shares were taken up by the underwriters. Pass journal entries

of the company.

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 JOURNAL
Date Particulars L/F $ $
Bank A/C 250,000
Ordinary Share Capital A/C 250,000
(Company issued 5,000 shares @ $50 each to the
directors)

Bank A/C 400,000

Ordinary Share Application A/C 400,000
(Bank received 8,000 shares @ $50 each from
general public)

Ordinary Share Application A/C 400,000

Ordinary Share Capital A/C 400,000
(Company issued 8,000 shares @ $50 each to
investors)

Bank A/C 100,000

Ordinary Share Capital A/C 100,000
(Company issued 2,000 shares @ $50 each to
underwriters)

Total 1,150,000 1,150,000

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Practice Question 2:
Company has authorized capital of $2,000,000. Company issued 60,000 shares at $10 each to

the investors. Company issued 10,000 shares to the directors. Whereby, company received

only 55,000 shares from investors through share applications. Company allotted shares to the

accepted share applications and issue remaining required shares to the promoters against

their preliminary expenses.

Prepare, (1) Journal & (2) Balance Sheet

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Practice Question 3:
Company issued 40,000 shares of $50 each. Company received 45,000 shares applications

from the general public and company issued shares to the applicants as per the requirement.

Moreover, company also issued 20,000 & 15,000 shares to underwriters and directors

accordingly. Pass entries in a company’s journal and prepare statement of financial position.

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Question 5.
On 22nd May, company registered with an authorized capital of 500,000 shares of S10 each.

The subscribed and paid up capital of the company was 300,000 shares of $10 each. On

October 1st, 20XX company decided to issue 100,000 shares of premium $2 each. Company

received applications for 120,000 shares. Company allotted shares to accepted applications.

Pass journal entries and draft statement of financial position of the company.

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 JOURNAL
Particulars L/F $ $
Bank A/C 1,440,000
Ordinary Share Application A/C 1,440,000
(Bank received 120,000 shares @ $12 each from
general public)

Ordinary Share Application A/C 1,200,000

Ordinary Share Capital A/C 1,000,000
Premium on issue of shares A/C 200,000
(Company issued 100,000 shares @ $12 each to
investors)

Ordinary Share Application A/C 240,000

Bank A/C 240,000
(Company refund excess amount)

Total 1,150,000 1,150,000

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 XYZ Company
Balance Sheet
As on ________
Assets Rs. Liabilities + Share Capital Rs.
Bank (1,440,000 – 240,000) 1,200,000 Authorized Capital
500,000 shares of $10/- 5,000,000

Issued & Subscribed Capital

100,000 shares of $10 each
Premium of $2 on issuance of 1,000,000
shares 200,000

1,200,000
1,200,000

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Question 6.
Company registered with an authorized capital of 100,000 shares of Rs. 10 passed a resolution

in a general meeting to issue 40,000 shares at discount of 5%. 10,000 shares were issued to

directors and 30,000 shares were offered to general public. Applications were received for

25,000 shares and subsequently shares were allotted. Record the transactions in the books of

the company and show the reflection in the balance sheet.

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 JOURNAL
Particulars L/F $ $
Bank A/C 95,000
Discount on issue of shares A/C 5,000
Ordinary Share Capital A/C 100,000
(10,000 shares issued & allotted directors at
Rs.10 each )

Bank A/C 237,500

Ordinary Share Application A/C 237,500
(Company received 25,000 applications from the
public)

Ordinary Share Application A/C 237,500

Discount on issue of shares A/C 12,500
Ordinary Share Capital A/C 250,000
(Shares allotted to the public)

Total 587,500 587,500

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 XYZ Company
Balance Sheet
As on ________
Assets Rs. Liabilities + Share Capital Rs.
Bank (93,000 + 237,500) 332,500 Authorized Capital
100,000 shares of Rs.10/- 1,000,000
Discount on issue of shares 17,500
(5,000 + 12,500) Issued & Subscribed Capital
10,000 shares of $10 each
(Directors) 100,000
25,000 shares of $10 each 250,000
(Public)

350,000
350,000

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Practice Question 4:
XYZ Company has an authorized capital of Rs. 800,000 divided into 800 shares of Rs. 1,000

each. On August 25, 20XX Company hired promoters and against their services company

issued 650 shares to them and preliminary expenses paid by them. Remaining shares were

issued to general public. Applications were received for 250 shares. Shares were allotted to

required number of applications. Pass the journal entries and show how they would appear in

the balance sheet.

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Practice Question 5:
A limited company has subscribed and paid up capital of 250,000 shares of Rs. 10/-

◦ Company issued 220,000 shares to general public at 15% premium. Applications were received for

250,000 shares. Shares allotted and money refunded to remaining applicants.

◦ Company issued 200,000 shares of Rs. 10/- at 8% discount. The issue was permitted by authorities.

Applications were received for 180,000 shares. Shares were allotted.

Make the necessary entries and prepare the balance sheet of above two cases.

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