Topic: ISSUE
OF SHARES
Types
of Shares
(1) Ordinary Share
– these are the risk takers
(2)
Preference
Shares – to be paid first because they are co-owners of
the company and also take part in management
We
have four types of preference shareholders:
a.
Redeemable
– the company are obliged to pay
b.
Unredeemable
– the company is not obliged to pay
c.
Accumulative
preference shareholder –
this, the company will pay even if they did not pay in the current
year. Thereby it will accumulate and
carried over to the next year where they will pay the accruals.
d.
Non
accumulative preference shareholder –
TYPE OF ISSUES
1.
Public
Issues – this is the type that is made public to everyone
and subscribers can verify the prospectus to know if the company is strong
enough. There is always 5 years financial statement
2.
Private
placement – this is to selected persons
3.
Right
issue – this is an issue of shares to shareholder of the
company. Those that are already have
shares with the company.
4.
Bonus
issue – this is like jara – compensating the existing
share holders with more shares.
Shares
could be sold at:
i.
At Par – this is the original price in
the memo of association
ii.
At Premium – selling above At Per
SOME
TERMS:
1. Issue Price
– the price for the share – the price it will be issued
2. At Par Value or nominal value or
face value – this is the original or face value stated in the
company memo of association
3. Right Price
– this is the price or the right issue that are issued to existing holders.
This price is for the existing shareholders only.
4. Premium
– Company Allied Matters Acts CAMA 1990 section 120 support (At per
Premium). It is the price above the At Par
5. At discount
– selling at a price below the At Par and CAMA 1990 section 121 support this.
Note:
Ex-Div is when you are selling your
shares but you still maintain your dividend while Cum-Div is when you sell but you don’t maintain your dividend.
Debenture:
- is when a company collects loan from an Individual. It is a credit like a loan. The money an individual lend to a company is
called Debenture: The individual will be paid interest on a regular basis. But if the company cannot pay, it could be
converted to share if accepted by the lender.
When converted, it is called conversion issue.
FORFEITURE OF SHARES
If
a shareholder failed to pay a call or installment on the due date, the
directors of the company are empowered by section 140 of CAMA to forfeit the
shares provided the defaulting shareholder have been served at least a 14 days’
notice.
ACCOUNTING ENTERING FOR PUBLIC
ISSUE AND PRIVATE PLACEMENT
1. Application
monies is received:
Dr. Bank A/c with total application monies
received
Cr. Application A/c
2. Refund
to rejected applicant:
Dr.
Application with the
amount refunded
Cr.
Bank:
Note:
in accounting, you have to debit before you credit.
3. Closure
of application A/C at the end of application:
Dr.
Application A/C with credit balance on
the application acct.
Cr.
Allotment A/C
4. Shares
Allotted:
Dr.
Allotment A/C with the value
(application installment +
Cr.
Share Capital A/C allotment
installment – premium of any)
5. Monies
received on allotment:
Dr.
Bank A/C with the amount
received on allotment
Cr. Allotment A/C (+ i.e. cash due on allotment – excess
application monies if any)
6. Calls
made: - 1st , 2nd
and final calls:
Dr.
Call A/C with the nominal value due on the call
Cr.
Share Capital A/C
7. Monies
Received on Calls:
Dr.
Bank A/C with the actual amount
received on call.
Cr.
Call A/C
8. Premium
Included in Installment:
Dr. Allotment or Call
A/C with the premium included in the
Cr.
Share Premium A/C installment
9. Unpaid calls:
Dr.
Call in arrears A/C with calls due
but not received
Cr.
Call A/C
10.Call
Received in Advance:
Dr.
Call A/C with calls received but not due
Cr.
Call in Advance A/C
11. Shares
Forfeited:
Dr.
Share Capital A/C with called up
value of shares forfeited
Cr.
Forfeited Share A/C
12.Transfer
of unpaid calls on the forfeited shares to the forfeited shares A/C:
Dr.
Forfeited share A/C with the unpaid
calls on the shares
Cr.
Calls in arrears A/C forfeited
13.
Re-issue of forfeited shares:
Dr.
Forfeited Re-issued A/C with the called
–up value of shares
Cr.
Share Capital A/C re-issued.
14.Transfer
of nominal value already paid-up by previous shareholder of the re-issue shares
to the forfeited shares re-issued A/C:
Dr.
Forfeited shares A/C with
the credit balance on the
Cr.
Forfeited Share Re-issued A/C forfeited
shares A/C relating to
The re-issue shares.
15.
Monies received on re-issue:
Dr.
Bank A/C with
the sum received on re-issue
Cr.
Forfeited Share Re-issue A/C
16.
Premium on Re-Issue:
Dr.
Forfeited share re-issue A/C with
credit balance on the forfeited
Cr.
Share Premiums A/C re-issue
A/C
TOPIC: OVER
SUBSCRIPTION
Question 1:
Mercantile Co. Ltd has an authorized Share Capital of
N500,000 all in ordinary shares of N1 each.
On 1st Jan 2006, the company offer for sale N300,000 ordinary
shares at N1.5k each payable as follows:
-
On
application - 30k
-
On
allotment - 60k (including premium)
-
On
1st Call - 25k
-
On
2nd Call - 20k
-
On
3rd Call - 15k
When the application register was closed, applications have
been received for 500,000 shares. The
directors dealt with the situation as follows:
a.
Rejected
50,000 applications
b.
Gave
full allotment to applicants for 200,000 shares
c.
Allotted
the rest pro-rata, using excess application monies to off-set part of the
amount due on allotment.
All fees expected were received on allotment. On 1st
Call, 3 shares holders holding in total 10,000 shares did not pay their calls
fees. On 2nd call, fees on
another 5,000 shares were not received.
Before the 3rd call was due, the directors decided
to forfeit the holding of the 10,000 shares and these were immediately issued
for N1.10k each. This was equally paid
for. All fees expected on 3rd
call were received with the exception of fees on the 5,000 shares mentioned
above.
You are required to show:
1.
Journal
entries
2.
Ledger
Accounts
3.
The
abridged balance sheet after the 3rd call
SOLUTION:
JOURNAL ENTRIES
Bank A/C (.30k x 500,000)
Application & Allotment A/C (.30k x 500,000)
(Being application monies on .30k/shares received on
500,000 shares)
|
Dr.
150,000
|
Cr.
150,000
|
Application & Allotment A/C (.30k x 50,000)
Bank A/C (.30k x 50,000)
(Being refund to rejected applicant for 50,000 shares)
|
15,000
|
15,000
|
Application & Allotment A/C (.90k x 300,000)
Ordinary Share Capital A/C (.40k x 300,000)
Share Premium A/C (.50k x 300,000)
(Being .30k on application, .40k on allotment & .50k on premium per share on 300,000
shares allotted)
|
270,000
|
120,000
150,000
|
Bank A/C
Application & Allotment A/C
(Being monies received on allotment (.60k per share)
including share premium of 50k per shares on 300,000 share allotted.)
|
135,000
|
135,000
|
1st Call (.25k x 300,000)
Ordinary Share Capital (.25k x 300.00)
(Being 1st Call on .25k on 300,000 shares)
|
75,000
|
75,000
|
JOURNAL ENTRIES CONTINUATION
Bank A/C (.25k x 290,00)
Call in Arrears A/C
(.25k x 10,000)
1st Call A/C (.25k x 300,000)
(Being 1st call monies .25k per shares on
290,000 shares & 1st call monies in arrears on 10,000 shares)
|
Dr.
72,500
2,500
|
Cr.
75,000
|
2nd Call A/C (.20k x 300,000)
Ordinary Share Capital A/C (.20k x 300,000)
(Being 2nd
call of .20k on 300,000 shares)
|
60,000
|
60,000
|
Bank A/C (.20k x 285,000)
Call in arrears A/C (.20k
x 15,000)
2nd Call A/C (.20k x 300,000)
(Being 2nd Call monies of .20k per shares
received on 285,000 shares & Call in arrears of 15,000 shares)
|
57,000
3000
|
60,000
|
Ordinary Share Capital A/C (.85k x 10,000)
Forfeited Share A/C (.85k x 10,000)
(Being called-up value (.85k /share) of 10,000 forfeited
shares after 2nd call.)
|
8,500
|
8,500
|
Forfeited Shares A/C (.45k x 10,000)
Call in Arrears A/C (.45k x 10,000)
(Being unpaid call
of .45k/share) on 10,000 shares forfeited during 1st & 2nd
calls.)
|
4,500
|
4,500
|
JOURNAL ENTRIES CONTINUATION
Forfeited Shares A/C (.85k x 10,000)
Ordinary Share Capital A/C (.85k x 10,000)
(Being called-up value (.85k /share) of 10,000 shares re-issued
before 3rd call.)
|
Dr.
8,500
|
Cr.
8,500
|
Bank A/C (1.10k x 10,000)
Forfeited Shares A/C (1.10k x 10,000)
(Being proceeds
(N1.10k/share) of re-issued shares of 10,000)
|
11,000
|
11,000
|
Forfeited shares A/C (.65k x 10,000)
Share premium A/C
(.65k x 10,000)
(Being premium on
re-issue of 10,000 shares)
|
6,500
|
6,500
|
3rd Call
A/C (.15k x 300,000)
Ordinary Share A/C (.15k x 300,000)
(Being 3rd call of .15k/share on 300,000 shares)
|
45,000
|
45,000
|
Bank A/C (.15k x 295,000)
Call in arrears A/C
(.15k x 5,000)
3rd Call A/C (.15k x 300,000)
(Being 3rd
call monies (.15k/share) received on 295,000 & 5000 shares on 3rd
call arrears.)
|
44,250
750
|
45,000
|
WORKINGS:
Calculations
of excess application monies & monies received on allotment:
Nos of shares applied for - 500,000
Less nos of rejected shares - (50,000)
450,000
Less nos of shares offered &
allotted - (300,000)
Excess application - 150,000
Application
installment paid for shares applied - N.30k
:- Excess application – 150,000 x .30k = - N45,000
Allotment
instalment due on 300,000 shares 300,000 x .60k
- N180,000
Less excess
application monies - N45,000
Monies
received on allotment - N135,000
SOLUTION 2
LEDGERS
Dr. Application & Allotment A/C Cr.
Bank 15,000
Ordinary
Share 120,000
Share Premium 150,000
285,000
|
Bank 150,000
Bank 135,000
285,000
|
Dr. Ordinary
Share Capital A/C Cr.
Forfeited Shares 8,500
Bal C/D 300,000
308,500
|
Application &
Allotment 120,000
1st
Call 75,000
2nd
Call
60,000
Forfeited
Shares 8,500
3rd
Call 45,000
308,500
Bal B/d 300,000
|
LEDGERS Continuation
Dr. Share Premium A/C Cr.
Bal C/d 156,500
156,500
|
Allotment &
Application 150,000
Forfeited Shares 6,500
156,500
Bal B/d 156,500
|
Dr. 1st Call A/C Cr.
Ordinary Share Capital 75,000
75,000
|
Bank 72,500
Call in Arrears 2,500
75,000
|
Dr. 2nd
Call A/C
Cr.
Ordinary Share
Capital 60,000
60,000
|
Bank 57,000
Call in
Arrears 3,00
60,000
|
Dr. Forfeited Shares
A/C
Cr.
Ordinary Share Capital
8,500
Call in
arrears 4,500
Share Premium 6,500
19,500
|
Ordinary Share
Capital 8,500
Bank 11,000
19,500
|
Dr. CALL IN ARREARS A/C Cr.
1st
Call 2500
2nd
Call
3000
3rd
Call 750
6,250
|
Forfeited Shares 4,500
Bal C/d 1,750
6,250
|
Bal B/d 1,750
LEDGERS Continuation
Dr. 3rd Call A/C
Cr.
Ordinary Share
capital 45,000
45,000
Bal b/d 750
|
Bank 44,250
Bal c/d 750
45,000
|
SOLUTION 3.
MERCANTITE NIG. LTD
Abridged
Balance Sheet After 3rd Call
Current Assets
N
Call in Arrears
1,750
Financed By:
300,000 ordinary share of N1.00 each 300,000
Reserves:
Share Premium
156,500
TOPIC 2 – UNDER-SUBSCRIPTION
Question 2
Application were invited by directors of Highyield Ltd for
300,000 ordinary shares of .50k each @ .55k per share payable as follows:
-
On
application - .35k
-
On
allotment - .10k (including premium of
.05k/share)
-
1st
Call - .06k
-
2nd
call - .04k
Applications were received for 280,000 shares and it was
decided to give full allotment to all applicants. An applicant to whom 800 shares have been
allotted failed to pay the amount due on 1st call. During the 1st call, holders of
5,000 shares paid, along with their 1st call monies, the installment
due on the 2nd call. The 800
shares were forfeited immediately after the 1st call and later
re-issued for 10k after the 2nd call.
Required:
Show the necessary journal entries and ledger accounts to
record the above transactions.
SOLUTION:
JOURNAL ENTRIES
Bank A/C (.35k x 280,00)
Application & Allotment A/C (.35k x 280,000)
(Being application monies on .35k shares received on 280,000
shares)
|
Dr.
98,000
|
Cr.
98,000
|
Application & Allotment A/C (.45k x 280,000)
Ordinary share capital A/C (.40k x 280,000)
Share Premium A/C (.05k x 280,000)
(Being .35k on application & .10k on allotment
(including .05k premium) /share of 280,000)
|
126,000
|
112,000
14,000
|
Bank A/C (.10k x 280,000)
Application & Allotment A/C (.10k x 280,000)
(Being allotment
installment received (.10k/share) on 280,000 shares)
|
28,000
|
28,000
|
1st Call A/C (.06k x 280,000)
Ordinary Share Capital A/C (.06k x 280,000)
(Being 1st call of .06k share on 280,000 shares.)
|
16,800
|
16,800
|
Bank A/C (.06k x 279,200 + 5,000 x .04k)
Call in arrears A/C (.06k x 800)
Call in advance A/C (.04k x 5000)
1st Call A/C (.06k x 280,000)
(Being 1st call monies (.06k/share) received on
278,200 shares unpaid 1st call monies on 800 shares and 2nd
call monies (.04k/share received on 5000 shares)
|
16,952
48
|
200
16,800
|
Ordinary Share A/C (.46k x 800)
Forfeited shares A/C (.46k x 800)
(Being called-up value (.46k/share of 800 shares forfeited)
|
368
|
368
|
Forfeited shares A/C (.06k x 800)
Call in Arrears A/C (.06k x 800)
(Being write-off of unpaid call in respect of 800 shares)
|
48
|
48
|
Call in advance A/C (.04k x 5000)
Ordinary Share Capital A/C (.04k x 5000)
(Being 2nd call monies received during 1st
call now transferred to share capital A/C)
|
200
|
200
|
2nd Call A/C (.04 x 274,200)
Ordinary Share Capital A/C (.04 x 274,200)
(Being 2nd call (.04k/share) on 274,200 shares)
|
10,968
|
10,968
|
Bank A/C (.04 x 274,200)
2nd Call A/C (.04 x 274,200)
(Being 2nd call monies received on 274,200
shares)
|
10,968
|
10,968
|
Forfeited shares A/C (.05 x 800)
Ordinary Share Capital A/C (.05 x 800)
(Being nominal value of 800 shares re-issued after 2nd
call)
|
400
|
400
|
Bank A/C (10k x 800)
Forfeited shares A/C (10k x 800)
(Being Process of 10k/shares of 800 shares re-issued)
|
80
|
80
|
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