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Today, we're starting with the types of shares that companies can issue. Does anyone know the two main types of shares?
I think they're equity shares and preference shares.
That's correct! Equity shares do not have a fixed dividend, which means the dividend depends on the company's performance. Let’s remember this with the acronym 'EP'—Equity = Profit-dependent. How about preference shares?
Preference shares have a fixed dividend, right?
Exactly! And they also have priority in dividend payment over equity shareholders. So, keep in mind 'Fixed before Profit'! Now, can anyone give examples of situations where each type is beneficial?
Equity shares might be better for companies that expect high growth in profits.
Preference shares would be safer for investors who want stable returns.
Great insights! So, to recap, equity shares are dependent on profits, while preference shares give fixed returns. Let’s move on!
Now, let's talk about some essential terms like 'Face Value' and 'Issue Price'. Who can explain what Face Value means?
It's the original value of a share, right?
Correct! And what about the Issue Price?
Issue Price is the price at which shares are offered to investors, and it can be at par, premium, or discount.
Excellent! Remember 'F-I-P'—Face value is the Initial price, while Issue price can vary. Why do you think this differentiation is important?
It helps investors understand how much they need to pay for the shares compared to their value.
Right! It reflects the company's current market standing. Now, let's move on to the accounting aspects.
Now, let's get into the accounting for shares issued at par. Can anyone explain what it means?
It means the shares are sold at their face value.
Exactly! For example, if equity shares have a face value of ₹10 and are issued at ₹10 at par, how would we record this in the journal?
We would debit the Bank Account and credit the Share Application Account upon application.
Correct! Let's write it out: Bank A/c Dr., then To Share Application A/c. And what happens next on allotment?
We debit the Share Application A/c and credit Share Capital A/c.
Perfect! That's how we record the cash inflow and the capital generation. Good job, everyone! Recap with the journal entries: Application and Allotment.
Shares with variable dividends based on company profits.
Shares that guarantee a fixed dividend.
The nominal value assigned to shares upon issuance.
Price at which shares are sold, can be at par, premium, or discount.
Installments payable on shares by shareholders.
For equity shares, the profit comes first, with preference shares, stability is a must!
Imagine a company issuing two types of shares: equity for adventurers willing to take risks, and preference for wise investors seeking safety and steady income. This way, investors can choose their journey!
Use 'F-IP' to remember: 'Face value is Initial Price', and 'Issue prices vary'!
Remember 'E-P' for Equity = Profit-dependent, Preference = Fixed!
Term
What are equity shares?
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Term
What are preference shares?
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Term
Define face value.
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Term
What is the issue price?
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What are calls in share issuance?
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Shares that provide no fixed dividend and dividends depend on company profits.
Shares that have a fixed rate of dividend and priority in payments over equity shareholders.
The nominal value assigned to a share at issuance.
The price at which shares are offered to investors, which can be at par, discount, or premium.
Payments due from shareholders in installments during the share issuance process.
This section covers the accounting processes involved in the issue of shares at par value.
In this section, we explore the concept of shares issued at par value, specifically focusing on equity shares and preference shares. We cover the essential terms associated with share issuance, accounting entries for shares issued at par, and the implications of such transactions on a company's financial records.
In this section, we delve into the accounting practices surrounding the issuance of shares by joint stock companies, specifically focusing on shares issued at par. A share issued at par means that the face value of the share is equal to its issue price.
Types of Shares: There are two primary types of shares issued by companies:
Terminology: The section explains crucial terms that are fundamental to understanding share issuance:
Accounting for Issuance: The section provides journal entries for the accounting of shares issued at par, illustrated by a straightforward example:
Bank A/c Dr. ₹10To Share Application A/c ₹10Share Application A/c Dr. ₹10To Share Capital A/c ₹10This section forms the basis for understanding how shares are recorded and impacts overall company accounts, signifying the flow of capital and the rights of shareholders.