Loading the lesson
Loading the lesson
Search AllRounder.ai
Search the courses, subjects, tracks, games and features, or jump straight to a page.
Search the courses, subjects, tracks, games and features, or jump straight to a page.
Learn it your way
A short class with Sarah and her students. The other ways are under More.
Sign up free to listen. Transcripts are free to read.
Today, we'll start with the types of shares a company can issue. Can anyone tell me what equity shares are?
Equity shares don't have a fixed dividend, right? They pay based on the profit?
Exactly! Equity shareholders get dividends that vary with profits. And what about preference shares?
They have a fixed rate of dividend and get paid before equity shareholders?
Great! Now, remember: for equity, think 'Earnings vary', and for preference, 'Priority pays'.
Let’s now discuss the issue price of shares. Who knows what it means?
It's the price at which the company issues its shares, either at par, premium, or discount!
Correct! And when shares are issued at a premium, the extra amount above the face value is recorded where?
In the Securities Premium Account!
Awesome! Remember the mnemonic 'Structural Profits' for Securities Premium!
Now, how do we record the journal entry when shares are issued at par?
We debit the Bank Account and credit the Share Capital account.
That’s right! And what changes if the shares are issued at a premium?
We also add the Securities Premium Account for the extra amount!
Fantastic! Remember: 'Deposit Share Securities' for these steps in issuing shares.
Let’s talk about forfeiture. What happens if a shareholder fails to pay their calls?
The shares can be forfeited!
Exactly! And if we reissue those shares, what should we keep in mind?
They can be sold at a discount, but not for more than the amount we forfeited!
Correct! Use the phrase 'Forfeit to Reissue' to remember the process.
Shares without a fixed dividend, dependent on profits.
Shares with fixed dividends and priority for payments.
The additional amount received above face value upon share issuance.
The process of taking back shares if payment is not made.
The process of reselling forfeited shares, potentially at a discount.
Example 1: A company issues 1,000 equity shares of ₹10 at a premium of ₹2. The journal entry would reflect both the Share Capital and Securities Premium accounts.
Example 2: If a shareholder fails to pay the first call on their shares, those shares can be forfeited. After forfeiture, if the shares are reissued at ₹8, they cannot be sold for less than ₹8.
Equity shares bring varied cheer; preference shares keep profits near.
Once there was a company that issued shares at ₹10 but decided to sell them for ₹12 to raise capital. The excess ₹2 helped the company invest in new projects.
E.P.F.R - Equity, Preference, Forfeiture, Reissue: Key concepts in share issuance.
SAFE - Shares At Face, or Equity: Remember how shares can be issued!
Term
What are preference shares?
Click to flip
Term
What is a Securities Premium Account?
Click to flip
Shares that do not have a fixed dividend. Dividend varies based on company's profits.
Shares with a fixed rate of dividend and priority over equity shareholders in payment.
The original value of a share as stated on the share certificate.
The price at which shares are offered to the public (can be at par, premium, or discount).
Amounts payable in installments for shares—like Application, Allotment, and Final Call.
An account reflecting the excess amount received over the face value of shares issued.
This section discusses the process of issuing shares at a premium and covers the accounting procedures involved.
The section focuses on the specifics of issuing shares at a premium, detailing accounting practices and journal entries associated with this process, including forfeiture and reissue of shares.
In this section, we explore the concept of issuing shares at a premium, an important aspect of a Joint Stock Company's financial operations. Shares can be issued at various prices, including at par, at a premium, or at a discount.
Understanding these concepts is crucial for accurate record-keeping and financial statement preparation.