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Today, we will be discussing shares, specifically the two main types: equity shares and preference shares. Who can tell me what an equity share is?
Equity shares don't have a fixed dividend, right? The dividends depend on the company's profits.
Exactly! And can someone explain preference shares?
Preference shares have a fixed dividend and are paid out before equity shares.
Great! A good way to remember is that 'equity' means 'equal', and they share the risks and rewards depending on profits, while 'preference' indicates a priority. Let's move on!
What happens if a company doesn't make a profit? Do equity shareholders still get dividends?
Good question! No, equity shareholders only receive dividends when there are profits. Let's clarify that in our summary. Equity shares depend on profits, preference shares don't.
Now let’s cover some key terms: face value, issue price, and calls. Can anybody define face value?
Face value is the nominal value of a share, like its basic value.
That’s right! And how about the issue price?
It can be at par, premium, or discount when shares are offered!
Exactly! Let’s explore calls as well. What does 'calls' mean in our context?
Calls are payments made in installments for shares.
Great! Now, let’s discuss the journal entries for issuing shares at par. Can someone explain that process?
When shares are issued at par, we debit the Bank account on application and then transfer it to Share Capital on allotment.
Perfect! The steps are application, then allotment. Remember, 'A before A'. Now let’s summarize what we learned.
Let’s discuss forfeiture of shares. What does that mean?
Forfeiture happens when the shareholder fails to pay the calls.
Correct! And how can forfeited shares be reissued?
They can be reissued at a discount, but not exceeding the forfeited amount.
Right! Remember, we can only reissue at a discount. Let's summarize just this section: forfeiture is due to non-payment, and reissue can occur at a discount.
Now, let’s apply what we've learned. If a company issues 1,000 equity shares at a face value of ₹10, what's the total capital raised?
That would be ₹10,000!
Exactly! And what if they issued 500 shares at a premium of ₹2?
Then it would be ₹6,000, because it’s ₹12 per share!
Good job! Always calculate the total by combining the face value and premium. Keep practicing these kinds of questions!
Equity and Preference shares serve different purposes in a company's financing.
The nominal value of a share that determines its basic price.
Shares can be forfeited if shareholders do not pay their installments.
Forfeited shares can be reissued at a discount, not exceeding the amount forfeited.
Equity shares let dividends flow, Preference gets paid first, that's how we grow!
Once in a town, two friends wanted to invest. One chose equity shares for fun, betting on profits, while the other picked preference for steady income, showing that different strategies exist!
E for Equity, P for Preference — Remember which yields dividends and which takes precedence!
F.I.P.: Forfeiture, Issue price, Preference shares — Key aspects to remember when learning about shares!
Term
What are equity shares?
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Term
What are preference shares?
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Term
What is the issue price?
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Term
What is forfeiture?
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Term
What does face value signify?
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Shares that do not have a fixed dividend, with dividends varying based on company's profits.
Shares with a fixed rate of dividend and priority in payment over equity shareholders.
The nominal value assigned to a share.
The price at which shares are issued, which can be at par, premium, or discount.
Amounts payable in installments when shares are issued.
The loss of ownership of shares when a shareholder fails to pay calls.
This section covers the various aspects of issuing shares by joint stock companies, focusing on the types of shares, key terms, and accounting procedures involved.
The 'Issue of Shares' section outlines the different types of shares, such as equity and preference shares, along with essential terms including face value and issue price. It also discusses the accounting entries for issuing shares at par and at a premium, addressing the concepts of forfeiture and reissue.
This section discusses the fundamental process of issuing shares in a Joint Stock Company, a critical aspect of company financing. It emphasizes the types of shares available, essential terminology related to share issuance, and the corresponding accounting practices.
Overall, the issue of shares lays the groundwork for company capital structure and financial health.