Company Accounts — Issue of Shares & Debentures
20% of Paper 1 marks. Master share issue (premium / discount / forfeiture / reissue), debenture issue and redemption, and the journal entries for each scenario.
Last reviewed: 25 April 2026
Share issue — common patterns
- •Issue at par: face value only.
- •Issue at premium: face value + premium. Premium credited to Securities Premium Reserve (SPR).
- •Issue at discount: face value − discount. NOT permitted by Companies Act 2013 except for Sweat Equity (Sec 53/54).
- •Application → Allotment → Calls. Each call has its own journal entries.
Securities Premium Reserve (Sec 52)
- •Issue fully paid bonus shares.
- •Write off preliminary expenses.
- •Write off premium on redemption of debentures.
- •Provide for premium on redemption of preference shares / debentures.
- •Buy-back of own shares.
- •CANNOT be used for ordinary dividend.
Forfeiture & reissue
- •Shareholder fails to pay an installment → company forfeits shares after due notice.
- •Forfeiture journal: Dr. Share Capital (called-up amount) → Cr. Calls in Arrears (unpaid) + Cr. Forfeited Shares A/c (already-paid amount).
- •Reissue: forfeited shares can be reissued at any price ≥ (face value − amount in Forfeited Shares A/c).
- •Surplus on reissue → transfer to Capital Reserve.
Debentures
- •Debt instrument, fixed rate of interest, fixed redemption date.
- •Can be issued at par / premium / discount.
- •Discount on issue is a capital loss — written off over the life of debentures.
- •Redemption: lump sum, instalments, draw of lots, purchase from open market, conversion to shares.
- •Sec 71 + Rule 18: Debenture Redemption Reserve (DRR) required for unlisted companies — currently 10% of value of outstanding debentures (subject to amendment).
Formulas
- Reissue minimum price
- Reissue price + Forfeited Shares A/c amount ≥ Face value
- Capital reserve on reissue
- Capital Reserve = Forfeited Shares A/c balance − discount allowed on reissue
- Discount on debentures — annual write-off (SLM)
- Annual write-off = Total discount / Years to redemption
If reissue is at less than face value, forfeited amount must cover the shortfall.
Must know before the exam
- ★Calls in arrears can either be deducted from called-up capital OR shown separately.
- ★Calls in advance: liability; interest may be paid up to 12% (Table F).
- ★On forfeiture, called-up capital is debited at the called-up rate, not face value.
- ★Bonus shares can be issued from SPR, free reserves, or Capital Redemption Reserve.
Common mistakes & fixes
- ✗ Crediting Securities Premium when shares are issued at par.
- ✓ Premium is recorded ONLY when issue price > face value. At-par issue has no premium.
- ✗ Treating reissue as a fresh issue and crediting Securities Premium.
- ✓ Reissue is a re-allocation — surplus goes to Capital Reserve, not SPR.
- ✗ Writing off discount on debentures fully in year 1.
- ✓ Spread over the life of the debentures (matching concept).
Lock it in with practice
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