In this article we will discuss about the Journal Entries on Issue of Shares for Consideration Other than Cash.
A company may issue shares for consideration other than cash. It may, for example, purchase some fixed assets for which it may make payment in the form of shares. Or it may take over a running business and the consideration for the business may be discharged by the company fully or partly in the form of its own shares.
Entries will be as follows:
Similarly, a company may allot shares to brokers and underwriters to pay their commission. Brokerage is the act of procuring subscriptions for shares or debentures of the company. A broker receives commission on the shares and debentures subscribed through him.
Underwriting is an arrangement by which a company, for commission called underwriting commission, secures a guarantee that the shares and debentures offered to the public will be taken up by the public and the shares and debentures not taken up by public will be taken up by the guarantor called the underwriter.
When shares are allotted to discharge brokerage and underwriting commission, the following entries will be passed:
Schedule VI part I of the Companies Act requires that in the balance sheet of the company, the aggregate number and class of shares allotted as fully paid up pursuant to contract (s) without payment being received in cash be shown for five years.
New Star Ltd. was registered with an authorised share capital of Rs 25,00,000 divided into shares of Rs 10 each. It acquired the business of M/s Karim & Sons, taking over the following assets at the values stated against each one of them:-