Issue of Shares: ISC Class 12 Accounts Notes, Entries and Solved Problems

What Issue of Shares is about

Weightage: Issue of Shares is part of the syllabus unit that carries 11 of the 80 theory marks. It is in the compulsory Section A (60 marks).Source: CISCE ISC Accountancy (Accounts) syllabus, examination year 2027, distribution of marks

Key concepts

Issue at par and at premium; stages of payment

Shares are issued at par (issue price = nominal value) or at a premium (issue price above nominal value). The premium is credited to Securities Premium A/c, which can be used only for purposes allowed by Section 52 of the Companies Act, 2013 (for example writing off preliminary expenses or share issue expenses, issuing fully paid bonus shares, premium on redemption of debentures).

Typical entries for each stage:

1. Money received: Bank A/c Dr To Share Application A/c.
2. Transfer: Share Application A/c Dr To Share Capital A/c (and Securities Premium A/c if premium is payable on application).
3. Due: Share Allotment A/c Dr To Share Capital A/c and Securities Premium A/c.
4. Received: Bank A/c Dr (and Calls in Arrears A/c Dr for unpaid amounts) To Share Allotment A/c.
5. Calls: the same pattern.

Premium is usually payable with allotment unless stated. A Cash Book may replace the bank entries: then show Journal Proper for the non-cash entries and the Cash Book for receipts and refunds.

Worked example

Suppose Nova Ltd issues 20,000 equity shares of ₹10 each at a premium of ₹3, payable ₹4 on application, ₹6 on allotment (including premium) and ₹3 on first and final call. All money is received. Pass the entries for allotment. [2 marks]

Try it first, then show the solutionSolution

1. Particulars	Dr (₹)	Cr (₹)
   Equity Share Allotment A/c ... Dr	1,20,000
   To Equity Share Capital A/c		60,000
   To Securities Premium A/c		60,000
   (Being allotment money due on 20,000 shares at ₹6 including ₹3 premium)
   Bank A/c ... Dr	1,20,000
   To Equity Share Allotment A/c		1,20,000
   (Being allotment money received)

Answer: Share capital ₹60,000 and Securities Premium ₹60,000 credited on allotment; ₹1,20,000 received.

Shares for consideration other than cash: vendors, promoters, underwriters

Vendors: when a company buys assets (or a business) and pays by issuing shares.

1. Sundry Assets A/c Dr (and Goodwill A/c Dr if the price exceeds net assets) To Sundry Liabilities A/c and To Vendor's A/c (with the purchase consideration); a lower price than net assets gives a Capital Reserve.
2. Vendor's A/c Dr To Share Capital A/c and To Securities Premium A/c.

Number of shares = Purchase consideration ÷ issue price per share.

Promoters: shares issued for their services in forming the company: Goodwill A/c Dr or Incorporation Costs A/c Dr To Share Capital A/c (the syllabus allows either).

Underwriters: commission paid by issuing shares: Underwriting Commission A/c Dr To Share Capital A/c (and Securities Premium A/c).

Worked example

Suppose Opal Ltd takes over assets of ₹6,00,000 and liabilities of ₹1,00,000 from Raj Traders for ₹5,40,000, paid by issuing equity shares of ₹10 each at a premium of 20%. Pass the journal entries. [3 marks]

Try it first, then show the solutionSolution

1. Goodwill = 5,40,000 − (6,00,000 − 1,00,000) = ₹40,000. Shares = 5,40,000 ÷ 12 = 45,000.

2. Particulars	Dr (₹)	Cr (₹)
   Sundry Assets A/c ... Dr	6,00,000
   Goodwill A/c ... Dr	40,000
   To Sundry Liabilities A/c		1,00,000
   To Raj Traders A/c		5,40,000
   (Being assets and liabilities taken over)
   Raj Traders A/c ... Dr	5,40,000
   To Equity Share Capital A/c		4,50,000
   To Securities Premium A/c		90,000
   (Being 45,000 shares of ₹10 each issued at ₹12 to the vendor)

Answer: 45,000 shares issued; goodwill ₹40,000; Securities Premium ₹90,000.

Over-subscription and pro-rata allotment

When applications exceed the shares offered, the directors may: (i) reject the excess applications and refund their money; (ii) allot to all applicants pro rata; or (iii) reject some and allot pro rata to the rest. They cannot allot more shares than offered.

For pro-rata applicants, the excess application money is not refunded: it is adjusted towards allotment (and any balance towards calls, or refunded if the directors decide).

• Shares applied by a pro-rata applicant ÷ pro-rata ratio = shares allotted (for example 60,000 : 50,000 = 6 : 5, so an applicant for 1,200 gets 1,000).
• Excess received from him = (shares applied − shares allotted) × application money per share.

Syllabus rule (premium): when shares are issued at a premium, excess application money adjusted on allotment is applied first to the share capital part of the allotment and only then to the securities premium part. This matters when a pro-rata allottee later defaults, because it decides how much capital and how much premium remain unpaid.

Worked example

Suppose X applied for 1,200 shares in a pro-rata group (6 : 5) of a ₹10 share issued at ₹2 premium, payable ₹3 on application and ₹5 on allotment (₹3 capital + ₹2 premium). He pays nothing on allotment. Find his calls in arrears on allotment and split it into capital and premium. [2 marks]

Try it first, then show the solutionSolution

1. Allotted 1,000 shares; excess application money = 200 × 3 = ₹600, adjusted to allotment.
2. Allotment due 1,000 × 5 = 5,000; unpaid = ₹4,400.
3. Excess is set first against capital: capital unpaid = 3,000 − 600 = ₹2,400; premium unpaid = ₹2,000.

Answer: Calls in arrears ₹4,400: ₹2,400 capital and ₹2,000 premium.

Calls in arrears and calls in advance, with interest

Calls in arrears: any amount due on allotment or a call but not paid is debited to Calls in Arrears A/c (the syllabus requires this account). If the Articles provide, interest is charged on it from the due date to the date of payment (Table F: up to 10% p.a.).

• Due: Shareholders (Sundry Members) A/c Dr To Interest on Calls in Arrears A/c.
• Received: Bank A/c Dr To Shareholders A/c.
• Closing: Interest on Calls in Arrears A/c Dr To Profit and Loss A/c (an income).

Calls in advance: money received before it is called is credited to Calls in Advance A/c (a current liability until adjusted). Interest is payable on it from the date received to the date the call becomes due (Table F: up to 12% p.a.).

• Due: Interest on Calls in Advance A/c Dr To Shareholders A/c.
• Paid: Shareholders A/c Dr To Bank A/c.
• Closing: Profit and Loss A/c Dr To Interest on Calls in Advance A/c (an expense).

When the call falls due, Calls in Advance A/c Dr To Share Call A/c.

Worked example

Suppose allotment money of ₹4 per share on 2,000 shares, due on 1st July 2025, was received on 30th September 2025; the Articles provide 10% p.a. interest on calls in arrears. Calculate the interest and pass the closing entry on 31st March 2026. [2 marks]

Try it first, then show the solutionSolution

1. Interest = 8,000 × 10% × 3/12 = ₹200.
2. Closing entry: Interest on Calls in Arrears A/c Dr ₹200 To Profit and Loss A/c ₹200.

Answer: ₹200, transferred to the Profit and Loss A/c as income.

Forfeiture and reissue of shares

Forfeiture (for non-payment of allotment or calls, as the Articles allow):

Share Capital A/c Dr (amount called up on the forfeited shares)
Securities Premium A/c Dr (only if the premium was not received)
To Calls in Arrears A/c (amount unpaid)
To Shares Forfeited A/c (amount received).

If the premium was received before forfeiture, it is not debited: it stays in Securities Premium.

Reissue: forfeited shares can be reissued at par, premium or discount. Bank A/c Dr (amount received); Shares Forfeited A/c Dr (discount allowed) To Share Capital A/c (amount treated as paid up) and Securities Premium (if reissued above par). The discount cannot exceed the amount forfeited on those shares, so there is never a net loss on reissue.

Gain on reissue = forfeited amount on the reissued shares − discount allowed; it is transferred to Capital Reserve. The balance on shares not yet reissued stays in Shares Forfeited A/c and is added to share capital in the notes.

Maximum discount per share on reissue = amount forfeited per share (excluding premium not received); minimum reissue price = paid-up value − maximum discount.

Worked example

Suppose 300 shares of ₹10 each (issued at ₹2 premium) were forfeited after only ₹3 per share had been paid on application; allotment (₹5 including premium) and call (₹4) were unpaid. What is the maximum discount at which they can be reissued as fully paid, and the minimum reissue price? [2 marks]

Try it first, then show the solutionSolution

1. Amount forfeited = ₹3 per share (premium was never received, so it is not part of it).
2. Maximum discount = ₹3 per share; minimum price = 10 − 3 = ₹7 per share.

Answer: Maximum discount ₹900 in all (₹3 per share); minimum reissue price ₹7 per share.

Disclosure: Notes to Accounts for Share Capital

Share capital appears in the Balance Sheet under Equity and Liabilities → Shareholders' Funds → Share Capital, with a note in this format:

Particulars	₹
Authorised capital: … shares of ₹… each	…
Issued capital: … shares of ₹… each	…
Subscribed capital
Subscribed and fully paid up: … shares of ₹… each	…
Subscribed but not fully paid up: … shares of ₹… each, ₹… called up	…
Less: Calls in arrears	(…)
Add: Shares Forfeited A/c	…
Total	…

Syllabus rules: show equity and preference capital separately; if authorised or issued capital is not given, show the headings with no figures; the balance in Shares Forfeited A/c is shown as a separate item under share capital (Subscribed Capital + Shares Forfeited = Share Capital). Forfeited shares not reissued are not part of subscribed capital. Securities Premium and Capital Reserve go under Reserves and Surplus; Calls in Advance under Other Current Liabilities.

Worked example

Suppose Lily Ltd allotted 30,000 equity shares of ₹10 each. The final call of ₹3 was not received on 500 shares, which were forfeited; 300 of them were reissued at ₹8 fully paid. What is the subscribed capital? [1 mark]

Try it first, then show the solutionSolution

1. Shares held by members: 30,000 − 500 + 300 = 29,800, all fully paid.
2. Subscribed capital = 29,800 × 10 = ₹2,98,000. The forfeited amount on the 200 shares not reissued (₹1,400) is added as Shares Forfeited, not as subscribed capital.

Answer: ₹2,98,000.

Issue of Shares in real life

Each concept, met in an everyday situation. Read the situation, answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Topics in this chapter

• Forfeiture and Reissue of Shares
• Pro-rata Allotment and Over-subscription
• Calls in Arrears and Calls in Advance

Issue of Shares: key facts

Shares allotted to a pro-rata applicant

Shares applied × shares allotted to the group ÷ shares applied by the group

Excess application money

(Shares applied − shares allotted) × application money per share

Shares to vendor

Purchase consideration ÷ issue price per share

Interest on calls in arrears

Amount in arrears × rate × months from due date to payment/12

Forfeited amount

Amount received on the forfeited shares (excluding premium not received)

Capital reserve on reissue

Forfeited amount on reissued shares − discount allowed on reissue

Share capital in the note

Subscribed capital − calls in arrears + Shares Forfeited balance

How the board asks Issue of Shares

The question patterns to expect, and the method that works for each.

Tricks to remember Issue of Shares

Short memory aids. Say each one aloud once, then use it on a question the same day.

• Forfeiture: "Called, Unpaid, Received"

  Debit Capital with what was Called; credit Calls in Arrears with what is Unpaid; credit Shares Forfeited with what was Received.

  Use it when: Every forfeiture entry.

• Premium in forfeiture: "only if not received"

  Debit Securities Premium on forfeiture only when the premium was never paid.

  Use it when: Avoids the most frequent error in forfeiture entries.

• Arrears in, advance out

  Interest on arrears comes in (income); interest on advance goes out (expense).

  Use it when: Closing entries.

Issue of Shares: board-level solved questions

Ordered from board level to HOTS. Cover the solution, write your own, then compare step by step.

Case-study practice (Section A style)

Read the situation, then answer every part. In the board paper this is a 6-mark question split into 1 + 2 + 3 marks.

Where the marks are

How a typical answer is split into step marks. Show every step: a right final answer alone rarely earns full marks.

Where students lose marks in Issue of Shares

The slips examiners see most often, and what to write instead.

• ✗Mistake: Not splitting unpaid allotment into capital and premium

  CISCE examiners' comments, 2025: "Could not split calls-in-arrears credit ₹1,300 into share capital ₹900 and securities premium ₹400."; "Could not calculate calls-in-arrears, hence forfeiture entry wrong."

  ✓Do this: For each defaulter, set off excess application money against capital first, then work out unpaid capital and unpaid premium separately.

  Usually costs: 1-2 marks in the forfeiture entry.

• ✗Mistake: Missing interest entries on calls in arrears

  CISCE examiners' comments, 2024: "Unable to calculate interest on calls-in-arrears"; "Did not pass the closing entry for interest on calls-in-arrears".

  ✓Do this: Three entries: due, received, closed to P&L A/c; count months from the due date.

  Usually costs: 1-2 marks.

• ✗Mistake: Wrong gain on reissue or wrong premium balance

  CISCE examiners' comments, 2025: "Wrong or omitted net gain on reissue of forfeited shares."; "Did not deduct share issue expenses ₹5,000 or premium not received when finding securities premium balance."

  ✓Do this: Gain = forfeited amount on reissued shares − discount; Securities Premium balance = premium credited − premium debited on forfeiture − amounts written off.

  Usually costs: 1 mark each.

• ✗Mistake: Counting forfeited shares in subscribed capital

  CISCE examiners' comments, 2024: "Chose option (a) instead of (d)" in a subscribed capital MCQ; the suggestion was to explain that forfeited shares are not held by shareholders.

  ✓Do this: Subscribed capital counts only shares held by members; the forfeited amount is a separate line.

  Usually costs: 1 mark.

• ✗Mistake: Calculating maximum discount when the minimum amount was asked, or including premium

  CISCE examiners' comments, 2024: "Calculated maximum discount instead of minimum amount received on reissue, or included securities premium".

  ✓Do this: Minimum reissue amount = shares × (paid-up value − forfeited amount per share); unpaid premium is never part of the forfeited amount.

  Usually costs: 1 mark.

Practice questions on Issue of Shares

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

1. Q1 · 1 mark · MCQBoard level

   Interest on calls in arrears is closed by:
   (a) debiting P&L A/c
   (b) crediting P&L A/c
   (c) crediting Securities Premium A/c
   (d) debiting Calls in Arrears A/c

   Hint

   Is it income or expense?

   Answer

   (b) It is income: Interest on Calls in Arrears A/c Dr To P&L A/c.

2. Q2 · 1 mark · Very short answerBoard level

   Give the entry for issuing 10,000 shares of ₹10 each at par to promoters for their services.

   Hint

   Two accounts allowed by the syllabus.

   Answer

   Incorporation Costs A/c (or Goodwill A/c) Dr ₹1,00,000 To Equity Share Capital A/c ₹1,00,000.

3. Q3 · 1 mark · Very short answerBoard level

   Machinery of ₹2,64,000 is bought and paid by issuing shares of ₹10 each at 10% premium. How many shares are issued?

   Hint

   Divide by issue price.

   Answer

   2,64,000 ÷ 11 = 24,000 shares.

4. Q4 · 2 marks · Short answerHarder board level

   Applications for 30,000 shares were received for 20,000 shares; all applicants got shares pro rata. Application money ₹4. An applicant for 600 shares: how many shares does he get and how much excess is adjusted?

   Hint

   Ratio 3 : 2.

   Answer

   Allotted 400 shares; excess = 200 × 4 = ₹800, adjusted to allotment.

5. Q5 · 3 marks · Short answerHarder board level

   200 shares of ₹10 each, on which ₹6 had been called and ₹4 paid, were forfeited. 150 were reissued at ₹7 as ₹8 paid up. Pass the entries and find the capital reserve.

   Hint

   Reissued as ₹8 paid up, not fully paid.

   Answer

   Forfeiture: Share Capital Dr 1,200 To Calls in Arrears 400, To Shares Forfeited 800. Reissue: Bank Dr 1,050, Shares Forfeited Dr 150 To Share Capital 1,200. Capital reserve = 150 × 4 − 150 = ₹450; balance in Shares Forfeited for 50 shares ₹200.

6. Q6 · 2 marks · Short answerHarder board level

   Allotment money of ₹5 per share on 1,000 shares, due on 1st May 2025, was received with the first call on 1st November 2025. Interest on calls in arrears is 10% p.a. Find the interest and give the entry for it when due.

   Hint

   Six months.

   Answer

   5,000 × 10% × 6/12 = ₹250. Shareholders A/c Dr ₹250 To Interest on Calls in Arrears A/c ₹250.

7. Q7 · 3 marks · Short answerHOTS / competency

   A shareholder who was allotted 900 shares (applied for 1,350, application ₹3, allotment ₹5 including ₹2 premium) fails to pay allotment. Calculate the calls in arrears and its split between capital and premium, using the syllabus rule.

   Hint

   Excess first to capital.

   Answer

   Excess = 450 × 3 = ₹1,350. Allotment due = 4,500; unpaid = ₹3,150. Capital part due 2,700 − 1,350 = ₹1,350 unpaid; premium ₹1,800 unpaid.

8. Q8 · 2 marks · Short answerHOTS / competency

   A student calculated the Securities Premium balance as ₹1,00,000 after a company forfeited shares on which premium of ₹2,000 had not been received, and wrote off share issue expenses of ₹5,000 from premium. Correct the balance and explain.

   Hint

   Two deductions.

   Answer

   Balance = 1,00,000 − 2,000 (premium not received, debited on forfeiture) − 5,000 (expenses written off) = ₹93,000.

9. Q9 · 1 mark · Very short answerBoard level

   State two purposes for which Securities Premium may be used.

   Hint

   Section 52.

   Answer

   Writing off preliminary expenses or share issue expenses; issuing fully paid bonus shares (also premium on redemption of debentures, buy-back).

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1. 1.Account for unpaid allotment under ISC?Show answer

   Calls in Arrears A/c.

2. 2.Forfeiture: credit to Shares Forfeited?Show answer

   The amount actually received on the shares.

3. 3.Gain on reissue goes to?Show answer

   Capital Reserve.

4. 4.Shares to promoters debited to?Show answer

   Goodwill A/c or Incorporation Costs A/c.

5. 5.Where is Calls in Advance shown?Show answer

   Under Other Current Liabilities.

Quick revision checklist

The night before the exam: can you do each of these without looking?

• ☐Due → Share Capital (and Securities Premium); unpaid → Calls in Arrears; early → Calls in Advance.
• ☐Pro-rata excess adjusted to allotment, capital first then premium.
• ☐Forfeiture: Dr Capital (called up) and Premium (if unpaid); Cr Calls in Arrears and Shares Forfeited (received).
• ☐Reissue discount ≤ forfeited amount; gain to Capital Reserve.
• ☐Interest on arrears is income; on advance an expense.
• ☐Note: Subscribed capital − arrears + Shares Forfeited.

Issue of Shares: frequently asked questions