Issue of shares for consideration other than cash

Issue of shares for consideration other than cash

A company may issue shares for consideration other than cash when the company acquires fixed assets such as land and buildings, machinery, etc. Under such situation, the following journal entries are to be passed.

A company may also issue shares as consideration for the purchase of business, to promoters for their services and to brokers and underwriters for their commission.

Illustration 20

Rajan Ltd. purchased machinery of ₹ 6,00,000 from Jagan Traders. It issued equity shares of 10 each fully paid in satisfaction of their claim. What entries will be made if such issue is made: (a) at par and (b) at a premium of 50%.

Solution

In the books of Rajan Ltd Journal entries

(a) When shares are issued at par:

(b) When shares are issued at a premium of 50%

Tutorial note

Computation of number of shares to be issued

Total amount = ₹ 6,00,000

Face value of the shares = ₹ 10

Premium = 50%; Therefore, premium amount = 10 × 50% = ₹ 5

Issue price = Face value + premium = 10 + 5 = ₹ 15

Number of equity shares to be issued = Total amount /Issue price = 6,00,000 / 15 = 40,000 shares