Fog Accountancy Tutorials: Accounting for Issue of Shares

Introduction

• Focus: Accounting for the issue of shares
• Excludes: Detailed theory on company accounts (definition, regulations, types, etc.)
• Types of Companies:
  • Company limited by shares
  • Company limited by guarantee
  • Unlimited company
  • Public company vs. Private company

Characteristics of Companies

• Limited Liability: Common in both public and private companies
• Public Company:
  • Can issue shares to the public
  • Unlimited number of shareholders
• Private Company:
  • Limited number of shareholders (1 to 50)
  • Does not issue shares publicly

Shares and Share Capital

• Share Definition: Right to ownership of a company
• Types of Share Capital:
  • Authorized Share: Max number of shares a company can issue
  • Issued Share: Portion of authorized shares actually issued
  • Subscribed Share: Portion of issued shares that are bought
  • Paid-up Share: Portion of subscribed shares that are paid for

Share Values

• Par Value Shares: Value assigned at registration
• No Par Value Shares: Value assigned at issuance based on market conditions

Share Issuance Process

• Stages:
  • Application
  • Allotment
  • Calls (First call, Second call, etc.)
• Double Entry Accounting:
  • Debit bank account, Credit relevant share account (e.g., application, allotment)

Worked Example: Leonardo Limited

• Scenario: Issue of 20,000 ordinary shares at $2 each
• Installment Breakdown:
  • Application: $0.50/share
  • Allotment: $0.80/share
  • First Call: $0.30/share
  • Second Call: $0.40/share
• Double Entry Steps:
  • Debit bank, Credit application (on application)
  • Debit bank, Credit allotment (on allotment)
  • Debit bank, Credit first call (on first call)
  • Debit bank, Credit second call (on second call)

Journal Entries and Transfers

• Transfers: From temporary accounts (application, allotment) to stated capital
• General Journal Entries: Reflect each double entry including narrative

Conclusion

• This session covered the basics of accounting for the issue of shares
• Future lessons will cover advanced topics such as oversubscription, forfeiture of shares, and shareholder accounts

Action Items

• Subscribe to the channel for updates and more lessons
• Read further on the theoretical aspects of company accounts

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Remember to review these notes and practice double entries and journal entries as discussed during the session.