WHAT IS A ISSUE OF SHARES OTHER THAN CASH?
What is a ISSUE OF SHARES OTHER THAN CASH? COMPANIES
INTRODUCTION
Generally, a joint stock company issued its shares for cash. Sometimes a company may also issue its shares for other purpose like purchase of assets and business, issue ot promoters. Issue for underwriting commissions etc. such issue is called 'issue of shares for consideration other than cash.' The shares might be issued at par or premium or discount. The shares are issue for non-cash consideration for the following purpose:
Determination of purchase price
Sometimes, a joint stock company takes over the business of another concern, trading more or less on the same lines. on purchase of business, company takes over all the assets including cash and bank balance as well as all the assets including cash and bank balance as well all liabilities payable to third parties of another concern at purchasing company and the seller concern is called vender. Similarly, the agreed price to be paid by purchasing company to the vender is called purchase consideration. Sometimes, it might acquire the assets only. The purchase price is determined as below:
1. On the basis of amount payable. The sum of the value of the shares to be issued and cash payable becomes the purchase consideration under this condition. For example, if himal company purchase the business of birat company and decides to issue shares of Rs.10,00,000 and cash Rs5,00,000; the purchase consideration is fixed to be Rs15,00,000.
2. On the basis of number of shares. If the number of shares issued to the vender is given, the product of the number of shares and the value of per shares. It should be noted that the shares might be issued at par or premium or discount. For example, if bishow company decides to issue 2,000 shares of Rs100 each at 10% premium to purchase the business of international educational institute of information technology center, the purchase price is 2,000 x Rs110 = Rs2,20,000.
3. On the basis of net assets. Net asset is the difference between assets purchase and liabilities realized. In the absence of the purchase price, the net asset is assumed to be the purchase consideration. If the assets purchase is Rs5,00,000 and liabilities realized is Rs1,00,000, the net assets is Rs,4,00,000 (Rs5,00,000 – Rs1,00,000
Goodwill or capital reserve
When the purchase price is equal to the assets or net assets acquired, no goodwill or capital reserve exists. Similarly, the excess of price paid over the assets is traded as goodwill. In opposite, the excess of assets value over the purchase price is gain and treated as capital reserve. The ways of calculating goodwill or capital reserve have been presented below;
Issue of shares for the purchase of assets
Joint Stock Company can issue shares to the seller (vender) for the purchase of assets in state of paying cash. To record this transaction, following points are considerable.
Issue of shares for the purchase of business
If a company purchases the assets and assumes the liabilities of another business, it is called purchase of business. The following entries are passed for the purchase of business.
Issue of shares to promoters
The promoters are pioneers who conceive the idea of forming a company and making it a going concern. They provide information related to technology, research and development, management layout from setting up a plant and all efforts in the company. When a company issues its shares to promoters for their services, it is called issue of shares to promoters. Usually, the amount of such issue is considered as cost of goodwill and while passing journal entry it is debited to goodwill account. The following entry is made in this suction:
Issue of shares for underwriting commission
In order to get certificate to commerce business, a public limited company has to ger minimum subscription for insuring minimum subscription; generally a company does not sell its shares or debentures by itself in the open market. It approaches some persons or financial institutions or bank, called underwriters to sell its shares or debentures, becomes they ensure the company that in case shares and debentures offered to the public are not subscribed by the public to the extent, the balance of shares and debenture will be taken up by them. For guaranteeing the sale of shares and debenture, the underwriters charge an agreed commission. Which is called underwriting commission. Such underwriting commission is usually calculated on the issue price of shares or debentures.
When a company issues its shares to underwriters as their commission, it is called issue of shares for underwriting commission. The following journal entries are made in this situation:
Opening balance sheet
When a company prepares a balance sheet just after the issue of shares and debentures for cash purchase of various assets or business by issuing shares or debenture etc., such balance sheet is know opening balance sheet. this balance sheet shows amount of share capital issued for cash and for consideration other than cash, amount of share premium ( at the time of issue, it any capital reserve (created at the time of issue of share for the purchase of business) and other liabilities taken by the company on its liabilities side. Similarly, its assets side show amount of goodwill (crated at the time of issue of share for the purchase of business, various assets taken over by the company, cash at bank (issue of shares for cash), any item of miscellaneous expenditure ( if any) etc.
Review of theoretical concept
1. Write a short note on share in consideration other than cash.
Shares may also be issue for consideration other than cash. These shares may be
2. What do you understand by capital reserve?
By passing a special resolution, a company may reserve a part of its uncalled capital, for being called up in the event and for the purpose of liquidation only. Such amount is called 'reserve capital'.
3. Discuss regarding the issue of shares for purchase of a business.
Sometimes, company may be purchase in consideration to the paid by shares or cash on partly be cash and partly by shares. Company can issue shares for purchase of business and assets.
issued by the company at par, at premium or at discount. It is to be noted that a fraction of share is not issued, the equivalent payment is to be made is cash.Generally, a joint stock company issued its shares for cash. Sometimes a company may also issue its shares for other purpose like purchase of assets and business, issue ot promoters. Issue for underwriting commissions etc. such issue is called 'issue of shares for consideration other than cash.' The shares might be issued at par or premium or discount. The shares are issue for non-cash consideration for the following purpose:
Determination of purchase price
Sometimes, a joint stock company takes over the business of another concern, trading more or less on the same lines. on purchase of business, company takes over all the assets including cash and bank balance as well as all the assets including cash and bank balance as well all liabilities payable to third parties of another concern at purchasing company and the seller concern is called vender. Similarly, the agreed price to be paid by purchasing company to the vender is called purchase consideration. Sometimes, it might acquire the assets only. The purchase price is determined as below:
1. On the basis of amount payable. The sum of the value of the shares to be issued and cash payable becomes the purchase consideration under this condition. For example, if himal company purchase the business of birat company and decides to issue shares of Rs.10,00,000 and cash Rs5,00,000; the purchase consideration is fixed to be Rs15,00,000.
2. On the basis of number of shares. If the number of shares issued to the vender is given, the product of the number of shares and the value of per shares. It should be noted that the shares might be issued at par or premium or discount. For example, if bishow company decides to issue 2,000 shares of Rs100 each at 10% premium to purchase the business of international educational institute of information technology center, the purchase price is 2,000 x Rs110 = Rs2,20,000.
3. On the basis of net assets. Net asset is the difference between assets purchase and liabilities realized. In the absence of the purchase price, the net asset is assumed to be the purchase consideration. If the assets purchase is Rs5,00,000 and liabilities realized is Rs1,00,000, the net assets is Rs,4,00,000 (Rs5,00,000 – Rs1,00,000
Goodwill or capital reserve
When the purchase price is equal to the assets or net assets acquired, no goodwill or capital reserve exists. Similarly, the excess of price paid over the assets is traded as goodwill. In opposite, the excess of assets value over the purchase price is gain and treated as capital reserve. The ways of calculating goodwill or capital reserve have been presented below;
Issue of shares for the purchase of assets
Joint Stock Company can issue shares to the seller (vender) for the purchase of assets in state of paying cash. To record this transaction, following points are considerable.
Issue of shares for the purchase of business
If a company purchases the assets and assumes the liabilities of another business, it is called purchase of business. The following entries are passed for the purchase of business.
Issue of shares to promoters
The promoters are pioneers who conceive the idea of forming a company and making it a going concern. They provide information related to technology, research and development, management layout from setting up a plant and all efforts in the company. When a company issues its shares to promoters for their services, it is called issue of shares to promoters. Usually, the amount of such issue is considered as cost of goodwill and while passing journal entry it is debited to goodwill account. The following entry is made in this suction:
Issue of shares for underwriting commission
In order to get certificate to commerce business, a public limited company has to ger minimum subscription for insuring minimum subscription; generally a company does not sell its shares or debentures by itself in the open market. It approaches some persons or financial institutions or bank, called underwriters to sell its shares or debentures, becomes they ensure the company that in case shares and debentures offered to the public are not subscribed by the public to the extent, the balance of shares and debenture will be taken up by them. For guaranteeing the sale of shares and debenture, the underwriters charge an agreed commission. Which is called underwriting commission. Such underwriting commission is usually calculated on the issue price of shares or debentures.
When a company issues its shares to underwriters as their commission, it is called issue of shares for underwriting commission. The following journal entries are made in this situation:
Opening balance sheet
When a company prepares a balance sheet just after the issue of shares and debentures for cash purchase of various assets or business by issuing shares or debenture etc., such balance sheet is know opening balance sheet. this balance sheet shows amount of share capital issued for cash and for consideration other than cash, amount of share premium ( at the time of issue, it any capital reserve (created at the time of issue of share for the purchase of business) and other liabilities taken by the company on its liabilities side. Similarly, its assets side show amount of goodwill (crated at the time of issue of share for the purchase of business, various assets taken over by the company, cash at bank (issue of shares for cash), any item of miscellaneous expenditure ( if any) etc.
Review of theoretical concept
1. Write a short note on share in consideration other than cash.
Shares may also be issue for consideration other than cash. These shares may be
2. What do you understand by capital reserve?
By passing a special resolution, a company may reserve a part of its uncalled capital, for being called up in the event and for the purpose of liquidation only. Such amount is called 'reserve capital'.3. Discuss regarding the issue of shares for purchase of a business.
Sometimes, company may be purchase in consideration to the paid by shares or cash on partly be cash and partly by shares. Company can issue shares for purchase of business and assets.
Where do we adjust cash of credit side in balance sheet ?
ReplyDelete