Accounting · Company Accounts

Issue of Shares at Par, Premium and Discount: Journal Entries for CA Foundation

Updated 1 October 2026 · Fact-checked

Issue of shares means a company collects money from investors in stages: application, allotment and calls. At par, you credit Share Capital only. At a premium, you credit the excess to Securities Premium Account. Record cash first, then the amount due, then the transfer to capital. Section 52 limits how premium can be used.

Understand Issue of Shares at Par, Premium and Discount

A company raises capital by issuing shares. Each share has a face value (nominal value), such as ₹10. The company usually does not ask for the full amount at once. It collects in stages: application (with the form), allotment (when shares are given), and one or more calls (later demands).

If the issue price equals face value, the shares are issued at par. If the issue price is higher, the shares are issued at a premium. The extra amount is not capital. It is credited to Securities Premium Account. This is the same thing as "share premium". Older books say share premium. The Companies Act, 2013 uses the name securities premium.

If the issue price is lower than face value, the shares are issued at a discount. Under Section 53 of the Companies Act, 2013, a company cannot issue shares at a discount, except sweat equity shares as the Act permits. Such an issue is void. Exam questions may still ask for the entries, so learn the method. Read the question to see what it expects.

Under Section 52, the Securities Premium Account can be used only for the purposes the Act lists. These include: issuing fully paid bonus shares to members, writing off preliminary expenses, writing off expenses, commission or discount on the issue of shares or debentures, providing for premium payable on redemption of redeemable preference shares or debentures, and buying back shares or securities (as Section 68 permits). You cannot use it to pay a dividend.

The entries follow one pattern: (1) money received goes to a bank debit and a receipt account credit, (2) when the amount falls due you debit the money-due account and credit capital and premium, (3) when the money comes in you debit bank and credit the due account.

Key rules to remember

Amount due on a stage: Amount due = Number of shares × Amount per share for that stage; Use the same method for application, allotment and each call.
Securities premium: Securities Premium = Number of shares × (Issue price − Face value); Credit it when the premium falls due, usually on allotment. If the question says the premium is received with application, credit it then.
Share capital credited: Share Capital = Number of shares × Face value; Across all stages, total Share Capital credited must equal this. Use it as a check.
Total cash check: Total cash = Number of shares × Issue price (at par or premium); If every call is paid, cash equals capital plus premium.
Discount entry rule: Discount on Issue of Shares A/c is debited; Share Capital is credited at full face value; The discount is debited when the stage it is adjusted against falls due, usually allotment. Under Section 53, an issue at a discount is void, so it is mainly an older-style question.
Section 52 uses of Securities Premium: Bonus shares | preliminary expenses | issue expenses, commission or discount | premium on redemption | buy-back (Section 68); Memory aid: B-P-E-R-B. Not allowed for dividend.

How to solve Issue of Shares at Par, Premium and Discount questions

Use the same sequence for every question on issue of shares. Do it on rough paper first, then write the entries.

1Read the question and note the number of shares, face value and issue price. Work out the premium or discount per share.
2Make a small table with stages down the side (application, allotment, first call, final call) and amounts per share across. Mark where the premium or discount sits.
3Check the table: the stages should add up to the issue price (or the issue price less discount).
4Write the entry for money received on application: Bank Dr, To Share Application A/c.
5Write the transfer on allotment: Share Application A/c Dr, To Share Capital A/c (and Securities Premium A/c if premium was paid with application).
6Write the allotment due entry: Share Allotment A/c Dr, To Share Capital A/c, To Securities Premium A/c. For a discount, debit Discount on Issue of Shares A/c too.
7Record each receipt (Bank Dr, To Allotment or Call A/c) and each call due (Call A/c Dr, To Share Capital A/c).
8Write narrations and check that total capital credited equals shares × face value.

Quickest way: Table-first method with a capital check

When to use it: Use it in any 5 to 8 mark journal question where all money is received. Do the table before any entry.

Draw columns: Application | Allotment | Call. Fill the per-share amount, and split allotment into capital part and premium part.
Multiply each cell by the number of shares once. These are your amounts.
Write entries in fixed order: receipt, transfer or due, receipt. Use the same account names each time.
Add up the Share Capital credits. If the total is not shares × face value, find the mistake before moving on.
Keep premium separate. Never put premium in the Share Capital line.

Common mistakes in Issue of Shares at Par, Premium and Discount

Crediting the premium to Share Capital A/c.
Students see one total amount per stage and credit it all to capital.
Fix: Split the allotment amount into capital part and premium part. Premium always goes to Securities Premium A/c.
Forgetting that allotment amount includes premium and so overstating capital.
The question says allotment ₹5 (including premium ₹2) and the student credits ₹5 to capital.
Fix: Capital on allotment = amount payable − premium. Read the bracket every time.
Debiting Share Capital or Bank for the amount due instead of the due account.
Students skip the Allotment or Call account to save time.
Fix: Always do two entries: due first (Allotment A/c Dr), then receipt (Bank Dr, To Allotment A/c). This also earns step marks.
Using Securities Premium for a dividend or any other purpose.
Students treat it like free profit.
Fix: Remember Section 52 allows only the listed uses: bonus shares, preliminary expenses, issue expenses or discount, premium on redemption, buy-back.
Treating share premium and securities premium as two different accounts.
Both names appear in books and questions.
Fix: They are the same. The Act uses Securities Premium Account. Use that name in your answer.
Crediting discount to Share Capital at the reduced amount.
Students credit only the cash payable.
Fix: Share Capital is credited at full face value. Debit Discount on Issue of Shares A/c for the difference. Note that such an issue is void under Section 53 if the question asks about legality.

Worked examples

Example 1

A company issued 10,000 equity shares of ₹10 each at a premium of ₹2 per share. Payable: ₹3 on application, ₹5 on allotment (including premium), and ₹4 on first and final call. All money was received. Pass journal entries.

Show the solution

Issue price = ₹10 + ₹2 = ₹12. Stages: 3 + 5 + 4 = ₹12. Correct.
Application received: 10,000 × ₹3 = ₹30,000. Bank A/c Dr ₹30,000; To Share Application A/c ₹30,000.
Transfer: Share Application A/c Dr ₹30,000; To Share Capital A/c ₹30,000.
Allotment due: 10,000 × ₹5 = ₹50,000. Premium = 10,000 × ₹2 = ₹20,000. Capital part = ₹30,000. Share Allotment A/c Dr ₹50,000; To Share Capital A/c ₹30,000; To Securities Premium A/c ₹20,000.
Allotment received: Bank A/c Dr ₹50,000; To Share Allotment A/c ₹50,000.
First and final call due: 10,000 × ₹4 = ₹40,000. Share First and Final Call A/c Dr ₹40,000; To Share Capital A/c ₹40,000.
Call received: Bank A/c Dr ₹40,000; To Share First and Final Call A/c ₹40,000.
Check: capital = ₹30,000 + ₹30,000 + ₹40,000 = ₹1,00,000 = 10,000 × ₹10. Cash = ₹1,20,000 = 10,000 × ₹12.

Answer: Share Capital ₹1,00,000, Securities Premium ₹20,000, total cash received ₹1,20,000. All Share Application, Allotment and Call accounts are closed.

Example 2

A company issued 5,000 shares of ₹100 each at a discount of 10%. Payable: ₹30 on application, ₹40 on allotment, and ₹20 on first and final call. All money was received. Pass journal entries (treat as an older-style question; note that Section 53 treats such an issue as void).

Show the solution

Issue price = ₹100 − ₹10 = ₹90. Stages: 30 + 40 + 20 = ₹90. Correct.
Application received: 5,000 × ₹30 = ₹1,50,000. Bank A/c Dr ₹1,50,000; To Share Application A/c ₹1,50,000.
Transfer: Share Application A/c Dr ₹1,50,000; To Share Capital A/c ₹1,50,000.
Allotment due: 5,000 × ₹40 = ₹2,00,000. Discount = 5,000 × ₹10 = ₹50,000. Share Capital credited on allotment = ₹2,00,000 + ₹50,000 = ₹2,50,000.
Entry: Share Allotment A/c Dr ₹2,00,000; Discount on Issue of Shares A/c Dr ₹50,000; To Share Capital A/c ₹2,50,000.
Allotment received: Bank A/c Dr ₹2,00,000; To Share Allotment A/c ₹2,00,000.
Call due: 5,000 × ₹20 = ₹1,00,000. Share First and Final Call A/c Dr ₹1,00,000; To Share Capital A/c ₹1,00,000. Then Bank A/c Dr ₹1,00,000; To Share First and Final Call A/c ₹1,00,000.
Check: capital = ₹1,50,000 + ₹2,50,000 + ₹1,00,000 = ₹5,00,000 = 5,000 × ₹100. Cash = ₹4,50,000 = 5,000 × ₹90.

Answer: Share Capital ₹5,00,000 is credited. Discount on Issue of Shares of ₹50,000 is debited. Cash received is ₹4,50,000.

Exam tips

Always show the per-share table in rough work. Most mistakes come from reading the bracket (including premium) wrongly.
Write the due entry and the receipt entry separately. Examiners give marks for each entry, and shortcuts lose them.
When asked about uses of Securities Premium, give the Section 52 list. Do not add dividend.
If a question mentions a discount on a fresh issue, state in one line that Section 53 prohibits it. Then pass the entries the question asks for.
Add narrations briefly, such as "Being allotment money due". Keep them short.

Practice questions from Company Accounts

Issue of Shares at Par, Premium and Discount: frequently asked questions

What is the difference between share premium and securities premium account?

There is no difference in meaning. Share premium is the older, common name. The Companies Act, 2013 calls it the Securities Premium Account under Section 52. Use that name in your answers.

Can a company issue shares at a discount?

No. Under Section 53 of the Companies Act, 2013, a company cannot issue shares at a discount, except sweat equity shares as the Act permits. An issue at a discount is void. Discount entries may still appear in practice questions.

For what purposes can securities premium be used under Section 52?

It can be used to issue fully paid bonus shares, write off preliminary expenses, write off expenses or commission or discount on issue of shares or debentures, provide for premium on redemption of redeemable preference shares or debentures, and buy back shares under Section 68. It cannot be used to pay a dividend.

When do you credit Securities Premium Account?

Credit it when the premium falls due. This is usually on allotment. If the question says premium is payable with application, credit it at that stage. If it is on a call, credit it when the call is made.

How do I pass journal entries for issue of shares quickly?

Make a per-share table first. Then pass entries in a fixed order: receipt, amount due, receipt. Finally check that total Share Capital credited equals shares × face value.