Corporate Accounting and Auditing · Issue, Forfeiture, Rights, Bonus, Sweat Equity, ESOP and Buy-back of Shares

Issue of Shares: Premium, Discount and Calls Explained

Updated 10 October 2026 · Fact-checked

Issue of shares is recorded in stages: application, allotment and calls. Debit Bank or the due account, credit Share Capital for face value and Securities Premium for any premium. Adjust excess application money on pro rata allotment, show unpaid calls as calls in arrears and early payments as calls in advance.

Understand Issue of Shares: Premium, Discount and Calls

A company raises capital by inviting applications for shares. Money is not taken all at once. It is collected in instalments: application, allotment and one or more calls. Each stage has its own journal entry, and you pass the entries in the same order as the events.

The face value (par value) of a share always goes to Share Capital. If the company charges more than face value, the extra is securities premium. It is credited to Securities Premium Account, never to Share Capital. Premium can be collected with application, allotment or a call. Under Section 52 of the Companies Act, 2013 the premium balance can be used only for the purposes listed there, such as issuing fully paid bonus shares, writing off preliminary expenses or share issue costs, and buy-back. It is not available for normal dividend.

A discount means issuing below face value. Under Section 53 a company cannot issue shares at a discount, except sweat equity shares. So in exams, discount appears mainly when forfeited shares are re-issued, or in a question that expects you to say the issue is not permitted. Do not assume a fresh discount issue is valid.

When applications exceed the shares offered, the issue is oversubscribed. The company may reject some applications and refund the money, allot in full to some, or allot pro rata to all. Extra application money on allotted shares is not refunded. It is adjusted against the allotment money due.

A shareholder who has not paid a due call is in calls in arrears. A shareholder who pays a call before it is made has paid calls in advance. The company can accept advance payment only if its articles authorise it (Section 50). Interest on advances and on arrears is paid or charged as per the articles or the rate given in the question. If a question gives no rate, check whether Table F applies. Under Table F, interest on advances is at the rate agreed between the Board and the member, not exceeding 12% p.a. unless the company in general meeting directs otherwise. On arrears, Table F provides interest at 10% p.a. or a lower rate fixed by the Board, and the Board may waive it wholly or in part. Calls in advance is a liability, not share capital, until the call is made.

Key rules to remember

Face value and premium split: Amount due = Share Capital (face value portion) + Securities Premium (premium portion); Premium is credited to Securities Premium Account, not Share Capital. Read which instalment carries the premium.
Application money entry: Bank A/c Dr (shares applied × application money per share) to Share Application A/c; Record money on all shares applied for, not only those allotted.
Allotment entry: Share Application A/c Dr to Share Capital A/c (allotted shares × application money) and to Refund / Share Allotment A/c (excess); Excess = money received on application − application money on shares allotted.
Pro rata ratio: Shares allotted : Shares applied, e.g. 5,000 : 8,000 = 5 : 8; Excess application money is first adjusted against allotment money due, then refunded if any remains.
Cash received on allotment: Allotment due − excess application money adjusted − arrears on allotment; Use this to find the bank figure and to cross-check your entry.
Calls in arrears: Calls in Arrears A/c Dr to Call A/c (unpaid amount × number of shares); Show it as a deduction from called-up capital in the notes. It is not an asset.
Calls in advance: Bank A/c Dr to Calls in Advance A/c; later Calls in Advance A/c Dr to Call A/c; Treat it as a liability until the call is made. Interest on it is paid as per the articles or the question's rate (Table F: the rate agreed between the Board and the member, not exceeding 12% p.a. unless the company in general meeting directs otherwise).
Interest on calls in advance / arrears: Interest = amount × rate % × time (in years); For advance, time runs from the date of receipt to the date the call is due. For arrears, from the due date to the date of payment. Use the rate given in the question or the articles. If neither is given, under Table F interest on advances is at the rate agreed between the Board and the member, not exceeding 12% p.a. unless the company in general meeting directs otherwise. On arrears, Table F provides 10% p.a. or a lower rate fixed by the Board, and the Board may waive it wholly or in part.

How to solve Issue of Shares: Premium, Discount and Calls questions

Use this order for any issue of shares question. It keeps entries complete and helps you earn step marks.

1Write the issue terms in a small table: face value, premium, and the amount payable at application, allotment and each call. Check the instalments add up to face value plus premium.
2Note whether the premium is due with application, allotment or a call, and whether the question talks of discount.
3Compute shares applied for, shares allotted and the pro rata ratio. Find excess application money and decide whether it is adjusted or refunded.
4Pass entries in date order: application received, application transferred to capital, allotment due, allotment received, call due, call received.
5Separate the face value portion and the premium portion in every 'due' entry. Credit Securities Premium for the premium.
6Handle exceptions: calls in arrears (debit Calls in Arrears), calls in advance (credit Calls in Advance), and interest on either if the question gives a rate.
7Cross-check: total cash plus arrears must equal total due, and Share Capital plus Securities Premium must equal the total payable on shares allotted.
8Show the final balance sheet extract if asked: authorised, issued, subscribed and paid-up capital, with calls in arrears deducted.

Quickest way: Table-first method for issue of shares

When to use it: Use this for any numerical question on shares with several instalments and exceptions, where time is short.

Draw columns for Application, Allotment, Call 1 and Call 2. Under each, write the amount per share and the premium part.
Multiply by shares allotted to get the amount due at each stage. Multiply application by shares applied for to get money received.
Mark excess application money and subtract it from the allotment cash.
Write the arrears and advance amounts below the table, then pass entries by reading across the table.
Total check: capital plus premium equals cash plus arrears. If not, find the stage that is off.

Common mistakes in Issue of Shares: Premium, Discount and Calls

Crediting the premium to Share Capital.
Students pass one entry for the whole amount due at allotment.
Fix: Split every 'due' entry. Face value goes to Share Capital and the extra goes to Securities Premium.
Computing allotment due on shares applied for instead of shares allotted.
Application money is received on all shares applied for, so the number gets carried forward.
Fix: Application money received uses shares applied for. Allotment, call and capital figures use shares allotted.
Refunding excess application money when it should be adjusted.
Students remember 'refund' from rejected applications and apply it to pro rata ones.
Fix: For pro rata allotment, adjust the excess against allotment due first. Refund only what remains, or what relates to rejected applications.
Treating calls in advance as part of share capital or income.
The cash has been received, so students credit capital.
Fix: Credit Calls in Advance, a liability. Transfer it to the call account when the call is made.
Debiting the bank for the full call amount when some holders have not paid.
Students forget that the call due is more than the call received.
Fix: Debit Bank for cash actually received and Calls in Arrears for the unpaid part. The call account must close to nil.
Showing a fresh issue at a discount as valid.
Older textbooks have discount entries for fresh issue.
Fix: State that Section 53 prohibits issue of shares at a discount except sweat equity. Use discount entries only for re-issue of forfeited shares, or when the question explicitly directs it.

Worked examples

Example 1

Delta Textiles Ltd issued 50,000 equity shares of ₹10 each at a premium of ₹2 per share. Payment: application ₹3, allotment ₹5 (including premium), first and final call ₹4. Applications were received for 80,000 shares. Shares were allotted pro rata to all applicants, and excess application money was adjusted towards allotment. A holder of 400 shares did not pay the first and final call. Pass journal entries.

Show the solution

Terms check: 3 + 5 + 4 = ₹12 = face value ₹10 + premium ₹2. The allotment ₹5 = ₹3 capital + ₹2 premium.
Application money received: 80,000 × ₹3 = ₹2,40,000.
Application money on shares allotted: 50,000 × ₹3 = ₹1,50,000. Excess = ₹2,40,000 − ₹1,50,000 = ₹90,000, which is adjusted towards allotment.
Allotment due: 50,000 × ₹5 = ₹2,50,000 (capital ₹1,50,000 and premium ₹1,00,000). Cash due on allotment = ₹2,50,000 − ₹90,000 = ₹1,60,000.
First and final call due: 50,000 × ₹4 = ₹2,00,000. Unpaid: 400 × ₹4 = ₹1,600. Cash received = ₹1,98,400.
Entry 1: Bank A/c Dr ₹2,40,000 to Share Application A/c ₹2,40,000.
Entry 2: Share Application A/c Dr ₹2,40,000 to Equity Share Capital A/c ₹1,50,000 and to Share Allotment A/c ₹90,000.
Entry 3: Share Allotment A/c Dr ₹2,50,000 to Equity Share Capital A/c ₹1,50,000 and to Securities Premium A/c ₹1,00,000.
Entry 4: Bank A/c Dr ₹1,60,000 to Share Allotment A/c ₹1,60,000.
Entry 5: Share First and Final Call A/c Dr ₹2,00,000 to Equity Share Capital A/c ₹2,00,000.
Entry 6: Bank A/c Dr ₹1,98,400 and Calls in Arrears A/c Dr ₹1,600 to Share First and Final Call A/c ₹2,00,000.
Check: capital ₹5,00,000 + premium ₹1,00,000 = ₹6,00,000 total due. Cash received: application ₹2,40,000 + allotment ₹1,60,000 = ₹4,00,000; plus call ₹1,98,400 = ₹5,98,400 total cash. Add arrears ₹1,600 to get ₹6,00,000, which matches the total due.

Answer: Equity Share Capital ₹5,00,000 and Securities Premium ₹1,00,000 are credited. Total bank receipts are ₹5,98,400, and Calls in Arrears is ₹1,600. Cash plus arrears = ₹6,00,000.

Example 2

Kaveri Ltd issued 10,000 8% preference shares of ₹100 each at a premium of ₹10. Payment: application ₹30, allotment ₹50 (including premium), final call ₹30. All shares were applied for and allotted in full. Before the final call, a holder of 300 shares paid the final call in advance. The articles allow 6% p.a. interest on calls in advance, and the amount was held for 4 months. At the final call, a holder of 200 shares did not pay. Pass entries for the final call, the advance and the interest.

Show the solution

Terms check: 30 + 50 + 30 = ₹110 = ₹100 + ₹10 premium. Premium ₹10 sits in the allotment amount.
Application: Bank A/c Dr ₹3,00,000 to Share Application A/c. On allotment, transfer it to 8% Preference Share Capital A/c ₹3,00,000.
Allotment due: 10,000 × ₹50 = ₹5,00,000. Credit Preference Share Capital ₹4,00,000 and Securities Premium ₹1,00,000. Received in full.
Calls in advance: 300 × ₹30 = ₹9,000. Entry: Bank A/c Dr ₹9,000 to Calls in Advance A/c ₹9,000.
Interest on advance: ₹9,000 × 6% × 4/12 = ₹180. Entry: Interest on Calls in Advance A/c Dr ₹180 to Bank A/c ₹180. It is a finance cost, charged to the Statement of Profit and Loss.
Final call due: 10,000 × ₹30 = ₹3,00,000. Entry: Final Call A/c Dr ₹3,00,000 to 8% Preference Share Capital A/c ₹3,00,000.
Cash received at the call: (10,000 − 300 − 200) = 9,500 shares × ₹30 = ₹2,85,000.
Entry: Bank A/c Dr ₹2,85,000, Calls in Advance A/c Dr ₹9,000 and Calls in Arrears A/c Dr ₹6,000 (200 × ₹30) to Final Call A/c ₹3,00,000.
Check: ₹2,85,000 + ₹9,000 + ₹6,000 = ₹3,00,000, so the call account closes to nil.

Answer: Preference Share Capital is ₹10,00,000 and Securities Premium is ₹1,00,000. Interest on calls in advance is ₹180 and Calls in Arrears is ₹6,000, shown as a deduction from called-up capital.

Exam tips

Always write the terms table first. Most lost marks come from putting premium in the wrong instalment.
In pro rata questions, state the ratio and show the excess application money calculation. Examiners give separate marks for each.
Use proper narration and account names, such as 'Share Application A/c' and 'Securities Premium A/c', instead of generic labels.
For MCQs, check the stage asked: application, allotment or call. A quick split of face value and premium usually gives the answer in seconds.
If the question gives a discount on a fresh issue, mention Section 53 briefly. Then follow the instruction given, or treat it as a re-issue of forfeited shares.

Practice questions from Issue, Forfeiture, Rights, Bonus, Sweat Equity, ESOP and Buy-back of Shares

Issue of Shares: Premium, Discount and Calls in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Issue of Shares: Premium, Discount and Calls: frequently asked questions

What is the journal entry for issue of shares at a premium?

At the stage where premium is due, debit the due account (for example Share Allotment A/c) with the total amount. Credit Share Capital with the face value part and Securities Premium with the premium part. Cash receipts are then recorded separately.

How do you treat calls in arrears and calls in advance?

Calls in arrears is the unpaid part of a call that is due. Debit Calls in Arrears and credit the call account, and deduct it from called-up capital in the notes. Calls in advance is money received before a call is made. Credit Calls in Advance, a liability, and adjust it when the call is made.

How is oversubscription handled in a pro rata allotment?

Work out the ratio of shares allotted to shares applied for. Keep the application money on the shares allotted and treat the rest as excess. Adjust the excess against allotment money due, and refund any balance that remains.

Can a company issue shares at a discount?

Section 53 of the Companies Act, 2013 prohibits issue of shares at a discount, except sweat equity shares. In exams, discount entries mostly arise for re-issue of forfeited shares. If the question tells you to record a fresh issue at discount, follow it but mention the prohibition.