Corporate Accounting and Financial Management · Accounting for Share Capital

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

Updated 11 October 2026 · Fact-checked

Shares are issued at par when the price equals face value, at a premium when the price is higher, and at a discount when it is lower. Credit share capital with the face value due and the securities premium account with any premium. A discount is generally prohibited by section 53. Record each stage: application, allotment and calls.

Understand Issue of Shares at Par, Premium and Discount

A share has a face value (nominal value), say ₹10. The company decides the issue price. If issue price equals face value, the issue is at par. If it is higher, the issue is at a premium. If it is lower, it is at a discount.

The price is usually collected in instalments: application, allotment and one or more calls. At each stage you first record the money received in the bank, then record the amount due and transfer it to the right accounts once the board allots shares or makes the call.

Share capital is credited only with the face value. Any extra is a premium and goes to the securities premium account. Under section 52(1), a sum equal to the aggregate premium received, whether for cash or otherwise, must be transferred to this account. It is treated like paid-up share capital for reduction purposes, so you cannot use it freely.

Section 52(2) lists the permitted uses: issuing fully paid bonus shares, writing off preliminary expenses, writing off expenses, commission or discount on an issue of shares or debentures, providing for premium payable on redemption of redeemable preference shares or debentures, and buy-back under section 68. Section 52(3) allows a prescribed class of companies to use it for certain purposes related to equity shares.

Under section 53(1), a company shall not issue shares at a discount, except as provided in section 54. Under section 53(2), a share issued at a discount is void. Section 53(2A) permits a discount to creditors when debt is converted into shares under a statutory resolution plan or debt restructuring scheme following RBI guidelines. Exam questions on discount are therefore mostly about the accounting mechanics and the legal position.

Key rules to remember

Share capital credited: Share capital = number of shares × face value due (called up); Never credit share capital with the premium.
Securities premium: Securities premium = number of shares × premium per share; Section 52(1) requires it to be transferred to the securities premium account. It is usually collected with allotment or a call.
Discount on issue: Discount = face value − issue price (shares allotted); Debit discount on issue of shares. Section 53 declares such shares void, except as section 54 or 53(2A) allows.
Application money entry: Bank A/c Dr to Share Application A/c; then Share Application A/c Dr to Share Capital A/c (and refund to bank for rejected money); Transfer only the amount adjusted against allotted shares.
Allotment entry: Share Allotment A/c Dr to Share Capital A/c and Securities Premium A/c; Debit allotment with the total due, which includes any premium.
Call entry: Share Call A/c Dr to Share Capital A/c; Receipt: Bank A/c Dr to Share Call A/c.

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

Use the same sequence for every question. It keeps the entries in order and stops you missing the premium.

1Note the face value, issue price and the premium or discount per share.
2Write down the instalments: amount payable on application, allotment and each call, and whether the premium is with allotment or a call.
3Record the receipt of application money in the bank. Then transfer the amount for allotted shares to share capital.
4Record allotment due: debit Share Allotment with the amount due, credit Share Capital with the face value part, credit Securities Premium with the premium part. Then record the receipt.
5Record each call due and its receipt in the same way. Use a separate call account for each call.
6If shares are issued at a discount, debit Discount on Issue of Shares in the allotment or call entry for the discount amount, and mention the section 53 position.
7Check that total share capital credited equals shares × face value and securities premium equals shares × premium.
8 Show the balance sheet or equity extract if asked: authorised, subscribed and paid-up capital, and reserves.

Quickest way: Table-first method

When to use it: Use when the question gives instalments and asks for many journal entries in limited time.

Draw a small table with columns: Application, Allotment, First call, Final call, Total.
Fill the issue price row first, then split it into face value part and premium part.
Enter each journal as: Dr due account, Cr share capital, Cr securities premium, using the table row.
Write the receipt entry next to it as Bank Dr to the due account.
Tick that the totals match the issue price per share and stop.

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

Crediting share capital with the premium as well
You credit the full amount due on allotment to share capital.
Fix: Split every allotment or call entry: face value part to Share Capital, premium part to Securities Premium.
Treating securities premium as a profit or free reserve to be used for any purpose
It looks like a reserve on the balance sheet.
Fix: Use it only for purposes listed in section 52(2), or section 52(3) where applicable, such as bonus shares, writing off preliminary or issue expenses, premium on redemption and buy-back.
Writing the discount as an acceptable normal issue
Older textbook problems show discount entries without the legal rule.
Fix: State that section 53(1) bars issue at a discount except as section 54 provides, section 53(2) makes such a share void, and section 53(2A) allows it for creditors under a debt restructuring plan.
Transferring the whole application money to share capital when shares are partly rejected
You ignore excess application money.
Fix: Transfer only the amount for allotted shares. Refund or adjust the excess against allotment.
Passing the premium entry in the wrong stage
The question states the premium is due on first call but you record it on allotment.
Fix: Read the instalment details and credit securities premium in the stage where it is called.
Forgetting the receipt entries
You stop after the due entries.
Fix: After each due entry, record the receipt: Bank Dr to the relevant account.

Worked examples

Example 1

Sunrise Foods Ltd issued 20,000 equity shares of ₹10 each at a premium of ₹2 per share. Payable: ₹3 on application, ₹5 on allotment (including premium) and the balance on first and final call. All shares were applied for and allotted, and all money was received. Pass the journal entries.

Show the solution

Issue price = ₹10 + ₹2 = ₹12. Call money = ₹12 − ₹3 − ₹5 = ₹4.
Application money = 20,000 × ₹3 = ₹60,000.
Allotment due = 20,000 × ₹5 = ₹1,00,000, which includes premium of 20,000 × ₹2 = ₹40,000. So share capital part = ₹60,000.
Call due = 20,000 × ₹4 = ₹80,000, all share capital.
Check: share capital = ₹60,000 + ₹60,000 + ₹80,000 = ₹2,00,000 = 20,000 × ₹10. Premium ₹40,000 = 20,000 × ₹2.

Answer: 1) Bank A/c Dr ₹60,000 to Share Application A/c ₹60,000. 2) Share Application A/c Dr ₹60,000 to Share Capital A/c ₹60,000. 3) Share Allotment A/c Dr ₹1,00,000 to Share Capital A/c ₹60,000 and Securities Premium A/c ₹40,000. 4) Bank A/c Dr ₹1,00,000 to Share Allotment A/c ₹1,00,000. 5) Share First and Final Call A/c Dr ₹80,000 to Share Capital A/c ₹80,000. 6) Bank A/c Dr ₹80,000 to Share First and Final Call A/c ₹80,000.

Example 2

Ganga Textiles Ltd offered 10,000 equity shares of ₹100 each at par, payable ₹30 on application, ₹40 on allotment and ₹30 on call. Applications were received for 12,000 shares. Applications for 2,000 shares were rejected and their money refunded. The remaining applicants were allotted 10,000 shares in full. All money due was received. Pass the journal entries.

Show the solution

Application money received = 12,000 × ₹30 = ₹3,60,000.
Money on shares allotted = 10,000 × ₹30 = ₹3,00,000, transferred to share capital.
Refund of rejected applications = 2,000 × ₹30 = ₹60,000.
Allotment due = 10,000 × ₹40 = ₹4,00,000.
Call due = 10,000 × ₹30 = ₹3,00,000.
Check: share capital = ₹3,00,000 + ₹4,00,000 + ₹3,00,000 = ₹10,00,000 = 10,000 × ₹100. No premium arises because the issue is at par.

Answer: 1) Bank A/c Dr ₹3,60,000 to Share Application A/c ₹3,60,000. 2) Share Application A/c Dr ₹3,60,000 to Share Capital A/c ₹3,00,000 and Bank A/c ₹60,000. 3) Share Allotment A/c Dr ₹4,00,000 to Share Capital A/c ₹4,00,000. 4) Bank A/c Dr ₹4,00,000 to Share Allotment A/c ₹4,00,000. 5) Share Call A/c Dr ₹3,00,000 to Share Capital A/c ₹3,00,000. 6) Bank A/c Dr ₹3,00,000 to Share Call A/c ₹3,00,000.

Exam tips

Write the issue price, face value and premium on top of the answer so the examiner sees your split at once.
Show narration briefly under each entry, and give working notes for amounts due.
If a question asks about issue at a discount, add one line of law: section 53(1) prohibits it, section 53(2) makes such shares void, and section 53(2A) gives the creditor exception.
When asked how securities premium may be used, list the section 52(2) purposes and cite section 52.
Always cross-check that share capital equals shares × face value before moving on.

Practice questions from Accounting for Share Capital

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

Where is securities premium shown in the books?

It is credited to the Securities Premium account whenever shares are issued at a premium. Section 52(1) requires a sum equal to the premium received to be transferred to it. It appears under reserves and surplus in the balance sheet.

Can a company issue shares at a discount?

Generally no. Section 53(1) prohibits it except as provided in section 54, and section 53(2) says a share issued at a discount is void. Section 53(2A) permits a discount to creditors when debt is converted into shares under a statutory resolution plan or debt restructuring scheme as per RBI guidelines.

Can securities premium be used to pay dividend?

No. Section 52(2) lists the permitted uses, and paying dividend is not among them. Permitted uses include bonus shares, writing off preliminary and issue expenses, premium on redemption and buy-back under section 68.

Is the premium always collected with allotment?

No. The terms of issue decide. It may be collected with application, allotment or a call. Credit securities premium in the entry for the stage in which it is due.