Corporate Accounting and Financial Management · Accounting for Share Capital

Issue of Shares for Consideration Other Than Cash: Entries and Examples

Updated 11 October 2026 · Fact-checked

A company can allot shares to a vendor for an asset or service instead of cash. You debit the assets taken over, credit the liabilities taken over, and credit share capital and securities premium for the shares issued. The balancing figure is goodwill (debit) or capital reserve (credit).

Understand Issue of Shares for Consideration Other Than Cash

Companies do not always pay in cash. A company may buy a plant, land or a whole business and settle the price by allotting its own shares to the seller, called the vendor. It may also allot shares to promoters or professionals for services, such as the work of setting up the company.

The amount payable to the vendor is the purchase consideration. When it is paid in shares, those shares are allotted for a consideration other than cash. No cash moves, but the books must still show the assets coming in and the shares going out.

Shares can be issued at par, at a premium or at a discount. Under Section 52 of the Companies Act, 2013, the premium on shares issued, whether for cash or otherwise, goes to the securities premium account. So a premium on shares given to a vendor is credited there too. Do not treat the premium as a profit.

If you take over a whole business, compare the purchase consideration with the net assets taken over (assets minus liabilities, at the agreed values). If the consideration is higher, the excess is goodwill. If it is lower, the shortfall is capital reserve.

For shares issued to a promoter for services, the cost is usually a preliminary or incorporation expense, not an asset. For services that create an asset, such as a plant erection charge, capitalise the cost. Also remember that Section 62(1)(c) allows a preferential allotment for consideration other than cash only if a special resolution authorises it and the price is fixed by a registered valuer's report.

Key rules to remember

Purchase consideration when paid in shares: Purchase consideration = Number of shares issued × Issue price per share; Issue price = face value + premium (or − discount). Use the issue price, not just face value.
Net assets taken over: Net assets = Agreed value of assets taken over − Liabilities taken over; Use the values agreed in the contract, not the old book values, unless the question says otherwise.
Goodwill or capital reserve: Purchase consideration − Net assets = Goodwill (if positive) or Capital reserve (if negative); Positive excess is debited as goodwill. Shortfall is credited as capital reserve.
Number of shares to issue: Number of shares = Purchase consideration ÷ Issue price per share; Used when the consideration is given in rupees and you must find the shares.
Securities premium credited: Securities premium = Number of shares × Premium per share; Section 52(1): premium on shares issued, for cash or otherwise, goes to the securities premium account.

How to solve Issue of Shares for Consideration Other Than Cash questions

Use the same method for every question. It keeps the entries complete and the balancing figure correct.

1Read the question and list what is taken over: assets, liabilities, or both, and at what agreed values.
2Find the purchase consideration. If given in shares, multiply shares by issue price. If given in rupees, divide by issue price to find the shares.
3Split the issue price into face value and premium or discount.
4Work out net assets (assets minus liabilities) and compare with the purchase consideration to find goodwill or capital reserve.
5Pass the first entry: debit each asset, debit goodwill if any, credit each liability, credit the vendor (or capital reserve if any) for the purchase consideration.
6Pass the second entry: debit the vendor, credit equity share capital at face value and securities premium for the premium. If shares are at a discount, debit discount on issue of shares.
7If any part is paid in cash, debit the vendor and credit bank for that part, and issue shares only for the rest.
8Check that total debits equal total credits in each entry.

Quickest way: Vendor account shortcut

When to use it: Use this when time is short and the question asks only for journal entries.

Write the purchase consideration first. Everything is built around this number.
Make the vendor the link: credit the vendor in entry 1 and debit the vendor in entry 2 for the same amount.
Compute goodwill or capital reserve as the plug figure in entry 1. Do not compute it separately.
In entry 2, credit share capital (shares × face value) and securities premium (shares × premium). These two must add up to the purchase consideration.
Add narrations like 'being assets taken over from X Ltd. and shares issued in discharge'.

Common mistakes in Issue of Shares for Consideration Other Than Cash

Crediting share capital with the full purchase consideration even when shares are issued at a premium.
Students forget that the consideration includes the premium.
Fix: Credit share capital at face value only, and credit the premium to securities premium account.
Treating the shortfall as goodwill, or the excess as capital reserve.
The direction of the comparison is confused.
Fix: Consideration above net assets is goodwill (debit). Consideration below net assets is capital reserve (credit).
Debiting assets but forgetting to credit liabilities taken over.
Students focus on the assets and the shares.
Fix: Always write net assets first. Liabilities taken over are credited in the same entry.
Using book values of assets instead of the agreed values.
Old balance sheet figures are in the question and look familiar.
Fix: Use the values at which the company agrees to take over the assets, unless told otherwise.
Passing a cash entry for a shares-only deal.
Habit from share issues for cash.
Fix: No bank account is involved when the whole price is settled in shares. Use the vendor account.
Ignoring the discount when shares are issued below face value.
Students assume shares are always issued at par or at a premium.
Fix: If the issue price is below face value, debit discount on issue of shares for the difference. Note that Section 53 forbids issue at a discount, apart from sweat equity, so check the question's wording.

Worked examples

Example 1

Alpha Ltd. buys machinery worth ₹6,00,000 and furniture worth ₹1,00,000 from Ravi Traders. It pays by issuing 60,000 equity shares of ₹10 each at a premium of ₹2 per share. Pass journal entries.

Show the solution

Purchase consideration = 60,000 × (10 + 2) = ₹7,20,000.
Assets taken over = 6,00,000 + 1,00,000 = ₹7,00,000. No liabilities are taken over.
Consideration ₹7,20,000 is more than net assets ₹7,00,000, so goodwill = ₹20,000.
Entry 1: Machinery A/c Dr ₹6,00,000; Furniture A/c Dr ₹1,00,000; Goodwill A/c Dr ₹20,000; To Ravi Traders ₹7,20,000.
Share capital = 60,000 × 10 = ₹6,00,000. Securities premium = 60,000 × 2 = ₹1,20,000.
Entry 2: Ravi Traders Dr ₹7,20,000; To Equity Share Capital A/c ₹6,00,000; To Securities Premium A/c ₹1,20,000.

Answer: Goodwill ₹20,000 is debited. Equity share capital is credited ₹6,00,000 and securities premium ₹1,20,000.

Example 2

Beta Ltd. takes over a business from Meena & Co. Assets taken over are land ₹8,00,000 and stock ₹2,00,000. Creditors of ₹1,50,000 are taken over. The price is ₹8,00,000, paid in equity shares of ₹100 each issued at par. Pass journal entries and find the number of shares.

Show the solution

Net assets = (8,00,000 + 2,00,000) − 1,50,000 = ₹8,50,000.
Purchase consideration = ₹8,00,000, which is less than net assets, so capital reserve = 8,50,000 − 8,00,000 = ₹50,000.
Number of shares = 8,00,000 ÷ 100 = 8,000 shares.
Entry 1: Land A/c Dr ₹8,00,000; Stock A/c Dr ₹2,00,000; To Creditors ₹1,50,000; To Meena & Co. ₹8,00,000; To Capital Reserve ₹50,000.
Check: debits ₹10,00,000 = credits 1,50,000 + 8,00,000 + 50,000 = ₹10,00,000.
Entry 2: Meena & Co. Dr ₹8,00,000; To Equity Share Capital A/c ₹8,00,000.

Answer: 8,000 shares are issued. Capital reserve of ₹50,000 is credited.

Exam tips

Write the purchase consideration line clearly at the top. Marks are often given for it even if later entries slip.
Always show your working for goodwill or capital reserve as a small note, because it is the balancing figure that examiners check.
Mention that the premium goes to the securities premium account under Section 52 and that a preferential allotment for non-cash consideration needs a special resolution and registered valuer's report under Section 62(1)(c). A one-line legal note earns credit in written answers.
Read carefully whether the question says shares are issued 'at par', 'at a premium' or 'at a discount'. This decides the second entry.
For promoters' services, state whether the cost is a preliminary expense or a capitalised asset, and give reasons.

Practice questions from Accounting for Share Capital

Issue of Shares for Consideration Other Than Cash: frequently asked questions

What is the journal entry for shares issued for consideration other than cash?

First debit the assets taken over and credit the liabilities and the vendor for the purchase consideration. Then debit the vendor and credit equity share capital at face value and securities premium for any premium. Goodwill or capital reserve balances the first entry.

When is goodwill and when is capital reserve recorded?

If the purchase consideration is more than the net assets taken over, the excess is goodwill and is debited. If it is less, the shortfall is capital reserve and is credited.

Where is the premium on shares issued to a vendor recorded?

It is credited to the securities premium account. Section 52(1) says this applies where shares are issued at a premium, whether for cash or otherwise.

What conditions apply to issuing shares for non-cash consideration to any person?

Under Section 62(1)(c), the company needs authority by a special resolution. The price of the shares must be determined by a valuation report of a registered valuer, with other prescribed conditions complied with.