Fundamentals of Accounting · Introduction to Company Accounts

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

Updated 11 October 2026 · Fact-checked

Issue of shares means a company receives money in stages: application, allotment and calls. Record each receipt in the bank, credit Share Capital for the face value part, and credit Securities Premium for any extra. Under Section 53, a company cannot issue shares at a discount, and such shares are void, except in a debt-restructuring case.

Understand Issue of Shares at Par, Premium and Discount

A company raises capital by issuing shares. Each share has a face value (nominal value), say ₹10. The company rarely collects the full amount at once. It asks for money in stages: application, allotment, and one or more calls.

If the issue price equals the face value, the shares are issued at par. If the issue price is higher, they are issued at a premium, and the extra is not share capital. If the issue price is lower, they are issued at a discount.

Under Section 52 of the Companies Act, 2013, the premium received must go to a Securities Premium Account. The Act lets the company use it only for stated purposes, such as issuing fully paid bonus shares, writing off preliminary expenses, writing off expenses, commission or discount on an issue of shares or debentures, providing for the premium payable on redemption of redeemable preference shares or debentures, and buying back its own shares under Section 68.

Section 53 says a company shall not issue shares at a discount, except as provided in Section 54. Any share issued at a discount is void. A company that breaks this rule, and every officer in default, faces a penalty. The penalty can go up to the amount raised through the discounted issue or ₹5 lakh, whichever is less. The company must also refund the money with interest at 12% per annum from the date of issue. There is one exception in Section 53(2A): shares may be issued at a discount to creditors when their debt is converted under a statutory resolution plan or debt restructuring scheme following RBI guidelines. So in exam questions, treat a discount issue as not allowed in general.

The key habit is to separate money received from share capital. Bank is debited for cash actually received. Share Capital is credited only up to the face value due. The premium goes to Securities Premium. Money due but not yet received is first recorded in the Share Allotment or Share Call account.

Key rules to remember

Application money received: Dr Bank A/c; Cr Share Application A/c (application money × number of shares applied for); Record on the number of shares applied for, not the number allotted.
Transfer on allotment: Dr Share Application A/c; Cr Share Capital A/c (application money × shares allotted); Any excess application money is refunded or adjusted towards allotment.
Allotment due: Dr Share Allotment A/c; Cr Share Capital A/c (face value part) and Cr Securities Premium A/c (premium); Premium is usually called with allotment unless the question says otherwise.
Call due: Dr Share Call A/c; Cr Share Capital A/c; Receive the call with Dr Bank A/c; Cr Share Call A/c.
Issue price: Issue price = Face value + Premium; Premium is the amount above face value. It is never credited to Share Capital.
Section 53 rule: Shares issued at a discount are void; Exception: conversion of debt for creditors under an RBI-guided statutory resolution plan or debt restructuring scheme.

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

Use the same sequence for any question on issue of shares. Work stage by stage and keep a small table of amounts.

1Note the face value, issue price and number of shares offered. Premium = issue price − face value.
2Write down the amount payable on application, allotment and each call, as given in the question.
3Pass the entry for application money received on the number of shares applied for: Dr Bank, Cr Share Application.
4Pass the entry for transfer on allotment: Dr Share Application, Cr Share Capital for the shares allotted. Handle any excess as a refund (Dr Share Application, Cr Bank) or adjustment towards allotment.
5Pass the allotment due entry: Dr Share Allotment, Cr Share Capital and Cr Securities Premium if the premium is due then. Then record receipt: Dr Bank, Cr Share Allotment.
6Pass the call due entry and the receipt of the call in the same two-step way.
7If the question mentions a discount, check Section 53 before passing any entry, and state that it is not permitted.
8Check that total Share Capital credited equals face value × shares issued, and that Securities Premium equals premium × shares issued.

Quickest way: Table-first method

When to use it: Use this when the question has many stages and you have little time.

Draw columns: Application, Allotment, First Call, Final Call, Total.
Fill Capital and Premium amounts per share in each column.
Multiply each column by the number of shares to get the amounts for the entries.
Write each stage as due entry first, then receipt entry.
Add the Capital column to confirm it equals face value × shares.

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

Crediting the premium to Share Capital.
Students treat all money paid by the shareholder as capital.
Fix: Credit only the face value part to Share Capital. Credit the extra to Securities Premium.
Recording application money on shares allotted instead of shares applied for.
Students read the allotment figure first.
Fix: Bank receipt on application is for all shares applied for. Adjust the excess at allotment.
Debiting Bank when the amount is only due.
Due and received are mixed up.
Fix: Use the Share Allotment or Share Call account when the amount becomes due. Debit Bank only when cash arrives.
Passing a normal entry for shares issued at a discount.
Students remember old textbook entries with a Discount on Issue of Shares account.
Fix: Under Section 53, a company cannot issue shares at a discount, and such shares are void. Write that rule unless the question is about the creditor-conversion exception.
Using the wrong number of shares after pro-rata allotment.
Students rush through excess application money.
Fix: Compute money on shares allotted, then find the excess received and adjust it against allotment due.
Skipping narrations.
Students think narration wastes time.
Fix: Write a short narration. In written papers it can earn marks.

Worked examples

Example 1

Sharma Textiles Ltd 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 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. Balance for call = ₹12 − ₹3 − ₹5 = ₹4.
Application: ₹3 × 10,000 = ₹30,000 received.
Allotment: ₹5 × 10,000 = ₹50,000, of which ₹2 × 10,000 = ₹20,000 is premium and ₹30,000 is capital.
Call: ₹4 × 10,000 = ₹40,000, all capital.
Capital total = ₹30,000 + ₹30,000 + ₹40,000 = ₹1,00,000, which equals ₹10 × 10,000.
Entries: (1) Bank A/c Dr ₹30,000; To Share Application A/c ₹30,000. (2) Share Application A/c Dr ₹30,000; To Share Capital A/c ₹30,000. (3) Share Allotment A/c Dr ₹50,000; To Share Capital A/c ₹30,000; To Securities Premium A/c ₹20,000. (4) Bank A/c Dr ₹50,000; To Share Allotment A/c ₹50,000. (5) Share Call A/c Dr ₹40,000; To Share Capital A/c ₹40,000. (6) Bank A/c Dr ₹40,000; To Share Call A/c ₹40,000.

Answer: Share Capital ₹1,00,000 and Securities Premium ₹20,000 are credited, and Bank receives ₹1,20,000 in total.

Example 2

Gupta Foods Ltd offered 5,000 equity shares of ₹10 each at par, payable ₹2 on application, ₹3 on allotment and ₹5 on call. Applications were received for 7,000 shares. The directors allotted 5,000 shares and adjusted the excess application money towards allotment. Pass the entries up to the receipt of allotment money.

Show the solution

Application received = ₹2 × 7,000 = ₹14,000.
Application money on shares allotted = ₹2 × 5,000 = ₹10,000 transferred to Share Capital.
Excess = ₹14,000 − ₹10,000 = ₹4,000, adjusted towards allotment.
Allotment due = ₹3 × 5,000 = ₹15,000.
Cash to be received on allotment = ₹15,000 − ₹4,000 = ₹11,000.
Entries: (1) Bank A/c Dr ₹14,000; To Share Application A/c ₹14,000. (2) Share Application A/c Dr ₹14,000; To Share Capital A/c ₹10,000; To Share Allotment A/c ₹4,000. (3) Share Allotment A/c Dr ₹15,000; To Share Capital A/c ₹15,000. (4) Bank A/c Dr ₹11,000; To Share Allotment A/c ₹11,000.

Answer: After allotment, Share Capital is ₹25,000 and the cash received on allotment is ₹11,000, after adjusting excess money of ₹4,000.

Exam tips

Always compute the issue price, premium and call balance before writing any entry.
In written answers, show the due entry and the receipt entry separately. This is where marks sit.
If a question says shares are issued at a discount, note the Section 53 prohibition and mention that such shares are void.
Quote the Securities Premium uses from Section 52 only if the question asks for application of premium.
Before moving on, check that capital credited equals face value × shares issued.

Practice questions from Introduction to Company Accounts

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 the premium on shares recorded?

It is credited to the Securities Premium Account when it is due. It is not part of Share Capital. Section 52 lists the purposes for which the account can be used.

Can a company issue shares at a discount under the Companies Act, 2013?

No. Section 53 prohibits it, and shares issued at a discount are void. The only exception is conversion of debt to creditors under a statutory resolution plan or debt restructuring scheme following RBI guidelines.

What is the penalty for issuing shares at a discount?

The company and every officer in default are liable to a penalty up to the amount raised through the discounted issue or ₹5 lakh, whichever is less. The company must also refund the money with 12% per annum interest from the date of issue.

How do I treat excess application money?

Either refund it or adjust it towards the allotment money due. Show the adjustment in the transfer entry: Dr Share Application, Cr Share Capital for allotted shares and Cr Share Allotment for the excess.