Employers should credit the contra-equity account unearned ESOP shares as the shares are committed to be released, based on the original cost of the shares to the ESOP. A scheme for reduction of capital was sanctioned by the court as follows: Solution : Journal Entry Date Particulars L.F. Dr. Cr. Then, the Board of Directors reissued three-fourths of the forfeited shares as fully paid up @ Rs 9 per share. The cost method ignores the par value of the shares and the amount received from investors when the shares were originally issued. You are required to prepare A Ltd. invited applications for 1,00,000 shares of Rs 100 each at a discount of 6% payable as follows: The applications received were for 99,000 shares and all of these were accepted. Also show how these transactions will be reflected in the companys balance sheet. Please see www.pwc.com/structure for further details. Allotment money on 200 shares is not received. Issued and Paid-up : 2,00,000 Equity Shares of `10 each, `7 paid, Fixed Assets (`11,40,000 `34,000 written off under Reconstruction Scheme), 7,500 Equity Shares of `100 each fully paid up. Balance Sheet of KING Co. Ltd. Record the abovementioned transactions in the Cash Book, the Journal and the Ledger. Journal entry for this will be: 2. In this article we will discuss about re-organisation of capital through surrender of shares, explained with the help of a suitable illustration. : The share surrender may be either reissued by same share of same class or a different class subject to approval of the High Court. Alternative approach : Profit & Loss upto 30.9.2013 80,000 A Mills Ltd., decided to have internal reconstruction. Transfer of assets to creditors in discharge of liability. It is for your own use only - do not redistribute. The amount of retained earnings capitalized for the entire distribution should be equal to the amount of the dividend had it been paid entirely in cash. (source - cashstock) Journal Entries: Solved Example For You: Arhan Ltd. Co. issues 100000 equity shares of face value of 100 on 1 st June 2018 at 20% premium. Creditors would like to grant a discount of 5% if they are paid immediately. Illustration 1: Prem Ltd. purchased assets of Rs. (iv) Balance Sheet after reduction. Issuance costs incurred in connection with stock dividends should be expensed as incurred. Some states allow dividends to be paid from current earnings despite an accumulated deficit from past operations; these are sometimes referred to as nimble dividends. These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. Bank A/c (W. Note 2) Dr. (Amount received on 2,00,000 equity shares @ `3.50 per share as per reconstruction scheme). These materials were downloaded from PwC's Viewpoint (viewpoint.pwc.com) under license. (b) As soon as the amount of the premium becomes due. This website uses cookies and third party services. In the case of stock dividends declared by closely held reporting entities. If the company contributed 1,000 shares of stock valued at $100, with a par value of $10, the appropriate journal entry would debit ESOP contribution expense for $100,000 and credit common stock for $10,000 and paid-in capital for $90,000. (ii) The narration to journal entry should specify the approval of High Court. Here, we were not given the relevant details on the balance in additional paid-in capital, and, as a result, retained earnings were debited. Of course if the reissue price exceeds the paid up value of reissued shares, Securities Premium Account will have to be credited with such an excess. Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. If a member fails to pay any call or installment of a call on or before the day appointed for payment thereof, the Board may, at any time thereafter during such time as any part of the call or installment remains unpaid, serve a notice on him requiring payment of so much of call or installment as is unpaid, together with any interest which may have accrued. Less than 20-25% of the number of shares outstanding prior to the distribution, Less than 25% of the number of shares outstanding prior to the distribution, Less than 25% of shares of the same class outstanding, Greater than 20-25% of the number of shares outstanding prior to the distribution, Equal to or greater than 100% of the number of shares outstanding prior to the distribution, Distributions of new shares that are less than 20-25% of those previously outstanding or that recur frequently are to be treated as stock dividends even if management representations to shareholders that it is a stock split, Distributions greater than 25% but less than 100% of the number of shares outstanding prior to the distribution are treated as a stock dividend when the distributions assume the character of stock dividends through repetition of issuance under circumstances not consistent with the true intent and purpose of a stock split, Distributions of over 25% may be accounted for as a stock dividend if they are part of a program of recurring distributions and accounting for them as a stock split would be misleading. Deferred Advertising to be written off. (f) Besides additional subscription as above, the equity shareholders agree to convert the existing equity shares into new 10 rupees shares of total value Rs.5,00,000. . Accounting for the distribution of nonmonetary assets to owners of an entity in a spinoff or other form of reorganization or liquidation or in a plan that is in substance the rescission of a prior business combination shall be based on the recorded amount (after reduction, if appropriate, for an indicated impairment of value) (see paragraph 360-10-40-4) of the nonmonetary assets distributed A pro rata distribution to owners of an entity of shares of a subsidiary or other investee entity that has been or is being consolidated or that has been or is being accounted for under the equity method is to be considered to be equivalent to a spinoff. The shares have a $1 par value per share. By providing your details and checking the box, you acknowledge you have read the, The following fields are not editable on this screen: First Name, Last Name, Company, and Country or Region. Statement Showing Liabilities and Equity Sacrificed and their uses as per Scheme, 2. If premium on forfeited shares has been received, Securities Premium Account must not be debited on forfeiture of shares. Capital Reduction A/c Dr. (70% of arrear preference dividend payable to preference Shareholders as per reconstruction scheme). 25 each, fully called up on which Rs 1,500 have been received and reissues them as fully paid up to one of the directors upon payment of Rs 2,300. If a common stock dividend is paid to holders of preferred stock when there is an accumulated deficit, the dividend should be accounted for at fair value with a corresponding increase in loss applicable to common shareholders. Any remaining amount is further charged to paid-in capital (until the balance reaches zero) and retained earnings. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. Accounting for the Retirement of Shares: Reverse the par value and additional paid-in capital associated with the original stock issue. Plagiarism Prevention 5. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. 15000 from Rs. 50 shares were re-issued @ Rs 90 as fully paid. 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Capital Reduction A/c Dr. (Being payment of 5% penalty for cancellation of capital commitments of `3,00,000), (Of the above 90,000 shares have been issued for consideration, 2,000 6% Cumulative preference shares of `75 each fully paid, (2) Share Application Money pending allotment 0, Freehold Property (Including `2,00,000 appreciation in value due to reconstruction), Cash at Bank (`1,30,000 + `1,50,000 `22,500 `15,000), 2,00,000 Equity Shares of `10 each, `5 paid up, General Reserve Nil, Less: Debit balance of P&L a/c 4,08,000. The difference is that in case of surrender, the shareholder himself takes the initiative and the company is saved from the formalities of serving a notice and waiting till the period of the notice is over. Please seewww.pwc.com/structurefor further details. Equity Share Capital (`4) A/c Dr. (Being consolidation of 25,000 10% equity shares of `4 each into, To Equity Share Capital (New `10) each (See note), By 10% Cumulative Preference Share Capital (`10) A/c, To Freehold Property 1,30,000, Less : Debenture holders 84000, 8,000 10% Cumulative Preference Shares of `10 each, 10,500 Equity Shares of `10 each (of the above 10,500 equity shares, 500 equity shares were issued for consideration other than cash), Trade Payables 11,000, Creditors for Expenses 30,000, Leasehold Property 1,00,000, Scheme dated. But the loss on reissue of a share cannot be more than the gain on forfeiture of that share credited to Forfeited Shares Account at the time of forfeiture. 10 each fully paid in satisfaction of their claim. We use cookies to personalize content and to provide you with an improved user experience. Solved Illustrations. Show the journal entries if such issues are made: (a) at par, (b) at a discount of 5% and (c) at a premium of 25%. The Balance Sheet of the Company as on 31st March, 2013 was as follows: A Mills Ltd. Once additional paid-in capital reaches zero, the remaining amount is debited to retained earnings. FG Corps shareholders equity section before the split is shown below. If all the forfeited shares have not been reissued, Forfeited Shares Account will show a credit balance equal to gain on forfeiture of the shares not yet reissued. Copyright 10. : Cash receipt represents profit since there is no increase in liability. 4. (2) After such subdivision, each shareholder shall surrender to the Company 90% of his holding, for the purpose of re-issue to debenture holders and creditors so far as required, and otherwise for cancellation.