Issue Of Shares At Discount Aspects And Conditions For Issue Of Shares At Discount
Read this article to learn about what is issue of shares at discount and conditions for issue of shares at discount : Company can issue its shares at a price below ( less than ) its face value / par value, such an issue is termed as “ issue of shares at discount “. Example of issue of shares at discount : A share having a face value of RS. 100, suppose it Issued at a price of Rs.95. Here the difference between face value and issue price is called as a “ Discount on Issue of shares.” It is a loss ( capital loss ) to the company.
According to Section 79 of Companies Act 1956, a company can issue shares at discount only if the following conditions are satisfied :
Conditions for issue of shares at discount –
- Such an issue most be authorized by passing resolution at the general meeting.
- It must be sanctioned by the Company law board.
- The maximum rate of discount should not be more than 10% of the face value of the shares.
- The rate of discount must be mentioned in the resolution passed.
- The shares which are to be issued at discount should be of a class which has already been issued.
- At east one year must have been elapsed from the date commencement of the business of the company, before the shares are issued at a discount. It means newly started company can not issue shares at discount.
- The shares should be issued at a discount within 2 months from the date of sanction of the Company Law board or as specified by this board.
These are the Conditions for issue of shares at discount .
Accounting Aspects –
1. Following entry is passed for allotment money due / receivable , when shares are issued at discount :
Suppose that out of 40,000 shares issued , the public subscribed 36,000 shares, so allotment money due from public on 36,000 shares @ ( 40-4 Discount ) = 36 per share will be recorded as below :
- Discount on Issue of shares A/c is debited when shares are issued. On the other hand when shares are forfeited it is created to cancel out the original debit, to the extent of number of shares forfeited only.
- When forfeited shares are reissued, once again the “ Discount on Issue of shares A/c.” is debited, to restore the original debit.
- Discount on issue of shares is a capital loss , it not relates to a single year. So it can not be debited to Profit and loss Ac of a single year directly. Therefore Discount on issue of shares is shown on assets side of Balance sheet under the head ‘ Miscellaneous Expenses & Losses ‘. Every year it’s part is written off against Profit & Loss A/c.
Where is discount on issue of shares shown in balance sheet = Discount on issue of shares is shown on assets side of Balance sheet and discount on issue of shares is a capital loss