Issue of Shares

Issue of Shares

🟢 Lite — Quick Review (1h–1d)

Rapid summary for last-minute revision before your exam.

Issue of shares is how a limited liability company raises equity capital by offering new shares to the public, who pay cash (or non-cash consideration) in return for ownership evidenced by share certificates. The WASSCE Ghana paper tests this topic through journal entries, ledger postings and pro-rata calculations, worth about 3% of the total marks.

Five amounts must be kept apart: authorised capital (maximum a company may issue), issued capital (actually offered), called-up capital (amount demanded so far) and paid-up capital (cash actually received), plus share premium when issue price exceeds nominal (par) value.

• Share Capital is credited at nominal value only; any excess goes to Share Premium.
• Application, allotment, first call and final call each attract a separate journal entry.
• Pro-rata, arrears, advance, forfeiture and reissue are the standard WASSCE scenario hooks.

🟡 Standard — Regular Study (2d–2mo)

Standard content for students with a few days to months.

Capital Structure Definitions

A company’s share capital is layered, and WASSCE examiners reward students who keep the four tiers distinct in their workings and ledgers.

Term	Meaning	Where shown
Authorised capital	Maximum nominal value the Memorandum permits	Memorandum of Association
Issued capital	Nominal value of shares offered to the public	Issued Share Capital account
Called-up capital	Portion of issue price demanded up to a date	Called-up Share Capital account
Paid-up capital	Cash actually received from shareholders	Bank & Calls accounts
Share premium	Excess of issue price over nominal value	Share Premium (non-distributable reserve)

Issue Procedure and Journal Mechanics

The issue journey moves through application → allotment → calls. At each stage the company debits Bank (cash received) or Calls in Arrears / Calls in Advance (timing gaps) and credits the relevant capital, premium, or refund account. Where shares are issued at a price greater than nominal, e.g. GH¢1.00 nominal issued at GH¢1.50, the premium of GH¢0.50 per share is credited to Share Premium, never to Share Capital.

Pro-Rata Allotment

When applications exceed shares available, pro-rata allotment is used. Each applicant receives shares in the ratio shares applied : total applied.

WASSCE tip: Always convert the surplus application money into allotment money due; treat the excess sent as calls in advance only when it cannot be absorbed by allotment.

Worked Standard Calculation

A company receives applications for 20,000 shares at GH¢1.50 (nominal GH¢1.00 + premium GH¢0.50) but only allots 15,000. An applicant who applied for 1,000 shares has been allotted 1,000 × 15,000 / 20,000 = 750 shares.

• Application money paid: 1,000 × GH¢1.50 = GH¢1,500
• Application money used: 750 × GH¢1.50 = GH¢1,125
• Balance due on allotment: GH¢1,500 − GH¢1,125 = GH¢375

Common WASSCE Traps

• Crediting Share Capital with full issue price rather than nominal value.
• Forgetting the Share Premium ledger on reissue or on premium-bearing issues.
• Treating calls in arrears as bad debts instead of reversing them on receipt.
• Posting forfeiture by crediting Bank instead of debiting Share Capital and Share Premium.

🔴 Extended — Deep Study (3mo+)

Comprehensive coverage for students on a longer study timeline.

Calls in Arrears vs Calls in Advance — Subtle Distinctions

Calls in arrears represent the portion of called capital that shareholders failed to pay by the due date. WASSCE questions usually require the preparation of a separate Calls in Arrears Account, debited with the unpaid amount on the date of the call, and credited when the money is later received. Calls in advance are payments received before they are officially due. They are credited to a Calls in Advance Account and later transferred to Share Capital on the call date, never retained as income.

Forfeiture and Reissue Mechanics

When a shareholder fails to pay calls, shares may be forfeited. The forfeiture entry:

• Debit Share Capital (nominal value of shares forfeited)
• Debit Share Premium originally credited (where applicable)
• Debit Calls in Arrears for any unpaid calls
• Credit the shareholder’s account (called-up amount received)
• Credit Share Forfeiture with the gain (called-up amount actually paid by the ex-shareholder, exclusive of premium)

On reissue, the Forfeited Shares account is debited with the amount originally forfeited. If reissued at a price below what was paid in, the difference is debited to Share Forfeiture; any further loss is debited to Profit and Loss. Reissue at any price not exceeding the amount forfeited preserves the Forfeiture balance as a capital reserve.

Interest on Calls in Arrears

Candidates frequently skip the interest adjustment. Interest is computed as Arrears × Rate × (Months overdue / 12) and posted to Profit and Loss (Interest Receivable); the matching debit reduces Calls in Arrears so that the Share Capital ledger reflects only principal due.

Connections Across the WASSCE Syllabus

Issue of shares feeds directly into Issue of Debentures, Final Accounts of Limited Liability Companies, and Ratio Analysis (gearing). A correct appreciation of premium, forfeited balances and reserves determines whether your company accounts balance and your gearing ratios are accurate.

Common Pitfalls Worth Memorising

• Posting the whole premium to Share Capital on reissue instead of debiting only the loss.
• Debiting Bank in forfeiture (Bank never moves at forfeiture — no cash changes hands).
• Misclassifying calls in advance as income for the year.

Practice Prompts

1. A company issues 200,000 shares of GH¢1.00 nominal at GH¢1.25 payable as GH¢0.50 on application, GH¢0.50 on allotment and GH¢0.25 on first and final call. Applications total 280,000; pro-rata allotment is made. Prepare the Cash Book and the Share Capital and Share Premium accounts.
2. Allotment money on 1,000 shares remained unpaid and the shares were forfeited after the first and final call. 600 shares were reissued at GH¢0.80 per share as fully paid. Show the Forfeited Shares account and the reissue journal.

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