How to record the issue of shares

Accounting for Companies Limited by Shares

What you need

• Issue details: type of share (ordinary or preference), number of shares, and par value per share.
• The issue price per share and the total money received (through bank or cash).
• The company's General Journal and ledger for making the double entry.
• Awareness that issued share capital cannot exceed the authorised share capital.

Step by step

1. 1

   Identify the share issue details

   Check the company resolution for the type of share, number of shares, par value, and issue price. In this example, Syarikat Setia Berhad has an authorised share capital of 500,000 ordinary shares with a par value of RM1 each, and on 1 March 2024 it issues 200,000 ordinary shares at par value RM1, with all money received through the bank. The money to be received is therefore 200,000 x RM1 = RM200,000.

2. 2

   Determine the accounts and double entry

   Money coming in increases assets, so Bank is debited; share capital increases within equity, so Ordinary Share Capital is credited. For Setia: Debit Bank RM200,000; Credit Ordinary Share Capital RM200,000. If shares are issued above par value (a premium), the excess is credited to a separate account, Share Premium.

3. 3

   Record in the General Journal

   Write the double entry in the General Journal with the date, the debit account first and then the indented credit account, followed by a narration. Example: 1 March 2024, Debit Bank RM200,000; Credit Ordinary Share Capital RM200,000; narration 'Issue of 200,000 ordinary shares at par value RM1 received through bank'.

4. 4

   Post the entry to the ledger

   Transfer the journal entry to the respective ledger accounts. In the Bank account, record on the debit side 'Ordinary Share Capital RM200,000'; in the Ordinary Share Capital account, record on the credit side 'Bank RM200,000'. The balance of the Ordinary Share Capital account now shows a credit of RM200,000.

5. 5

   Verify the issued share capital

   Make sure total debits equal total credits, that is RM200,000 = RM200,000, and that the number of shares issued (200,000) does not exceed the authorised capital (500,000). The shares not yet issued amount to 300,000 units, which may be issued in the future.

6. 6

   Report under the Equity section

   Show the share capital under the Equity section of the Statement of Financial Position at that date, not as revenue or a liability. For Setia: Equity, Ordinary Share Capital RM200,000. If there is a Share Premium, it is listed as a separate item under Equity.

7. 7

   Note the authorised capital

   The authorised share capital (500,000 units x RM1 = RM500,000) is not recorded in a double entry because it is only a maximum limit; it is shown only as information or a note. Only the issued share capital, RM200,000, is recorded in the accounts.

Second example

Suppose that on 1 June 2024, Syarikat Setia Berhad issues a further 100,000 ordinary shares at RM1.50 each while the par value stays at RM1, and all money is received through the bank. The amount received is 100,000 x RM1.50 = RM150,000. The double entry is: Debit Bank RM150,000; Credit Ordinary Share Capital RM100,000 (100,000 x RM1 par); Credit Share Premium RM50,000 (the RM0.50 excess x 100,000).

After this second issue, the Ordinary Share Capital account shows a credit balance of RM300,000 (RM200,000 + RM100,000) and the Share Premium account shows a credit balance of RM50,000. In the Statement of Financial Position, the Equity section now displays Ordinary Share Capital RM300,000 and Share Premium RM50,000. Note that the premium is not profit and never goes into the Income Statement.

Common mistakes

Related chapter: Accounting for Companies Limited by Shares →

All procedures →