A company issued 8,000 shares of ₹40 each at a discount of ₹5 per share. As per Companies Act, 70% of the discount is transferred to Capital Reserve and the remaining 30% is written off as loss. (i) Debit entry to Discount on Issue of Shares; (ii) Amount transferred to Capital Reserve; (iii) Amount written off as loss; (iv) Final credit to Share Capital. Also, after reissuing 4,000 of these shares at ₹38 each and the remaining 4,000 at ₹45 each, compute the net effect on the Share Capital account.

Step-by-step solution

1. Issue price per share = ₹40 – ₹5 = ₹35.
2. Total proceeds = 8,000 × ₹35 = ₹280,000.
3. Nominal value of issued shares = 8,000 × ₹40 = ₹320,000.
4. Discount on issue = 8,000 × ₹5 = ₹40,000.
5. 70% of discount transferred to Capital Reserve = 0.70 × ₹40,000 = ₹28,000.
6. 30% written off as loss = 0.30 × ₹40,000 = ₹12,000.
7. Journal entries: Debit Discount on Issue ₹40,000; credit Capital Reserve ₹28,000; debit Loss on Issue ₹12,000; credit Share Capital ₹320,000.
8. Reissue proceeds: 4,000 × ₹38 = ₹152,000 and 4,000 × ₹45 = ₹180,000; total ₹332,000.
9. For reissue, nominal value of 8,000 shares = 8,000 × ₹40 = ₹320,000.
10. Premium on reissue = (45–40) × 4,000 = ₹20,000; Discount on reissue = (40–38) × 4,000 = ₹8,000.
11. Journal entries: Debit Cash ₹332,000; credit Share Capital ₹320,000; credit Share Premium ₹20,000; debit Discount on Issue ₹8,000.
12. Net effect on Share Capital: The nominal value already exists in Share Capital, so reissue does not change the balance of Share Capital. Hence, net effect is Nil.

Concept tested: Accounting for discount on issue and reissue effects

Published 4 October 2026 · How this solution was prepared and checked