A company issues 10,000 shares of ₹50 each at ₹45 each. According to Companies Act, 40% of the discount is transferred to Capital Reserve and the remaining 60% is written off as a loss. Calculate: (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.
Answer
Discount on Issue ₹50,000; Capital Reserve ₹20,000; Loss ₹30,000; Share Capital ₹500,000
The correct answer is Discount on Issue ₹50,000; Capital Reserve ₹20,000; Loss ₹30,000; Share Capital ₹500,000 — Credit Share Capital with nominal value 10,000 × 50 = 500,000.
Step-by-step solution
- Discount per share = 50 – 45 = 5.
- Total discount = 5 × 10,000 = 50,000.
- Debit Discount on Issue ₹50,000.
- Transfer 40% of 50,000 = 20,000 to Capital Reserve.
- Write off 60% of 50,000 = 30,000 as Loss.
- Credit Share Capital with nominal value 10,000 × 50 = 500,000.
Common mistake: Misapplying percentages or mis‑calculating discount
Concept tested: Transfer of discount to Capital Reserve and Loss
Published · How this solution was prepared and checked
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