A company issues 10,000 shares of ₹50 each at ₹45 per share. The issue is at a discount. Calculate the debit entry for the discount, the amount to be transferred to a capital reserves account, and the final amount to be credited to Share Capital.
Answer
Discount on Issue ₹50,000; Share Capital ₹500,000; Capital Reserve ₹50,000
The correct answer is Discount on Issue ₹50,000; Share Capital ₹500,000; Capital Reserve ₹50,000 — Transfer the discount to Capital Reserve: Credit Capital Reserve ₹50,000.
Step-by-step solution
- Discount per share = ₹50 – ₹45 = ₹5.
- Total discount = 10,000 × ₹5 = ₹50,000.
- Debit entry: Dr. Discount on Issue ₹50,000 (to be transferred to reserves).
- Credit Share Capital by par value: 10,000 × ₹50 = ₹500,000.
- Transfer the discount to Capital Reserve: Credit Capital Reserve ₹50,000.
Common mistake: Failing to debit Discount on Issue account
Concept tested: Issue at discount and transfer to reserves
Published · How this solution was prepared and checked
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