Question

Difficulty: HardIssue of Shares at Par, Premium, and Discount

Koko Industrial Plc offered 100,000100,000 ordinary shares of 2.00\text{₦}2.00 nominal value each at a premium of 20%20\%. Payments were structured as follows:
- On application: 0.80\text{₦}0.80
- On allotment: 1.00\text{₦}1.00 (including the full share premium)
- On final call: 0.60\text{₦}0.60

If all shares were fully subscribed and allotted, what amount should be credited to the Ordinary Share Capital Account in respect of the allotment stage?

  1. 60,000\text{₦}60,000Answer
  2. B
    100,000\text{₦}100,000
  3. C
    40,000\text{₦}40,000
  4. D
    80,000\text{₦}80,000

Answer

60,000\text{₦}60,000
The option stating 60,000\text{₦}60,000 is correct because the allotment amount of 1.00\text{₦}1.00 per share consists of a 0.40\text{₦}0.40 premium (20%20\% of nominal value 2.00\text{₦}2.00) and a 0.60\text{₦}0.60 capital element. For 100,000100,000 shares, the amount credited to Ordinary Share Capital is 100,000×0.60=60,000100,000 \times \text{₦}0.60 = \text{₦}60,000.

Step-by-Step Solution

1
Calculate the share premium per share
Share Premium per share=20%×2.00=0.40\text{Share Premium per share} = 20\% \times \text{₦}2.00 = \text{₦}0.40
Share premium is computed as the given percentage applied to the nominal (face) value per share.
2
Determine the nominal (capital) portion payable on allotment per share
Capital component on allotment=Total Allotment PriceShare Premium per share=1.000.40=0.60\text{Capital component on allotment} = \text{Total Allotment Price} - \text{Share Premium per share} = \text{₦}1.00 - \text{₦}0.40 = \text{₦}0.60
Only the face value portion of share calls/allotments is credited to the Ordinary Share Capital Account.
3
Calculate total credit to Ordinary Share Capital Account on allotment
Total Share Capital Credit=100,000 shares×0.60=60,000\text{Total Share Capital Credit} = 100,000 \text{ shares} \times \text{₦}0.60 = \text{₦}60,000
Multiplying the nominal capital portion per share by the total number of allotted shares gives the total credit entry.

Key Concept

Accounting entries for issue of shares at a premium across installment stages
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