Issuance of shares at discount

The shares may a!so be issued at a discount, that is to say at a price less than the face value. It shall be lawful for a company to issue shares at a discount, provided that:

  • The issue of the shares at a discount must be authorized by resolution passed in the general meeting of the company and must be sanctioned by the authority.
  • The resolution must specify the maximum rate of discount not exceeding 10% or a higher rate fixed by the authority, at which shares are to be issued.
  • Not less than one year must at the date of issue have elapsed since the date on which the company was entitled to commence business.
  • The shares to be issued at a discount must be issued within sixty days after the date on which the issue is sanctioned by the authority or within such extended time as the authority may allow;

Discount on issue of shares should not be mixed with the share, capital, but Should be debited to a separate account called “Share Discount Account” and shown as separate item on the asset side of the balance sheet.

Accounting entries for issuance of shares at discount:

If shares are issued to the directors or underwriters of the company at a discount, the accounting entries should be as:

Bank ———————————————– Dr
Discount on shares —————————- Dr
          Share Capital ———————————————–Cr.

if shares are issued at a discount to the general public:

  • On receipt of applications
    Bank ———————————————– Dr.
             Share application ———————————————– Cr.
  • On allotment of shares:
    Share application ———————————————– Dr.
    Discount on shares ——————————————— Dr.
              Share capital ———————————————————– Cr.

If shares are issued at a discount to the promoters in consideration of their services:

Preliminary expenses ———————————————– Dr.
Discount on shares ————————————————– Dr.
        Share capital ———————————————————– Cr.


Harry Limited with an authorized capital of $2,00,000 divided into 4,000 shares of $50 each has taken necessary steps to issue 3,000 shares at a discount of 10%, out of these 500 shares were issued to directors on 25th March 2018 and 2,500 shares to the general public. Applications were received for 2,000 shares on 1st April 2018. The directors allotted these shares on 10th April 2018.

Required: Record the journal entries and prepare the balance sheet.

Issuance of shares at discount

Balance sheet for issuance of shares at discount

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