₦800,000 worth of ordinary shares of 50k were issued at ₦1 each, payable in full on application. The entry in the cash book would be to
Answer Details
The correct entry in the cash book for the issuance of ₦800,000 worth of ordinary shares of 50k at ₦1 each, payable in full on application would be:
Debit: ₦800,000
Credit: ₦800,000
Here's why:
When a company issues shares, it receives funds from the shareholders in exchange for ownership in the company. In this case, the company issued ordinary shares at a par value of ₦1 per share, and each share has a face value of 50k. Therefore, the total number of shares issued would be ₦800,000 divided by 50k, which is 16,000,000 shares.
Since the shares are payable in full on application, the company would receive the full amount of ₦800,000 from the shareholders when they apply for the shares. This means that the company's cash balance would increase by ₦800,000.
To record this transaction in the cash book, we would debit the cash account (to reflect the increase in cash) and credit the share capital account (to reflect the increase in the company's equity). However, since the shares were issued at par value, and no premium was charged, we do not need to credit any additional account. Therefore, the correct entry in the cash book would be to debit and credit ₦800,000 each.