Why discount on issue of shares is an asset?

In the balance sheet, ‘Discount on Issue of Shares Account’ appears on the “Assets” side under the heading ‘Miscellaneous Expenditure’. The account represents a fictitious asset and should be gradually written off by transfer to Profit and Loss Account although there is no legal compulsion to do so.

Why discount on shares is an asset?

Hence, the discount on issue of shares should be charged to profit over the period. Until the discount is completely written off, it still exists in the books of accounts and since all losses have debit balance, it is shown under Asset Side of the Balance Sheet (this loss is a fictitious asset for the company).

Is discount on issue of shares a fictitious asset?

These assets include a debit balance of profit and loss A/c and the expenditure not yet written off such as advertising expenses etc. Among the given options Discount on issues of shares and debentures is not the example of fictitious assets.

What is the discount on issue of shares?

When shares are issued at a price lower than the face value, they are said to be issued at discount. Thus, the excess of the face value over the issue price is the amount of discount.

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Is Share issue an asset?

As an investor, common stock is considered an asset. You own the property; the property has value and can be liquidated for cash.

Why fictitious assets are called assets?

Fictitious assets are the assets which has no tangible existence, but are represented as actual cash expenditure. … In other words, fictitious means fake or not real, these are not assets at all but they show in financial statements.

Is discount on debenture a current asset?

At the end of Year 5, the amount of discount on issue of debentures will be completely written off.

Note No. Particulars Amount (Rs)
Discount of Issue of Debentures 18,000
2 Other Current Assets
Discount of Issue of Debentures 6,000

Where is share discount shown in balance sheet?

Statement 1: Discount on issue of shares should be shown on the asset side of the balance sheet. Statement 2: The discount has to be written off even through profit and loss account.

Why shares should not be issued at discount?

Discounted prices may be offered when company is not able to pay its debts and offering it share to its creditors. Company Act 2013 strictly prohibited the companies to issue shares at discounted price. It invites penalty and imprisonment for directors. … So never think of discounted price.

Can a company issue shares on discount?

(1) Except as provided in section 54, a company shall not issue shares at a discount. (2) Any share issued by a company at a 1[discount] shall be void. … per annum from the date of issue of such shares to the persons to whom such shares have been issued.]

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Is share capital an asset?

No, equity share capital is not an asset. But the investor who buys equity shares of the company brings in cash in exchange for the shares given. This increases the assets of the company. … It comes under the head “Equity & Liabilities” in the balance sheet.

Is share capital a current asset?

Share capital is the money invested in the business by the owners. … This money is not necessarily held in cash (see the current assets), but may have been used to buy more stock or fixed assets.

Does issuing stock increase assets?

When new stock is issued and a company takes in revenue from the sale of that stock, that revenue becomes an asset. Since stockholders’ equity is measured as the difference between assets and liabilities, an increase in assets can also increase stockholders’ equity.