Share capital and issuing new shares

Types of share capital

• Authorised share capital: the maximum the company's constitution allows it to issue (still used in exam questions, although UK company law no longer requires a limit).
• Issued share capital: the nominal value of shares actually issued to shareholders.
• Called-up share capital: the part of the issued capital that shareholders have been asked to pay so far.
• Paid-up share capital: the part actually received.
• Uncalled capital: issued but not yet called.

Only issued capital appears in the statement of financial position.

Nominal value and premium

Every share has a nominal (par) value, for example £1 or £0.50. The share capital account always records nominal value. Anything received above it goes to share premium.

Count shares carefully: £45 million of £0.50 shares is 90 million shares, not 45 million. Examiners report this error often.

Journal for an issue paid in full

Issue of 2,000,000 ordinary shares of £0.50 at £1.20, paid in full:

Dr Bank £2,400,000

Cr Ordinary share capital £1,000,000 (2,000,000 x £0.50)

Cr Share premium £1,400,000 (2,000,000 x £0.70)

Issue by instalments

Shares may be paid for in stages: on application, on allotment and on later calls. Each stage is recorded when it is called: Dr Bank (as cash is received), Cr Ordinary share capital (nominal part), Cr Share premium (premium part, usually collected on allotment). Until the final call, called-up capital is less than issued capital. (Forfeiture of shares is not examined.)

Journal: issue of 2,000,000 £0.50 shares at £1.20

Worked example

A company with authorised capital of 10,000,000 £1 shares has issued 6,000,000. It now issues 1,500,000 more at £1.80, all paid in full. Find the new issued share capital and the increase in share premium.

1. Share capital rises by 1,500,000 x £1 = £1,500,000, to 6,000,000 + 1,500,000 = £7,500,000
2. Share premium rises by 1,500,000 x £0.80 = £1,200,000
3. Unissued authorised capital is now £2,500,000

Answer: Issued share capital £7,500,000; share premium up £1,200,000

Check yourself

1. 3,000,000 ordinary shares of £0.25 are issued at £0.90 each. Calculate the credit to share premium.
   Show answer

   £1950000. 3,000,000 x (0.90 - 0.25) = £1,950,000.

2. 1,200,000 ordinary shares of £0.50 are issued at £2.00. Calculate the credit to the ordinary share capital account.
   Show answer

   £600000. Nominal value only: 1,200,000 x £0.50 = £600,000.

3. A company's statement of financial position shows ordinary share capital of £18,000,000 in shares of £0.50 each. How many shares are in issue?
   Show answer

   36000000 shares. 18,000,000 / 0.50 = 36,000,000 shares.

4. A company issues 4,000,000 £1 shares at par, payable £0.40 on application and allotment and £0.60 on a first and final call. The call has not yet been made. What is the called-up share capital?
   Show answer

   £1600000. 4,000,000 x £0.40 = £1,600,000.

5. What is authorised share capital?
   • The value of shares actually issued
   • The maximum nominal value of shares the company's constitution allows it to issue
   • The amount shareholders have paid
   • The market value of the shares
   Show answer

   The maximum nominal value of shares the company's constitution allows it to issue. Authorised capital is the upper limit; issued capital is what has actually been issued.

6. Which entry records the premium on a share issue?
   • Debit share premium
   • Credit bank
   • Debit ordinary share capital
   • Credit share premium
   Show answer

   Credit share premium. Cash received is debited to bank; the nominal part is credited to share capital and the excess credited to share premium.

7. Which share capital figure appears in the statement of financial position?
   • Authorised share capital
   • Issued share capital
   • Unissued share capital
   • Market capitalisation
   Show answer

   Issued share capital. Only issued capital is part of equity; authorised capital may be noted.

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Sources

• Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting specification (XAC11/YAC11), Issue 2
• Pearson Edexcel IAL Accounting WAC12 examiners' report, October 2022

Last updated 8 November 2026. Spotted a mistake? Tell us.