?
Which account will be debited with the nominal value of shares, when shares are issued to promoters for the service offered by them?
Answer & Solution
Correct Answer:
Option
D
When shares are issued to promoters for the services they have provided, the nominal value of the shares is typically debited to the Share capital account. This reflects the issuance of shares as part of the company's share capital.
Option A: Preliminary expenses are not directly related to the issuance of shares and are usually amortized over time.
Option B: Assets may be affected indirectly by the issuance of shares, but the nominal value of the shares is not directly debited to the Assets account.
Option C: Goodwill is not typically debited when shares are issued; it's related to the purchase of a business at a premium.
So, the correct answer is Option D: Share capital, as it reflects the nominal value of the shares issued to promoters.
Option A: Preliminary expenses are not directly related to the issuance of shares and are usually amortized over time.
Option B: Assets may be affected indirectly by the issuance of shares, but the nominal value of the shares is not directly debited to the Assets account.
Option C: Goodwill is not typically debited when shares are issued; it's related to the purchase of a business at a premium.
So, the correct answer is Option D: Share capital, as it reflects the nominal value of the shares issued to promoters.
Join the Discussion
Login to post a comment or share your explanation.
LoginWhen promoters are issued shares for consideration other than cash, then the preliminary or incorporation expenses are debited and the share capital account is credited. So, the answer is option A
When shares are issued to promotors against their services, Preliminary Expenses Account is debited and Share Capital Account is credited.
When shares are issued to promoters for the services they offer, the nominal value of the shares will be debited to the Share capital account. Share capital represents the equity portion of a company's capital structure and represents the ownership interest of shareholders. By debiting the Share capital account, the company acknowledges the increase in its equity base due to the issuance of shares to the promoters.
Preliminary expenses (option A) are typically incurred before the company starts its operations and are usually treated as an expense or asset that is amortized over a period of time. Assets (option B) and goodwill (option C) may be affected by the issuance of shares, but they are not directly debited when shares are issued to promoters. The primary account affected in this scenario is Share capital.