Read the passage carefully and answer the following questions.
XYZ Ltd is registered with an authorised capital of ₹20 lakh divided into 2 lakh equity shares of ₹10 each. The company is in manufacturing of pickles and spices. Due to the increase in demand of packed food in the market they decided to diversify its operation. For this purpose they decided to issue 1 lakh equity share of ₹10 each. The company issued 20,000 equity shares to a vendor to supply the machinery required to manufacture the packed food. Rest of the equity shares were issued to general public for subscription. The application were received for 46,000 equity shares. Due to undersubscription of equity shares the shares were not issued to public.
The process of issuing shares to a vendor in exchange of any asset is known as:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Issue of share for consideration other than cash
XYZ Ltd gives 20,000 shares to the vendor who supplies the machinery. The vendor is paid in shares, not in money, so the company receives an asset instead of cash for these shares. Such an issue is called an issue of shares for consideration other than cash.
The entries are: Machinery A/c Dr. To Vendor; then Vendor Dr. To Equity Share Capital A/c.
Why the other options are incorrect
Option (1) Issue of share for cash — Incorrect. No cash is received from the vendor; the shares are his payment for the machinery.
Option (2) Issue of share at discount — Incorrect. Discount describes the issue price (below face value), not what is received for the shares; the passage says nothing about a price below ₹10.
Option (3) Issue of share at premium — Incorrect. Premium also describes the issue price (above face value); the passage gives no price above ₹10.
NCERT (2026-27 edition): |