Shares Issued at a Discount

A company can issue shares at a discount on the following conditions (Section 79) :

  1.  The issue should be authorised by an ordinary resolution of the company and sanctioned by the Central Government.
  2.  No such resolution shall be sanctioned by the Central Government in case the maximum rate of discount should exceed 10 per cent unless the Central Government is of opinion that a higher rate for discount is justified by the special circumstances of the case.
  3.  The issue should be made within two months of the sanction by the Central Government but not earlier than one year after the date of commencement of business.
  4.  The shares should be of a class already issued by the company.

It is the duty of the auditor to confirm that all the conditions aforementioned have been complied with by the company at the time the allotment was made. Though there appears to be no obligation on the part of the company to write off discount on the issue of shares, it is nonetheless advisable that is should be
so done within a few years of the shares being issued. The amount of discount, until written of, should be shown separately in the Balance Sheet under the head “Miscellaneous Expenditure”.

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