Last reviewed: July 2026.
Share capital represents ownership interests issued by a company, but the accounting answer depends on the contractual terms of the instrument. A document called a “share” is not automatically equity. Under IAS 32, the central question is whether the issuer has a contractual obligation to deliver cash or another financial asset.
This article explains ordinary share issues, share premium, issue costs, partly paid shares, treasury shares and the distinction between equity and liabilities. Company-law terminology and filing rules vary by jurisdiction.
Equity classification under IAS 32
An equity instrument evidences a residual interest in the assets of an entity after deducting liabilities. If an instrument requires the issuer to redeem it for cash or make unavoidable cash payments, it may be a financial liability even if legally described as a preference share.
The IFRS Foundation’s IAS 32 overview explains the liability-versus-equity principle and the fixed-for-fixed considerations for instruments settled in the entity’s own shares.
Common share-capital terms
| Term | Meaning | Accounting focus |
|---|---|---|
| Authorised capital | A legal or constitutional ceiling where applicable. | Not an IFRS measurement category; law varies by jurisdiction. |
| Issued share capital | Shares issued to investors. | Recognise proceeds and classify instruments as equity or liability. |
| Called-up / paid capital | Amounts requested and paid on issued shares. | Presentation and receivable treatment depend on facts and local law. |
| Share premium / additional paid-in capital | Proceeds above nominal or par value. | Separate equity reserve where the jurisdiction uses nominal value. |
| Treasury shares | Entity’s own shares reacquired. | Deduct from equity; no gain or loss in profit on transactions in own equity. |
Basic issue of ordinary shares
Assume a company issues 100,000 ordinary shares with nominal value 1 CU for cash of 1.40 CU per share. Ignoring transaction costs:
- Debit Cash: 140,000 CU
- Credit Share capital: 100,000 CU
- Credit Share premium: 40,000 CU
The exact equity captions depend on local law and the entity’s presentation. IFRS focuses on faithful classification and disclosure rather than prescribing one universal nominal-value system.
Issue costs
Incremental transaction costs directly attributable to an equity transaction are deducted from equity, net of any related income-tax benefit. Costs of listing the entity, marketing, reorganising or undertaking activities that would have occurred without the share issue are not automatically equity deductions.
If a transaction includes both issuing new shares and listing existing shares, allocate costs on a reasonable basis to the relevant components.
Shares issued for non-cash consideration
Shares may be issued to acquire an asset or business. The accounting depends on the applicable Standard and the reliable measurement of the transaction. Do not record nominal value as the asset’s cost merely because it is easy to calculate.
Partly paid shares and calls
Some jurisdictions allow shares to be issued with only part of the subscribed amount paid initially. The accounting for unpaid amounts depends on whether the shareholder’s obligation is enforceable and how local law treats calls in arrears. Present receivables and equity consistently with the contractual rights and legal substance.
Preference shares
Preference shares require careful classification. A non-redeemable instrument with discretionary distributions may be equity. A mandatorily redeemable instrument or one with unavoidable fixed cash dividends may contain a liability. Compound instruments may require separate liability and equity components.
Ordinary, preference, redeemable and convertible are descriptions. Read redemption, dividend and settlement clauses before deciding the accounting classification.
Treasury shares
When an entity reacquires its own equity instruments, the consideration paid is generally deducted from equity. No gain or loss is recognised in profit or loss on purchase, sale, issue or cancellation of the entity’s own equity instruments. Related amounts are recognised directly in equity.
Bonus issues, rights issues and share splits
- Bonus issue: capitalises reserves without bringing new cash into the company.
- Rights issue: offers existing shareholders the right to buy additional shares, often at a set price.
- Share split: increases the number of shares and reduces the amount represented by each share without changing total equity.
The journal entries and legal reserve movements depend on jurisdiction and the terms approved.
Presentation and disclosure
Financial statements should explain classes of share capital, numbers of authorised and issued shares where applicable, movements during the period, rights and restrictions, treasury shares and significant terms of instruments. Liability-classified instruments appear outside equity and related finance costs are treated accordingly.
Use the statement of financial position guide and financial-accounting overview for broader presentation context.
Worked comparison
Instrument A is non-redeemable, distributions are discretionary and settlement is in a fixed number of ordinary shares. It is likely to have equity characteristics. Instrument B must be redeemed for 1 million CU in five years and pays mandatory returns. It creates a contractual cash obligation and is likely to be a liability, regardless of the word “share”.
Controls over share-capital transactions
- board and shareholder approvals where required;
- legal review of instrument terms;
- reconciliation of the share register to the general ledger;
- verification of cash proceeds and issue costs;
- separate review of equity-versus-liability classification;
- complete disclosure of rights, restrictions and movements.
Share register and changes in equity
The share register should agree with the number and classes of shares shown in the financial statements. Reconcile opening shares, issues, conversions, cancellations, buy-backs and closing shares. The statement of changes in equity should also explain movements in share capital, share premium, retained earnings and other reserves.
IFRS 18 provides the current presentation framework for primary financial statements and is effective for annual periods beginning on or after 1 January 2027 unless applied earlier. Review the IFRS 18 overview together with IAS 32. The site’s accounting policies and estimates guide is useful when classification judgements or changes require explanation.
Key takeaway
Share-capital accounting starts with contractual substance. Record cash and other consideration accurately, separate nominal capital and premium where relevant, deduct qualifying equity issue costs correctly and classify redeemable or mandatory-payment instruments under IAS 32 rather than relying on their legal title.