State clearly the conditions under which a company can issue shares at a discount.
As a general rule, a company cannot ordinarily issue shares at a discount. Shares are said to be issued at a discount when they are issued at an amount less than their nominal or par value. However, under specific circumstances, shares can be issued at a discount.
First, a company can issue sweat equity shares at a discount. According to the Companies Act, 2013, only sweat equity shares can be issued at a discount. The company must fully comply with the provisions laid down by law for such issuance.
Second, shares can be issued at a discount in case of reissue of forfeited shares. The management has the power to reissue forfeited shares subject to the terms and conditions in the Articles of Association. However, there is a specific condition: the amount of discount allowed on reissue must not exceed the credit balance of Share Forfeiture Account relating to the shares being reissued.
When shares are issued at a discount, the amount of discount is debited to 'Discount on Issue of Share Account', which is in the nature of capital loss for the company. Any credit balance remaining in Share Forfeiture Account after reissue is transferred to Capital Reserve.
Explanation
The textbook context clearly establishes that shares cannot ordinarily be issued at a discount. The two exceptions mentioned are: (1) sweat equity shares as per Companies Act, 2013, and (2) reissue of forfeited shares with the condition that discount cannot exceed the forfeiture amount. The answer follows the 5-mark format with 5 paragraphs covering the general rule, both conditions with their specific requirements, and the accounting treatment.