Question

ABC Ltd, is registered with an authorised capital of Rs 50,00,000 divided into shares of Rs 10 each. It offered to the public for subscription 2,50,000 shares at a premium of Rs 4 each. Public applied for the shares and the issue was oversubscribed to the extent of 2,50,000 shares. Excess application money was to be utilised towards sum dues on allotment only. Money paid on application as Rs 2, Money paid on allotment Rs 5 and balance on first and final call. Shares were subscribed as follows:

$\begin{array}{ccc}\text{Category}& \text{Shares Allottled}& \text{Basis}\\ 1.& 50,000& \text{Full}\\ 2.& 1,00,000& \text{1/2 of shares applied for}\\ 3.& 1,00,000& 250\%\text{of shares applied for}\end{array}$

Mr. Ravi who has 1,000 shares and who belonged to category 2 failed to pay call amount, his shares were immediately forfeited. Mr. Ayush who has applied for 10,000 shares and belongs to 3rd category failed to pay his arrears on call stage. Out of the forfeited shares 2,000 shares were re-issued to Ms. Pankhuri for Rs 12 each. Forfeited shares include whole of Mr. Ravi's shares. Pass necessary Journal entries.

OR

Pass the necessary Jouranl entries.

(a) A company forfeited 200 shares of Rs 20 each, Rs 15 per share called up on which Rs 10 per share had been paid. Director reissued all the forfeited shares to B as Rs 15 per share paid up for a payment of Rs 10 each . Give Journal entries in the books of the company for forfeiture and reissue of shares.

(b) A Ltd. forfeited 100 equity shares of the face value of Rs 10 each, for the non-payment of first call of Rs 2 per share. Rs 6 per share had already been called and paid. These shares were subsequently re-issued as fully paid at the rate of Rs 7 per share. Give Journal entries in the books of the company for forfeiture and reissue of shares.

Answer 1

JOURNAL
$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F.}& \text{Debit}& \text{Credit}\\ & & & & \text{(Rs)}& \text{(Rs)}\\ & \text{Bank A/c}& Dr.& & 10,00,000& \\ & \text{To Equity Share Application A/c}& & & & 10,00,000\\ & \underset{–}{\text{(Being application money received on 5,00,000 shares)}}& & & & \\ & \text{Equity Share Application A/c}& Dr.& & 10,00,000& \\ & \text{To Equity Share Capital A/c}& & & & 5,00,000\\ & \text{To Equity Share Allotment A/c}& & & & 5,00,000\\ & \underset{–}{\text{(Being application money adjusted)}}& & & & \\ & \text{Equity Share Allotment A/c}& Dr.& & 12,50,000& \\ & \text{To Equity Share Capital A/c}& & & & 2,50,000\\ & \text{To Securities Premium Reserve A/c}& & & & 10,00,000\\ & \underset{–}{\text{(Being allotment due)}}& & & & \\ & \text{Bank A/c}& Dr.& & 7,50,000& \\ & \text{To Equity Shares Allotment A/c}& & & & 7,50,000\\ & \underset{–}{\text{(Being allotment amount received)}}& & & & \\ & \text{Equity Share First and Final Call A/c}& Dr.& & 17,50,000& \\ & \text{To Equity Share Capital A/c}& & & & 17,50,000\\ & \underset{–}{\text{(Being call money due )}}& & & & \\ & \text{Bank A/c}& Dr.& & 17,15,000& \\ & \text{Calls in Arrears A/c}& Dr.& & 35,000& \\ & \text{Equity Share Allotment A/c}& & & & 17,50,000\\ & \underset{–}{\text{(Being call money received except on 5,000 shares)}}& & & & \\ & \text{Equity Shares Capital A/c}& Dr.& & 50,000& \\ & \text{To Calls in Arrears A/c}& & & & 35,000\\ & \text{To Share Forfeiture A/c}& & & & 15,000\\ & \underset{–}{\text{(Being shares forfeited)}}& & & & \\ & \text{Bank A/c}& Dr.& & 24,000& \\ & \text{To Equity Share Capital A/c}& & & & 20,000\\ & \text{To Securites Premium Reserve A/c}& & & & 4,000\\ & \underset{–}{\text{(Being forfeited shares re-issued)}}& & & & \\ & \text{Share Forfeiture A/c}& Dr.& & 6,000& \\ & \text{Capital Reserve A/c}& & & & 6,000\\ & \text{(Being profit on re-issue transferred to Capital Reserve)}& & & & \end{array}$

Working Notes:

$\begin{array}{cc}\text{Applied Shares}& \text{Allotted Shares}\\ 50,000& 50,000\\ 2,00,000& 1,00,000\\ 2,50,000& 1,00,000\end{array}$

Excess money adjusted to allotment in 2nd category $(2,00,000-1,00,000)\times 2=Rs2,00,000$

Excess money adjusted to allotment in 3rd category $(2,50,000-1,00,000)\times 2=Rs3,00,000$

Capital Reserve-

For Ravi: Since his 1,000 shares were forfeited, his amount forfeited was Rs 3,000

His whole of the shares were re-issued, hence his complete amount wil be transferred to capital reserve i.e., Rs 3,000

For Ayush : Since his 4,000 shares were forfeited, his amount forfeited, his amount forfeited was Rs 12,000

His only 1,000 shares were re-issued, hence his amount to be transferred to Capital Reserve

$\frac{12,000}{4,000}\times 1,000=Rs3,000$

Balance of his amount wil be kept as balance in share forfeiture which will be added to share capital,

Total amount transferred to Capital Reserve = 3,000 + 3,000= Rs 6,000

OR

JOURNAL
$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F.}& \text{Debit}& \text{Credit}\\ & & & & \text{(Rs)}& \text{(Rs)}\\ \left(a\right)& \text{Equity Share Capital A/c}& Dr.& & 3,000& \\ & \text{To Calls in -Arrears A/c}& & & & 1,000\\ & \text{To Share Forfeiture A/c}& & & & 2,000\\ & \underset{–}{\text{(Being 200 shares were forfeited on which Rs 15 per share called up)}}& & & & \\ & \text{Bank A/c}& Dr.& & 3,000& \\ & \text{To Equity Share Capital A/c}& & & & 2,000\\ & \text{To Securities Premium Reserve A/c}& & & & 1,000\\ & \underset{–}{\text{(Being forfeited shares were re-issed at Premium)}}& & & & \\ & \text{Share Forfeiture A/c}& Dr.& & 2,000& \\ & \text{To Capital Reserve A/c}& & & & 2,000\\ & \underset{–}{\text{(Being gain on re-issue transferred to Capital Reserve)}}& & & & \\ \left(b\right)& \text{Equity Share Capital A/c}& Dr.& & 800& \\ & \text{To Calls in-Arrears A/c}& & & & 200\\ & \text{To Share Forfeiture A/c}& & & & 600\\ & \underset{–}{\text{(Being 100 shares were forfeited on which Rs 8 per share called up)}}& & & & \\ & \text{Bank A/c}& Dr.& & 700& \\ & \text{Share Forfeiture A/c}& & & 300& \\ & \text{To Equity Share Capital A/c}& & & & 1,000\\ & \underset{–}{\text{(Being forfeited shares were re-issed at Premium)}}& & & & \\ & \text{Share Forfeiture A/c}& Dr.& & 300& \\ & \text{To Capital Reserve A/c}& & & & 300\\ & \text{(Being gain on re-issue transferred to Capital Reserve)}& & & & \end{array}$