Question

Hero Honda Limited made an issue of 1,00,000 Equity Shares of Rs 10 each, payable as follows:

On Application Rs 2.50 per share

On Allotment Rs 2.50 per share

On Call Balance Amount

Members holding 400 shares did not pay the call money and the shares were duly forfeited. 200 of the forfeited shares were reissued as fully paid at Rs 5 per share.

Draft necessary journal entries and prepare share capital and forfeited shares accounts in the books.

Answer 1

$\text{JOURNAL}$

$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F}& \text{Dr (Rs)}& \text{Cr. (Rs)}\\ & \text{Bank A/c}& \text{Dr.}& & 2,50,000& \\ & \text{To Equity Share Application A/c}& & & & 2,50,000\\ & \text{(Application money received)}& & & & \\ & \text{Equity Share Application A/c}& \text{Dr.}& & 2,50,000& \\ & \text{To Equity Share Capital A/c}& & & & 2,50,000\\ & \text{(Application money transferred)}& & & & \\ & \text{Bank A/c}& \text{Dr.}& & 2,50,000& \\ & \text{To Equity Share Allotment A/c}& & & & 2,50,000\\ & \text{(Allotment money received)}& & & & \\ & \text{Equity Share Allotment A/c}& \text{Dr.}& & 2,50,000& \\ & \text{To Equity Share Capital A/c}& & & & 2,50,000\\ & \text{(Allotment money transfer to share capital account)}& & & & \\ & \text{Bank A/c}& \text{Dr.}& & 4,98,000& \\ & \text{To Equity Share First and Final Call A/c}& & & & 4,98,000\\ & \text{(First and Final Call money received)}& & & & \\ & \text{Equity Share First and Final Call A/c}& \text{Dr.}& & 5,00,000& \\ & \text{To Equity Share Capital A/c}& & & & 5,00,000\\ & \text{(First and Final Call money transfer to share capital account)}& & & & \\ & \text{Equity Share Capital A/c}& \text{Dr.}& & 4,000& \\ & \text{To Equity Share First and Final Call A/c}& & & & 2,000\\ & \text{To Forfeited Shares A/c}& & & & 2,000\\ & \text{(Forfeiture of 400 shares)}& & & & \\ & \text{Bank A/c}& \text{Dr.}& & 1,000& \\ & \text{Forfeited Shares A/c}& \text{Dr.}& & 1,000& \\ & \text{To Equity Share Capital A/c}& & & & 2,000\\ & \text{(200 shares re-issued at Rs 5 per share)}& & & & \end{array}$

$\text{Dr.}\text{EQUITY SHARE CAPITAL ACCOUNT}\text{Cr.}\begin{array}{cccc}\text{Particulars}& \text{Rs.}& \text{Particulars}& \text{Rs.}\\ \text{Equity Share First and Final Call A/c}& 2,000& \text{By Equity Share Application A/c}& 2,50,000\\ \text{Forfeited Shares A/c}& 2,000& \text{Equity Share Allotment A/c}& 2,50,000\\ \text{Balance c/d}& 9,98,000& \text{Equity Share First and Final Call A/c}& 5,00,000\\ & & \text{Bank A/c}& 1,000\\ & & \text{Forfeited Shares A/c}& 1,000\\ & \overline{\underset{–}{\underset{–}{10,02,000}}}& & \overline{\underset{–}{\underset{–}{10,02,000}}}\end{array}$

$\text{Dr.}\text{FORFEITED SHARES ACCOUNT}\text{Cr.}\begin{array}{cccc}\text{Particulars}& \text{Rs.}& \text{Particulars}& \text{Rs.}\\ \text{Equity Share Capital A/c}& 1,000& \text{Equity Share Capital A/c}& 2,000\\ \text{Balance c/d}& 1,000& & \\ & \overline{\underset{–}{\underset{–}{2,000}}}& & \overline{\underset{–}{\underset{–}{2,000}}}\end{array}$

Working Notes:

(1) No amount will be transferred to Capital Reserve because profit on forfeiture relating to 200 shares equals loss on their reissue:

$\begin{array}{cc}\text{Profit on the forfeiture of 400 shares}=& \text{Rs 2,000}\\ \text{Therefore, Profit on 200 Reissued shares=}\frac{2,000}{400}\times 200=& \text{Rs 1,000}\\ \text{Less: Loss on the re-issue of 200 shares}(200\times 5)=& \text{Rs 1,000}\\ \text{Transfer of Capital Reserve}& \overline{\underset{–}{Nil}}\end{array}$

(2) Balance left in forfeiture shares account:

As Profit on the forfeiture of 400 shares = Rs 2,000

Therefore, Profit on 200 unissued shares= $\frac{2,000}{400}\times =Rs1,000$