Question

Raunak Cotton Ltd issued a prospectus inviting application for 6,000 equity shares of Rs. 100 each at premium of Rs. 20 per share, payable as follows
$\begin{array}{ccc}& & \\ & & \text{(Rs.)}\\ \text{On Application}& =& 20\\ \text{On Allotment}& =& 50\text{(including premium)}\\ \text{On First Call}& =& 30\\ \text{On Final Call}& =& 20\end{array}$

Applications were received for 10,000 shares and allotment was made pro-rata to the applicants of 8,000 shares, the remaining applications being refused. Money received in excess on the application was adjusted toward the amount due on allotment.

Rohit, to whom 300 shares were allotted failed to pay allotment and calls money, his shares were forfeited. Itika, who applied for 600 shares, failed to pay the two calls and her share were also forfeited. All these shares were sold to Kartika as fully paid for Rs.80 per share. Give journal entries in the books of the company

Answer 1

$\text{Journal Entries}$
$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{LF}& \text{Amt. (Dr)}& \text{Amt.(Cr)}\\ \text{(i)}& \text{Bank A/c}(10,000\times 20)& \text{Dr}& & 2,00,000& \\ & \text{To Share Application A/c}& & & & 2,00,000\\ & \text{(Shares application money received on}& & & & \\ & \text{10,000 shares)}& & & & \\ & \underset{–}{}& & & & \\ \text{(ii)}& \text{Share Application A/c}& \text{Dr}& & 2,00,000& \\ & \text{To Share Capital A/c}(6,000\times 20)& & & & 1,20,000\\ & \text{To Share Allotment A/c}(2,000\times 20)& & & & 40,000\\ & \text{To Bank A/c}(2,000\times 20)& & & & 40,000\\ & \text{(Share application money adjusted)}& & & & \\ & \underset{–}{}& & & & \\ \text{(iii)}& \text{Bank A/c}& \text{Dr}& & 2,47,000& \\ & \text{Calls-in-Arrears A/c (Working Note)}& \text{Dr}& & 13,000& \\ & \text{To Share Allotment A/c}& & & & 2,60,000\\ & \text{(Share allotment money received except}& & & & \\ & \text{300 shares)}& & & & \\ & \underset{–}{}& & & & \\ \text{(iv)}& \text{Share Allotment A/c}& \text{Dr}& & 3,00,000& \\ & \text{To Share Capital A/c}(6,000\times 30)& & & & 1,80,000\\ & \text{To Securities Premium A/c}(6,000\times 20)& & & & 1,20,000\\ & \text{(Share allotment money due)}& & & & \\ & \underset{–}{}& & & & \\ \text{(v)}& \text{Bank A/c}& \text{Dr}& & 1,57,500& \\ & \text{Calls-in-Arrears A/c}(750\times 30)& \text{Dr}& & 22,500& \\ & \text{To Share First Call A/c}& & & & 1,80,000\\ & \text{(Share first call money received except 750}& & & & \\ & \text{(300 + 450) shares)}& & & & \\ & \underset{–}{}& & & & \\ \text{(vi)}& \text{Share First Call A/c}& \text{Dr}& & 1,80,000& \\ & \text{To Share Capital A/c}(6,000\times 30)& & & & 1,80,000\\ & \text{(Share first call money due)}& & & & \\ & \underset{–}{}& & & & \\ \text{(vii)}& \text{Bank A/c}(5,250\times 20)& \text{Dr}& & 1,05,000& \\ & \text{Call-in-Arrear A/c}(750\times 20)& \text{Dr}& & 15,000& \\ & \text{To Share Final Call A/c}& & & & 1,20,000\\ & \text{(Share final call money received except 750}& & & & \\ & \text{shares)}& & & & \\ & \underset{–}{}& & & & \\ \text{(viii)}& \text{Share Final Call A/c}& \text{Dr}& & 1,20,000& \\ & \text{To Share Capital A/c}(6,000\times 20)& & & & 1,20,000\\ & \text{(Share final call money is due)}& & & & \\ & \underset{–}{}& & & & \\ \text{(ix)}& \text{Share Capital A/c}(750\times 100)& \text{Dr}& & 75,000& \\ & \text{Securities Premium A/c}(300\times 20)& \text{Dr}& & 6,000& \\ & \text{To Calls-in-Arrears A/c (Working Note)}& & & & 50,500\\ & \text{To Share Forfeiture A/c}& & & & 30,500\\ & \text{(750 shares were forfeited)}& & & & \\ & \underset{–}{}& & & & \\ \text{(x)}& \text{Bank A/c}(750\times 80)& \text{Dr}& & 60,000& \\ & \text{Share Forfeiture A/c}(750\times 20)& \text{Dr}& & 15,000& \\ & \text{To Share Capital A/c}& & & & 75,000\\ & \text{(Forfeited shares reissued @ 80 per share)}& & & & \\ & \underset{–}{}& & & & \\ \text{(xi)}& \text{Share Forfeiture A/c}& \text{Dr}& & 15,500& \\ & \text{To Capital Reserve A/c (Working Note)}& & & & 15,500\\ & \text{Share forfeiture account transferred capital}& & & & \\ & \text{reserve)}& & & & \end{array}$

Working Note :
Calculation of shares applied by Rohit

= $\frac{\text{Total number of shares applied}}{\text{Total number of shares allotted}}\times \text{Shares allotted to applicant}$

= $\frac{8,000}{6,000}\times 300$ = 400 shares applied

Calculation of shares allotted to Litika

= $\frac{\text{Total number of shares allotted}}{\text{Total number of shares applied}}\times \text{Shares applied by applicant}$

= $\frac{6,000}{8,000}\times 600$ = 450 shares allotted

Treatment of Amount Received from Rohit and his Arrears
$\begin{array}{cc}& \\ \text{Particulars}& \text{(Amt.Rs)}\\ \text{Amount received on application}(400\times 20)& 8,000\\ \text{(-) Adjusted to share capital}(300\times 20)& \\ \text{Advance for allotment}& 6,000\\ & \overline{\underset{–}{2,000}}\\ \text{Amount due on Allotment}(300\times 50)& 15,000\\ \text{(-)Advance received Arrear on Allotment}& 2,000\\ & \overline{\underset{–}{13,000}}\\ \text{Amount due on First Call}(300\times 30)& \\ \text{full amounts becomes Arrear on First Call}& \underset{–}{9,000}\\ \text{Amount due on Final Call}(300\times 20)\text{full amount becomes Arrear}& \\ \text{on Final Call}& \underset{–}{6,000}\end{array}$

Treatment of Amount as Arrear from litika
$\begin{array}{cc}& \\ \text{Particulars}& \\ \text{Amount due on First Call}(450\times 30)& \\ \text{full amount becomes Arrear on First Call~~~~~~~~~~~~~~~~~~~~~}& \overline{\underset{–}{13,000}}\\ \text{Amount due on Final Call}(450\times 20)& \\ \text{full amount becomes Arrear on Final Call}& \overline{\underset{–}{9,000}}\end{array}$

$\begin{array}{ccccc}& & & & \\ \text{Arrears}& \text{Allotment}& \text{First Call}& \text{Final Call}& \\ \text{Rohit}& 13,000& 9,000& 6,000& \\ \text{litika}& -& 13,500& 9,000& \\ \text{Total}& 13,000(+)& 22,500(+)& 15,000& \overline{\underset{–}{=50,500}}\end{array}$

$\begin{array}{cc}& \\ \text{Capital Reserve}& \\ \text{Amount transferred to forfeiture for 750 shares}& 30,500\\ \text{(-)Amount adjusted on reissue of 750 shares}& (15,000)\\ \text{Amount transferred to Capital Reserve}& \overline{\underset{–}{15,500}}\end{array}$

$\begin{array}{cc}& \\ \text{Amount Transferred to Forfeiture Account}& \\ & \text{(Rs)}\\ \text{Rohit}& 8,000\\ \text{litika}(12,000+10,500)& 22,500\\ & \overline{\underset{–}{30,500}}\end{array}$
Note : Amount received as premium is not taken.