Question

X Ltd. invited applications for 20,000 shares of Rs 10 each payable as follows: Rs 3 on Application; Rs 2 on Allotment, Rs 2.50 on First Call and Rs 2.50 on Second Call.

Public Applied for 30,000 shares and the allotments were made as under:

To Applications for 8,000 shares .................... full.

To Applications for 16,000 shares .................... 12,000 shares

To Applications for 6,000 shares .................... Nil.

All moneys were duly received.

(a) Pass Journal Entries.

(b) Which value has been affected by making full allotment to the applicants for 8,000 shares and rejecting the applicants for 6,000 shares? Suggest a better alternative.

Answer 1

$\text{(a)}\text{JOURNAL}$

$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F}& \text{Dr (Rs)}& \text{Cr. (Rs)}\\ & \text{Bank A/c}& \text{Dr.}& & 90,000& \\ & \text{To Share Application A/c}& & & & 90,000\\ & \text{(Applications received for 30,000 shares)}& & & & \\ & \text{Share Application A/c}& \text{Dr.}& & 90,000& \\ & \text{To Share Capital A/c}(20,000\text{shares}\times \text{Rs}3)& & & & 60,000\\ & \text{To Share Allotment A/c}(4,000\text{shares}\times \text{Rs}3)& & & & 12,000\\ & \text{To Bank A/c}(6,000\text{shares}\times \text{Rs}3)& & & & 18,000\\ & \text{(Application money transferred)}& & & & \\ & \text{Bank A/c}& \text{Dr.}& & 28,000& \\ & \text{To Share Allotment A/c}& & & & 28,000\\ & \text{(Allotment money received : Rs 40,000 less Rs 12,000}& & & & \\ & \text{already received)}& & & & \\ & \text{Share Allotment A/c}& \text{Dr.}& & 40,000& \\ & \text{To Share Capital A/c}& & & & 40,000\\ & \text{(Allotment money transferred to share capital account)}& & & & \\ & \text{Bank A/c}& \text{Dr.}& & 50,000& \\ & \text{To Share First Call A/c}& & & & 50,000\\ & \text{(Amount received on first call)}& & & & \\ & \text{Share First Call A/c}& \text{Dr.}& & 50,000& \\ & \text{To Share Capital A/c}& & & & 50,000\\ & \text{(First call money transferred to share capital account)}& & & & \\ & \text{Bank A/c}& \text{Dr.}& & 50,000& \\ & \text{To Share Final Call A/c}& & & & 50,000\\ & \text{(Amount received on final call)}& & & & \\ & \text{Share Final Call A/c}& \text{Dr.}& & 50,000& \\ & \text{To Share Capital A/c}& & & & 50,000\\ & \text{(Final call money transferred to share capital account)}& & & & \end{array}$

(b) (i) Value of Equity has been affected by making full allotment to some applicants and rejecting the applicants for 6,000 shares who are small retail investors.

(ii) Better alternative would have been to make pro-rata allotment among all the applicants.