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Company Accounts – Shares CA Foundation Notes

Company Accounts – Shares – CA Foundation, CPT notes, PDF

This article is about Company Accounts – Shares for CA foundation CPT students. we also provide PDF file at the end.

Company Accounts - Shares

Company Accounts – Shares

Special Remark : Shares, Debentures are the securities issued by the companies (private limited or public limited). Companies are governed by the Provisions of Companies Act, 1956. The Companies Act, 2013 has been enacted to replace the old act. But all the provisions of new act are not yet made effective by Central Government.

Main Sources of Company Finance
CapitalDebt (Loan)
Equity Share CapitalPreference Share CapitalDebenture

Capital

Loans from Bank / Financial Inst. etc.
Pricing of Issue

1.    At Par

Issue price (100) = Face Value (100)

2.    At Premium

Issue price (110) > Face Value (100)

3.    At Discount

Issue price (90) < Face Value (100)

Procedure/Steps

Issue (Invitation) ↓

Application

Allotment

Calls

Non receipt of Allotment &/or call Money may result in Forfeiture & reissue of shares
1.    If applications received are for less shares than issued, known as under subscription resulting into underwriters liability. All shares applied for will be allotted. Underwriters will have to take unsubscribed shares to the extent of their liability, more about this you will study in under-writing chapter.

2.    If applications received are for more shares than issued, known as over subscription requiring pro-rata allotment and adjustment of excess application money received.

3.    Allotment will be made of the number of shares issued or applied whichever is lower.

MEANINGS

23.1 COMPANY:

♦     A business can be organised in the form of a proprietary concern, partnership concern or as a company.

♦     It is a corporate form of organising the business.

♦     Company is a legal entity distinct from its owners, registered under the Companies Act, 1956 (now Companies Act, 2013) and works through a team of management.

23.2 CAPITAL:

♦     Capital is the amount of funds raised to run the business activity.

♦     It is owners capital namely: Equity share capital, Reserves & Surplus (there is accumulated profit which belongs to equity shareholder) and Preference share capital or

♦     It is borrowed (Loan) capital namely: Loans, Debentures and Bonds etc.

23.3     SHARE CAPITAL:

♦     The capital contributed by the owners, is known as share capital.

♦     It is represented by a certificate known as share certificate.

♦     According to Section 43 of Companies Act, 2013, the share capital of a company limited by shares shall be of two kinds only, namely:

■     Share can be equity share or preference share.

■     Preference shares have preference in the payment of dividend and repayment of capital at the time of liquidation. (i.e. preference shareholders will be paid first before anything is paid to equity shareholders).

■     Equity shareholders have voting rights and are the real owners of the company.

The term capital is used in the following senses in the Company Law:

23.3.1  Nominal or authorized or registered capital:

♦     It is the sum stated in the memorandum as the capital of the company with which it is to be registered.

♦     It is the maximum amount, which a company authorised to raise by issuing shares.

♦     It can be increased as and when decided by the company by following necessary formalities.

23.3.2  Issued capital:

♦     It is that part of authorised capital which is offered by the company for subscription.

♦     It is obligatory to disclose issued capital in balance sheet.

♦     For e.g. A company may have total authorised share capital of Rs. 10,00,000 divided into 1,00,000 shares of Rs. 10 each. It may decide to issue 80,000 shares of Rs. 10 each.

♦     In that case the issued capital shall be Rs. 8,00,000.

♦     The authorised share capital less issued share capital is the un-issued share capital in this case Rs. 2,00,000.

23.3.3  Subscribed capital:

♦     It is that part of the issued capital for which applications have been received from the investors.

♦     In the above example out of 80,000 shares issued by the company, if applications are received for only 70,000 shares of Rs. 10 each, the subscribed capital will be Rs. 7,00,000.

♦     The issued share capital less subscribed share capital is the un-subscribed share capital in this case Rs. 1,00,000.

♦     If underwriting has been done that underwriters will be liable to take up and pay for un-subscribed capital

♦     As per law maximum commission for underwriting allowed to be paid is 5% of issue price in case of shares and 2.5% in case of debenture.

23.3.4  Called up capital

♦     It is that part of the subscribed capital, which has been called up or demanded by the company.

♦     A company can call full amount on application itself or may call the amount due on shares in two or three instalments.

♦     In the above example if the company has called up Rs. 5 per share, then its called up capital shall be 70,000 × 5 = Rs. 3,50,000.

♦     The subscribed share capital less called up share capital is the un-called share capital in this case Rs. 3,50,000.

23.3.5  Paid up capital:

♦     It is the total amount actually paid up on shares by the subscribers.

♦     Sometimes a few subscribers fail to pay the full amount called up.

♦     Thus paid up capital is equal to called-up capital less calls in arrears.

♦     In the example given above, if only on 60,000 shares call is actually received by the company, then the paid up capital shall be Rs. 3,00,000.

♦     Unpaid capital/calls in arrears is 10,000 × 5 = Rs.50,000. This may ultimately lead to forfeiture of shares if company so decides.

23.3.6  Reserve capital:

♦     It is that part of the uncalled capital of the company which can be called up only in the event of winding up.

♦     The company can determine this by passing special resolution (Section 99 of Companies Act, 1956 /now Section 65 of Companies Act, 2013).

♦     The company cannot demand the payment of money on the shares to that extent during its lifetime.

♦     When once the reserve capital has been so created, it cannot be charged or mortgaged as security for any loan raised by the company and it cannot be called up.

♦     Creating such reserved capital will not require any accounting entry and the capital will continue to be shown as partly paid up in the balance-sheet.

♦     Fact of such reservation should be disclosed in the balance sheet.

♦     The reserve capital is different from capital reserve, which is created out of profits.

23.4     SHARES:

♦     The capital of a company is divided into a number of units of a fixed amount.

♦     These units are known as ‘shares’.

♦     According to section 2(46) of the Companies Act, 1956 (now Section 2(84) of Companies Act, 2013), “a share is a share in the share capital of a company’’.

♦     According to section 82 (now Section 44), the share or other interest of any member in a company shall be movable property, transferable in the manner provided by the Articles of the company.

♦     Shares are treated as “goods” under the Sale of Goods Act and they can be transferred to other persons.

♦     It may, however, be noted that a share certificate is not a negotiable instrument.

23.4.1  Equity Shares:

♦     Equity Shares, with reference to any company limited by shares, are those, which are not preference shares (Section 43(f) of Companies Act, 2013).

♦     The important characteristics of equity shares are as follows:

  1. Equity shares carry voting rights at the general meetings of the company and have the right to control the management of the company.
  2. Equity shares carry the right to shares in the profits of the company in the form of distribution of dividend and bonus shares.
  3. In the event of winding up of the company, equity share capital is repayable only after repayment of the claims of the creditors and preference share capital.

23.4.2  Preference Shares:

♦     A preference share is defined to mean a share which fulfils the following two requirements:

(i)    During the life of the company it must be paid preferential dividend either of fixed amount or at a fixed rate;

(ii)   On the winding up of the company it must carry a preferential right to be repaid the capital in preference to the equity shareholders.

23.4.2.1 Cumulative preference shares:

♦     They carry the right to cumulative dividends if the company fails to pay the dividend in a particular year.

♦     That is if for want of prof it dividend is not paid the same gets accumulated and paid as and when company earns.

♦     All preference shares are always presumed to be cumulative unless the contrary is stated in the terms of issue.

23.4.2.2 Non-cumulative preference shares:

♦     Such shares do not carry the right to receive the arrears of dividend in a particular year, if the company fails to declare dividend.

♦     If no dividend is paid in a particular year, it lapses.

23.4.2.3 Participating preference shares:

♦     They are entitled to fixed rate of dividend plus participate in surplus profits along with the equity shares after a certain fixed percentage has been paid to equity shareholders.

23.4.2.4 Non-participating preference shares:

♦     Such shares are entitled only to the fixed dividend and do not have the right to further participate in the surplus profits.

♦     All preference shares are always presumed to be non-participating unless the contrary is stated in the terms of issue.

23.4.2.5 Convertible preference shares:

♦     They are converted into equity shares at a later date according to the terms and conditions specified.

♦     The holder of such shares is given the right of conversion of his shares into equity shares at a later dale.

23.4.2.6 Non-Convertible preference shares

♦ The holder or such shares does not get a right to convert such shares into equity shares at a later date.

23.4.2.7 Redeemable preference shares (Section 55 of Companies Act, 2013)

♦     Redeemable preference shares are those shares which are to be redeemed (paid back) to the shareholders.

♦     As per Companies Act, irredeemable preference shares cannot be issued.

♦     They have to be redeemable within a period of 20 years from the date of issue,

♦     A company limited by shares may, if so authorised by its Articles, issue preference shares which are redeemable at the option of the company.

♦     Redemption of preference shares does not amount to reduction of company’s authorised share capital.

23.4.3  Classification of Equity share capital :-

Rs.
Authorised capital (Nominal/Registered capital)
50,000 shares of Rs. 10 each5,00,000
Issued capital
30,000 shares of Rs. 10 each3,00,000
Subscribed capital
25,000 shares of Rs. 10 each2,50,000
Called-up capital
25,000 shares of Rs. 10 each, Rs. 7 called-up1,75,000
Paid-up capital
25,000 shares of Rs. 10 each, Rs. 7 called up1,75,000
Less: Calls-in-arrears3,000
1,72,000
  1. ISSUE OF SHARES, FORFEITURE & RE-ISSUE

23.5 ISSUE OF SHARES:

23.5.1  Issue Price:

♦     Issue price is the price to be collected for a share by the issuing company.

♦     In Layman’s language issue price can be termed as selling price of the share.

♦     It can be equal to (issue at par) or more (issue at premium) or less (issue at discount) than the face value.

♦     Issue price may be collected in full with application or can be collected in part as may be decided by the company.

23.5.2  Face value:

♦     Face value is the value printed on the face of Share Certificate.

♦     It is also known as Nominal or Authorised value.

♦     Generally it is in round figure like Rs. 10, Rs. 50 or Rs. 100 etc.

Terms of issuing shares

(i)    Issue of shares at par.

(ii)   Issue of shares at premium, (sec 52)

(iii)   Issue of shares at discount, (sec 53)*

*Equity shares cannot be issued at discount to general public as per Companies Act, 2013.

Ways of issuing shares

(i)    Issue of shares in cash

(ii)   Issue of shares for consideration other than cash.

Issue of shares in cash

  1. In lump sum amount,
  2. In instalment
  3. Entries in the case of lump sum amount:

♦     For receipt of amount:

Bank a/cDr.
To Equity share application and allotment a/c
(Being application money received @ Rs. _____ per share on _____ shares’).
♦ For adjustment of money in equity share capital:
Equity share application and allotment a/cDr.
To Equity share capital a/c
(Being application money transferred to equity share capital a/c)
OR
In place of above entries one entry can be made as follows:-
Bank a/cDr.
To Equity share capital a/c
(Being application money received and transferred to equity share capital a/c)
2. Entries in case of instalment:
♦ For receiving application money:
Bank a/cDr.
To Equity share application a/c
(Being application money received @ Rs. _____ per share on shares of Rs. _____ each)
For transfer of equity share application money :
Equity share application a/cDr.
To Equity share capital a/c
(Being equity share application money transferred to equity share capital a/c)
For making equity share allotment due :
Equity share allotment a/c –Dr.
To Equity share capital a/c
(Being equity share allotment money made due @ _____ per share on _____ shares of Rs. _____ each)
♦ For receiving equity share allotment money :
Bank a/cDr.
To Equity share allotment a/c
(Being equity share allotment money received)

♦ For making equity share call money due :

Equity shares call a/cDr.
To Equity share capital a/c
(Being equity share call made due @ _____ per share on _____ shares of Rs. _____ each’]
♦ For receiving equity share call money :
Bank a/cDr.
To Equity share call a/c
(Being equity share call money received @ _____ per share on _____ shares of Rs. _____ each)

23.6     FORFEITURE OF SHARE

♦     Forfeiture means shares are cancelled for non-payment of money due on it and the money already received is forfeited, i.e. money is not returned.

♦     Companies Act does not contain any provision for forfeiture.

♦     But articles of association of the company usually contains provision authorising board of directors to forfeit shares for non-payment of money due on it.

♦     Before sale of such shares Board can cancel the forfeiture if it so desires.

Forfeiture of shares which were issued at par:

Equity shares capital a/c Dr. (No. of shares × called up amount per share)

To Equity share forfeiture a/c (Amount received)      –

To Equity share allotment a/c (if any) (Amount not received)

To Equity share first call a/c (if any) (Amount not received)

To Equity share second and final call a/c (if any) (Amount not received)

(Being  _____ shares forfeited on non-payment of allotment & call money).

23.7     REISSUE OF FORFEITED SHARES

♦     Shares forfeited may be re-issued as fully paid up or partly paid up at any time by the Company.

♦     Re-issue Price + Amount already received on forfeited shares should not be less than its face value.

1. At par
Bank a/cDr.
To Equity share capital a/c
Being _____ shares reissued @ Rs. _____ per share of nominal value Rs. _____ per share)
2. At premium
Bank a/cDr.
To Equity share capital a/c
To Securities Premium a/c
(Being _____ shares of Rs. _____ each reissued @ Rs. _____ per share).
3. At discount
Bank a/cDr.
Equity share forfeiture a/cDr.
To Equity share capital a/c
(Being _____ shares of Rs. _____ each reissued @ discount @ Rs. _____ per share).
4. For transfer of balance remaining in equity share forfeiture a/c after reissue
Equity share forfeiture a/cDr.
To capital reserve a/c
(Being balance in equity share forfeiture a/c transferred to capital reserve a/c).

23.7.1 The treatment of Share Forfeiture A/c:

♦     Balance in share forfeiture A/c is shown with Share Capital A/c till the issue of forfeited shares.

♦     On re-issue of shares the balance, in share forfeiture account after debiting discount on re-issue is to be transferred to Capital reserve A/c being capital profit.

♦     But amount relating to shares which are not yet re-issued be kept in the same A/c.

Issue of shares for consideration other than cash
1. Issue of shares to promoters
Goodwill a/cDr.
OR
Incorporation costs a/cDr.
To Equity share capital a/c
(Being share issued to promoters).
2. Issue of shares to vendors
(a) Asset a/cDr.
To Vendor’s
(Being asset purchased from vendor).
(b) Vendor’s a/cDr.
To Equity share capital a/c
(Being equity shares issued against purchased consideration).
3. Issue of shares to underwriters
(a) Underwriting commission a/cDr.
To Underwriters a/c
(Being underwriting commission due).
(b) Underwriters’ a/cDr.
To Equity share capital a/c
(Being shares issued to underwriters against commission)
Issue of equity shares at Par

Illustration 23.1: A company issued 10,000 shares of Rs. 10 each in following manner:-

On Application             Rs. 4

On Allotment               Rs. 3

On 1st call                   Rs. 2

On 2nd and final call   Rs. 1

Mr. X holder of 400 shares failed to pay allotment and other calls. Company forfeited his shares and subsequently reissued 300 shares out of those @ Rs. 7 per share. Give necessary Journal entries in the books of account.

SOLUTION:

Journal Entries

S. No.ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Bank a/c (10,000 × 4)Dr.40,000
To Equity share application a/c40,000
(Being equity share application amount received @ Rs. 4 per share)
2.Equity share application a/cDr.40,000
To Equity share capital a/c40,000
(Being equity share application amount transferred to equity share capital a/c)
3.Equity share allotment a/c (10,000 × 3)Dr.30,000
To Equity share capital a/c30,000
(Being equity share allotment amount due on 10,000 shares @ 3 per share)
4.Bank a/c (9600 × 3)Dr.28,800
To Equity share allotment a/c28,800
(Being equity share allotment money received on 9600 shares.)
5.Equity share first call a/c (10,000 × 2)Dr.20,000
To Equity share capital a/c20,000
(Being equity share first call amount due @ Rs. 2 per share)
6.Bank a/c (9,600 × 2)Dr.19,200
To Equity share first call a/c19,200
(Being amount received on equity share first call @ Rs. 2 per share on 9600 shares)
7.Equity share second and final call a/c (10,000 × 1)Dr.10,000
To Equity share capital a/c10,000
(Being equity share second and final call amount due on 10,000 shares)
8.Bank a/c (9,600 × 1)Dr.9,600
To Equity share second and final call a/c9,600
(Being amount received for equity share second and final call on 9600 shares) ‘
9.Equity share capital a/c (400 × Rs. 10)Dr.4,000
To Equity share forfeiture a/c (400 × 4)1,600
To Equity share Allotment a/c (400 × 3)1,200
To Equity share first call a/c (400 × 2)800
To Equity share first call a/c (400 × 1)400
(Being 400 shares (unpaid) forfeited for non-payment of allotment and call money)
10.Bank a/c (300 × 7)Dr.2,100
Equity share forfeiture a/c (300 × 3)Dr.900
To Equity share capital a/c (300 × 10)3,000
(Being 300 shares, out of the forfeited shares, reissued at Rs. 7 per share, at discount)
11.Equity share forfeiture a/cDr.300
To Capital Reserve a/c300
(Being amount of balance in share forfeiture a/c transferred)

 

♦ Working Note:
No. of sharesforfeiture amount
1. 400 shares1600
300 shares × 300
= 1200
(Loss at the time of reissue)(-) 900
Transferred to capital reserve . 300

Illustration 23.2 : A company issued 20,000 shares of Rs. 10 each in the following manner on application Rs. 3/-, on allotment Rs. 4/on 1st call Rs. 1 /-, on 2nd and final call Rs. 2/-

Mr. A holder of 900 shares failed to pay allotment and other calls. Company forfeited his shares. Further 600 shares were re-issued @ Rs. 9/- per share. Give necessary journal entries in the books of the company.

SOLUTION:

Journal Entries

S.

No.

ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Bank a/c (20,000 × 3)Dr.60,000
To Equity share application a/c60,000
(Being application money received @ Rs. 3 per share on 20,000 shares)
2.Equity share application a/cDr.60,000
To Equity share capital a/c60,000
(Being application money transferred to equity share capital a/c)
3.Equity share allotment a/c (20,000 × 4)Dr.80,000
To Equity share capital a/c80,000
(Being allotment money due @ 4 per share on 20000 shares)
4.Bank a/c (19,100 × 4)Dr.76,400
To Equity share allotment a/c76,400
(Being allotment money received)
5.Equity share first call a/c (20,000 × 1)Dr.20,000
To Equity share capital a/c20,000
(Being first call made due @ Rs. 1 per share on 20,000 shares)
6.Bank a/c (19,100 × 1)Dr.19,100
To Equity share first call a/c19,100
(Being first call received @ Rs. 1 per share on 20,000 shares)
7.Equity share second & final call a/c (20,000 × 2)Dr.40,000
To Equity share capital a/c40,000
(Being second and final call made due @ Rs. 2 per shares on 20,000 shares)
8.Bank a/c (19,100X2)Dr.38,200
To Equity second and final call a/c38,200
(Being second and final call money received @ Rs. 2 per shares on 19,100 shares)
9.Equity capital a/c (900 × 10)Dr.9,000
To Equity forfeiture a/c (900 × 3)2,700
To Equity Allotment a/c (900 × 4)3,600
To Equity first call a/c (900 × 1)900
To Equity second & final call a/c (900 × 2)1,800
(Being 900 shares forfeited on non-payment of allotment and call money)
10.Bank a/c (600 × 9)Dr.5,400
Equity Share Forfeiture a/c (600 × 1)Dr.600
To Equity Share Capital a/c (600 × 10)6,000
(Being 600 shares re-issued @ Rs. 9 per share, out of the forfeited shares)
11.Equity Share Forfeiture a/cDr.1,200
To Capital Reserve a/c1,200
(Being balance in share forfeiture a/c transferred to capital reserve)

 

♦ Working Note:
No. of sharesAmount forfeited
1. 900 shares forfeitedRs. 2700
600 shares × 600
= Rs. 1800
(Forfeiture amount utilized at the time of reissue)(-) 600
1200 (Transferred to Capital Reserve)

Illustration 23.3 : A company forfeited 300 shares of Mr. X of Rs. 10 each on non-payment of 2nd and final call of Rs. 3 per share. Company reissued these shares in the following manner:

(a) 100 share @ Rs. 10 per share

(b) 100 share @ Rs. 8 per share

(c) 100 share @ Rs. 12 per share

Give necessary journal entries in the books of the company.

SOLUTION:

Journal Entries

S.

No.

ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Equity share capital a/c (300 × 10)Dr.3,000
To Equity share forfeiture a/c (300 × 7)2,100
To Equity share second and final call a/c. (300 × 3)900
(Being 300 shares of Rs. 10 each of Mr. X forfeited on non-payment of 2nd and final call)
Case (a):
2.(a)Bank a/c (100 × 10)Dr.1,000
To Equity share capital a/c1,000
(Being 100 shares reissued @ Rs. 10 per share)
2-(b)Equity share forfeiture a/c (100 × 7)Dr.700
To capital reserve a/c. (100 × 7)700
(Being balance of share forfeiture a/c transferred to capital reserve)
Case (b):
2.(a)Bank a/c (100 × 8)Dr.800
Equity share forfeiture a/c (100 × 2)Dr.200
To Equity share capital a/c (100 × 10)1,000
(Being 100 shares reissued @ Rs. 8 per share)
2.(b)Equity share forfeiture a/c (1)Dr.500
To capital reserve a/c .500
(Being balance of share forfeiture a/c transferred to capital reserve).
Case (c):
2.(a)Bank a/c (100 × 12)Dr.1,200
To Equity share capital a/c (100 × 10)1,000
To Securities Premium Reserve a/c (100 × 2)200
(Being 100 shares reissued @ Rs. 12 per share at premium).
2 .(b)Equity share forfeiture a/c (2)Dr.700
To Capital Reserve a/c700
(Being gain on reissue transferred to capital reserve).

 

Working Note:-
(1)Forfeited amount on 300 shares2100
Forfeited amount on 100 shares × 100
= Rs. 700
Loss on reissue (on 100 shares)(200)
Transferred to capital Reserve500
(2)Forfeited amount on 100 shares is Rs. 700.

Illustration 23.4 : A company forfeited 600 shares of Rs. 10 each on non-payment of Rs. 2 on second and final call. Company reissued these shares in the following manner:

(a)   300 shares @ Rs. 13 per share.

(b)   200 shares @ Rs. 10 per share.

(c)   100 shares (S) Rs. 6 per share.

SOLUTION:

Journal Entries

S. No.ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Equity share capital a/c (600 × 10)Dr.6,000
To Equity share forfeiture a/c (600 × 8)4,800
To Equity share second and final call a/c. (600 × 2)1,200
(Being 600 shares of Rs. 10 each forfeited on on-payment of second and
final call)
Case (a)Bank a/c (300 × 13)Dr.3,900
To Equity share capital a/c3,900
To Securities Premium a/c
(Being 300 shares reissued at profit of Rs. 3 per share, hence at Rs. 13 per share)
Equity share forfeiture a/c (300 × 8)Dr.2,400
To Capital Reserve a/c. (300 × 8)2,400
(Being balance of share forfeiture a/c transferred to capital reserve)
Case (b)Bank a/c (200 × 10)Dr.2,000
To Equity share capital a/c2,000
(Being 200 shares reissued @ Rs. 10 per share)
Equity share forfeiture a/c (200 × 8)Dr.1,600
To Capital Reserve a/c1,600
(Being balance in share forfeiture a/c transferred to capital reserve).
Case (c)Bank a/c (100 × 6)Dr.600
Equity share forfeiture a/c (100 × 4)Dr.400
To Equity share capital a/c (100 × 10)1,000
(Being 100 shares forfeited and reissued @ Rs. 6 per share).
Equity share forfeiture a/cDr.400
To Capital Reserve a/c400
(Being gain in reissue forfeiture a/c transferred to capital reserve).

 

Working Note:-
(1) Amount forfeited on 600 shares4800
on 100 shares × 100
= Rs. 800
Loss on reissue(400)
Transferred to capital reserve400

Illustration 23.5: A company issued 10,000 shares of Rs. 10 each in the following manner :-

on application              –           Rs. 4

on allotment                –           Rs. 3

on first call                   –           Rs. 2

on second & final call  –           Rs. 1

Ms. R holder of 400 shares failed to pay allotment & first call. Company forfeited his shares & then the 2nd call was made. Mr. S holder of 500 shares failed to pay 2nd & final call. Company forfeited his shares further the company reissued 700 shares (including all shares of Ms. R) @ Rs. 8 per share.

Give necessary journal entries in the books of the company.

SOLUTION:

Journal Entries

(In the books of the Company)

S.

No.

ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Bank a/c (10,000 × 4)Dr.40,000
To Equity share application a/c40,000
(Being equity share application money received @ Rs. 4 per share on 10,000 shares)
2.Equity share application a/c (10,000 × 4)Dr.40,000
To Equity share capital a/ c40,000
(Being equity application money transferred to share capital a/c)
3.Equity share allotment a/c (10,000 × 3)Dr.30,000
To Equity share capital a/c30,000
(Being allotment amount due on 10,000 shares @ Rs. 3 per share)
4.Bank a / c (9,600 × 3)Dr.28,800
To Equity share allotment a/c28,800
(Being allotment money received on 9,600 shares @ Rs. 3 per share)
5.Equity share first call a/c (10,000 × 2)Dr.20,000
To Equity share capital a/c20,000
(Being first call amount due on 10,000 equity share @ Rs. 2 each).
6.Bank a/c (9,600 × 2)Dr.19,200
To Equity share first call a/c19,200
(Being first call money received on 9600 shares @ Rs. 2 each)
7.Equity share capital a/c (400 × 9)Dr.3,600
To Equity share forfeiture a/c (400 × 4)1,600
To Equity share allotment a/c (400 × 3)1,200
To Equity share 1st call a/c (400 × 2)800
(Being 400 shares of Ms. R forfeited on non-payment of allotment & first call
money)
8.Equity share second and final call a/c (9,600 × 1)Dr.9,600
To Equity share capital a/c9,600
(Being amount due on second & final call on 9,600 shares @ Rs. 1 each)
9.Bank a/c (9,100 × 1)Dr.9,100
To Equity share 2nd & final call a/c9,100
(Being amount received on 9100 shares of second & final call @ Rs. 1 per share).
10.Equity share capital a/c (500 × 10}Dr.5,000
To Equity share forfeiture a/ c (500 × 9)4,500
To Equity share 2nd & final call a/c (500 × 1)500
(Being 500 shares of Mr. S forfeited on non-payment of second call money)
11.Bank a/c (700 × 8)Dr.5,600
Equity share forfeiture a/c (700 × 2)Dr.1,400
To Equity Share Capital a/c (700 × 10)7,000
(Being 700 shares reissued.@ Rs. 8 per share)
12.Equity share forfeiture a/c (1)Dr.2,900
To Capital Reserve a/c2,900
(Being balance in share forfeiture account transferred to capital reserve)
Suppose Company reissued 700 shares @ Rs. 9 per share including all shares of Mr. S. What will be the amount of capital reserve?
11.Bank a/c (700 × 9)Dr.6,300
Equity share forfeiture a/c (700 × 1)Dr.700
To Equity Share Capital a/c (700 × 10)7,000
(Being 700 shares issued (w Rs. 9 per share)
12,Equity share forfeiture a/c (2)Dr.‘ 4,600
To Capital Reserve a/c4,600
(Being Balance in share forfeiture a/c transferred to capital reserve)

Suppose company reissued 700 shares @ Rs. 9 per share including 350 shares of R.

What will be the amount of Capital Reserve?

S.

No.

ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Bank a/c (700 × 9)Dr.6,300
Equity share forfeiture a/c (700 × 1)Dr.700
To Equity share capital a/c (700 × 10)7,000
(Being 700 shares issued @ Rs. 9 per share).
2.Equity share forfeiture a/c (3)Dr.3,850
To Capital reserve a/c3,850
(Being balance in share forfeiture a/c transferred to capital reserve)

 

Working Notes:
Calculation of Capital Reserve.Rs.
(1)R 400 × 4=1,600
S 300 × 92700
700 shares4,300
Less: Loss on reissue(700 × 2)(1,400)
2,900
(2)R 200 × 4800
S 500 × 9=4500
700 shares5,300
Less: Loss on reissue(700 × 1)(700)
4,600
(3)R 350 × 4=1400
S 350X9=3150
700 shares4,550
Less: Loss on reissue(700 × 1)(700)
Transferred to Capital Reserve3,580

Illustration 23.6 : A Company forfeited a share of Rs. 10 each on non-payment of Rs. 2.50 for allotment, Rs. 3.50 for 1st call and Rs. 1.50 for 2nd call company did not make final call of Rs. 0.50. Give entry of forfeiture.

SOLUTION :

S.

No.

ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Equity share capital a/c (1 × 9.50)Dr.9.50
To Equity share forfeiture a/c (1 × 2.00)2.00
To Equity share allotment a/c (1 × 2.50)2.50
To Equity share first call a/c (1 × 3.50)3.50
To Equity share second call a/c (1 × 1.50)1.50
(Being a share forfeited on non-payment of allotment first call and second call money)

Illustration 23.7 : A company issued 4000 shares of Rs. 10 each in the following manner : –

Rs.
Application-3
Allotment-2
1st call-3
2nd & final call-2

Mr. R holder of 300 shares failed to pay. 1 st & 2nd call of money Company forfeited his share & subsequently reissued 200 shares of him @ Rs. 7 per share. Give necessary journal entries in the books of the company. Also prepare bank a/c.

SOLUTION:

Journal Entries

S. No.ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Bank a/c (4,000 × 3)Dr.12,000
To Equity share application a/c12,000
(Being application money received)
2.Equity share application a/c (4,000 × 3)Dr.12,000
To Equity share capital a/c12,000
(Being application money transferred to capital a/c)
3.Equity share allotment a/c (4,000 × 2)Dr.8,000
To Equity share capital a/c8,000
(Being allotment due)
4.Bank a/c (4,000 × 2)Dr.8,000
To Equity share allotment a/c8,000
(Being allotment money received)
5.Equity share first call a/c (4,000 × 3)Dr.12,000
To Equity share capital a/c12,000
(Being 1st call amount due)
6.Bank a/c (3700 × 3)Dr,11,100
To Equity share 1st call a/c11,100
(Being 1st call money received)
7.Equity share 2nd call a/c (4,000 × 2)Dr.8,000
To Equity share capital a/c8,000
(Being 2nd call amount due)
8.Bank a/c (3700 × 2)Dr.7,400
To Equity share 2nd call a/c7,400
(Being 2nd call amount received)
9.Equity share capital a/cDr.3,000
To Equity share forfeiture a/c1,500
To Equity share 1st call a/c900
To Equity share 2nd call a/c600
(Being equity shares of Mr. R forfeited)
10.Bank a/c (200 × 7)Dr.1,400
Equity share forfeiture a/c (200 × 3)Dr.600
To Equity share capital a/c (200 × 10)2,000
(Being 200 shares reissued)
11.Equity share forfeiture a/cDr.400
To capital reserve a/c400
(Being share forfeiture amount transferred to capital reserve)

‘Bank a/c’

ParticularsJ.F.Rs.ParticularsJ.F.Rs.
To Equity share application a/c12,000By Balance c/d39,900
To Equity share allotment a/c8,000
To Equity share first call a/c11,100
To Equity share 2nd call a/c7,400
To Equity share capital a/c1,400
39,90039,900

Preparation of Cash Book along with journal entries

Journal Entries

S.

No.

ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Equity share application a/c (4,000 × 3)Dr.12,000
To Equity share capital a/c12,000
(Being application money received & transferred to share capital a/c)
2.Equity share allotment a/c (4,000 × 2)Dr.8,000
To Equity share capital a/c8,000
(Being allotment money due on 4,000 shares of Rs. 10 each @ Rs. 2 per share)
3.Equity share first call a/c (4,000 × 3)Dr.12,000
To Equity share capital a/c12,000
(Being shares 1st call amount made due on 4000 shares @ Rs. 3 per share of Rs. 10 each)
4.Equity share second call a/c (4000 × 2)Dr.8,000
To Equity share capital a/c8,000
(Being 2nd & final call made due @ Rs. 2 per share on 4000 shares of Rs. ] 0 each)
5.Equity share capital a/c (300 × 10)Dr.3,000
To Equity share forfeiture a/c (300 × 5)1,500
To Equity share 1st call a/c (3 00 × 3)900
To Equity share 2nd & final call a/c (300 × 2)600
(Being 300 shares of Rs. 10 each of Mr. R forfeited on non payment of 1st & 2nd call money)
6.Equity share forfeiture a/cDr.600
To Equity share capital a/c600
(Being loss on reissue on 200 shares of Rs. 10 each @ Rs. 3 per share debited to share forfeiture a/c)
7.Equity share forfeiture a/cDr.400
To capital reserve a/c400
(Being gain on forfeiture & reissue of 200 shares of Rs. 10 each transferred to capital reserve).

Cash Book (of Bank column only)

DateParticularsRs.DateParticularsRs.
To Equity share application a/c12,000By Balance c/d39,900
(Being application money received on 4000 shares of Rs. 10 each @ Rs. 3 per share)
To Equity share allotment a/c8,000
(Being allotment money received @ Rs. 2 per share on 4000 shares of Rs. 10 each)
To Equity share first call a/c11,100
(Being 1st call money received (α> Rs. 3 per share on 3700 shares of Rs. 10 each)
To Equity share 2nd and final call a/c7,400
(Being 2nd & final call money received @ Rs. 2 per share on 3700 shares of Rs. 10 each)
To Equity share capital a/c1,400
(Being 200 shares of Rs. 10 each reissued @ Rs. 7 per share)
39,90039,900

Preparation of Balance Sheet

Illustration 23.8 : XYZ co. issued 10,000 of Rs. 10/- each in the following manner:-

Rs. 4Application
Rs. 3Allotment
Rs. 21st call
Rs. 12nd call

Mr. R holder of 400 shares failed to pay 1st & 2nd call money. Mr. S holder of 200 shares failed to pay 2nd call money. Company forfeited shares of Mr. R and subsequently reissued 300 shares out of these @ Rs. 7 per share. Give Balance Sheet of the company along with journal entries.

SOLUTION :

Journal Entries

(In the books of XYZ Co.)

S.

No.

ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Bank a/c (10,000 × 4)Dr.40,000
To Equity share application a/c40,000
(Being application amount received)
2.Equity share application a/cDr.40,000
To Equity share capital a/c40,000
(Being application amount transferred to share capital a/c)
3.Equity share allotment a/c (10,000 × 3)Dr.30,000
To Equity share capital a/c30,000
(Being allotment money due on 10,000 shares).
4.Bank a/c (10,000 × 3)Dr.30,000
To Equity share allotment a/c30,000
(Being allotment money received)
5.Equity share first call a/c (10,000 × 2)Dr.20,000
To Equity share capital a/c20,000
(Being 1st call money due).
6.Bank a/c (9,600 × 2)Dr.19,200
To Equity share 1st call a/c19,200
(Being 1st call money received)
7.Equity share second and final call a/c (10,000 × 1)Dr.10,000
To Equity share capital a/c10,000
(Being 2nd & final call amount due)
8.Bank a/c (9,400 × 1)Dr.9,400
To Equity share & second call a/c9,400
(Being 2nd final call amount received)
9.Equity Share Capital a/c (400 shares × Rs.,10)Dr.4,000
To Equity share forfeiture a/c (400 × 7)2,800
To Equity share first call a/c (400 × 2)800
To Equity share second & final call a/c (400 × 1)400
(Being 400 shares forfeited on non-payment of first and second & final call a/c)
10.Bank a/c (300 × 7)Dr.2,100
Equity share forfeiture a/c (300 × 3)Dr.900
To Equity Share Capital a/c (300 × 10)3,000
(Being 300 shares reissued @ Rs. 7 per share)
11.Equity share forfeiture a/c (300 × 4)Dr.1,200
To Capital Reserve a/c (2100 – 900)1,200
(Being balance in forfeiture a/c transferred to Capital Reserve a/c)

Bank a/c

DateParticularsJ.F.Rs.DateParticularsJ.F.Rs.
To Equity share application a/c40,000By Balance c/d1,00,700
To Equity share allotment a/c30,000
To Equity share 1st call a/c19,200
To Equity share 2nd call a/c9,400
To Equity share capita! a/c2,100
1,00,7001,00,700

Balance sheet of XYZ Co. as at ……….

ParticularsNote No.Rs.Rs.
IEquity and Liabilities:-
Shareholders fund
(a)Share capital199,500
(b)Reserve & surplus21,200
Total1,00,700
IIAssets:-
Current Assets
(a)Cash & Cash equivalents1,00,700
Total1,00,700

 

Working Notes:-
Note 1.Rs.
Authorised capital
(_____ shares of Rs. 10 each!
Issued capital
(10,000 of Rs. 10 each)1,00,000
Subscribed capital
’(9,900 shares of Rs. 10 each)99,000
Less : calls in arrears(200)
Add : share forfeiture a/c700
(100 shares × 7)99,500
Note 2. (Reserve & surplus)
Capital Reserve1,200
* No of shares issued10,000
Less: shares forfeited400
9,600
Add: shares reissued300
9,900

23.8     ISSUE OF SHARES AT PREMIUM AND USE OF SHARE PREMIUM A/C:

♦     Section 52 of Companies Act, 2013 contains the provision regarding share premium,

♦     Excess of Issue price over the face value of share is called Share premium (now renamed as Securities Premium). Ex : Rs. 100 face value share issued at Rs. 110. Rs. 10 is the premium.

♦     It is a capital receipt to be credited to share premium account (securities premium A/c.)&shown under Reserves & surplus, in Balance Sheet.

♦     There is no restriction on issue of shares at premium (SEBI guidelines to be followed),

♦     But the premium A/c may be used only for following purposes:

(1)   Issuing fully paid Bonus shares to members of the company.

(2)   Writing off preliminary expenses.

(3)   Writing off the Expenses, Commission and Discount on issue of shares or debentures.

(4)   Providing for premium payable on redemption of any redeemable preference share or Debentures.

(5)   For buy back of shares [Section 68(l)(b)].

23.8.1 Forfeiture of shares which were issued at premium:

Share Capital A/c                   Dr.       No. of shares forfeited × called-up amount

Share Premium A/c                Dr.       Share premium credited but not yet received.

To Share Forfeiture A/c               Amount already received excluding premium amount.

To Allotment/Calls A/c                 Amount called but unpaid.

Share premium if already received then on forfeiture of shares it should not be reversed.

Illustration 23.9 : A company issued 5,000 shares of Rs. 10 each @ a premium of Rs. 1 per share. Amount was payable as follows:-

Application —5
Allotment —3 + 1
Call –2

Mr. A was unable to pay allotment and call money on 400 shares,

Where as Mr. B holder of 300 shares failed to pay call money. Company forfeited these shares after making call and subsequently company reissued 500 of these shares @ Rs. 8 per share, including all shares of Mr. A. Give journal entries in the books of company.

SOLUTION-9

Journal Entries

(In the books of the company)

S. No.ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Bank a/c (5,000 × 5)Dr.25,000
To Equity share application a/c25,000
(Being application money received)
2.Equity share application a/c (5,000 × 5)Dr.25,000
To Equity share capital a/c25,000
(Being application money transferred to capital a/c)
3.Equity share allotment a/c (5,000 × 4)Dr.20,000
To Equity share capital a/c (5,000 × 3)15,000
To securities Premium Reserve a/c (5,000 × 1)5,000
(Being allotment money due)
4.Bank a/c (4600 × 4)Dr.18,400
To Equity share allotment a/c18,400
(Being allotment money received)
5.Equity share call a/c (5,000 × 2)Dr.10,000
To Equity share capital a/c10,000
(Being call money due)
6.Bank a/c (4300 × 2)Dr.8,600
To Equity share call a/c8,600
(Being call money received)
7.(i)Forfeiture of shares when premium amount had already been received
Equity share capital a/c (300 × 10)Dr.‘ 3,000
To Equity share forfeiture a/c (300 × 8)2,400
To Equity share call a/c (300 × 2)600
(Being 300 shares forfeited on non-payment of call money)
(ii)Forfeiture of shares when premium amount had not been received
Equity share capital a/c (400 × 10)Dr.4,000
Securities Premium Reserve a/c (400 × 1)Dr.400
To Equity share forfeiture a/c (400 × 5)2,000
To Equity share allotment a/c (400 × 4)1,600
To Equity share call a/c (400 × 2)800
(Being 300 shares forfeited on non-payment of allotment (including premium) & call money)
8.Bank a/c (500 × 8)Dr.4,000
Equity share forfeiture a/c (500 × 2)Dr.1,000
To Equity share capital a/c (500 × 10)5,000
(Being 500 shares reissued @ Rs. 8 per share)
9.Equity share forfeiture a/ c (1) .Dr.1,800
To capital reserve a/c1,800
(Being balance transferred to capital reserve a/c)

 

Working Note
A400 × 5=2,000
B100 × 8=800
2,800
Less :Loss on reissue (500 × 2)(1,000)
Transferred to capital reserve1,800

Preparation of calls – in – arrears a/c & calls – in-advance a/c

As per Table F of Companies Act, 2013, rate of interest for calls in arrears is 10% p.a. and interest on calls in advance is 12% p.a.

Illustration 23.10 : A company issued 10,000 shares in the following manner:-

1st Jan.On applicationRs.4
1 st Apr.On allotmentRs.3
1st June.On 1st callRs.2
1st July.On 2nd call & final callRs. 1

Mr. R holder of 300 shares paid his 1 st and 2nd call money on his shares at the time of allotment. Whereas, Mr. S holder of 200 shares failed to pay 1st & 2nd call Money upto 31st July i.e. date of closing records. Company decided to allow and charge interest on calls in advance & interest on calls in arrears as per rates specified in Table F of Companies Act, 2013. You are required to give necessary journal entries in the books of the company.

SOLUTION :

Journal Entries

(In the books of company)

DateParticularsL.F.AmountAmount
Rs.Rs.
1st Jan.Bank a/c (10,000 × 4)Dr.40,000
To Equity share application a/c40,000
(Being application amount received)
Equity share application a/c (10,000 × 4)Dr.40,000
To Equity share capital a/c40,000
(Being application amount transferred to capital a/c)
1st Apr.Equity share allotment a/c (10,000 × 3)Dr.30,000
To Equity share capital a/c30,000
(Being allotment amount due)
Bank a/c (10,000 × 3) + (300 × 3)Dr.30,900
To Equity share allotment a/c (30000 + 900)30,900
(Being allotment amount received)
OR
1st Apr.Bank a/c (10,000 × 3 + 300 × 2 + 300 × 1)Dr.30,900
To Equity share allotment a/c (10,000 × 3)30,000
To calls in advance a/c (300 × 3)900
(Being allotment amount received along with calls amount paid in advance)
1st JuneEquity share first call a/c (10,000 × 2)Dr.20,000
To Equity share capital a/c20,000
(Being 1st call money due)
DateParticularsL.F.AmountAmount
Rs.Rs.
Bank a/c (9,500 × 2)Dr.19,000
Calls in arrear a/c (200 × 2)Dr.400
Calls in advance a/c (300 × 3)Dr.600
To Equity share 1st call a/c (10000 × 2)20,000
(Being 1 st call money received)
1st JulyEquity share second & final call a/c (10,000 × 1)Dr.10,000
To Equity share capital a/c (10,000 × 1)10,000
(Being final call amount due)
Bank a/c (9,500 × 1)Dr.9,500
Calls in arrear a/c (200 × 1)Dr.200
Calls in advance a/c (300 × 1)Dr.300
To Equity share second & final call a/c (10,000 × 1)10,000
(Being final call amount received).
31st JulyInterest on calls in advance a/c (1)Dr.21
To share holder a/c (Mr. R)21
(Being interest on calls in advance due on 300 shares)
Equity shareholder a/c (Mr. R)Dr.21
To Bank a/c21
(Being interest on calls in advance received by Mr. R)
Statement of Profit and loss a/cDr.21
To Interest on calls in advance a/c21
(Amount of interest transferred to Profit and loss a/ c)
Equity shareholder a/c (Mr. S)Dr.8.34
To Interest on calls in arrear a/c8.34
(Being amount of interest on calls in arrears due)
Bank a/cDr.8.34
To Equity shareholder a/c (Mr. S)8.34
(Being amount of calls arrear interest received on 200 share)
Interest on calls in arrears a/cDr.8.34
To statement of profit & loss a/c8.34
(Being amount of interest written off)

Working Note :-

  1. Calculation of Interest on calls in advance of Mr. R. For 1st call

= Rs. 12.00

For 2nd & final call.

= Rs. 9.00

Total = Rs. 21.00

  1. Calculation of Interest on calls in arrear of Mr. S.

For 1st call:

= Rs. 6.67

For 2nd & final call:

= Rs. 1.67

Total = Rs. 8.34

23.9 PURCHASE OF BUSINESS

Purchase of business refers to a process where a company acquires one or more business and gains control over them. All the assets and liabilities of the business are been acquired by the company while purchasing it. The company’s financial statements must recognize the new assets and liabilities. The purchase consideration can be paid in form of cash or shares can be issued against it. The excess of consideration being paid over the net assets is payment for goodwill. In case the consideration being paid is less than the amount of net assets, then that amount will be credited to capital reserve, being treated as a capital gain.

The journal entries related to purchase of business are given below.

Accounting treatment in the books of Company.

(i)    For purchase of business:

Business purchase a/c           Dr. (with purchase consideration)

To Vendors a/c

(ii)   For recording assets & liabilities in the books of the Company:

Sundry assets a/c       Dr.

Goodwill a/c (balancing figure) Dr.

To business purchase a/c

To sundry liability a/c (at an agreed value).

To capital reserve a/c (balancing figure) (if any)

(iii)  For payment to vendor:

Vendor a/c      Dr.

To Bank a/c To Share Capital a/c

To Securities Premium Reserve a/c (if any)

Illustration 23.11: Xyz co. purchased the running business of Ms. A & following assets and liabilities were acquired by the company:-

Rs.
Building60,000
Stock50,000
Cash20,000
Debtors60,000(subject to provision for bad debts @ 5%)
Creditors30,000

Company decided to issue equity shares of Rs. 10 each against purchase consideration. Give necessary journal entries in the following cases:

(1)   If purchase consideration is Rs. 1 lakh.

(2)   If purchase consideration is Rs. 2 lakh.

SOLUTION :

Journal Entries

S. No.ParticularsL.F.Amount

Rs. Dr.

Amount

Rs. Cr.

Case (1) : –
1.Business Purchase a/cDr.1,00,000
To Vendor’s (Mr. A) a/c1,00,000
(Being business purchased of Mr. A)
2.Building a/cDr.60,000
Stock a/cDr.50,000
Cash a/cDr.20,000
Debtors a/cDr.60,000
Provision for bad debts a/c3,000
Creditors a/c30,000
Business purchase a/c1,00,000
Capital Reserve a/c (balancing figure)57,000
(Being assets and liabilities acquired the company)
3.Vendor’s a/c (Mr. A)Dr.1,00,000
To Equity Share Capital a/c1,00,000
(Being equity shares of Rs. 10 each issued against purchase consideration)
Case (2): –
1.Business purchase a/cDr.2,00,000
Vendor’s (Mr. A) a/c2,00,000
(Being business purchased of Mr. A)
2.Building a/cDr.60,000
Stock a/cDr.50,000
Cash a/cDr.20,000
Debtors a/cDr.60,000
Goodwill a/ c (Balancing figure)Dr.43,000
To Provision for bad debts a/c3,000
To Creditors a/c30,000
To Business purchase a/c2,00,000
(Being value of Assets and Liabilities acquired by the company).
3.Vendor’s a/c (Mr. A)Dr.2,00,000
To Equity Share Capital a/c2,00,000
(Being equity shares of Rs. 10 each issued against purchase consideration)

Issue of Shares (To Vendors)

Illustration 23.12 : A company purchased some plant of Rs. 2,00,000 from Mr. R. Company decided to issue its shares of Rs.10 each against purchase considerations. Show the necessary journal entries in the books of companies.. –

(1)   If shares were issued @ Rs. 10 per share.

(2)   If shares were issued @ Rs. 12.50 per share.

SOLUTION:

Journal Entries

S. No.ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Plant a/cDr.2,00,000
To Vendors a/c (Mr. R).2,00,000
(Being plant purchased by the company from Mr. R).
Case (1):-
2.Vendor’s a/c (Mr. R)Dr.2,00,000
To Equity share capital a/c2,00,000
(Being shares issued by the company @ Rs. 10 per share).
NOTE: No. of shares to be issued = Amount payable/issued price of shares = 2,00,000/10 = 20,000 shares.
Case (2):-
3.Vendor’s a/c (Mr. R)Dr.2,00,000
To Equity Share Capital a/c1,60,000
To Securities Premium reserve a/c.40,000
(Being shares issued by the company @ Rs. 12.50 per share).
No. of shares to be issued =  = 16,000 shares.

Illustration 23.13 : A company issued its shares of Rs. 10 each in following manner

Rs.
Application1
Allotment3
Ist call2
IInd call3
IIIrd & final call1
10

Company did not make 3rd and final call. Mr. A holder of 500 shares failed to pay 1st & find call money. Company forfeited his shares. Subsequently these shares were reissued in the following manner

(i)    100 shares @ 9 per share, Rs. 9 paid up.

(ii)   100 shares @ 10 per share, Rs. 9 paid up.

(iii)   100 shares @ 7 per share, Rs. 9 paid up.

(iv)  100 shares @ 9 per share, Rs. 10 paid up.

(v)   100 shares @ 9 per share, Rs. fully paid up.

You are required to give the entry of forfeiture & reissue only.

SOLUTION:

Journal Entries

(In the books of the Company)

S.

No.

ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Equity share capital a/c (500 × 9)Dr.4,500
To Equity share forfeiture a/c (500 × 4)2,000
To Equity share 1st call a/c (500 × 2)1,000
To Equity share End call a/c (500 × 3)1,500
(Being 500 shares forfeited on non-payment of 1st & 2nd call money).
2.(1)Bank a/c (100 × 9)Dr.900
Equity share forfeiture a/c (100 × nil)Dr.Nil
To Equity share capital a/c900
(Being 100 shares reissued @ Rs. 9 per share, Rs. 9 paid up)
Equity share forfeiture a/cDr.400
To Capital Reserve a/ c400
(Being balance transferred to Capital Reserve a/c)
(ii)Bank a/c (100 × 10)Dr.1,000
To Equity share capital a/c (100 × 9)900
To Securities Premium Reserve a/c (100 × 1)100
(Being 100 shares reissued @ Rs. 10 per share, Rs. 9 paid up)
Equity share forfeiture a/cDr.400
To Capital Reserve a/c400
(Being balance in share forfeiture transferred to capital reserve)
(iii)Bank a/c (100 × 7)Dr.700
Equity share forfeiture a/c (100 × 2)Dr.200
To Equity share capital a/c (100 × 9)900
(Being 100 shares reissued @ Rs. 7 per share, Rs. 9 paid up)
Equity share forfeiture a/c (100 × 2)Dr.200
To Capital Reserve a/c (100 × 2)200
(Being balance transferred to Capital Reserve a/c)
(iv)Bank a/c (100 × 9)Dr.900
&(v)Equity share forfeiture a/c (100 × 1)Dr.100
To Equity share capital a/c (100 × 10)1000
(Being 100 share reissued @ Rs. 9 per share, Rs. 10 paid up). OR (fully paid up)
Equity share forfeiture a/c (100 × 3)Dr.300
To Capital Reserve a/c (100 × 3)300
(Being balance transferred to Capital Reserve a/c)

Illustration 23.14 : A company issued its shares of Rs. 10 each in the following manner On application3 + 1 On allotment2 + 2 On 1st call4+1 On 2nd call & final call1 + 2

Mr. R holder of 300 shares failed to pay 1st call & 2nd call money. Company forfeited his shares. Give entry for forfeiture,

SOLUTION :

Journal Entries

S.

No.

ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Equity share capital a/c (300 × 10)Dr.3,000
Securities Premium Reserve a/c (300 × 3)Dr.900
To Equity share forfeiture a/c (300 × 5)1,500
To Equity share Ist call a/c (300 × 5)1,500
To Equity share End call (300 × 3)900
(Being 300 equity shares forfeited, on non-payment of Ist and IInd call money)

Illustration 23.15: A company forfeited 100 shares of Rs. 10 each of Mr. R on non payment of allotment and call money. The company had issued its shares in the following manner:

Application                  – Rs. 2

Allotment                     – Rs. 3 + Rs. 1

1st call                         – Rs. 4

2nd & final call            – Rs. 1

Company reissued these shares @ Rs. 9 per share. Give the necessary entries.

SOLUTION:

Journal Entries

S. No.ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Equity share capital a/c (100 × 10)Dr.1,000
Securities Premium Reserve a/c (100 × 1)Dr.100
To Equity share forfeiture a/c (100 × 2)200
To Equity share allotment a/c (100 × 4)400
To Equity share Ist call (100 × 4)400
To Equity share IInd call (100 × 1)100
(Being 100 share forfeited, on non-payment of allotment & call money)

Case 1 : When securities premium reserve is not recredited at the time of reissue:-

S. No.ParticularsL.F.Amount

Rs.

Amount

Rs.

2.Bank a/c (100 × 9)Dr.900
Equity share forfeiture a/c (100 × 1)Dr.100
To Equity share capital a/c (100 × 10)1000
(Being 100 shares reissued @ Rs. 9 per share)
3.Equity share forfeiture a/c (100 × 1)Dr.100
To Capital Reserve a/c100
(Being balance transferred to Capital Reserve a/c)

Case 2: When securities premium reserve is re-credited at the time of reissue:-

S. No.ParticularsL.F.Amount

Rs.

Amount

Rs.

2.Bank a/c (100 × 9)Dr.900
Equity share forfeiture a/c (100 × 2)Dr.200
To Equity share capital a/c (100 × 10)1000
To Securities Premium Reserve a/c (100 × 1)100
(Being 100 shares reissued @ Rs. 9 per share)
3.Equity share forfeiture a/cDr.Nil
To Capital Reserve a/cNil
(Being no balance left to be transferred to capital reserve)

Over-subscription

A situation, in which the no. of shares applied for exceeds the number of shares offered for subscription to the public, is known as Over-subscription of shares. In such a situation, generally pro-rata allotment takes place.

Illustration 23.16 : X Co. Ltd. has authorised share capital of 50,000 equity shares of Rs.10 each. It invited applications for 20,000 of its Equity shares of Rs.10 each at par, payable Rs.3 on application, Rs.5 on allotment and the balance on first and final call.

Applications for 25,000 shares were received. It was decided:

(α) to allot the available shares in pro-rata among the applications, and

(d)   to utilise excess application money in part payment.

Show the necessary Journal Entries including cash in the books of X Co. Ltd. assuming that all the money are received.

Solution :

Journal Entries

(In the Books of X Co. Ltd.)

Sr.

No

ParticularsDr.

Rs.

Cr.

Rs.

l.Bank A/c(25,000 × 3)Dr.75,000
To Share application A/c75,000
(Application money received)
2.Share allotment A/c(20,000 × 5)Dr.1,00,000
Share application A/c(20,000 × 3)Dr.60,000
To Share capital A/c1,60,000
[20,000 Shares allotted (lower of issued and applied for), allotment money due & application money on the shares allotted adjusted]
3.Share application A/c(5,000 × 3)Dr.15,000
To Share allotment A/c15,000
(Excess application money adjusted)
4.Bank A/c(1,00,000 – 15,000)Dr.85,000
To Share allotment A/c85,000
(Share allotment money received from all)
5.1st & Final Call A/c(20,000 × 2)Dr.40,000
To Share capital A/c40,000
(1st & final call @ Rs. 2/- due)
6.Bank A/cDr.40,000
To 1st & Final call A/c40,000
(1st & final call received from all)

23.10   EXCESS SHARE APPLICATION MONEY

♦     Issue may be fully subscribed (i.e. the number of shares applied for and those issued are equal),

♦     Undersubscribed (i.e. the applications received are for less shares than issued) or

♦     Oversubscribed (ie. the applications received are for more shares than issued).

♦     In case of over subscription the excess share application money will arise.

♦     The treatment to share applications can be classified into three categories.

  1. No allotment: No allotment is made i.e. some applications are rejected, the whole application money on it will be excess & shall be refunded.
  2. Full allotment: The application money received & application money due on such share, will be equal because 100% allotment made, hence no excess money.
  3. Pro rata allotment: No. of shares allotted are less than applied, hence there is excess application money which shall be 1st adjusted against allotment money due on such share, then balance left can be kept as calls in advance, if still there is any balance the same shall be refunded.

Illustration 23.17 : Illustrate the term fully subscribed, under subscribed & over subscribed.

SOLUTION:

Term usedNumber ofSharesAllotment
IssuedApplied

for

1. Fully Subscribed1,00,0001,00,0001,00,000 shares will be allotted.
2. Under Subscribed1,00,00090,00090,000 shares will be allotted.

If underwriting has been done then underwriters will be liable to take 10,000 shares.

3. Over subscribed1,00,0001,50,0001,00,000 shares will be allotted but it can be in various combinations as may be decided by company as per SEBI & Stock Exchange regulation.

(a) Allot pro rata among all i.e. @100 shares to applicants of 150 shares or

(b)   Full allotment to applicants of 100000 shares & rejection of application for 50000 shares or

(c)   Full allotment to applicants of say 75000 shares pro rata allotment of 25000 shares to applicants of say 50000 share @ 50 shares to applicants of 100 shares & rejection of application for 25000 shares etc.

In case of (3) above excess application money is dealt with as follows.

(i)    Applicants who got full allotment :- No excess application money

(ii)   Applicants whose application is rejected :- Full application money is excess & the same will be refunded.

(iii)   Applicants who got pro rata allotment :- The excess application money can be adjusted against allotment/calls due. Further excess if any will be refunded

As per SEBI regulations, company may be allowed to retain some over-subscription, then the allotment will be for number of shares issued + over-subscription allowed to be retained.

Illustration 23.18 : A company issued 30,000 shares of Rs. 10 each in the following manner:-

ApplicationRs. 4
AllotmentRs. 3
1st callRs. 2
2nd & final callRs. 1

Company received the application of 50,000 share. Company made allotment of shares in the following manner:-

CategoryShare applied forShares allotted
I2,000Nil
II8,0008,000
III20,00015,000
IV20,0007,000
50,00030,000

Excess of money on application was to be adjusted upto last call. Give necessary journal entries in the books of company, (if all calls duly received).

SOLUTION:

Analytical table

(Adjustment)

CategoryShares

applied

Shares

allotted

Money received @ Rs. 4App. @ Rs. 4All. @ Rs. 3Ist call @ Rs. 2IInd call @Rs. 1Refund
I2,000Nil8,0008,000
II8,0008,00032,00032,000
III20,00015,00080,00060,00020,000
IV20,0007,00080,00028,00021,00014,0007,00010,000
50,00030,0002,00,0001,20,00041,00014,0007,00018,000

Journal Entries

S.ParticularsL.F.AmountAmount
No.Rs.Rs.
1.Bank a/cDr.2,00,000
To Equity share application a/c2,00,000
(Being application money received)
2.Equity share application a/cDr.2,00,000
To Equity share capital a/c1,20,000
To Equity share allotment a/c41,000
To Equity share Ist call a/c*14,000
To Equity share IInd call a/c*7,000
To Bank a/c18,000
(Being excess application money received adjusted)
3.Equity share allotment a/c (30,000 × 3)Dr.90,000
To Equity share capital a/c90,000
(Being allotment money due)
4.Bank a/cDr.49,000
To Equity share allotment a/c49,000
(Being allotment money received)
5. .Equity share 1st call a/c (30,000 × 2)Dr.60,000
To Equity share capital a/c60,000
(Being 1st call money due)
6.Bank a/cDr.46,000
To Equity share 1st call a/c46,000
(Being 1st call money received)
7.Equity share End call a/c (30,000 × 1)Dr.30,000
To Equity share capital a/c30,000
(Being 2nd call,money due)
8.Bank a/cDr.23,000
To Equity share End call a/c23,000
(Being 2nd call money received)

*In place of equity share Ist and IInd call, calls in advance a/c may be credited with Rs. 21,000.

Illustration 23.19 : A company issued 20,000 shares of Rs. 10 each in the following manner : –

ApplicationRs. 3
AllotmentRs. 4
Ist callRs. 1
IInd callRs. 2

Company received application for 45,000 shares. Company made allotment of shares in the following manner:-

CategoryShares applied forShares allotted.
I3,000Nil
II2,0002,000
III22,0008,000
IV18,00010,000
45,00020,000

Excess money was to be adjusted till last call. Give the adjustment table if all calls have been duly received.

SOLUTION :

CategoryShares

applied

Shares

allotted

Money received @ Rs. 3Application @ Rs. 3Allotment @ Rs. 4Ist call @ Rs. 1IInd call @ Rs. 2Refund
I3,000Nil9,0009,000
II2,0002,0006,0006,000
III22,0008,00066,00024,00032,0008,0002,000
IV18,00010,00054,00030,00024,000
45,00020,0001,35,00060,00056,0008,0002,0009,000

23.11   PRO-RATA ALLOTMENT

Pro-Rata is a Latin term meaning “in proportion”.

Pro-rata allotment of shares refers to the situation of proportionate allocation of shares to the applicants, in case of oversubscription.

The methods of pro-rata allotment are as follows:

(i)    When some applications are accepted in full and the remaining are rejected in full due to technical reasons.

(ii)   When all applications are accepted on pro-rata basis, i.e., the excess application money is either refunded or adjusted towards future dues (on allotment and on calls) and the balance is refunded.

(iii)   When some applications are accepted in full, some applications are rejected in full and the remaining are allotted shares on pro-rata basis.

Illustration 23.20 : A company issued 10,000 shares of Rs. 10 each, in the following manner:-

Application      Rs. 3

Allotment         Rs. 4

1st call             Rs. 2

2nd call            Rs. 1.

Company received the application for 13,000 shares Company rejected & refunded the amount of applications of 1,000 shares & made the pro rata allotment on remaining applications. Mr. R holder of 500 shares failed to pay any amount after application money. Company forfeited his shares after making last call and subsequently reissued 400 of these shares @ Rs. 7 per share. Give necessary journal entries in the books of the company.

SOLUTION:

Journal Entries

(In the books of company)

S. No.ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Bank a/c (13000X3)Dr.39,000
To Equity share application a/c39,000
(Being application money received)
2.Equity share application a/c (13000 × 3)Dr.39,000
To Equity share capital a/c (10000 × 3)30,000
To Equity share allotment a/c6,000
To Bank a/c (1000 × 3)3,000
(Being excess money on application adjusted)
3.Equity share allotment a/c (10,000 × 4)Dr.40,000
To Equity share capital a/c40,000
(Being allotment money due).
4.Bank a/c (1)Dr.32,300
To Equity share allotment a/c32,300
(Being allotment money received).
5.Equity share 1st call a/c (10,000 × 2)Dr.20,000
To Equity share capital a/c20,000
(Being 1st call money due).
6.Bank a/c (9,500 × 2)Dr.19,000
To Equity share 1 st call a/c19,000
(Being 1st call money received).
7.Equity share second call a/c (10,000 × 1)Dr.10,000
To Equity share capital a / c10,000
(Being IInd call money due).
8.Bank a/c (9,500 × 1)Dr.9,500
To Equity share IInd call a/c9,500
(Being money received on IInd call).
9.Equity share capital a/c (500 × 10)Dr.5,000
To Equity share forfeiture a/c1,800
To Equity share allotment a/c1,700
To Equity share Ist call (500 × 2)1,000
To Equity share IInd call (500 × 1)500
(Being 500 shares forfeited)
10.Bank a/c (400 × 7)Dr.2,800
Equity share forfeiture a/c (400 × 3)Dr.1,200
To Equity share capital a/c (400 × 10)4,000
(Being 400 shares reissued @ Rs. 7/-)
11.Equity share forfeiture a/c (2)Dr.240
To Capital Reserve a/c240
(Being balance transferred to Capital Reserve)

Working Note

  1. 10,000 shares allotted – 12,000 shares Applied

Mr. R [500 shares allotted] –  × 500 = 600 shares applied

Amount to be recived on application:

500 × 3 = Rs. 1500;

Application money actually paid :

600 × 3 = Rs. 1800′

Excess = 300 (included in allotment money)

∴ Amount received at the time of allotment

Rs.
Amount to be received (10000 × 4)40,000
Less: Received earlier(6,000)
34,000
Less : Default of Mr. R. (500 × 4) (2000 – 300)(1,700)
32,300

 

2. SharesAmount of forfeiture
500 sharesRs.1800*
400 shares × 400= 1,440
Less: Loss on reissue(1,200)
Transferred to capital reserve240

Illustration 23.21 : A company issued 20,000 shares of Rs. 10 each, in the following manner:-

Application      –           Rs. 4

Allotment         –           Rs. 3

Final call          –           Rs. 3

Company receive the application for 25,000 shares. Company rejected & refunded the application of 3000 shares and made the pro rata allotment on remaining applications. Mr. X holder of 600 shares failed to pay any amount after application money Company forfeited his shares after making its call & subsequently reissued 400 shares @ Rs. 8 per share. Pass necessary journal entries in the books of the company.

SOLUTION:

Journal Entries

S.

No.

ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Bank a/c (25000 × 4)Dr.1,00,000
To Equity share application a/c1,00,000
(Being application money received)
2.Equity share application a/c (25000 × 4)Dr.1,00,000
To Equity share capital a/c (20000 × 4)80,000
To Equity share allotment a/c8,000
To Bank a/c (3000 × 4)12,000
(Being pro-rata allotment made for the excess application received)
3.Equity share allotment a/c (20,000 × 3)Dr.60,000
To Equity share capital a/c60,000
(Being allotment money due)
4.Bank a/c (1)Dr.50,440
To Equity share allotment a/c50,440
(Being allotment money received)
5.Equity share 1st call a/c (20,000 × 3)Dr.60,000
To Equity share capital a/c60,000
(Being 1st call money due)
6.Bank a/c (19400 × 3)Dr.58,200
To Equity share 1st call a/c58,200
(Being 1st call money received)
7.Equity share capital a/c (600 × 10)Dr.6,000
To Equity share forfeiture a/c2,640
To Equity share allotment a/c1,560
To Equity share 1st call (600 × 3)1,800
(Being 600 shares forfeited)
8.Bank a/c (400 × 8)Dr.3,200
Equity share forfeiture a/c (400 × 2)Dr.800
To Equity share capital a/c (400 × 10)4,000
(Being 400 shares reissued @ Rs. 8 per share)
9.Equity share forfeiture a/c (2)Dr.960
To Capital Reserve a/c960
(Being balance transferred to Capital Reserve)

Working Note

1. 20,000 shares allotted –22,000 shares applied
600 shares allotted –22,000 × 600 = 660
20,000
660 × 4 = Rs. 2640
Less : (600 × 4)2400
Excess amount240

 

Amount received at the time of allotment:-Rs.
Amount to be received (20,000 × 3)60,000
Less : Amount received earlier(8,000)
52,000
Less : Default by Mr. X (600 × 3) = 1800
Less: 240(1,560)
50,440
  1. On 600 shares 2640
On 400 shares  × 4001760
Less : Loss on reissue(800)
Transferred to capital reserve960

Illustration 23.22 : A company issued 10,000 of Rs. 10 each at a premium of Rs. 3 per share in following manner:

Application      Rs. 4

Allotment         Rs. 5 + 3

On call             Rs. 1

Company received application for 13,000 shares. Company rejected & refunded the amount of application of 10,000 shares and made pro-rata on remaining applications. Mr. R holder of 500 shares failed to pay any amount after application money. Company forfeited his shares after making call and subsequently re-issued 350 shares out of them @ Rs. 8 per share. Give necessary journal entries in the books of the company.

SOLUTION:

Journal Entries

S. No.ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Bank a/c (13000 × 4)Dr.52,000
To Equity share application a/c52,000
(Being application money received)
2.Equity share application a/c (13000 × 4)Dr.52,000
To Equity share capital a/c (10000 × 4)40,000
To Equity share allotment a/c8,000
To Bank a/c (1000 × 4)4,000
(Being pro-rata allotment made on excess application received)
3.Equity share allotment a/c (10,000 × 8)Dr.80,000
To Equity share capital a/c (10,000 × 5)50,000
To Securities Premium reserve a/c (10,000 × 3)30,000
(Being allotment money due)
4.Bank a/c (1)Dr.68,400
To Equity share allotment a/c68,400
(Being allotment money received)
5.Equity share 1st call a/c (10,000 × 1)Dr.10,000
To Equity share capital a/c10,000
(Being first call amount due)
6.Bank a/c (9500 × 1)Dr.9,500
To Equity share 1st call a/c9,500
(Being 1st call money received)
7.Equity share capital a/c (500 × 10)Dr.5,000
Securities Premium Reserve a/c (500 × 3)1,500
To Equity share forfeiture a/c2,400
To Equity share allotment a/c3,600
To Equity share 1st call (500 × 1)500
(Being 500 shares forfeited on non-payment of allotment & call money)
8.Bank a/c (350 × 8)Dr.2,800
Equity share forfeiture a/c (350 × 2)Dr.700
To Equity share capital a/c (350 × 10)3,500
(Being 350 shares reissued @ Rs. 8 per share).
9.Equity share forfeiture a/c (2)Dr.980
To Capital Reserve a/c980
(Being balance transferred to Capital Reserve)

 

Working Note:-
1. AllottedApplied
10,00012,000
500 × 500 = 600

Total Application money paid = 600 × 4 = Rs. 2400

Excess amount = 2400 – 2000 = 400Rs.
Amount received (10,000 × 8)80,000
Less : Amount received earlier(8,000)
Less : Default (500 × 8)(4,000)
68,000

 

2.SharesAmount of forfeiture
5002,400 (application and extra money paid)Rs.
350 × 350Rs. 1,680
Less : Loss on reissue(700)
Transferred to capital reserve980

PRO-RATA (When Shares issued at Premium)

Illustration 23.23: A company issued 5,000 shares of Rs. 10 each at a premium of Rs. 1 per share in the following manner:-

Application      Rs. 3

Allotment         Rs. 5 + 1

Call                  Rs. 2

Company received the application for 7,200 shares company rejected & refunded the applications for 1200 shares and made the pro rata allotment on remaining shares application money. Mr. X holder of 250 shares failed to pay any amount after application. Company forfeited his shares after the call and subsequently reissued 200 of these shares @ Rs. 9 per share. Give necessary journal entries in the book of the company,

SOLUTION:

Journal Entries

(In the books of company)

S.

No,

ParticularsL.F.Amount

Rs.

Amount

Rs.

1.Bank a/c (7200 × 3)Dr.21,600
To Equity Share Application a/c21,600
(Being application money received)
2.Equity share application a/cDr.21,600
To Equity Share Capital a/c (5000 × 3)15,000
To Equity share allotment a/c3,000
To Bank a/c (1200 × 3)3,600
(Being pro-rata allotment made on excess application received)
3.Equity share allotment a/cDr.30,000
To Equity Share Capital a/c25,000
To Securities Premium Reserve a/c5,000
(Being allotment money due)
4.Bank a/c (1)Dr.25,650
To Equity Share Allotment a/c25,650
(Being allotment money received)
5.Equity share 1st & final call a/c (5,000 × 2)Dr.10,000
To Equity share capital a/c10,000
(Being 1st call money due)
6.Bank a/cDr.9,500
To Equity share 1st & final call a/c9,500
(Being 1st & final call money received)
7.Equity share capital a/c (250 × 10)Dr.2,500
Securities Premium Reserve a/c (250 × 1)Dr.250
To Equity share forfeiture a/c900
To Equity share allotment a/c1,350
To Equity share call a/c (250 × 2)500
(Being 500 shares forfeited on non-payment of allotment & call money)
8.Bank a/c (200 × 9)Dr.1,800
Equity share forfeiture a/c (200 × 1)Dr.200
To Equity Share Capital a/c (200 × 10)2,000
(Being 200 shares reissued @ Rs. 9 per share)
9.Equity share forfeiture a/cDr.520
To Capital Reserve a/c520
(Being balance transferred to capital reserve a/c)

Working Note

  1. 5000 shares allotted – 6000 shares applied.

250 shares allotted –  × 250 = 300 shares applied

250 × 3 = Rs. 750; 300 × 3 = Rs. 900

Excess money = 900 – 750 = Rs. 150

 

Amount received at the time of allotment:Rs.
Amount to be received30,000
Less : Amount received earlier(3,000)
27,000
Less : Default ((250 × 6) – 150)(1,350)
25,650

 

Amount of forfeiture

2. On 250 shares – Rs. 900

On 200 shares –  × 200 = Rs. 720
Less : Loss on reissue(200)

520

 

ADVANCED PROBLEMS

Problem No. 1: X Co. Ltd. invited applications for 20,000 of its Equity shares of Rs. 10 each at a premium of Rs. 2 per share, payable Rs. 3 on application, Rs. 7 on allotment including premium and the balance on first and final call.

Applications for 25,000 shares were received. It was decided:

(a)  to refuse allotment to the applicants for 1,000 shares (b) to allot in full to applicants for 4,000 shares

(c)  to allot the balance of the available shares in pro-rata among the other applications, and

(d)  to utilise excess application moneys in part payment.

Mr. X holding 200 shares to whom shares had been allotted on pro rata basis failed to pay the amount due on allotment and call and Mr. Y holding 100 shares to whom full allotment was made failed to pay the amount due on call only. These shares were forfeited.

160 forfeited shares of Mr. X and 40 forfeited shares of Mr. Y were re-issued at a discount of Re. 1 per share to Mr. Z. Show the necessary Journal Entries including cash in the books of X Co. Ltd

Solution:

Journal Entries in the Books of X Co. Ltd.

ParticularsDr. Rs.Cr. Rs.
Bank A/cDr.75,000
To Share application A/c75,000
(Application money received)
Share allotment A/cDr.1,40,000
Share application A/cDr.60,000
To Share capital A/c1,60,000
To Share premium A/c40,000
(Shares allotted, allotment money due & application money on the shares allotted adjusted)
Share application A/cDr.15,000
To Bank A/c3,000
To Share allotment A/c12,000
(Excess application money adjusted/refunded)
Bank A/cDr.1,26,750
To Share allotment A/c1,26,750
(Share allotment money received from all except X holding 200 shares)
1st & Final Call A/cDr.40,000
To Share capital A/c40,000
(1st & final call @ Rs. 2/- due)
Bank A/cDr.39,400
To 1st & Final call A/c39,400
(1st & final call received from all except from X & Y holding 200 & 100 shares)
Share capital A/cDr. (200 × 10)2,000
Share premium A/cDr. (200 × 2)400
To Share allotment A/c1,250
To 1st call A/c400
To Share forfeiture A/c*750
(200 shares of X forfeited for non-payment of allotment money & 1st call)
Share capital A/cDr.1,000
To 1st call A/c       .200
To share for forfeiture A/c800
(100 share of Y forfeited for non-payment of 1st call, premium has been collected hence not reversed)
Bank A/cDr. (200 × 9)1,800
Share forfeiture A/cDr. (200 × 1)200
To share capital A/c2,000
(160 forfeited shares originally belonging to X & 40 forfeited shares belonging to Y re-issued at a discount of Re. 1/-)
ParticularsDr. Rs.Cr. Rs.
Share forfeiture A/cDr.440
To Capital reserve440
[Balance of Share forfeiture A/c on 160 shares of X re-issued (750/200) X 160 — 600 less discount allowed on re-issue Rs.160/- transferred to capital reserve}
Share forfeiture A/cDr.280
To Capital reserve A/c280
(Balance of Share forfeiture A/c. on 40 shares of Y re-issued (800/100) × 40 = 320 (-) Discount allowed 40 = 280)

Working Notes:

ApplicationAllotmentAdjustment of Excess Money
No.Amount @ Rs.3Nos.Allotment money @ Rs.7Application money adj. @Rs.3Excess

application

money

Against

allotment

Calls in advanceRefund
1,0003,0003,0003,000
4,00012,0004,00028,00012,000
20,00060,00016,0001,12,00048,00012,00012,000
25,00075,00020,0001,40,00060,00015,00012,0003,000

 

Allotment money received:Amount X failed to pay:
Share premium @ Rs. 2/-40,000Gross amount due from X(200 × 7)1,400
Share Capital @ Rs. 5/-1,00,000(-) excess application money adjusted150
Total allotment dues1,40,000
(-) Excess Application moneyNet due from X which he failed to pay1,250
adjusted12,000
Net due1,28,000
(-) Not reed, from Mr. X1,250
Allotment money received1,26,750

Problem No. 2 : A company was registered with a nominal capital of Rs. 20,00,000 divided into 20,000 equity shares of Rs. 100 each. 10000 of these shares were issued to the public at premium of Rs. 20 per share, payable as to Rs. 20 on application, Rs. 45 on allotment including premium, Rs. 25 on first call and the balance on final call.

Applications were received for 13,000 shares and allotment was made pro data to the applicants of 12,000 shares, Money overpaid on application was employed on account of sums due on allotment.

Prakash holding 200 shares paid the whole of the amount due on first call, along with allotment but failed to pay the final call. Ali holding 300 shares failed to pay the two calls and John holding 400 shares faded to pay the final call only. All these shares were forfeited after the final call.

Of the shares forfeited 200 shares holding of Ali and 300 shares belonging to John were sold to Raju as fully paid for Rs. 90 per share.

Show the journal entries including cash in the books of the company (Narrations are not required).

Solution :

Break up of Issue price:

StagesShare CapitalPremiumTotal
Application2020
Allotment->252045
1st call2525
Final Call3030
10020120

Issue                                        ⇒ 10,000 Shares

Application received for             ⇒ 13,000 Shares

Allotment will be lower of the two        ⇒ 10,000 Shares

Table of calculations

Share ApplicationAllotmentExcessAdjustment of Excess

Money

Sr.

No.

No. of SharesDue

Amount @ 20

No. of SharesAllotment Due <S> 45Application

Money

adjusted

Application

money

Against

Allotment

Calls in AdvanceRefund
(1)1,00020,00020,00020,000
(2)12,0002,40,00010,0004,50,0002,00,00040,00040,000
13,0002,60,00010,0004,50,0002,00,00060,00040,00020,000

Adjustments of Excess Appl. Money              = 40,000

Net allotment Money due                    = 4,10,000

Journal Entries

S. No.ParticularsAmount Rs.Amount Rs.
(1)Bank A/cDr.2,60,000
To Share Application A/c2,60,000
(Applications received with application money)
(2)Share allotment A/cDr.4,50,000
Share application A/cDr.2,00,000
To Share capital A/c (10,000 × 45)4,50,000
To Share premium A/c (10,000 × 20)2,00,000
(Shares allotted, allotment money due, application money received on shares allotted adjusted)
(3)Share Application A/cDr.60,000
To Share Allotment A/c40,000
To Bank A/c20,000
(Excess share application money adjusted or refunded)
(4)Bank A/cDr.4,15,000
To Allotment Share A/c4,10,000
To Call in Advance A/c5,000
(Allotment money received in full including calls in advance from Prakash on

200 shares @ Rs. 25)

(5)1st Call A/cDr.2,50,000
To Share Capital A/c2,50,000
(1st Call due on 10,000 shares @ Rs. 25)
(6)Bank A/c (9,500 × 25)Dr.2,37,500
Call in advance A/cDr.5,000
To 1st Call A/c2,42,500
(1st Call received except on 300 shares, calls in advance adjusted against call due)
(7)Final call A/cDr.3,00,000
To Share capital A/c3,00,000
(Final call due on 10,000 shares @ Rs. 30)
(8)Bank A/c (9,500 × 25)Dr.2,73,000
To Final Call A/c2,73,000
(Final call received except on 900 shares amount not paid by Prakash, Ali & John)
Forfeiture & Re-issue of shares of Prakash & John for non-payment of final call:
600 shares:
(9)Share Capital A/c (100 × 600)Dr.60,000
To Final Call A/c (30 × 600)18,000
To Share forfeiture A/c (70 × 600)42,000
(600 Shares forfeited)
(10)Bank A/c (90 × 300)Dr.27,000
Share Forfeiture A/c (10 × 300)Dr.3,000
To Share Capital A/c30,000
(300 shares re-issued at a discount of Rs.10)
(11)Share forfeiture A/c (60 × 300)Dr.18,000
To Capital Reserve A/c18,000
(Profit on re-issues transferred to Capital reserve)
Forfeiture & Re-issue of shares of Ali for non-payment of 1st & final call: 300 shares:
(12)Share Capital A/c (100 × 300)Dr.30,000
To 1st Call A/c (25 × 300)7,500
To Final Call A/c (30 × 300)9,000
To Share forfeiture (45 × 300)13,500
(300 Shares forfeited)
(13)Bank A/c (90 × 200)Dr.18,000
Share forfeiture (10 × 200)Dr.2,000
To Share capital A/c (100 × 200)20,000
(200 shares re-issued at a discount of Rs.10)
(14)Share forfeiture A/c (35 × 200)Dr.7,000
To Capita! Reserve A/c (35 × 200)7,000
(Profit on re-issues transferred to Capital reserve)

Ledger Accounts:

Dr.Share Application A/cCr.
ParticularsRs.ParticularsRs.
To Share Capital A/c2,00,000To Bank A/c2,60,000
To Share Allotment A/c40,000
To Bank A/c20,000
2,60,0002,60,000

 

Dr.Share Allotment A/cCr.
ParticularsRs.ParticularsRs.
To Share Capital A/c2,50,000By Share Application40,000
To Share Premium A/c2,00,000By Bank A/c4,10,000
4,50,0004,50,000

 

Dr.Share Capital A/cCr.
ParticularsRs.Particularsr
To Final Call A/c18,000By Share application A/c2,00,000
To Share forfeiture A/c42,000By Share Allotment A/c2,50,000
To 1st Call A/c7,500By 1st Call A/c2,50,000
To Final Call A/c9,000By Final Call A/c3,00,000
To Share forfeiture A/c13,500By Bank & Share forfeiture30,000
To Balance c/f9,60,000By Bank & Share forfeiture20,000
10,50,00010,50,000
Dr.Share Premium A/cCr.
ParticularsRs.ParticularsRs.
To Balance c/f2,00,000By Share Allotment A/c2,00,000
2,00,0002,00,000

 

Dr.Call in Advance A/cCr.
ParticularsRs.ParticularsRs.
To 1st Call A/c5,000By Bank A/c5,000
5,0005,000

 

Dr.1st Call A/cCr.
ParticularsRs.ParticularsRs.
To Share Capital A/c2,50,000By Bank A/c2,37,500
By Call in advance A/c5,000
By Share Capital A/c7,500
2,50,0002,50,000

 

Dr.Final Call A/cCr.
ParticularsRs.ParticularsRs.
To Share Capital A/c3,00,000By Bank A/c2,73,000
By Share Capital A/c18,000
By Share Capital A/c9,000
3,00,0003,00,000

 

Dr.Cash/Bank A/cCr.
ParticularsRs.ParticularsRs.
To Share Application A/c2,60,000By Share Application A/c20,000
To Allotment A/c4,10,000By Balance c/f12,10,500
To Call in Advance A/c5,000
To 1st Call A/c2,37,500
To Final Call A/c2,73,000
To Share Capital A/c27,000
To Share Capital A/c18,000
12,30,50012,30,500

 

Dr.Share Forfeiture A/cCr.
ParticularsRs.ParticularsRs.
To Share Capital A/c3,000By Share Capital A/c42,000
To Share Capital A/c2,000By Share Capital A/c13,500
To Capital Reserve A/c18,000
To Capital Reserve A/c7,000
To Balance c/f25,500
55,50055,500

Problem No. 3: X Co. Limited issued 92,000 equity shares of Rs. 10 each at a premium of Rs. 2.50 per share payable on application. The amount payable on allotment was fixed at Rs. 4 per share and an equivalent sum was due on a call to be made.

Total applications received were for 1,50,000 shares and after consulting the Stock Exchange, the following scheme of allotment was decided upon.

CategoryABC
No. of applications received1,2001755
No. of shares applied for70,00035,00045,000
No. of shares allotted42,00014,00036,000

It was decided that the excess amount received on applications would be utilised in payment of allotment money and surplus, if any would be refunded to the applicants.

Ashok, who was one of the applicants belonging to category A and had applied for 1000 shares, defaulted in payment of allotment money. Anup, who belonged to category C, and who had been allotted 1600 shares failed to pay the call money. Their shares were forfeited, after the final calls were made and reissued as fully paid up for Rs. 8 and Rs. 6 per share respectively.

Show the necessary journal entries in the books of the company to record the above transactions. Workings should form part of your answer.

Solution:

Break up of Share issue price: (and calculation of application money)

StagesShare CapitalPremiumTotal
Application22.504.50 (bal. fig.)
Allotment44
Call44
Total102.5012.50

Issued          =       92,000 shares

Application received for   =       1,50,000 shares

Allotment lower of the two         =       92,000 shares

Table of calculations

Share ApplicationAllotmentExcessAdjustment of Application Money
Sr.

No.

No. of SharesDue

Amount @

4.50

No. of SharesAllotmentAppropriate Application Due @ 4Application

Money

Against

allotment

Money

Refund
A70,0003,15,00042,0001,68,0001,89,0001,26,0001,26,000
B35,0001,57,50014,00056,00063,00094,50056,00038,500
C45,0002,02,50036,0001,44,0001,62,00040,50042,500
1,50,0006,75,00092,0003,68,0004,14,0002,61,0002,22,50038,500

Calculation of Allotment money received:

Total Allotment Due3,68,000
Adjustments of excess Application money(-) 2,22,500
Net allotment due1,45,500
Less: Default by Ashok(-) 600
Net Received1,44,900

Defaults by:

A Category → Ashok → applied 1,000 shares → default in allotment & call.

C Category → Anup → allotted 1,600 shares → default in call.

No. of shares to allotted to Ashok =  × 1000 = 600

Calculation of default by Ashok:
Allotment to be paid by A Category1,68,000
Adjustments of excess money against allotment(-) 1,26,000
Net due from A Category42,000

Net amount defaulted by Ashok =  × 1000 = 600

Alternative calculation of default by Ashok:

Application money received(1000 × 4.50)4,500
Application money on shares allotted(600 × 4.5)2,700
Excess application money1,800
Allotment due from Ashok(600 × 4)2,400
Net money should be recovered600

Call Due & Recovered:

Call due (on 92,000 shares @ Rs. 4)3,68,000
Less: Default (unpaid) by
Ashok: 600 × 42,400
Anup : 1,600 × 46,4008,800
Net Recovered3,59,200

Journal Entries

S. No.ParticularsAmount Rs.Amount Rs.
(1)Bank A/cDr.6,75,000
To Share application A/c6,75,000
(Share application received)
(2)Share allotment A/cDr,3,68,000
Share application A/cDr.4,14,000
To Share capital A/c (92,000 × 6)5,52,000
To Share premium A/c (92,000 × 2.5)2,30,000
(Shares allotted, allotment money due, application money received on shares allotted adjusted)
(3)Share application A/cDr.2,61,000
To Share Allotment A/c2,22,500
To Bank A/c38,500
(Excess application money adjusted or refunded)
(4)Bank A/cDr.1,44,900
To Share Allotment A/c1,44,900
(Allotment received)
(5)Final Call A/cDr.3,68,000
To Share capital A/c3,68,000
(Final call due)
(6)Bank A/cDr.3,59,200
To Final Call A/c3,59,200
(Final call received)
Forfeiture & Reissue of Ashok’s shares
(7)Share Capital A/c (10 × 600)Dr.6,000
To Allotment A/c600
To Call A/c2,400
To Share Forfeiture A/c3,000
(Shares forfeited)
(8)Bank A/c (600 × 8)Dr.4,800
Share forfeiture A/c (600 × 2)Dr.1,200
To Share capital A/c6,000
(Shares re-issued)
(9)Share forfeiture A/cDr.1,800
To Capital Reserves A/c1,800
(Profit on re-issue of shares)
Forfeiture & Reissue of Anup’s Shares
(10)Share capital A/c (1,600 × 10)Dr.16,000
To Call A/c (1,600X4)6,400
To Share forfeiture A/c (1,600 × 6)9,600
(Shares forfeited)
(11)Bank A/c (1,600 × 6)Dr.9,600
Share forfeiture A/c (1,600 @ 4)Dr.6,400
To Share capital (1,600 × 10)16,000
(Shares re-issued)
(12)Share forfeiture A/c (1,600 × 2)Dr.3,200
To Capital Reserve A/c3,200
(Profit on re-issue transferred)

Problem No. 4 : Give journal entries for the forfeiture and re-issue of shares in the following cases:

(a)  P Ltd. forfeited 300 shares of Rs. 10 each, fully called up for non-payment of Final Call money of Rs.4 per share. These shares were subsequently re-issued by the company for Rs.10 per share as fully paid-up.

(b)  Q Ltd. forfeited 200 shares of Rs. 1 0 each, Rs. 8 per share being called up on which a shareholder paid application and allotment money of Rs.5 per share but did not pay the First Call money of Rs.3 per share. Of these forfeited shares, 150 shares were subsequently re-issued by the company as fully paid-up for Rs.8 per share.

(c)  Q Ltd. forfeited 300 shares of Rs. 10 each, fully called up for non-payment of Final Call money of Rs.4 per share. These were subsequently re-issued by the company for Rs.12 per share as fully paid-up.

Solution:

Journal Entries

S.

No.

ParticularsAmount Rs.Amount Rs.
(a)Share capital A/c (10 × 300)Dr.3,000
To Call A/c (4 × 300)1,200
To Share on forfeiture A/c (6 × 300)1,800
Bank A/c (300 × 10)Dr.3,000
To Share Capital A/c3,000
Share forfeiture A/cDr.1,800
To Capital Reserve A/c1,800
(b)Share capital A/c (8 × 200)Dr.1,600
To Call A/c (3 × 200)600
To Share forfeiture A/c (5 × 200)1,000
Bank A/c (8 × 150)Dr.1,200
Share forfeiture A/c (2 × 150)Dr.300
To Share capita! A/c (150 × 10)1,500
Share forfeiture A/c (3 × 150)Dr.450
To Capital Reserve A/c450
(c)Share capital A/c (10 × 300)Dr.3,000
To Call A/c (4 × 300)1,200
To Share forfeiture A/c (6 × 300)1,800
Bank A/c (12 × 300)Dr.3,600
To Share Capital A/c (10 × 300)3,000
To Profit of share on reissue A/c (2 × 300)600
Share forfeiture A/c (6 × 300)Dr.1,800
Profit on Reissue of share A/c (2 × 300)Dr.600
To Capital Reserve A/c2,400

*This article contains all topics about Consignment Accounting.

For notes on all CA foundation topics, you can visit this article CA foundation note

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