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Question
'Guru Limited' invited applications for issuing 80,000 equity shares of Rs 10 each at a premium of Rs 10 per share. The amount was payable as follows:
On application and allotment - Rs 10 (including Rs 5 premium)
On first and final call - Rs 10 (including Rs 5 premium)
Applications for 1,00,000 share were received. Applications for 10,000 shares were rejected and
application money was refunded. Shares were allotted on pro-rata basis to the remaining applicants. Excess application money received from applicants to whom shares were allotted on pro-rata basis was adjusted towards sums due on first and final call. All calls were made and were duly received except the first and final call money from Kumar who had applied for 1,800 shares. His shares were forfeited. The forfeited shares were re-issued at Rs 9 per share as fully paid up. Pass necessary journal entries for the above transactions in the books of 'Guru Limited'.
Solution
| In the books of Guru Ltd. Journal Entry |
||||
| Date | Particulars | L.F. |
Dr. Rs |
Cr. Rs |
|
Bank A/c Dr. To Equity Share Application and Allotment A/c (Being amount received on an application for 1,00,000 shares)) |
10,00,000
|
10,00,000
|
||
|
Equity Share Application and Allotment A/c Dr. To Equity Share Capital A/c To Securities Premium A/c To Equity Share First and Final Call A/c To Bank A/c (Being amount of application transferred to Share Capital account and excess money is adjusted in first and final call account) |
10,00,000
|
4,00,000 4,00,000 1,00,000 1,00,000
|
||
|
Equity Share First and Final Call A/c Dr. To Equity Share Capital A/c To Securities Premium A/c (Being amount due on first and final call) |
8,00,000
|
4,00,000 4,00,000
|
||
|
Bank A/c (8,00,000 – 1,00,000 – 14,000) Dr To Equity Share First and Final Call A/c. (Being amount received on share First and Final Call) |
6,86,000
|
6,86,000
|
||
|
Equity Share Capital A/c Dr Securities Premium A/c Dr. To Equity Share Forfeiture A/c To Equity Share First and Final Call A/c (Being Kumar’s shares were forfeited) |
16,000 8,000
|
10,000 14,000
|
||
|
Bank A/c Dr. Equity Share Forfeiture A/c Dr. To Equity Share Capital A/c (Being forfeited shares were reissued for Rs.9 as fully paid up) |
14,400 1,600
|
16,000
|
||
|
Equity Share Forfeiture A/c Dr. To Capital Reserve A/c (Being excess amount on forfeiture is transferred to capital reserve) |
8,400
|
8,400
|
||
Working Notes:
| Categories | Applied Shares |
Shares Allotted |
Received n @ Rs 10 each |
transferred Rs 5 each |
transferred Rs 5 each |
Application on money |
Final Call each |
Receivable on first and final call after Adjusted |
refunded |
| 1 | 10,000 | - | 1,00,000 | - | - | - | - | - | 1,00,000 |
| 2 | 90,000 | 80,000 | 9,00,000 | 4,00,000 | 4,00,000 | 1,00,000 | 8,00,000 (4,00,000 + 4,00,000) |
7,00,000 | |
| 1,00,000 | 80,000 | 10,00,000 | 4,00,000 | 4,00,000 | 1,00,000 | 8,00,000 | 7,00,000 | 1,00,000 |
WN 2: Calculation of Amount not received on First and Final Call
Shares alloted to Kumar = `80000/90000 xx 1800 = 1600` shares
Amount received on 1,800 shares @ Rs 10 each = Rs 18,000
Amount transferred to Share Capital A/c (1,600 x 5) = 8,000
Amount transferred to Securities Premium A/c (1,600 x 5) = 8,000
Excess money received on application = 2,000
Amount due on First and Final Call @ Rs 10 each = 16,000 (8,000 + 8,000)
Amount not received on Securities Premium = 8,000
Amount not received on first and final call = 6,000 (8,000 – 2,000)
WN 3: Calculation of amount credited in Share Forfeiture Account
Amount received on Application and Allotment = Rs 18,000 = 18000
Less : Amount received for Securities Premium = `8000(1600 xx 5)`
Amount to be credited in Share Forfeiture Account = 10000
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|
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Assertion: A company can reissue a forfeited share at an amount which is less than the amount not received on it.
Reason: A company can write off the net loss made on the reissue of a forfeited share from its capital reserve.
Which one of the following is correct?
