Question

NH Ltd, with an authorized capital of ₹ 10,00,000 divided into 1,00,000 Equity shares of ₹10 each, issued 50,000 shares to the public at a premium of ₹ 2 per share, payable as follows:

₹ 5 on Application (including premium)

₹ 3 on Allotment

₹ 4 on First and Final Call.

The subscription was at par and the share money was received in full with the exception of the allotment money on 4,000 shares held by shareholder Ravi and the call money on 6,000 shares (including Ravi's shares).

The above 6,000 shares were forfeited by the company and 5,000 of these (including the shares which had been allotted to Ravi) were reissued at ₹ 8 per share as fully paid-up.

You are required to pass journal entries to record the above transactions in the books of the company.

Answer 1

In the books of NH Ltd. Journal Entries
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1.	Bank A/c  (50,000 × 5)     ..Dr.		2,50,000
	To Equity Share Application A/c			2,50,000
	(Application money received)
2.	Equity Share Application A/c    ...Dr.		2,50,000
	To Equity Share Capital A/c  (50,000 × 3)			1,50,000
	To Securities Premium Reserve A/c  (50,000 × 3)			1,00,000
	(Application money transferred to Capital A/c)
3.	Equity Share Allotment A/c   (50,000 × 3)  ...Dr.		1,50,000
	To Equity Share Capital A/c			1,50,000
	(Allotment money due)
4.	Bank A/c    ...Dr.		1,38,000
	Calls in Arrears A/c  (4,000 × 3)    ...Dr.		12,000
	To Equity Share Allotment A/c			1,50,000
	(Allotment money received with exception of 4,000 shares)
5.	Equity Share First and Final Call A/c  (50,000 × 4)  ...Dr.		2,00,000
	To Equity Share Capital A/c			2,00,000
	(Call money due)
6.	Bank A/c    ...Dr.		1,76,000
	Calls in Arrears A/c (6,000 × 4)    ...Dr.		24,000
	To Equity Share First and Final Call A/c			2,00,000
	(Call money received with exception of 600 shares)
7.	Equity Share Capital A/c  (6,000 × 10)   ...Dr.		60,000
	To Calls in Arrears A/c   (12,000 + 24,000)			36,000
	To Share forfeiture A/c			24,000
	(6,000 to share forfeited)
8.	Bank A/c   (5,000 × 8)   ...Dr.		40,000
	Share forfeiture A/c (5,000 × 2)    ...Dr.		10,000
	To Equity Share Capital A/c			50,000
	(5,000 of forfeited share, reissued)
9.	Share forfeiture A/c   ...Dr.		8,000
	To Capital Reserve A/c			8,000
	(Transfer of profit on reissue to Capital Reserve)

Working Note:

Profit on forfeiture = 24,000

Profit on forfeiture of Ravi's shares (4,000) -

= (4,000 × 10) − (4,000 × 7)

= 40,000 − 28,000

= ₹ 12,000

Profit on forfeiture of other 2,000 shares -

= (2,000 × 10) − (2,000 × 4) 

= 20,000 − 8,000

= ₹ 12,000

Profit on forfeiture of 1,000 shares = `(12,000)/(2,000) xx 1,000` = ₹ 6,000

Total profit on shares reissued = 12,000 + 6,000 = ₹ 18,000

Profit on reissue to be transferred to capital reserve = 18,000 − 10,000 = ₹ 8,000