Question

Konark Ltd. invited applications for issuing 3,00,000 shares of ₹ 10 each. The amount per share was payable as follows: ₹ 3 on application, ₹ 3 on allotment, and ₹ 4 on first and final call.

The company received applications for 4,00,000 shares. Allotment was done as follows:

1. Applicants of 2,40,000 shares were allotted 2,00,000 shares.
2. Applicants of 1,20,000 shares were allotted 80,000 shares.
3. Remaining applicants were allotted 20,000 shares.

Money overpaid on applications was adjusted towards sums due on allotment. Divij, a shareholder, belonging to group (ii), who had applied for 6,000 shares, failed to pay allotment and call money, Faisal, another shareholder, who was allotted 10,000 shares, paid the call money along with allotment. Faisal belonged to group (i),

Divij's shares were forfeited after the first and final call. Half of the forfeited shares were reissued @ ₹ 10 per share fully paid.

Pass the necessary Journal entries to record the above transactions in the books of the company.

Answer 1

Journal Entries in the Books of Konark Ltd.
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1.	Bank A/c   ...Dr.		12,00,000
	To Equity Shares Application A/c			12,00,000
	(Application money received on 4,00,000 shares @ ₹ 3 per share)
2.	Equity Shares Application A/c   ...Dr.		12,00,000
	To Equity Share Capital A/c			9,00,000
	To Equity Shares Allotment A/c			3,00,000
	(Application money transferred and excess adjusted towards allotment)
3.	Equity Shares Allotment A/c   ...Dr.		9,00,000
	To Equity Share Capital A/c			9,00,000
	(Allotment money due on 3,00,000 shares @ ₹ 3 per share)
4.	Bank A/c   ...Dr.		6,34,000
	Calls-in-Arrears A/c   ...Dr.		6,000
	To Equity Shares Allotment A/c			6,00,000
	To Calls-in-Advance A/c			40,000
	(Allotment money received except from Divij and Call money received in advance from Faisal)
5.	Equity Shares First and Final Call A/c   ...Dr.		12,00,000
	To Equity Share Capital A/c			12,00,000
	(First and Final Call due @ ₹ 4 per share)
6.	Bank A/c   ...Dr.		11,44,000
	Calls-in-Advance A/c   ...Dr.		40,000
	Calls-in-Arrears A/c   ...Dr.		16,000
	To Equity Shares First and Final Call A/c			12,00,000
	(First and Final Call received except from Divij and Calls-in-Advance adjusted)
7.	Equity Share Capital A/c   ...Dr.		40,000
	To Calls-in-Arrears A/c			22,000
	To Share Forfeiture A/c			18,000
	(Divij's 4,000 shares forfeited for non-payment of allotment and Call money)
8.	Bank A/c   ...Dr.		20,000
	To Equity Share Capital A/c			20,000
	(2,000 forfeited shares reissued @ ₹ 10 per share as fully paid-up)
9.	Share Forfeiture A/c Dr.		9,000
	To Capital Reserve A/c			9,000
	(Gain on reissue transferred to Capital Reserve)

Working Notes:

Face value per share: ₹ 10

Amount payable:

Application: ₹ 3

Allotment: ₹ 3

First and Final Call: ₹ 4

Shares issued = 3,00,000

Applications received = 4,00,000 shares

1. Excess Application Money

Group (i):

2,40,000 applied → 2,00,000 allotted

Excess:

(2,40,000−2,00,000) × ₹ 3 = ₹ 1,20,000

Group (ii):

1,20,000 applied → 80,000 allotted

Excess:

(1,20,000 − 80,000) × ₹ 3 = ₹ 1,20,000

Group (iii):

Remaining applications:

4,00,000 − 2,40,000 − 1,20,000 = 40,000

40,000 applied → 20,000 allotted.

Excess:

(40,000 − 20,000) × ₹ 3 = ₹ 60,000

Total excess application money:

₹ 1,20,000 + ₹ 1,20,000 + ₹ 60,000 = ₹ 3,00,000

2. Divij's Shares

Divij belongs to Group (ii):

1,20,000 : 80,000 = 3 : 2

He applied for 6,000 shares, therefore shares allotted:

`6,000 xx 2/3 = 4,000` shares

Application money paid:

6,000 × ₹ 3 = ₹ 18,000

Application money required:

4,000 × ₹ 3 = ₹ 12,000

Excess adjusted towards allotment:

₹ 18,000 − ₹ 12,000 = ₹ 6,000

Allotment due:

4,000 × ₹ 3 = ₹ 12,000

Allotment unpaid:

₹ 12,000 − ₹ 6,000 = ₹ 6,000

Call unpaid:

4,000 × ₹ 4 = ₹ 16,000

3. Allotment Money Received

Total allotment due:

3,00,000 × ₹ 3 = ₹ 9,00,000

Less: Excess application money adjusted:

₹ 9,00,000 − ₹ 3,00,000 = ₹ 6,00,000

Less: Divij's unpaid allotment:

₹ 6,00,000 − ₹ 6,000 = ₹ 5,94,000

4. Faisal's Calls-in-Advance

Faisal was allotted 10,000 shares and paid call money along with allotment.

10,000 × ₹ 4 = ₹ 40,000​

Therefore, Calls-in-Advance = ₹ 40,000.

5. First and Final Call

Total Call due:

3,00,000 × ₹ 4 = ₹ 12,00,000

Less: Calls-in-Advance:

₹ 12,00,000 − ₹ 40,000 = ₹ 11,60,000

Less: Divij's unpaid Call:

₹ 11,60,000 − ₹ 16,000 = ₹ 11,44,000

6. Forfeiture of Divij's Shares

Called-up amount:

4,000 × ₹ 10 = ₹ 40,000

Total unpaid:

₹ 6,000 + ₹ 16,000 = ₹ 22,000

Amount credited to Share Forfeiture A/c:

₹ 40,000 − ₹ 22,000 = ₹ 18,000

7. Reissue and Capital Reserve

Half of Divij's 4,000 shares were reissued:

`4,000 xx 1/2 = 2,000` shares

Reissued @ ₹ 10 per share:

2,000 × ₹ 10 = ₹ 20,000​

Proportionate forfeited amount:

`18,000 xx (2,000)/(4,000) = 9,000`

Since there is no discount on reissue:

Capital Reserve = ₹ 9,000