Question

Pure Products Ltd. is registered with authorised capital of ₹ 10,00,000 divided into 1,00,000 equity shares of ₹ 10 each. It issued 70,000 Equity Shares for subscription at premium of ₹ 2 per share, payable ₹ 3 on application, ₹ 5 on allotment and balance on first and final call. It received application money amounting to ₹ 1,89,000.

You are required to:

1. Determine whether the company should allot shares; and
2. If yes, pass the necessary Journal entries assuming that the company has received due amount on allotment and call.

Answer 1

Journal Entries in the Books of Pure Products Ltd.
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1.	Bank A/c Dr.		1,89,000
	To Shares Application A/c			1,89,000
	(Application money received on 63,000 shares @ ₹ 3 per share)
2.	Shares Application A/c Dr.		1,89,000
	To Share Capital A/c			1,89,000
	(Application money transferred to Share Capital)
3.	Shares Allotment A/c Dr.		3,15,000
	To Share Capital A/c			1,89,000
	To Securities Premium A/c			1,26,000
	(Allotment money due on 63,000 shares @ ₹ 5 per share, including premium ₹ 2 per share)
4.	Bank A/c Dr.		3,15,000
	To Shares Allotment A/c			3,15,000
	(Allotment money received)
5.	Shares First and Final Call A/c Dr.		2,52,000
	To Share Capital A/c			2,52,000
	(First and Final Call money due on 63,000 shares @ ₹ 4 per share)
6.	Bank A/c Dr.		2,52,000
	To Shares First and Final Call A/c			2,52,000
	(First and Final Call money received)

Working Note:

Shares issued: 70,000 shares

Application money received: ₹ 1,89,000

Application money per share: ₹ 3

Number of shares applied for:

`(1,89,000)/3 = 63,000` shares

Minimum subscription required:

70,000 × 90% = 63,000 shares

Since applications were received for exactly 63,000 shares, the minimum subscription requirement is satisfied.

Therefore, the company can allot the shares.

Premium per share = ₹ 2

Amount payable:

Application: ₹ 3

Allotment: ₹ 5, including premium ₹ 2

First and Final Call:

₹ 12 − (₹ 3 + ₹ 5) = ₹ 4