Question

Rao Ltd. forfeited 750 equity shares of ₹ 10 each for non-payment of first call of ₹ 3 per share (including premium of ₹ 1 per share). The second and final call of ₹ 3 per share was not yet made. Of the forfeited shares, 500 were re-issued for ₹ 2,500, ₹ 7 per share paid-up.

Pass necessary journal entries for the above transactions in the books of Rao Ltd.

Answer 1

Journal Entries In the books of Rao Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Equity Share Capital A/c   ...Dr.		5,250
	Securities Premium Reserve A/c   ...Dr.		750
	To Calls-in-Arrears A/c			2,250
	To Share Forfeiture A/c			3,750
	(Being 750 equity shares forfeited due to nonpayment of the first call money)
2.	Bank A/c   ...Dr.		2,500
	Share Forfeiture A/c   ...Dr.		1,000
	To Equity Share Capital A/c			3,500
	(Being 500 forfeited shares were re-issued for ₹2,500 and credited as ₹7 paid-up).
3.	Share Forfeiture A/c   ...Dr.		1,500
	To Capital Reserve A/c			1,500
	(Being gains from re-issuing 500 forfeited shares went to the Capital Reserve).

Working Note:

1. Entry 1:

Number of forfeited shares: 750 shares

Called-up value per share:

Equity Share Capital = `(5,250)/"750 shares"` = 7 per share

Securities Premium uncollected:

Securities Premium Reserve = `750/"750 shares"` = 1 per share

Amount already paid (Forfeited Amount) per share:

Share Forfeiture Amount = `(3,750)/"750 shares"` = 5 per share

Calls-in-Arrears per share:

Calls-in-Arrears = `(2,250)/"750 shares"` =  3 per share

2. Entry 2:

Number of shares reissued: $500$

Reissue price per share (Amount received):

`(2,500)/"500 shares"` = 5 per share

Paid-up value per share: (Given in the narration as ₹ 7)

`(3,500)/"500 shares"` = ₹ 7 per share

Discount (Loss) on reissue per share:

7 (Paid-up value) − ₹ 5 (Reissue price) = ₹ 2 per share

Total discount on reissue:

500 shares × ₹ 5 = ₹ 1,000 (Matches Share Forfeiture A/c Dr.)

3. Entry 3:

Capital Reserve is calculated only on shares that have been successfully reissued (500 shares), comparing the forfeited amount to the discount provided.

Method A: Unitary/Per-Share Method (Fastest)

Amount forfeited per share: ₹ 5

Less: Discount given on reissue per share: ( ₹2)

Net gain per reissued share: ₹ 3

Total transfer to Capital Reserve: 500 shares × ₹ 3 = ₹ 1,500

Method B: Proportionate Method

Total amount forfeited on 750 shares = ₹ 3,750

Proportionate forfeited amount for the 500 shares reissued:

`₹ 3,750 xx 500/750 = ₹ 2,500`

Less: Total loss (discount) on reissue of 500 shares: (₹ 1,000)

Net Gain transferred to Capital Reserve:

₹ 2,500 − ₹ 1,000 = ₹ 1,500