Question

Sara Ltd. is registered with 5,00,000 Equity Shares of ₹ 10 each.
The company offered 1,00,000 Equity Shares to the public for subscription at 50% premium, payable as:

On Application	₹ 5
On Allotment	₹ 7 (including premium)
On First and Final Call	₹ 3

Applications were received for 1,50,000 shares. The company rejected the applications for 10,000 shares and refunded the amount immediately to the applicants. The remaining applications were allotted on a pro-rata basis.

A shareholder who had applied for 7,000 shares failed to pay the allotment and call money. His shares were forfeited by the company after the First and Final Call. Half of the forfeited shares were re-issued at a discount of 20% as fully paid up.

You are required to pass the necessary journal entries in the books of Sara Ltd.

Answer 1

Journal Entries in the books of Sara Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Bank A/c   ... Dr.		7,50,000	-
	To Equity Share Application A/c		-	7,50,000
	(Being application money received for 1,50,000 shares @ ₹ 5 each)
2.	Equity Share Application A/c   ... Dr.		7,50,000	-
	To Equity Share Capital A/c (1,00,000 × 5)		-	5,00,000
	To Bank A/c (10,000 × 5)		-	50,000
	To Equity Share Allotment A/c (Excess)		-	2,00,000
	(Being application money adjusted to capital, refunded, and surplus transferred to allotment)
3.	Equity Share Allotment A/c   ... Dr.		7,00,000	-
	To Equity Share Capital A/c (1,00,000 × 2)		-	2,00,000
	To Securities Premium A/c (1,00,000 × 5)		-	5,00,000
	(Being allotment money due, including premium)
4.	Bank A/c   ... Dr. (5,00,000 − 25,000)		4,75,000	-
	To Equity Share Allotment A/c		-	4,75,000
	(Being allotment money received except for 5,000 shares)
5.	Equity Share First and Final Call A/c   ... Dr.		3,00,000	-
	To Equity Share Capital A/c		-	3,00,000
	(Being call money due on 1,00,000 shares @ ₹ 3 each)
6.	Bank A/c   ... Dr. (3,00,000 − 15,000)		2,85,000	-
	To Equity Share First and Final Call A/c		-	2,85,000
	(Being call money received except for 5,000 shares)
7.	Equity Share Capital A/c   ... Dr.		50,000	-
	Securities Premium A/c   ... Dr.		25,000	-
	To Equity Share Allotment A/c		-	25,000
	To Equity Share First and Final Call A/c		-	15,000
	To Forfeited Shares A/c		-	35,000
	(Being 5,000 shares forfeited for non-payment)
8.	Bank A/c   ... Dr. (2,500 × 8)		20,000	-
	Forfeited Shares A/c   ... Dr. (2,500 × 2)		5,000	-
	To Equity Share Capital A/c (2,500 × 10)		-	25,000
	(Being 2,500 shares re-issued at a discount of 20%)
9.	Forfeited Shares A/c   ... Dr.		12,500	-
	To Capital Reserve A/c		-	12,500
	(Being profit on re-issue transferred to Capital Reserve)

Working Notes:

Calculation for Capital Reserve:

Total amount forfeited for 5,000 shares = ₹ 35,000

Proportionate amount for 2,500 shares = `35,000 xx (2,500)/(5,000)`

= 17,500

Less: Discount on re-issue = ₹ 5,000

Transfer to Capital Reserve = ₹ 12,500