Question

X Ltd. invited applications for 50,000 Equity Shares of ₹10 each, payable ₹3.50 on application; ₹5 on allotment (including premium ₹2.50); and ₹4 on first and final call.
The company received applications for 65,000 shares. It was decided:

1. to refuse allotment to the applicants for 5,000 shares;
2. to allot in full to the applicants for 20,000 shares;
3. to allot balance of the available shares pro-rata among the other applicants; and
4. to utilise the excess application money in part payment of allotment money.

All the money due was received except from one applicant to whom shares had been allotted on pro-rata basis. He failed to pay allotment and call money and his 300 shares were forfeited. These shares were re-issued at ₹9 as fully paid.
Give journal entries to record the above transactions in the books of the company.

Answer 1

Journal entries In the books of X Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Bank A/c (65,000 × 3.50)     ...Dr.		2,27,500
	To Share Application A/c			2,27,500
	(Being application money received on 65,000 shares @ ₹3.50)
2.	Share Application A/c     ...Dr.		2,27,500
	To Share Capital A/c			1,75,000
	To Share Allotment A/c			35,000
	To Bank A/c			17,500
	(Being Transfer: application on 50,000 allotted shares to Share Capital; excess ₹35,000 to Allotment; refund of 5,000 shares)
3.	Share Allotment A/c     ...Dr.		2,50,000
	To Share Capital A/c			1,25,000
	To Securities Premium Reserve A/c			1,25,000
	(Being allotment due @ ₹5 per share on 50,000 shares, incl. premium ₹2.50)
4.	Bank A/c     ...Dr.		2,13,850
	Calls‑in‑Arrears A/c     ...Dr.		1,150
	To Share Allotment A/c			2,15,000
	(Being allotment received after adjusting excess appn. ₹35,000; one allottee (300 shares) unpaid ₹1,150)
5.	Share First & Final Call A/c     ...Dr.		2,00,000
	To Share Capital A/c			2,00,000
	(Being call due @ ₹4 per share on 50,000 shares)
6.	Bank A/c     ...Dr.		1,98,800
	Calls‑in‑Arrears A/c		1,200
	To Share First & Final Call A/c			2,00,000
	(Being call money received; same shareholder (300 shares) unpaid ₹1,200)
7.	Share Capital A/c     ...Dr.		3,000
	Securities Premium Reserve A/c     ...Dr.		750
	To Calls‑in‑Arrears A/c			2,350
	To Share Forfeiture A/c			1,400
	(Being forfeiture: capital called ₹10×300=₹3,000; premium on these shares not received ₹2.50×300=₹750; arrears: allot ₹1,150 + call ₹1,200 = ₹2,350)
8.	Bank A/c     ...Dr.		2,700
	Share Forfeiture A/c     ...Dr.		300
	To Share Capital A/c			3,000
	(Being re‑issue at ₹1 discount per share, adjusted from Forfeiture)
9.	Share Forfeiture A/c     ...Dr.		1,100
	To Capital Reserve A/c			1,100
	(Being balance of forfeiture on re‑issued shares transferred to Capital Reserve)

Working Notes:

1) Allotment structure
Applications = 65,000; Issue = 50,000
= 5,000 (refund)
Full to 20,000 (1:1)
Applied 40,000 for 30,000 → Pro‑rata 3:4 (i.e., 0.75)

2) Application adjustments
Total application received = 65,000 × ₹3.50 = ₹2,27,500
Transfer to Share Capital (50,000 × ₹3.50) = ₹1,75,000
Refund (5,000 × ₹3.50) = ₹17,500
Allotment = ₹35,000

3) Defaulting shareholder
400 shares → Appn paid = 400 × ₹3.50 = ₹1,400
Application applicable for 300 shares = 300 × ₹3.50 = ₹1,050; excess ₹350 adjusted to his allotment
Allotment due (300 × ₹5) = ₹1,500 → unpaid ₹1,150
Call due (300 × ₹4) = ₹1,200
Forfeiture credit (Share Forfeiture A/c) = Total actually received & retained on these shares = ₹1,400

4) Re‑issue & Capital Reserve
Discount on re‑issue = ₹(10−9)=₹1 per share ×300 = ₹300
Share Forfeiture on these shares = ₹1,400 → Balance = 1,400−300 = ₹1,100
Transfer to Capital Reserve = ₹1,100