Question

Cosmic Ltd. issued 40,000 equity shares of ₹ 10 each at a premium of ₹ 1 per share payable:

On Application   ₹ 3

On Allotment   ₹ 4 (including premium)

On First and Final Call   Balance 3

The public applied for 60,000 shares. Pro-rata allotment was made to the applicants of 50,000 shares. Where no allotment was made, money was to be refunded in full.

One shareholder who had applied for 500 shares did not pay the allotment money and his shares were forfeited after the allotment stage. The company was able to immediately reissue all the forfeited shares at ₹ 5 per share.

Three months later, the First and Final Call was made to all the shareholders.

You are required to:

1. Pass journal entries to record the above transactions in the books of the company.     [8.5]
2. Prepare the Calls-in-arrears Account.     [1.5]

Answer 1

Journal Entries In the books of Cosmic Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
(i)	Bank A/c     ...Dr.		1,80,000
	To Equity Share Application A/c			1,80,000
	(Being applications for 60,000 shares received)
(ii)	Equity Share Application A/c     ...Dr.		1,80,000
	To Share Capital A/c			1,20,000
	To Equity Share Allotment A/c			30,000
	To Bank A/c			30,000
	(Being application money adjusted)
(iii)	Equity Share Allotment A/c     ...Dr.		1,60,000
	To Share Capital A/c			1,20,000
	To Securities Premium A/c			40,000
	(Being allotment money adjusted)
(iv)	Bank A/c     ...Dr.		1,28,700
	Calls in Arrear A/c     ...Dr.		1,300
	To Equity Share Allotment A/c			1,30,000
	(Being allotment money received)
(v)	Equity Share Capital A/c     ...Dr.		2,400
	Securities Premium A/c     ...Dr.		400
	To Calls in arrears A/c			1,300
	To Share forfeiture A/c			1,500
	(Being 400 shares forfeited)
(vi)	Bank A/c     ...Dr.		2,000
	Share Forfeiture A/c     ...Dr.		400
	To Share Capital A/c			2,400
	(Being 400 forfeited shares reissued)
(vii)	Equity Share first and Final Call A/c     ...Dr.		1,60,000
	To Share Capital A/c			1,60,000
	(Being first and final call adjusted)
(viii)	Bank A/c     ...Dr.		1,60,000
	To Equity Share First and Final Call A/c			1,60,000
	(Being amount received)
(ix)	Share Forfeiture A/c     ...Dr.		1,100
	To Capital Reserve A/c			1,100
	(Being balance of share forfeiture transferred to capital reserve)

Working Note:

(1) Shareholder applied for 500 shares:

allotted to him = `500xx40000/50000`

= 400 shares

Hence, he paid 100 × 3

= ₹ 300 in excess

Hence, actual Calls in Arrear

= 400 × 4

= 1600 − 300

= ₹ 1,300

(2) It is assumed that excess application money has been utilised for share allotment.

(3) It is also assumed that the shares that will reissued were not full paid. First call was to be paid on them also.

Dr.	Calls in Arrears A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Share Allotment A/c	1,300	By Share Capital A/c	900
		By Securities Premium A/c	400
	1,300		1,300