Question

NM Co. Ltd. issued a prospectus inviting applications for 12,000 shares of ₹ 10 each at a premium of ₹ 1 per share.
The public applied for 30,000 shares. The company made pro-rata allotment on 24,000 shares. A shareholder who had applied for 2,000 shares, was allotted 1,000 shares. After having paid ₹ 4 per share on application, he did not pay the allotment money of ₹ 5 per share (including premium).
On his subsequent failure to pay the first call of ₹ 1 per share, his shares were forfeited.
These shares were reissued at the rate of ₹ 7 per share ₹ 9 paid up.
The company incurred ₹ 5,000 as share issue expenses.

Based on the information given above and the ledger accounts given below, answer the questions that follow:

Dr.	Share Issue Expenses A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To ‘?’	‘?’	By ‘?’	‘?’

 

Dr.	Calls-in-Arrears A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Share Allotment A/c	‘?’	By Share Capital A/c	‘?’
To Share First Call A/c	‘?’	By Securities Premium A/c	‘?’

You are required to:

1. Draw the ledger accounts given above filling up the missing information represented by ‘?’.     [3]
2. What is the balance left in the Securities Premium A/c after all the transactions relating to the shares have been completed by NM Co. Ltd?     [1]
3. Give the journal entries for:     [6]
   1. The amount due on allotment.
   2. The amount received on allotment.
   3. Transferring the net gain made on reissue of shares to Capital Reserve Account.

Answer 1

(i)

Dr.	Share Issue Expenses A/c In the Books of NM. Co		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Bank A/c	5,000	By Securities Premium A/c	5,000
	5,000		5,000

 

Dr.	Calls in Arrears A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Share Allotment A/c	1,000	By Share Capital A/c	1,000
To Share First Call A/c	1,000	By Securities Premium A/c	1,000
	2,000		2,000

(ii) Amount left in securities premium

= 12,000 – ( 1,000 + 5,000)

= 12,000 – 6,000

= ₹ 6,000

(iii)

Journal entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
(a)	Share Allotment A/c     ...Dr.		60,000
	To Share Capital A/c			48,000
	To Securities Premium A/c			12,000
	(Being allotment money due)
(b)	Bank A/c     ...Dr.		11,000
	Calls in Arrears A/c     ...Dr.		1,000
	To Share Allotment A/c			12,000
	(Being allotment money received)
(c)	Share Forfeiture A/c     ...Dr.		6,000
	To Capital Reserve A/c			6,000
	(Being balance of share forfeiture transferred to capital reserve)

Working Note:

(1) A shareholder applied for 2,000 shares, was allotted 1,000 shares. Excess money received from him on application

= 4 × 1,000

= ₹ 4,000

Amount to be paid by him on allotment

= 1,000 × 5

= ₹ 5,000

Actual Calls in Arrears

= 5,000 – 4,000

= ₹ 1,000

On allotment = ₹ 1,000 (considering that amount of securities premium was not paid)

Calls in Arrears on First Call

= 1 × 1,000 

= ₹ 1,000

(2) Actual amount received on forfeited shares

= 8 × 1,000

= 8,000

Discount allowed on reissue shares

= 2 × 1,000

= ₹ 2,000

Amount to be transferred to Capital Reserve

= 8,000 – 2,000

= ₹ 6,000