Question

Prince Limited issued a prospectus inviting applications for 20,000 equity shares of Rs. 10 each at a premium of Rs. 3 per share payable as follows:

With Application	Rs. 2
On Allotment (including premium)	Rs. 5
On First Call	Rs. 3
On Second Call	Rs. 3

Applications were received for 30,000 shares, and allotment was made on a pro-rata basis. Money overpaid on applications was adjusted to the amount due on allotment.

Mr. Mohit whom 400 shares were allotted, failed to pay the allotment money and the first call, and his shares were forfeited after the first call. Mr. Joly, whom 600 shares were allotted, failed to pay for the two calls and hence, his shares were forfeited.

Of the shares forfeited, 800 shares were reissued to Supriya as fully paid for Rs. 9 per share, the whole of Mr. Mohit’s shares being included.

Record journal entries in the books of the Company and prepare the Balance Sheet.

Answer 1

Journal Entries in the books of Prince Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Bank A/c   ...Dr.		60,000	-
	To Share Application A/c		-	60,000
	(Share Application money received on 30,000 shares @ ₹ 2 per share)
2.	Share Application A/c   ...Dr.		60,000	-
	To Share Capital A/c		-	40,000
	To Share Allotment A/c		-	20,000
	(Application money on 20,000 shares transferred to Share Capital Account, and the balance adjusted on allotment)
3.	Share Allotment A/c   ...Dr.		1,00,000	-
	To Share Capital A/c		-	40,000
	To Securities Premium A/c		-	60,000
	(Allotment money due on 20,000 shares @ ₹5 per share, including a premium of Rs 3 per share)
4.	Bank A/c  ...Dr.		78,400	-
	To Share Allotment A/c		-	78,400
	(Allotment money received)
5.	Share First Call A/c   ...Dr.		60,000	-
	To Share Capital A/c		-	60,000
	(Share First Call due on 20,000 shares @ ₹ 3 per share)
6.	Bank A/c   ...Dr.		57,000	-
	To Share First Call A/c		-	57,000
	(First call money received)
7.	Share Capital A/c   ...Dr.		2,800	-
	Securities Premium A/c   ...Dr.		1,200	-
	To Share Forfeiture A/c		-	1,200
	To Share Allotment A/c		-	1,600
	To Share First Call A/c		-	1,200
	(400 shares forfeited after the first call)
8.	Share Second Call A/c   ...Dr.		58,800	-
	To Share Capital A/c		-	58,800
	(Final Call money due on 19,600 shares @ ₹ 3 per share)
9.	Bank A/c   ...Dr.		57,000	-
	To Share Second Call A/c		-	57,000
	(Second Call money received except on 600 shares)
10.	Share Capital A/c   ...Dr.		6,000	-
	To Share Forfeiture A/c		-	2,400
	To Share First Call A/c		-	1,800
	To Share Second Call A/c		-	1,800
	(600 shares forfeited)
11.	Bank A/c   ...Dr.		7,200	-
	Share Forfeiture A/c   ...Dr.		800	-
	To Share Capital A/c		-	8,000
	(800 Shares reissued @ Rs 9 each)
12.	Share Forfeiture A/c   ...Dr.		2,000	-
	To Capital Reserve		-	2,000
	(Balance in share forfeiture transferred to capital reserve)

As per the Revised Schedule VI, the Balance Sheet of Prince Limited is as follows:

Particulars	Note No.	Amount (₹)
I. Equity and Liabilities
1. Shareholders’ Fund
a. Share Capital	1	1,98,000
b. Reserves and Surplus	2	61,600
2. Non-Current Liabilities
3. Current Liabilities
Total		2,59,600
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents	3	2,59,600
Total		2,59,600

Notes to Accounts:

Note No.	Particulars	Amount  (₹)	Amount  (₹)
1.	Share Capital
	Authorised Share Capital
	…….. shares of ₹10 each		-
	Issued Share Capital
	20,000 shares of ₹10 each		2,00,000
	Subscribed, Called-up and Paid-up Share Capital
	19,800 shares of ₹ 10 each		1,98,000
2.	Reserves and Surplus
	Securities Premium	58,800	61,600
	Capital Reserve	2,800
3.	Cash and Cash Equivalents
	Cash at Bank		2,59,600

Working notes: 

1. Pro-Rata Ratio & Excess Application Money:

Excess Application Money Retained for Allotment = (30,000 − 20,000) × Rs. 2

= 10,000 × 2

= 20,000

2. Number of shares applied by Mohit:

= `"Total number of applied shares"/"Total number of alloted shares" xx "No. of shares allotted"`

= `"30,000"/"20,000" xx "400`

= 600 shares

Arrears on Share Allotment (Mr. Mohit):

Total Application Money Paid by Mohit = 600 shares × 2

= Rs. 1,200

Money Utilised for Allotted Shares = 400 shares × 2

= Rs. 800

Excess Application Money Advance Adjusted on Allotment = Rs. 1,200 − Rs. 800

= Rs. 400

Gross Allotment Money Due from Mohit = 400 shares × 5

= Rs. 2,000

Net Calls-in-Arrears on Allotment (Mohit) = Rs. 2,000 − Rs. 400

= Rs. 1,600

3. Net Cash Received on Allotment Stage (Entry 4 Amount):

Particulars	Amount (₹)
Total Gross Amount Due on Allotment (20,000 Shares × 5)	10,00,000
Less: Excess Application Money adjusted	20,000
Less: Net Calls-in-Arrears from Mr Mohit	1,600
	78,400

4. Amount Transferred to Capital Reserve Account (Entry 12 Amount):

From Mr. Mohit (All 400 shares reissued):

Net Gain from Mohit’s shares = Total Forfeited − Reissue Discount Allowed

= 1,200 − 400

= 800

From Mr. Joly (Only 400 out of 600 shares reissued):

Total Forfeited Amount on 600 shares = 2,400

Proportionate Forfeited Amount for 400 shares = `(2,400)/600 xx 400`

= Rs. 1,600

Net Gain from Joly’s shares = Total Forfeited − Reissue Discount Allowed

= 1,600 − 400

= 1,200

Total Transferred to Capital Reserve = 800 + 1,200

= Rs. 2,000