Question

Alok Ltd. invited applications for 1,00,000 Equity Shares of ₹ 10 each. The shares were issued at a premium of ₹ 5 per share. Excess Application and Allotment Money, if any is to be adjusted against calls. The amount was payable as follows:

On Application and Allotment ₹ 8 per share (including premium ₹ 3). Balance including premium on the First and Final Call.

Applications for 1,50,000 shares were received. Applications for 10,000 shares were rejected and pro rata allotment was made to the remaining applicants on the following basis:

1. Applications for 80,000 shares were allotted 60,000 shares; and
2. Applications for 60,000 shares were allotted 40,000 shares.

Mohan, who belonged to the first category and was allotted 300 shares, failed to pay the first and final call money. Sohan, who belonged to the second category and was allotted 200 shares also failed to pay the call money, their shares were forfeited. The forfeited shares were reissued @ ₹ 12 per share fully paid-up.

Prepare Cash Book and pass necessary Journal entries.

Answer 1

Journal Entries in the Books of Alok Ltd.
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1.	Bank A/c   ...Dr.		12,00,000
	To Equity Shares Application and Allotment A/c			12,00,000
	(Application and allotment money received)
2.	Equity Shares Application and Allotment A/c   ...Dr.		12,00,000
	To Equity Share Capital A/c			5,00,000
	To Securities Premium A/c			3,00,000
	To Calls-in-Advance A/c			3,20,000
	To Bank A/c			80,000
	(Application and allotment money transferred, excess carried forward and rejected applications refunded)
3.	Equity Shares First and Final Call A/c   ...Dr.		7,00,000
	To Equity Share Capital A/c			5,00,000
	To Securities Premium A/c			2,00,000
	(First and Final Call due @ ₹ 7 per share)
4.	Calls-in-Advance A/c   ...Dr.		3,20,000
	To Equity Shares First and Final Call A/c			3,20,000
	(Excess application and allotment money adjusted towards Call)
5.	Bank A/c   ...Dr.		3,78,100
	Calls-in-Arrears A/c   ...Dr.		1,900
	To Equity Shares First and Final Call A/c			3,80,000
	(Balance Call money received except from Mohan and Sohan)
6.	Equity Share Capital A/c   ...Dr.		5,000
	Securities Premium A/c   ...Dr.		1,000
	To Calls-in-Arrears A/c			1,900
	To Share Forfeiture A/c			4,100
	(500 shares of Mohan and Sohan forfeited for non-payment of Call)
7.	Bank A/c   ...Dr.		6,000
	To Equity Share Capital A/c			5,000
	To Securities Premium A/c			1,000
	(500 forfeited shares reissued @ ₹ 12 per share as fully paid-up)
8.	Share Forfeiture A/c   ...Dr.		4,100
	To Capital Reserve A/c			4,100
	(Gain on reissue transferred to Capital Reserve)

 

Cash Book
Particulars	₹	Particulars	₹
To Equity Shares Application and Allotment A/c	12,00,000	By Bank A/c (Refund)	80,000
To Equity Shares First and Final Call A/c	3,78,100	By Balance c/d	15,04,100
To Equity Share Capital/Securities Premium A/c (Reissue)	6,000
Total	15,84,100	Total	15,84,100

Working Notes:

Face value per share: ₹ 10

Premium per share: ₹ 5

Amount payable:

Application and Allotment: ₹ 8 per share, including premium ₹ 3

First and Final Call: Balance:

₹ 15 − ₹ 8 = ₹ 7 per share

This ₹ 7 consists of ₹ 5 Share Capital + ₹ 2 Securities Premium.

1. Application and Allotment

Applications received = 1,50,000 shares

Applications rejected = 10,000 shares

Applications considered for pro rata allotment:

1,50,000 − 10,000 = 1,40,000 shares

Shares allotted = 1,00,000 shares.

Application and Allotment money received:

1,50,000 × ₹ 8 = ₹ 12,00,000

Refund on rejected applications:

10,000 × ₹ 8 = ₹ 80,000

Amount required on 1,00,000 allotted shares:

1,00,000 × ₹ 8 = ₹ 8,00,000

Excess adjusted against Call:

₹ 12,00,000 − ₹ 80,000 − ₹ 8,00,000 = ₹ 3,20,000​

2. Mohan

Category I:

80,000 : 60,000 = 4 : 3

Mohan was allotted 300 shares.

Shares applied for:

300 × 43 = 400 shares

Amount paid:

400 × ₹ 8 = ₹ 3,200

Amount required on 300 shares:

300 × ₹ 8 = ₹ 2,400

Excess adjusted towards Call:

₹ 3,200 − ₹ 2,400 = ₹ 800

Call due:

300 × ₹ 7 = ₹ 2,100

Call money due but not received:

₹ 2,100 − ₹ 800 = ₹ 1,300

3. Sohan

Category II:

60,000 : 40,000 = 3 : 2

Sohan was allotted 200 shares.

Shares applied for:

`200 xx 3/2 = 300` shares

Amount paid:

300 × ₹ 8 = ₹ 2,400

Amount required:

200 × ₹ 8 = ₹ 1,600

Excess adjusted towards Call:

₹ 2,400 − ₹ 1,600 = ₹ 800

Call due:

200 × ₹ 7 = ₹ 1,400

Call money due but not received:

₹ 1,400 − ₹ 800 = ₹ 600

Total Calls-in-Arrears:

₹ 1,300 + ₹ 600 = ₹ 1,900

4. Call Money Received

Total Call due:

1,00,000 × ₹ 7 = ₹ 7,00,000

Less: Excess adjusted:

₹ 7,00,000 − ₹ 3,20,000 = ₹ 3,80,000

Less: Calls-in-Arrears:

₹ 3,80,000 − ₹ 1,900 = ₹ 3,78,100

5. Forfeiture of Mohan and Sohan's Shares

Total shares forfeited:

300 + 200 = 500 shares

Share Capital called-up:

500 × ₹ 10 = ₹ 5,000

Premium on Call not received:

500 × ₹ 2 = ₹ 1,000

Calls-in-Arrears:

₹ 1,900

Therefore, amount credited to Share Forfeiture A/c:

₹ 5,000 + ₹ 1,000 − ₹ 1,900 = ₹ 4,100​

6. Reissue

500 forfeited shares were reissued @ ₹ 12 each as fully paid-up.

Cash received:

500 × ₹ 12 = ₹ 6,000

Share Capital:

500 × ₹ 10 = ₹ 5,000

Securities Premium:

500 × ₹ 2 = ₹ 1,000

Since there is no discount on reissue, the entire forfeited amount is transferred to Capital Reserve:

₹ 4,100