Question

Generic Pharma Ltd. invited applications for using 3,00,000 equity shares of ₹ 10 each at a premium of ₹ 6 per share. The amount was payable as follows:

on application and allotment – ₹ 4 per share (including premium of ₹ 2 per share)

on first and final call – balance

Applications for 4,00,000 shares were received. Applications for 40,000 shares were rejected, and the application money was refunded. Shares were allotted on a pro-rata basis to the remaining applicants. Excess money received on applications was adjusted towards sums due on the first and final call. Jain, an applicant for 3,600 shares, failed to pay the first and final call. His shares were forfeited.

Pass the necessary journal entries in the books of Generic Pharma Ltd. for the above transactions. Open ‘calls in arrears account’ and ‘calls in advance account’, wherever necessary.

Answer 1

Journal Entries in the Books of Generic Pharma Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Bank A/c ... Dr.		16,00,000	-
	To Equity Share Application & Allotment A/c		-	16,00,000
	(Being application money received on 4,00,000 shares @ ₹4 per share)
2.	Equity Share Application & Allotment A/c ... Dr.		16,00,000	-
	To Equity Share Capital A/c		-	6,00,000
	To Securities Premium A/c		-	6,00,000
	To Calls-in-Advance A/c		-	2,40,000
	To Bank A/c		-	1,60,000
	(Being application money of 3,00,000 shares transferred to Share Capital and Securities Premium, excess adjusted towards first & final call and 40,000 shares refunded)
3.	Equity Share First & Final Call A/c ... Dr.		36,00,000	-
	To Equity Share Capital A/c		-	24,00,000
	To Securities Premium A/c		-	12,00,000
	(Being first & final call money due on 3,00,000 shares @ ₹12 per share, including premium of ₹4 per share)
4.	Bank A/c ... Dr.		33,26,400	-
	Calls-in-Advance A/c ... Dr.		2,40,000	-
	Calls-in-Arrears A/c ... Dr.		33,600	-
	To Equity Share First & Final Call A/c		-	36,00,000
	(Being first & final call money received except from Jain on 3,000 shares, after adjusting previous excess money)
5.	Equity Share Capital A/c ... Dr.		30,000	-
	Securities Premium A/c ... Dr.		12,000	-
	To Share Forfeiture A/c		-	8,400
	To Calls-in-Arrears A/c		-	33,600
	(Being 3,000 shares of Jain forfeited for non-payment of the first & final call)

Working Notes:

1. Total Price per Share = Face Value + Premium

= ₹ 10 + ₹ 6

= ₹ 16

2. Breakdown of Payments:

Application & Allotment = 4

First & Final Call = 16 − 4

= 12

3. Pro-rata Category:

Applied = 4,00,000 − 40,000

= 3,60,000 shares

Allotted = 3,00,000 shares

Ratio = 6 : 5

4. Excess Money Adjustment:

Excess Application Money = 60,000 × 4

= 2,40,000

5. Calculation for Jain (Applicant for 3,600 shares):

Shares Allotted to Jain = `3,600 xx 5/6`

= 3,000 shares

Excess application money paid by Jain = (3,600 − 3,000) × 4 = 2,400

Amount due on First & Final Call = 3,000 × 12 = 36,000

Less: Excess adjusted = ₹ 2,400

Calls-in-Arrears (Jain) = ₹ 33,600