Question

Home Products Ltd. is registered with authorised capital of ₹ 10,00,000 divided into 1,00,000 equity shares of ₹ 10 each. It issued 70,000 Equity Shares for subscription at premium of ₹ 2 per share, payable ₹ 3 on application, ₹ 5 on allotment and balance on first and final call. It received subscription for 62,500 shares.

You are required to pass the necessary Journal entries.

[Hint: Minimum subscription is not received.]

Answer 1

Journal Entries in the Books of Home Products Ltd.
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1.	Bank A/c   ...Dr.		1,87,500
	To Shares Application A/c			1,87,500
	(Application money received on 62,500 shares @ ₹ 3 per share)
2.	Shares Application A/c   ...Dr.		1,87,500
	To Bank A/c			1,87,500
	(Application money refunded due to non-receipt of minimum subscription)

Working Note:

Shares issued: 70,000 shares

Minimum subscription required:

70,000 × 90% = 63,000 shares

Applications received for:

62,500 shares

Since:

62,500 < 63,000

the company has not received the minimum subscription. Hence, the entire application money must be refunded.

Application money received:

62,500 × ₹ 3 = ₹ 1,87,500