Question

New Industries Limited issued a prospectus, inviting applications for 1,00,000 shares of no each at a premium of ₹5 per share, payable as follows: On Application ₹4.50; On Allotment ₹7.50 (including Premium); On Ist Call ₹2.00 and On Final Call ₹1.00.
Applications were received for 1,25,000 shares and allotment was made pro-rata to the applicants of 1,20,000 shares, the remaining applications being refused. Money received in excess on the application was adjusted towards the amount due on allotment.
D, to whom 2,000 shares were allotted, failed to pay allotment money and on his failure to pay the first call, his shares were forfeited. M, the holder of 3,000 shares, failed to pay the two calls, and so his shares were also forfeited. All these shares were sold to R, credited as fully paid for ₹8 per share.
Pass Cash Book and journal entries (with narrations) to record the above issue of shares by the company.

Answer 1

Dr.	Cash Book (Bank Column)		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Share Application A/c	5,62,500	By Share Application A/c	22,500
To Share Allotment A/c	6,46,800
To Share First Call A/c	1,97,200
To Share Final Call A/c	97,800
To Share Capital A/c (Re-issue 5,000 × ₹8)	40,000
Balance c/d (Bank)	15,11,800

 

Journal entries In the books of New Industries Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Bank A/c     ...Dr.		5,62,500
	To Share Application A/c			5,62,500
	(Being application money received on 1,25,000 shares @ ₹4.50)
2.	Share Application A/c     ...Dr.		5,62,500
	To Share Capital A/c (1,00,000 × ₹4.50)			4,50,000
	To Share Allotment A/c			90,000
	To Bank A/c			22,500
	(Being application adjusted to share capital, excess to allotment, and refunds made)
3.	Share Allotment A/c     ...Dr.		7,50,000
	To Share Capital A/c (1,00,000 × ₹5)			5,00,000
	To Securities Premium Reserve A/c			2,50,000
	(Being allotment due on 1,00,000 shares @ ₹7.50 incl. premium)
4.	Bank A/c     ...Dr.		6,46,800
	Calls in Arrears A/c     ...Dr.		13,200
	To Share Allotment A/c			6,60,000
	(Being allotment received after adjustment of excess application; D defaulted on 2,000 shares)
5.	Share First Call A/c     ...Dr.		2,00,000
	To Share Capital A/c			2,00,000
	(Being 1st call due @ ₹2 on 1,00,000 shares)
6.	Bank A/c     ...Dr.		1,97,200
	Calls in Arrears A/c     ...Dr.		2,800
	To Share First Call A/c			2,00,000
	(Being first call received; D (2,000 shares) & M (3,000 shares) defaulted)
7.	Share Final Call A/c     ...Dr.		1,00,000
	To Share Capital A/c			1,00,000
	(Being final call due @ ₹1 on 1,00,000 shares)
8.	Bank A/c     ...Dr.		97,800
	Calls in Arrears A/c     ...Dr.		2,200
	To Share Final Call A/c			1,00,000
	(Being final call received; M (3,000 shares) defaulted)
9.	Share Capital A/c     ...Dr.		20,000
	Securities Premium Reserve A/c     ...Dr.		10,000
	To Calls in Arrears A/c			19,200
	To Share Forfeiture A/c			10,800
	(Being forfeiture of 2,000 shares for non-payment of allotment & 1st call)
10.	Share Capital A/c     ...Dr.		30,000
	To Calls in Arrears A/c			5,200
	To Share Forfeiture A/c			24,800
	(Being forfeiture of 3,000 shares for non-payment of calls)
11.	Bank A/c     ...Dr.		40,000
	Share Forfeiture A/c     ...Dr.		10,000
	To Share Capital A/c			50,000
	(Being re-issue of 5,000 shares at ₹2 discount, adjusted from forfeiture)
12.	Share Forfeiture A/c     ...Dr.		21,800
	To Capital Reserve A/c			21,800
	(Being balance of forfeiture A/c transferred to Capital Reserve: 10,800 + 24,800 − 10,000)

Working Note:

1) Applications:
Received = 1,25,000 × 4.50 = ₹5,62,500
Transferred: Capital (1,00,000 × 4.50) = ₹4,50,000; Refund = ₹22,500; Balance = Excess = ₹90,000

2) Allotment:
Due = 1,00,000 × 7.50 = ₹7,50,000 (Capital ₹5,00,000 + Premium ₹2,50,000)
Net due after adjustment = 7,50,000 − 90,000 = 6,60,000.
Cash received = 6,46,800

3) Forfeiture:
D (2,000 shares): Premium unpaid ⇒ SPR Dr ₹10,000. Share Forfeiture = ₹10,800.
M (3,000 shares): Calls unpaid (2 + 1 = ₹3 per share) = ₹9,000. Forfeiture = ₹24,800.
Total forfeiture available = ₹35,600. Discount on re-issue = 5,000 × 2 = ₹10,000.
Balance = ₹21,800 → Capital Reserve.