Ajanta Company Limited having a nominal capital of Rs.3,00,000, divided into shares of Rs.10 each offered for public subscription of 20,000 shares payable at Rs.2 on application; Rs.3 on allotment and the balance in two calls of Rs.2.50 each. Applications were received by the company for 24,000 shares. Applications for 20,000 shares were accepted in full and the shares allotted. Applications for the remaining shares were rejected and the application money was refunded.
All moneys due were received with the exception of the final call on 600 shares which were forfeited after legal formalities were fulfilled. 400 shares of the forfeited shares were reissued at Rs.9 per share.
Record necessary journal entries and prepare the balance sheet showing the amount transferred to capital reserve and the balance in share forfeiture account. (Answer: Capital Reserve = Rs. 2,600)
JOURNAL ENTRIES IN THE BOOKS OF AJANTA COMPANY LIMITED
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
|---|---|---|---|---|
| 1 | Bank A/c Dr. | 48,000 | ||
| To Share Application A/c | 48,000 | |||
| (Being application money received on 24,000 shares @ Rs. 2 each) | ||||
| 2 | Share Application A/c Dr. | 48,000 | ||
| To Share Capital A/c | 40,000 | |||
| To Bank A/c | 8,000 | |||
| (Being application money transferred to capital and excess refunded) | ||||
| 3 | Share Allotment A/c Dr. | 60,000 | ||
| To Share Capital A/c | 60,000 | |||
| (Being allotment money due on 20,000 shares @ Rs. 3 each) | ||||
| 4 | Bank A/c Dr. | 60,000 | ||
| To Share Allotment A/c | 60,000 | |||
| (Being allotment money received in full) | ||||
| 5 | Share First Call A/c Dr. | 50,000 | ||
| To Share Capital A/c | 50,000 | |||
| (Being first call money due @ Rs. 2.50 per share) | ||||
| 6 | Bank A/c Dr. | 50,000 | ||
| To Share First Call A/c | 50,000 | |||
| (Being first call money received in full) | ||||
| 7 | Share Final Call A/c Dr. | 50,000 | ||
| To Share Capital A/c | 50,000 | |||
| (Being final call money due @ Rs. 2.50 per share) | ||||
| 8 | Bank A/c Dr. | 48,500 | ||
| Calls-in-Arrears A/c Dr. | 1,500 | |||
| To Share Final Call A/c | 50,000 | |||
| (Being final call received on 19,400 shares; 600 shares in arrears) | ||||
| 9 | Share Capital A/c Dr. | 6,000 | ||
| To Calls-in-Arrears A/c | 1,500 | |||
| To Share Forfeiture A/c | 4,500 | |||
| (Being 600 shares forfeited for non-payment of final call) | ||||
| 10 | Bank A/c Dr. | 3,600 | ||
| Share Forfeiture A/c Dr. | 400 | |||
| To Share Capital A/c | 4,000 | |||
| (Being 400 forfeited shares reissued @ Rs. 9 per share fully paid) | ||||
| 11 | Share Forfeiture A/c Dr. | 2,600 | ||
| To Capital Reserve A/c | 2,600 | |||
| (Being profit on reissue transferred to Capital Reserve) |
BALANCE SHEET (EXTRACT)
| Particulars | Amount (Rs.) |
|---|---|
| EQUITY AND LIABILITIES | |
| 1. Shareholders' Funds: | |
| (a) Share Capital: | |
| Authorised Capital: | |
| 30,000 shares of Rs. 10 each | 3,00,000 |
| Issued Capital: | |
| 20,000 shares of Rs. 10 each | 2,00,000 |
| Subscribed & Fully Paid Capital: | |
| 19,800 shares of Rs. 10 each fully paid | 1,98,000 |
| Add: Share Forfeiture Account | 1,500 |
| 1,99,500 | |
| (b) Reserves and Surplus: | |
| Capital Reserve | 2,600 |
WORKING NOTES:
1. Calculation of Share Forfeiture Amount:
- Amount received on forfeited shares (600 shares):
- Application money: 600 × Rs. 2 = Rs. 1,200
- Allotment money: 600 × Rs. 3 = Rs. 1,800
- First call money: 600 × Rs. 2.50 = Rs. 1,500
- Total Share Forfeiture = Rs. 4,500
2. Calculation of Capital Reserve:
- Share Forfeiture on 400 reissued shares = 400 × Rs. 7.50 = Rs. 3,000
- Loss on reissue = 400 × (Rs. 10 - Rs. 9) = Rs. 400
- Capital Reserve = Rs. 3,000 - Rs. 400 = Rs. 2,600
3. Balance in Share Forfeiture Account:
- Total forfeiture = Rs. 4,500
- Less: Used on reissue = Rs. 400
- Less: Transferred to Capital Reserve = Rs. 2,600
- Balance = Rs. 1,500 (for 200 forfeited shares not yet reissued)
Explanation
This question tests the complete accounting treatment for share capital from issue to forfeiture and reissue. The key calculations involve: (1) Share forfeiture amount equals the amount received from defaulting shareholders before forfeiture (application + allotment + first call = Rs. 7.50 per share × 600 shares = Rs. 4,500), (2) Capital Reserve equals forfeiture amount on reissued shares minus loss on reissue (Rs. 3,000 - Rs. 400 = Rs. 2,600), and (3) Balance in Share Forfeiture Account represents the amount remaining for forfeited shares not yet reissued (Rs. 1,500 for 200 shares).
Solution Steps
Step 1: Pass journal entries for application money received and refund of excess applications
Step 2: Pass entries for allotment and call money received
Step 3: Calculate forfeiture amount = Application + Allotment + First Call = Rs. 2 + Rs. 3 + Rs. 2.50 = Rs. 7.50 per share
Step 4: Pass forfeiture entry for 600 shares (Rs. 4,500 credited to Share Forfeiture)
Step 5: Pass reissue entry for 400 shares at Rs. 9 (discount = Rs. 1 per share = Rs. 400 debited to Share Forfeiture)
Step 6: Calculate Capital Reserve = Forfeiture on reissued shares - Loss on reissue = Rs. 3,000 - Rs. 400 = Rs. 2,600
Step 7: Calculate balance in Share Forfeiture = Rs. 4,500 - Rs. 400 - Rs. 2,600 = Rs. 1,500
Step 8: Prepare Balance Sheet extract showing Share Capital and Capital Reserve