Eastern Company Limited, with an authorised capital of Rs.10,00,000 is divided into equity shares of Rs.10 each, issued 50,000 equity shares at a premium of Rs.3 per share payable as follows:
On Application Rs.3 per share On Allotment (including premium) Rs.5 per share On first call (due three months after allotment) Rs.3 per share and the balance as and when required.
Applications were received for 60,000 shares and the directors allotted the shares as follows:
(a) Applicants for 40,000 shares received in full. (b) Applicants for 15,000 shares received an allotment of 8,000 shares. (c) Applicants for 5000 shares received on allotment of 2000 shares, excess money being returned.
All amounts due on allotment were received.
The first call was duly made and the money was received with the exception of the call due on 100 shares.
Give journal and cash book entries to record these transactions of the company. Also prepare the Balance Sheet of the company.
Books of Eastern Company Limited Journal
| Date | Particulars | L.F. | Debit Amount (Rs.) | Credit Amount (Rs.) |
|---|---|---|---|---|
| 1. | Bank A/c Dr. | 1,80,000 | ||
| To Share Application A/c | 1,80,000 | |||
| (Being application money received on 60,000 shares @ Rs. 3 per share) | ||||
| 2. | Share Application A/c Dr. | 1,80,000 | ||
| To Share Capital A/c | 1,50,000 | |||
| To Share Allotment A/c | 21,000 | |||
| To Bank A/c | 9,000 | |||
| (Being application money transferred to capital and excess money adjusted) | ||||
| 3. | Share Allotment A/c Dr. | 2,50,000 | ||
| To Share Capital A/c | 1,00,000 | |||
| To Securities Premium A/c | 1,50,000 | |||
| (Being allotment money due on 50,000 shares @ Rs. 5 including premium) | ||||
| 4. | Bank A/c Dr. | 2,29,000 | ||
| To Share Allotment A/c | 2,29,000 | |||
| (Being allotment money received after adjustment) | ||||
| 5. | Share First Call A/c Dr. | 1,50,000 | ||
| To Share Capital A/c | 1,50,000 | |||
| (Being first call money due on 50,000 shares @ Rs. 3 per share) | ||||
| 6. | Bank A/c Dr. | 1,49,700 | ||
| Calls-in-Arrears A/c Dr. | 300 | |||
| To Share First Call A/c | 1,50,000 | |||
| (Being first call money received on 49,900 shares) |
Cash Book (Bank Column Only)
| Date | Particulars | Amount (Rs.) | Date | Particulars | Amount (Rs.) |
|---|---|---|---|---|---|
| To Share Application A/c | 1,80,000 | By Share Application A/c | 9,000 | ||
| To Share Allotment A/c | 2,29,000 | By Balance c/d | 5,49,700 | ||
| To Share First Call A/c | 1,49,700 | ||||
| 5,58,700 | 5,58,700 |
Balance Sheet of Eastern Company Limited as at ...
| Particulars | Note No. | Amount (Rs.) |
|---|---|---|
| I. EQUITY AND LIABILITIES | ||
| 1. Shareholders' Funds | ||
| (a) Share Capital | 1 | 3,99,700 |
| (b) Reserves and Surplus | 2 | 1,50,000 |
| Total | 5,49,700 | |
| II. ASSETS | ||
| 1. Current Assets | ||
| (a) Cash and Cash Equivalents | 3 | 5,49,700 |
| Total | 5,49,700 |
Notes to Accounts
| Note No. | Particulars | Amount (Rs.) |
|---|---|---|
| 1. | Share Capital: | |
| Authorised Capital: 1,00,000 shares of Rs. 10 each | 10,00,000 | |
| Issued Capital: 50,000 shares of Rs. 10 each | 5,00,000 | |
| Subscribed Capital: 50,000 shares | ||
| Called-up: Rs. 8 per share (3+2+3) | 4,00,000 | |
| Less: Calls-in-Arrears (100 shares x Rs. 3) | 300 | |
| 3,99,700 | ||
| 2. | Reserves and Surplus: | |
| Securities Premium (50,000 shares x Rs. 3) | 1,50,000 | |
| 3. | Cash and Cash Equivalents: | |
| Bank Balance | 5,49,700 |
Explanation
The solution involves passing journal entries for share application, allotment (with pro-rata adjustment and premium), and first call (with arrears). The application money excess for category (b) is adjusted towards allotment, while for category (c) it is returned. The cash book reflects the net receipts. The balance sheet presents the paid-up capital after deducting arrears and shows the securities premium.
Solution Steps
Step 1: Calculate Application Money: Received for 60,000 shares @ Rs. 3 = Rs. 1,80,000. Required for 50,000 shares = Rs. 1,50,000. Excess = Rs. 30,000.
Step 2: Adjust Excess Application Money: Category (b) applied for 15,000, allotted 8,000. Excess = (15,000-8,000)*3 = Rs. 21,000. Adjust to allotment. Category (c) applied for 5,000, allotted 2,000. Excess = (5,000-2,000)*3 = Rs. 9,000. Returned.
Step 3: Calculate Allotment Money: Due on 50,000 shares @ Rs. 5 = Rs. 2,50,000. Received = Rs. 2,50,000 (Due) - Rs. 21,000 (Adjusted) = Rs. 2,29,000.
Step 4: Calculate First Call Money: Due on 50,000 shares @ Rs. 3 = Rs. 1,50,000. Arrears on 100 shares = Rs. 300. Received = Rs. 1,49,700.
Step 5: Prepare Balance Sheet: Share Capital = Rs. 4,00,000 (Called up) - Rs. 300 (Arrears). Securities Premium = Rs. 1,50,000. Bank = Total Receipts - Refunds.