Question 52 of 61advanced🔧 ApplyNumerical8 marks

Himalaya Company Limited issued for public subscription of 1,20,000 equity shares of Rs.10 each at a premium of Rs.2 per share payable as under:

With Application Rs. 3 per share On allotment (including premium) Rs. 5 per share On First call Rs. 2 per share On Second and Final call Rs. 2 per share

Applications were received for 1,60,000 shares. Allotment was made on pro-rata basis. Excess money on application was adjusted against the amount due on allotment.

Rohan, whom 4,800 shares were allotted, failed to pay for the two calls. These shares were subsequently forfeited after the second call was made. All the shares forfeited were reissued to Teena as fully paid at Rs. 7 per share.

Record journal entries and show the transactions relating to share capital in the company’s balance sheet. (Answer = Rs. 14,400)

Correct Answer

Journal Entries in the books of Himalaya Company Limited:

1. Application Money Received: Bank A/c Dr. Rs. 4,80,000 To Equity Share Application A/c Rs. 4,80,000 (Being application money received for 1,60,000 shares @ Rs. 3 per share)

2. Application Money Transferred: Equity Share Application A/c Dr. Rs. 4,80,000 To Equity Share Capital A/c Rs. 3,60,000 To Equity Share Allotment A/c Rs. 1,20,000 (Being application money transferred to Share Capital and excess adjusted to allotment)

3. Allotment Money Due: Equity Share Allotment A/c Dr. Rs. 6,00,000 To Equity Share Capital A/c Rs. 3,60,000 To Securities Premium A/c Rs. 2,40,000 (Being allotment money due @ Rs. 5 per share including premium)

4. Allotment Money Received: Bank A/c Dr. Rs. 4,80,000 To Equity Share Allotment A/c Rs. 4,80,000 (Being allotment money received after adjusting excess application money)

5. First Call Due: Equity Share First Call A/c Dr. Rs. 2,40,000 To Equity Share Capital A/c Rs. 2,40,000 (Being first call money due @ Rs. 2 per share)

6. First Call Received: Bank A/c Dr. Rs. 2,30,400 Calls-in-Arrears A/c Dr. Rs. 9,600 To Equity Share First Call A/c Rs. 2,40,000 (Being first call money received except from Rohan)

7. Second Call Due: Equity Share Second & Final Call A/c Dr. Rs. 2,40,000 To Equity Share Capital A/c Rs. 2,40,000 (Being second and final call money due @ Rs. 2 per share)

8. Second Call Received: Bank A/c Dr. Rs. 2,30,400 Calls-in-Arrears A/c Dr. Rs. 9,600 To Equity Share Second & Final Call A/c Rs. 2,40,000 (Being second call money received except from Rohan)

9. Forfeiture of Shares: Equity Share Capital A/c Dr. Rs. 48,000 To Calls-in-Arrears A/c Rs. 19,200 To Share Forfeiture A/c Rs. 28,800 (Being 4,800 shares forfeited for non-payment of calls)

10. Reissue of Shares: Bank A/c Dr. Rs. 33,600 Share Forfeiture A/c Dr. Rs. 14,400 To Equity Share Capital A/c Rs. 48,000 (Being 4,800 shares reissued to Teena @ Rs. 7 per share fully paid)

11. Transfer to Capital Reserve: Share Forfeiture A/c Dr. Rs. 14,400 To Capital Reserve A/c Rs. 14,400 (Being profit on reissue transferred to Capital Reserve)

Working Notes:

Pro-rata Allotment: Shares Applied : Shares Allotted = 1,60,000 : 1,20,000 = 4 : 3

Rohan's Calculations:

  • Shares allotted to Rohan = 4,800
  • Shares applied by Rohan = 4,800×4800 \times 4/3 = 6,400 shares
  • Application money paid = 6,400 × Rs. 3 = Rs. 19,200
  • Application money required = 4,800 × Rs. 3 = Rs. 14,400
  • Excess application money = Rs. 4,800 (adjusted against allotment)
  • First call arrears = 4,800 × Rs. 2 = Rs. 9,600
  • Second call arrears = 4,800 × Rs. 2 = Rs. 9,600
  • Total calls-in-arrears = Rs. 19,200

Share Forfeiture Calculation:

  • Face value of 4,800 shares = 4,800 × Rs. 10 = Rs. 48,000
  • Less: Calls-in-arrears = Rs. 19,200
  • Share Forfeiture Account credit = Rs. 28,800

Capital Reserve Calculation:

  • Share Forfeiture Account credit = Rs. 28,800
  • Less: Loss on reissue (4,800 × Rs. 3) = Rs. 14,400
  • Capital Reserve = Rs. 14,400
Exercise: Questions for Practice - Numerical Questions | Q: 15 | (Page 71)
For More Understanding

Explanation

This question tests the complete accounting cycle for share issuance with pro-rata allotment, forfeiture, and reissue. The key calculations involve: (1) adjusting excess application money against allotment, (2) calculating calls-in-arrears for Rohan's shares, (3) determining Share Forfeiture amount as face value minus unpaid calls, and (4) computing Capital Reserve as Share Forfeiture balance minus loss on reissue. The pro-rata ratio of 4:3 means Rohan applied for 6,400 shares to receive 4,800 allotted shares. The final Capital Reserve of Rs. 14,400 represents the gain from forfeited shares reissued at a discount.

Solution Steps

  1. Step 1: Calculate pro-rata ratio = 1,60,000 : 1,20,000 = 4:3

  2. Step 2: Calculate Rohan's application = 4,800×4800 \times 4/3 = 6,400 shares; Application money = 6,400 × Rs. 3 = Rs. 19,200

  3. Step 3: Calculate excess application money = Rs. 19,200 - (4,800 × Rs. 3) = Rs. 4,800 adjusted to allotment

  4. Step 4: Calculate calls-in-arrears = First call (Rs. 9,600) + Second call (Rs. 9,600) = Rs. 19,200

  5. Step 5: Share Forfeiture credit = Face value (Rs. 48,000) - Calls-in-arrears (Rs. 19,200) = Rs. 28,800

  6. Step 6: Loss on reissue = 4,800 × (Rs. 10 - Rs. 7) = Rs. 14,400

  7. Step 7: Capital Reserve = Rs. 28,800 - Rs. 14,400 = Rs. 14,400

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