Question 54 of 61advanced🔧 ApplyNumerical8 marks

Life Machine Tools Limited issued 50,000 equity shares of Rs.10 each at Rs.12 per share, payable at to Rs.5 on application (including premium), Rs.4 on allotment and the balance on the first and final call.

Applications for 70,000 shares had been received. Of the cash received, Rs.40,000 was returned and Rs.60,000 was applied to the amount due on allotment. All shareholders paid the call due, with the exception of one shareholder of 500 shares. These shares were forfeited and reissued as fully paid at Rs.8 per share. Journalise the transactions. (Answer: Capital Reserve = Rs. 2,500)

Correct Answer

Journal entries in the books of Life Machine Tools Limited:

  1. Bank A/c Dr. Rs.3,50,000 To Share Application A/c Rs.3,50,000 (Being application money received on 70,000 shares @ Rs.5 each)

  2. Share Application A/c Dr. Rs.3,50,000 To Share Capital A/c Rs.1,50,000 To Securities Premium Reserve A/c Rs.1,00,000 To Bank A/c Rs.40,000 To Share Allotment A/c Rs.60,000 (Being application money transferred to capital, premium, return of excess and adjustment to allotment)

  3. Share Allotment A/c Dr. Rs.2,00,000 To Share Capital A/c Rs.2,00,000 (Being allotment money due on 50,000 shares @ Rs.4 each)

  4. Bank A/c Dr. Rs.1,40,000 To Share Allotment A/c Rs.1,40,000 (Being allotment money received after adjustment)

  5. Share First and Final Call A/c Dr. Rs.1,50,000 To Share Capital A/c Rs.1,50,000 (Being first and final call due on 50,000 shares @ Rs.3 each)

  6. Bank A/c Dr. Rs.1,48,500 To Share First and Final Call A/c Rs.1,48,500 (Being call money received on 49,500 shares)

  7. Share Capital A/c Dr. Rs.5,000 To Share Forfeited A/c Rs.3,500 To Share First and Final Call A/c Rs.1,500 (Being 500 shares forfeited for non-payment of call money)

  8. Bank A/c Dr. Rs.4,000 Share Forfeited A/c Dr. Rs.1,000 To Share Capital A/c Rs.5,000 (Being 500 forfeited shares reissued @ Rs.8 per share fully paid)

  9. Share Forfeited A/c Dr. Rs.2,500 To Capital Reserve A/c Rs.2,500 (Being profit on reissue transferred to Capital Reserve)

Exercise: Questions for Practice - Numerical Questions | Q: 17 | (Page 72)
For More Understanding

Explanation

This question involves oversubscription with pro-rata adjustment, forfeiture for non-payment of call money, and reissue of forfeited shares at a discount. The key calculations are: (1) Application money received Rs.3,50,000 (70,000 × Rs.5), with Rs.40,000 returned and Rs.60,000 adjusted to allotment; (2) Forfeiture amount = Rs.3,500 (amount received excluding premium on 500 shares); (3) Discount on reissue = Rs.1,000 (500 × Rs.2); (4) Capital Reserve = Rs.3,500 - Rs.1,000 = Rs.2,500.

Solution Steps

  1. Step 1: Calculate application money - Received Rs.3,50,000 (70,000 × Rs.5), Required Rs.2,50,000 (50,000 × Rs.5), Excess Rs.1,00,000 of which Rs.40,000 returned and Rs.60,000 adjusted to allotment

  2. Step 2: Calculate allotment money - Due Rs.2,00,000 (50,000 × Rs.4), Less adjustment Rs.60,000, Balance received Rs.1,40,000

  3. Step 3: Calculate call money - Due Rs.1,50,000 (50,000 × Rs.3), Received Rs.1,48,500 (49,500 × Rs.3), Unpaid Rs.1,500 (500 × Rs.3)

  4. Step 4: Calculate forfeiture credit - Amount received on 500 shares excluding premium = Rs.3,500 [(Rs.5 - Rs.2) + Rs.4] × 500

  5. Step 5: Calculate reissue discount - Rs.2 per share (Rs.10 - Rs.8), Total Rs.1,000 (500 × Rs.2)

  6. Step 6: Calculate Capital Reserve - Rs.3,500 (forfeited) - Rs.1,000 (discount on reissue) = Rs.2,500

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