Question 2 of 61intermediate🔧 ApplyNumerical4 marks

On April 01, 2019, a limited company was incorporated with an authorised capital of Rs. 40,000 divided into shares of Rs. 10 each. It offered to the public for subscription of 3,000 shares payable as follows:

On Application Rs. 3 per share On Allotment Rs. 2 per share On First Call (One month after allotment) Rs. 2.50 per share On Second and Final Call Rs. 2.50 per share

The shares were fully subscribed for by the public and application money duly received on April 15, 2019. The directors made the allotment on May 1, 2015. How will you record the share capital transactions in the books of a company if the amounts due have been duly received, and the company maintains the combined account for application and allotment.

Correct Answer

Journal Entries in the Books of Company

1. On Receipt of Application Money (April 15, 2019): Bank A/c Dr. 9,000 To Share Application and Allotment A/c 9,000 (Application money received for 3,000 shares @ Rs. 3 per share)

2. On Allotment (May 1, 2019): Share Application and Allotment A/c Dr. 9,000 To Share Capital A/c 9,000 (Application money transferred to Share Capital)

Share Allotment A/c Dr. 6,000 To Share Capital A/c 6,000 (Allotment money due on 3,000 shares @ Rs. 2 per share)

Share Application and Allotment A/c Dr. 6,000 To Share Allotment A/c 6,000 (Allotment money received with application as per combined account)

3. On First Call: Share First Call A/c Dr. 7,500 To Share Capital A/c 7,500 (First call money due on 3,000 shares @ Rs. 2.50 per share)

Bank A/c Dr. 7,500 To Share First Call A/c 7,500 (First call money received)

4. On Second and Final Call: Share Second and Final Call A/c Dr. 7,500 To Share Capital A/c 7,500 (Second and Final call money due on 3,000 shares @ Rs. 2.50 per share)

Bank A/c Dr. 7,500 To Share Second and Final Call A/c 7,500 (Second and Final call money received)

Exercise: Do it Yourself | Q: 1 | (Page 15)
For More Understanding

Explanation

This question tests the concept of combined application and allotment account. When a company maintains a combined account, the application money received is credited to 'Share Application and Allotment Account' instead of separate accounts. On allotment, the application portion is transferred to Share Capital, and the allotment money due is adjusted from the combined account. The total of application (Rs. 9,000) and allotment (Rs. 6,000) equals Rs. 15,000, which is credited to Share Capital when both are due. Subsequent calls (First Call Rs. 7,500 and Second & Final Call Rs. 7,500) are recorded normally as the combined account treatment applies only to application and allotment stages.

Solution Steps

  1. Step 1: Calculate application money received = 3,000 shares × Rs. 3 = Rs. 9,000

  2. Step 2: Record application money in combined account (Share Application and Allotment A/c)

  3. Step 3: On allotment, transfer application money to Share Capital = Rs. 9,000

  4. Step 4: Calculate allotment money due = 3,000 shares × Rs. 2 = Rs. 6,000

  5. Step 5: Adjust allotment money from combined account to Share Allotment A/c

  6. Step 6: Calculate First Call = 3,000 × Rs. 2.50 = Rs. 7,500

  7. Step 7: Calculate Second and Final Call = 3,000 × Rs. 2.50 = Rs. 7,500

  8. Step 8: Verify total = Rs. 9,000 + Rs. 6,000 + Rs. 7,500 + Rs. 7,500 = Rs. 30,000 (3,000 × Rs. 10)

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