Question 51 of 61advanced🔧 ApplyNumerical8 marks

Raunak Cotton Ltd. issued a prospectus inviting applications for 6,000 equity shares of Rs.100 each at a premium of Rs.20 per shares, payable as follows:

On application Rs.20 On allotment Rs.50 [including premium] On first call Rs.30 On final call Rs.20

Applications were received for 10,000 shares and allotment was made pro-rata to the applicants of 8,000 shares, the remaining applications being refused. Money received in excess on the application was adjusted toward the amount due on allotment.

Rohit, to whom 300 shares were allotted failed to pay allotment and calls money, his shares were forfeited. Itika, who applied for 600 shares, failed to pay the two calls and her shares were also forfeited. All these shares were sold to Kartika as fully paid for Rs.80 per share.

Give journal entries in the books of the company. (Answer: Capital Reserve = Rs.15,500)

Correct Answer

JOURNAL ENTRIES IN THE BOOKS OF RAUNAK COTTON LTD.

DateParticularsL.F.Debit (Rs.)Credit (Rs.)
1.Bank A/c Dr.2,00,000
To Share Application A/c2,00,000
(Application money received on 10,000 shares @ Rs.20)

| 2. | Share Application A/c Dr. | | 2,00,000 | | | | To Share Capital A/c | | | 1,20,000 | | | To Share Allotment A/c | | | 40,000 | | | To Bank A/c | | | 40,000 | | | (Application money transferred to capital, excess adjusted to allotment and refund made) | | | |

| 3. | Share Allotment A/c Dr. | | 3,00,000 | | | | To Share Capital A/c | | | 1,80,000 | | | To Securities Premium A/c | | | 1,20,000 | | | (Allotment money due on 6,000 shares @ Rs.50 including premium) | | | |

| 4. | Bank A/c Dr. | | 2,47,000 | | | | Calls-in-Arrears A/c Dr. | | 13,000 | | | | To Share Allotment A/c | | | 2,60,000 | | | (Allotment money received, Rohit's arrears Rs.13,000) | | | |

| 5. | Share First Call A/c Dr. | | 1,80,000 | | | | To Share Capital A/c | | | 1,80,000 | | | (First call money due on 6,000 shares @ Rs.30) | | | |

| 6. | Bank A/c Dr. | | 1,57,500 | | | | Calls-in-Arrears A/c Dr. | | 22,500 | | | | To Share First Call A/c | | | 1,80,000 | | | (First call received, arrears from Rohit Rs.9,000 and Itika Rs.13,500) | | | |

| 7. | Share Final Call A/c Dr. | | 1,20,000 | | | | To Share Capital A/c | | | 1,20,000 | | | (Final call money due on 6,000 shares @ Rs.20) | | | |

| 8. | Bank A/c Dr. | | 1,05,000 | | | | Calls-in-Arrears A/c Dr. | | 15,000 | | | | To Share Final Call A/c | | | 1,20,000 | | | (Final call received, arrears from Rohit Rs.6,000 and Itika Rs.9,000) | | | |

| 9. | Share Capital A/c Dr. | | 30,000 | | | | Securities Premium A/c Dr. | | 6,000 | | | | To Share Allotment A/c | | | 13,000 | | | To Share First Call A/c | | | 9,000 | | | To Share Final Call A/c | | | 6,000 | | | To Share Forfeiture A/c | | | 8,000 | | | (Rohit's 300 shares forfeited for non-payment) | | | |

| 10. | Share Capital A/c Dr. | | 45,000 | | | | To Share First Call A/c | | | 13,500 | | | To Share Final Call A/c | | | 9,000 | | | To Share Forfeiture A/c | | | 22,500 | | | (Itika's 450 shares forfeited for non-payment of calls) | | | |

| 11. | Bank A/c Dr. | | 60,000 | | | | Share Forfeiture A/c Dr. | | 15,000 | | | | To Share Capital A/c | | | 75,000 | | | (750 forfeited shares reissued @ Rs.80 per share as fully paid) | | | |

| 12. | Share Forfeiture A/c Dr. | | 15,500 | | | | To Capital Reserve A/c | | | 15,500 | | | (Profit on reissue transferred to Capital Reserve) | | | |

Working Notes:

1. Pro-rata Allotment:

  • Shares issued: 6,000; Applications for pro-rata: 8,000
  • Pro-rata ratio: 3:4 (for every 4 shares applied, 3 allotted)

2. Rohit's Position:

  • Shares allotted: 300; Shares applied: 300×4300 \times 4/3 = 400
  • Application money paid: 400 × Rs.20 = Rs.8,000
  • Excess adjusted to allotment: Rs.8,000 - (300 × Rs.20) = Rs.2,000
  • Allotment arrears: Rs.15,000 - Rs.2,000 = Rs.13,000

3. Itika's Position:

  • Shares applied: 600; Shares allotted: 600×3600 \times 3/4 = 450
  • Application money: Rs.12,000; Excess: Rs.3,000
  • Paid allotment; First call arrears: 450 × Rs.30 = Rs.13,500
  • Final call arrears: 450 × Rs.20 = Rs.9,000

4. Capital Reserve Calculation:

  • Share Forfeiture (Rohit): Rs.8,000
  • Share Forfeiture (Itika): Rs.22,500
  • Less: Loss on reissue: 750 × Rs.20 = Rs.15,000
  • Capital Reserve = Rs.30,500 - Rs.15,000 = Rs.15,500
Exercise: Questions for Practice - Numerical Questions | Q: 14 | (Page 70)
For More Understanding

Explanation

This is a comprehensive share capital problem involving oversubscription, pro-rata allotment, forfeiture of shares by two different shareholders with different default patterns, and reissue of forfeited shares. The key calculations involve: (1) determining pro-rata ratio as 3:4, (2) calculating Rohit's excess application money of Rs.2,000 adjusted against allotment, (3) computing Itika's allotted shares as 450, (4) preparing separate forfeiture entries for each shareholder based on amounts received, and (5) calculating Capital Reserve by netting the Share Forfeiture account credits against the loss on reissue.

Solution Steps

  1. Step 1: Calculate pro-rata ratio - 6,000 shares allotted from 8,000 applications = 3:4

  2. Step 2: Determine Rohit's shares applied = 300×4300 \times 4/3 = 400 shares; excess application = Rs.2,000

  3. Step 3: Determine Itika's shares allotted = 600×3600 \times 3/4 = 450 shares

  4. Step 4: Calculate allotment money received = Rs.2,60,000 - Rs.13,000 (Rohit's arrears) = Rs.2,47,000

  5. Step 5: Calculate first call arrears = Rohit Rs.9,000 + Itika Rs.13,500 = Rs.22,500

  6. Step 6: Calculate final call arrears = Rohit Rs.6,000 + Itika Rs.9,000 = Rs.15,000

  7. Step 7: Forfeiture of Rohit's shares - Share Capital Rs.30,000, Premium Rs.6,000, Forfeiture credit Rs.8,000

  8. Step 8: Forfeiture of Itika's shares - Share Capital Rs.45,000, Forfeiture credit Rs.22,500

  9. Step 9: Reissue of 750 shares at Rs.80 - Share Forfeiture debit Rs.15,000

  10. Step 10: Capital Reserve = Rs.8,000 + Rs.22,500 - Rs.15,000 = Rs.15,500

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