Software Solution India Ltd. invited applications for 20,000 equity shares of Rs.100 each, payable Rs.40 on application, Rs.30 on allotment and Rs.30 on first and final call. The company received applications for 32,000 shares. Application for 2,000 shares were rejected and money returned to applicants. Applications for 10,000 shares were accepted in full and applicants for 20,000 shares allotted half of the number of shares applied and excess application money adjusted into allotment. All money due on allotment and call was received. Prepare journal and cash book.
Working Notes:
1. Analysis of Allotment:
- Total shares issued = 20,000 shares
- Total applications received = 32,000 shares
- Category A (Rejected): 2,000 shares - Money returned
- Category B (Accepted in full): 10,000 shares allotted
- Category C (Pro-rata): Applied for 20,000 shares, allotted 10,000 shares (half)
2. Application Money Calculation:
- Application money received = 32,000 × Rs.40 = Rs.12,80,000
- Application money transferred to Capital = 20,000 × Rs.40 = Rs.8,00,000
- Excess application money (Category C) = 20,000 × Rs.40 - 10,000 × Rs.40 = Rs.4,00,000
- Application money returned (Category A) = 2,000 × Rs.40 = Rs.80,000
3. Allotment Money Calculation:
- Allotment money due = 20,000 × Rs.30 = Rs.6,00,000
- Less: Excess application money adjusted = Rs.4,00,000
- Allotment money received in cash = Rs.2,00,000
JOURNAL ENTRIES:
| Date | Particulars | L.F. | Dr. (Rs.) | Cr. (Rs.) |
|---|---|---|---|---|
| 1 | Bank A/c Dr. | 12,80,000 | ||
| To Equity Share Application A/c | 12,80,000 | |||
| (Application money received on 32,000 shares @ Rs.40) | ||||
| 2 | Equity Share Application A/c Dr. | 8,00,000 | ||
| To Equity Share Capital A/c | 8,00,000 | |||
| (Application money transferred to capital) | ||||
| 3 | Equity Share Application A/c Dr. | 4,00,000 | ||
| To Equity Share Allotment A/c | 4,00,000 | |||
| (Excess application money adjusted to allotment) | ||||
| 4 | Equity Share Application A/c Dr. | 80,000 | ||
| To Bank A/c | 80,000 | |||
| (Application money returned on rejected shares) | ||||
| 5 | Equity Share Allotment A/c Dr. | 6,00,000 | ||
| To Equity Share Capital A/c | 6,00,000 | |||
| (Allotment money due on 20,000 shares @ Rs.30) | ||||
| 6 | Bank A/c Dr. | 2,00,000 | ||
| To Equity Share Allotment A/c | 2,00,000 | |||
| (Allotment money received after adjustment) | ||||
| 7 | Equity Share First and Final Call A/c Dr. | 6,00,000 | ||
| To Equity Share Capital A/c | 6,00,000 | |||
| (Call money due on 20,000 shares @ Rs.30) | ||||
| 8 | Bank A/c Dr. | 6,00,000 | ||
| To Equity Share First and Final Call A/c | 6,00,000 | |||
| (Call money received) |
CASH BOOK (Bank Column):
| Date | Receipts | Amount (Rs.) | Date | Payments | Amount (Rs.) |
|---|---|---|---|---|---|
| To Equity Share Application A/c | 12,80,000 | By Equity Share Application A/c | 80,000 | ||
| To Equity Share Allotment A/c | 2,00,000 | By Balance c/d | 20,00,000 | ||
| To Equity Share First and Final Call A/c | 6,00,000 | ||||
| 20,80,000 | 20,80,000 |
Verification: Total Share Capital = 20,000 × Rs.100 = Rs.20,00,000 (matches Balance c/d)
Explanation
This question tests the concept of pro-rata allotment with excess application money adjustment. The key points are: (1) Category A applicants (2,000 shares) were rejected and got refunds, (2) Category B applicants (10,000 shares) received full allotment, (3) Category C applicants (20,000 shares) received 50% allotment (10,000 shares), and their excess application money was utilized for allotment. The excess application money of Rs.4,00,000 from Category C was adjusted against allotment money due of Rs.6,00,000, leaving only Rs.2,00,000 to be received in cash on allotment.
Solution Steps
Step 1: Calculate total application money received = 32,000 × Rs.40 = Rs.12,80,000
Step 2: Identify rejected applications (2,000 shares) - return Rs.80,000
Step 3: Calculate excess application money from pro-rata category = Rs.4,00,000
Step 4: Adjust excess application money towards allotment
Step 5: Calculate net allotment money received = Rs.6,00,000 - Rs.4,00,000 = Rs.2,00,000
Step 6: Record all journal entries and prepare cash book with proper balancing