Sumit Machine Ltd. issued 50,000 shares of Rs.100 each at premium of 5%. The shares were payable Rs.25 on application, Rs.50 on allotment and Rs.30 on first and final call. The issue was fully subscribed and money was duly received except the final call on 400 shares. The premium was adjusted on allotment.
Give journal entries and prepare the balance sheet.
Journal Entries in the Books of Sumit Machine Ltd.
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
|---|---|---|---|---|
| 1 | Bank A/c Dr. | 12,50,000 | ||
| To Share Application A/c | 12,50,000 | |||
| (Being application money received on 50,000 shares @ Rs.25 each) | ||||
| 2 | Share Application A/c Dr. | 12,50,000 | ||
| To Share Capital A/c | 12,50,000 | |||
| (Being application money transferred to share capital) | ||||
| 3 | Share Allotment A/c Dr. | 25,00,000 | ||
| To Share Capital A/c | 22,50,000 | |||
| To Securities Premium A/c | 2,50,000 | |||
| (Being allotment money due on 50,000 shares @ Rs.50 including premium Rs.5) | ||||
| 4 | Bank A/c Dr. | 25,00,000 | ||
| To Share Allotment A/c | 25,00,000 | |||
| (Being allotment money received in full) | ||||
| 5 | Share First and Final Call A/c Dr. | 15,00,000 | ||
| To Share Capital A/c | 15,00,000 | |||
| (Being first and final call money due on 50,000 shares @ Rs.30) | ||||
| 6 | Bank A/c Dr. | 14,88,000 | ||
| Calls in Arrears A/c Dr. | 12,000 | |||
| To Share First and Final Call A/c | 15,00,000 | |||
| (Being call money received on 49,600 shares; 400 shares failed to pay) |
Balance Sheet of Sumit Machine Ltd.
| Particulars | Note No. | Amount (Rs.) |
|---|---|---|
| I. Equity and Liabilities | ||
| 1. Shareholders' Funds: | ||
| a. Share Capital | 1 | 49,88,000 |
| b. Reserves and Surplus | 2 | 2,50,000 |
| Total | 52,38,000 | |
| II. Assets | ||
| 1. Current Assets: | ||
| a. Cash and Cash Equivalents | 52,38,000 | |
| Total | 52,38,000 |
Notes to Accounts:
Note 1: Share Capital
| Particulars | Amount (Rs.) |
|---|---|
| Issued Capital: 50,000 shares of Rs.100 each | 50,00,000 |
| Called up Capital | 50,00,000 |
| Less: Calls in Arrears (400 × Rs.30) | 12,000 |
| Paid up Capital | 49,88,000 |
Note 2: Reserves and Surplus
| Particulars | Amount (Rs.) |
|---|---|
| Securities Premium (50,000 × Rs.5) | 2,50,000 |
Working Notes:
1. Calculation of Premium:
- Face Value = Rs.100 per share
- Premium = 5% of Rs.100 = Rs.5 per share
- Issue Price = Rs.105 per share
2. Allotment Money Break-up:
- Total Allotment Money = Rs.50 per share
- Premium adjusted on allotment = Rs.5 per share
- Share Capital portion = Rs.50 - Rs.5 = Rs.45 per share
3. Calls in Arrears:
- Shares not paying call = 400 shares
- Call amount per share = Rs.30
- Calls in Arrears = 400 × Rs.30 = Rs.12,000
4. Bank Balance Verification:
- Application: 50,000 × Rs.25 = Rs.12,50,000
- Allotment: 50,000 × Rs.50 = Rs.25,00,000
- Call: 49,600 × Rs.30 = Rs.14,88,000
- Total Bank Balance = Rs.52,38,000
Explanation
This question tests the student's understanding of share issuance at premium and the treatment of calls in arrears. The key points are: (1) Premium of 5% on Rs.100 = Rs.5 per share, which is adjusted on allotment; (2) The allotment money of Rs.50 includes Rs.45 for share capital and Rs.5 for premium; (3) Calls in arrears (400 shares × Rs.30 = Rs.12,000) are shown as a deduction from called-up capital in the Balance Sheet; (4) Securities Premium is shown separately under Reserves and Surplus. The balance sheet must balance, confirming that Total Assets (Bank Rs.52,38,000) equals Total Liabilities (Share Capital Rs.49,88,000 + Securities Premium Rs.2,50,000).
Solution Steps
Step 1: Calculate application money - 50,000 shares × Rs.25 = Rs.12,50,000
Step 2: Calculate allotment money - Premium = 5% of Rs.100 = Rs.5 per share; Allotment = Rs.50 (including Rs.5 premium); Share Capital portion = Rs.45; Securities Premium = 50,000 × Rs.5 = Rs.2,50,000
Step 3: Calculate call money - Total due = 50,000 × Rs.30 = Rs.15,00,000; Received = 49,600 × Rs.30 = Rs.14,88,000; Calls in Arrears = 400 × Rs.30 = Rs.12,000
Step 4: Pass journal entries for application, allotment (with premium), and call (with arrears)
Step 5: Prepare Balance Sheet showing Share Capital (Rs.50,00,000 - Rs.12,000 arrears = Rs.49,88,000), Securities Premium (Rs.2,50,000), and Bank (Rs.52,38,000)