Pro Rata Over Subscription Forfeiture Reissue of Shares

  

Shares Forfeiture Issued on Pro Rata and Over Subscription

When shares are issued at par, at discount or at premium on pro-rata basis and there are calls in arrears on allotment of pro rata basis, this formula can be applied:

Amount need on allotment (xxx shares @ Rs xx) Less: Excess amount of pro-rata		xxxxx (xxxx)
Arrears seem on allotment (xxx Shears @ Rs xx) Less: Paid = (Excess amount x Arrears shares) ÷ Pro-rata allotted shares	xxxx (xxx1)	xxxxx    (xxx2)
Received amount on allotment (bank)		xxxxx

Paid amount on allotment¹

Arrears amount on allotment²

PROBLEM: 32               [forfeiture of shares issued at pro-rata basis]         

Samsung Corporation Ltd issued a prospectus for 50,000 equity shares of $/₹/Rs 100 each at 20% premium under following terms:

Rs 30 on application Rs 40 on allotment (with premium) Rs 20 on first call Rs 30 on second and final call (not yet called) Applications were received for 94,000 shares. Allotments were made on following basis: Applications for 10,000 shares               Full Applications for 50,000 shares               Pro–rata Applications for 34,000 shares               Nil

Excess money can be utilizes toward allotment. The entire amount was duly received except a shareholder Mr. Sharma who held 2,000 shares under pro-rata basis failed to pay allotment and calls. These shares were forfeited by BOD after proper notice. These forfeited shares were reissued at Rs 60 per share whereas Rs 70 called up.

Required: Journal entries

[Answer: Arrears on allotment = Rs 65,000; Allotment bank = Rs 16,65,000;

Arrear on final call = Rs 40,000; Share forfeiture = Rs 75,000; Capital reserve = Rs 55,000]

SOLUTION:

Given and working note:

Shares Issued	Issued Price	Installation		Arrears and Advance		Share Applied	Shares Allotted
50,000	100+20P	Application Allotment First call Final call	30 40 [20C+20P] 20 30 not called	. −2,000 −2,000		10,000 50,000 12,000	10,000 40,000A Nil
						94,000	50,000

Return or refunded money  

= 34,000 share (Nil) x Rs 30 application money

= Rs 10,20,000^#

 

Excess money    

= Difference in pro–rata shares x Application money

= (50,000 – 40,000) x Rs 30

= 10,000 shares x Rs 30                 

= 3,00,000*

 

When there is a call in arrears on allotment, this formula can be applied:

Amount need on allotment (50,000 shares @ Rs 40) Less: Excess amount of pro-rata		20,00,000 (300,000*)
Arrears seem on allotment (2,000 Shears @ Rs 40) Less: Paid = 300,000* x 2,000 ÷ 40,000#	80,000 (15,000)	17,00,000   (65,000)
Received amount on allotment (bank)		16,35,000

Where: Paid = (Excess amount x Arrears shares) ÷ Pro-rata allotted shares

 

Journal entries  

In the book of Samsung Corporation Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
Received	Amount received on application
	Bank account                 To Equity share application account (Being- amount received on 94,000 shares @ Rs 30)	Dr		28,20,000	28,20,000
Transfer	Amount transfer of application
	Equity share application account           To Equity share capital account          To Bank account (return)          To Equity shares allotment account  (excess) (Being- amount transfer of application to capital, Excess amount returned and adjusted)	Dr		28,20,000	10,20,000# 15,00,000 3,00,000*
Due	Amount due/receivable on allotment
	Equity share allotment account             To Equity share capital account  (Being- amount due/receivable on allotment)	Dr		20,00,000	20,00,000
Received	Amount received on allotment
	Bank account      Calls in arrear account             To Equity share allotment account  (Being- amount received on 48,000 shares from working note after adjusting excess and arrears)	Dr Dr		16,35,000 65,000	17,00,000
Due	Amount due/receivable on first and final call
	Equity share first and final call account            To Equity share capital account (Being- amount due/receivable on calls)	Dr		10,00,000	10,00,000
Received	Amount received on first and final call
	Bank account      Calls in arrears account                    To Equity share first and final call account (Being- amount received on 48,000 shares @ Rs 20 Each and arrears adjusted)	Dr Dr		9,60,000 40,000	10,00,000
	Shares forfeiture
	Equity shares capital account  (2,000 x Rs 70) Share premium (security premium) (2,000 x Rs 20)            To Calls in arrear (allotment)          To Calls in arrear (calls)          To Share forfeiture account (b/f) (Being–2,000 shares forfeited for non-payment)	Dr Dr		1,40,000 40,000	65,000 40,000 75,0001
	Reissue
	Bank account [2,000 x Rs  60] Share forfeiture  (2,000 x Rs 10)               To Equity shares capital (Being- 2,000 equity shares of Rs 100 each reissued at Rs 60, called up Rs 70 and discount adjusted from share forfeiture)	Dr Dr		1,20,000 20,0002	1,40,000
	Transfer entry
	Share forfeiture account              To Capital reserve account (Being- balance forfeiture amount transfer to capital reserve)	Dr		55,000	55,0003

 

 

Share forfeiture Cr Share forfeiture Dr	= capital profit = capital loss	75,0001 20,0002
Share forfeiture Cr balance	= capital reserve	55,0003

 

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PROBLEM: 33               [forfeiture of shares issued at pro–rata basis]        

Butwal Financial Company Ltd. issued 25,000 equity shares of $/₹/Rs 100 each payable Rs 30 on application, Rs 40 on allotment, Rs 20 on first call and Rs 10 second and final call. Applications were received for 30,000 shares. Allotments were made on following basis:

(A) For the applications (B) For the applications (C) For the applications

5,000 10,000 15,000

Full 7,500 shares 12,500 shares

All excess money paid on application can be adjusted on allotment. The share were fully called up and paid up exception 1,000 shares from group of 10,000 applied shares failed to pay allotment and calls. The board of directors forfeited these shares. Out of forfeited shares 500 were reissued fully paid at Rs 80 per share.

Required: Journal entries

[Answer: Arrears on allotment = Rs 22,500; Allotment bank = Rs 827,500;

Arrears on first call = Rs 15,000; Arrear on final call = Rs 7,500;

Share forfeiture = Rs 30,000; Capital reserve = Rs 10,000]

SOLUTION:

Given and working note:

Shares Issued	Issued Price	Installation		Arrears and Advance		Share Applied	Shares Allotted
25,000	100	Application Allotment First call Final call	30 40 20 10 not called	. −750 −750 −750	A B C	5,000 10,000 15,000	5,000 7,500A 12,500
						30,000	25,000

Excess money group B

= Difference in pro–rata shares x Application money

= 2,500 shares x Rs 30

= (10,000 – 7,500) x Rs 30            

= 75,000^B

 

Excess money group C

= Difference in pro–rata shares x Application money

= (15,000 – 12,500) x Rs 30

= 2,500 shares x Rs 30                   

= 75,000^C

 

When there is a call in arrears on allotment, this formula can be applied:

Amount need on allotment (25,000 shares @ Rs 40) Less: Excess amount of pro-rata		10,00,000 (75,000*)
Arrears seem on allotment (750 Shears @ Rs 40) Less: Paid = (Rs 75,000* x 750) ÷ 7,500A	30,000 (7,500)	9,25,000    (22,500)
Received amount on allotment (bank) Less: Excess amount form pro-rata group		9,02,500 75,000C
Net amount received on allotment (bank)		8,27,500

Where: Paid = (Excess amount x Arrears shares) ÷ Pro-rata allotted shares

 

Or

Alternatively

Group	Amount received on application	Amount due on application	Excess or Surplus	Excess adjusted on allotment	Excess adjusted on calls	Excess returned  or  Refunded
A. 5,000	5,000 @ Rs 30 = 150,000	5,000 @ Rs 30 = 150,000	Nil	Nil	Nil	Nil
B. 10,000	10,000 @ Rs 30 = 300,000	7,500 @ Rs 30 = 225,000	75,000	75,000	Nil	Nil
C. 15,000	15,000 @ Rs 30 = 450,000	12,500 @ Rs 30 = 375,000	75,000	75,000	Nil	Nil

Shares allotted out of applied 1,000      = = 750 shares

Amount need on allotment on 750 shares     = 750 ES @ Rs 40 = 30,000

Excess/surplus amount on application            = 250 ES @ Rs   30 = 7,500

Arrears on allotment   = 30,000 – 7,500 = Rs   22,500

Cash received on allotment = 10,00,000 – (75,000+75,000) – 22,500        = Rs   827,500

Credit share forfeiture amount on 750 shares = 30,000

Share forfeiture amount on 500 shares = Rs 30,000 x 500 share ÷ 750 shares = Rs   20,000

Debit share forfeiture on reissue   = 500 shares @ Rs   20 = 10,000

Capital reserve = 20,000 – 10,000 = Rs   10,000

 

                                                                                     Journal entries

Butwal Financial Company Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
Received	Amount received on application
	Bank account                 To Equity share application account (Being- amount received on 30,000 shares @ Rs 30)	Dr		9,00,000	9,00,000
Transfer	Amount transfer of application
	Equity share application account           To Equity share capital account          To Bank account (return)          To Equity shares allotment account  (excess) (Being- amount transfer of application to capital, Excess amount adjusted)	Dr		9,00,000	7,50,000 Nil 1,50,000B+C
Due	Amount due/receivable on allotment
	Equity share allotment account             To Equity share capital account  (Being- amount due/receivable on allotment)	Dr		10,00,000	10,00,000
Received	Amount received on allotment
	Bank account      Calls in arrear account                     To Equity share allotment account  (Being- Being- amount on 24,250 equity shares from working note	Dr Dr		8,27,500 22,500	8,50,000
Due	Amount due/receivable on first call
	Equity share first and final call account          To Equity share capital account (Being- amount due/receivable on first calls)	Dr		5,00,000	5,00,000
Received	Amount received on first call
	Bank account Calls in arrears account                    To Equity share first and final call account (Being- amount received on 24,250 equity shares @ Rs 20 each and arrears adjusted)	Dr Dr		4,85,000 15,000	5,00,000
Due	Amount due/receivable on final call
	Equity share first and final call account          To Equity share capital account (Being- amount due/receivable on final calls)	Dr		2,50,000	2,50,000
Received	Amount received on first call
	Bank account      Calls in arrears account                    To Equity share first and final call account (Being- amount received on 24,250 equity shares @ Rs   10 each and arrears adjusted)	Dr Dr		2,42,500 7,500	2,50,000
	Forfeiture
	Equity shares capital account  (750 x Rs 100)          To Calls in arrear (allotment)          To Calls in arrear (first calls)          To Calls in arrear (final calls)          To Share forfeiture account (b/f) (Being–750 shares forfeited for non-payment)	Dr		75,000	22,500 15,000 7,500 30,000&
	Reissue
	Bank account [500 x Rs  80] Share forfeiture  (2,000 x Rs 10)          To Equity shares capital (Being- 500 equity shares of Rs 100 each reissued at Rs 80 and discount adjusted from share forfeiture)	Dr Dr		40,000 10,0002	50,000
	Transfer entry
	Share forfeiture account          To Capital reserve account (Being- balance forfeiture amount transfer to capital reserve)	Dr		10,000	10,0003

 

Share forfeiture Cr Share forfeiture Dr	= capital profit = capital loss	20,0001 10,0002	On 750 shares, SF On 500 shares, SF	= 30,000& = 30,000 x 500 ÷ 750
Share forfeiture Cr	= capital reserve	10,0003		= 20,0001

 

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PROBLEMS   AND   ANSWERS

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

AP: 2

BX Company Ltd offered 50,000 ordinary shares of $/₹/Rs 10 each for public subscription payable as follows:

Rs 4 on                  Application Rs 3 on                  Allotment with discount Rs 2 on                  First and Final call Public subscribed for 100,000 such shares. The Board decided to allot the shares on the following basis: For applicants applying 25,000 shares               full For applicants applying 50,000 shares              pro-rata For applicants applying 25,000 shares              being refused refunded

The company has a right to utilize the excess money received on application towards subsequent calls.

All the monies were duly received except from Mr. X to whom 5,000 shares were allocated on pro-rata basis failed to pay the final call money. Subsequently these shares were reissued to Mr. Y for Rs 8 as fully paid without discount.

Required: Journal entries for application, allotment, first and final call, forfeiture, reissue and capital reserve  

 [Answers: Calls in arrears on first and final call = Rs 5,000;

 Share forfeiture = 40,000; Capital reserve = Rs 30,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

AP: 3

AF Company Ltd issued 100,000 ordinary shares of $/₹/Rs 100 each at a premium of Rs 10 per share out of the total authorized capital of 200,000 shares. The calls were made as follows:

Rs 20 on application Rs 40 on allotment including premium Rs 30 on first call and Rs 20 on final call Applications were received for 135,000 shares. The directors allotted the shares on the following basis: To application for 75,000 shares   full To applicants for 50,000 shares    25,000 To applicants for 10,000 shares    Nil

Under the term of issue the surplus application money could be utilized on allotment as well as on subsequent calls. All the calls money were received, however one shareholder holding 5,000 shares on pro-rata basis to pay on first call. His shares were forfeited, and re-issued subsequently at Rs 90 as full paid.

Required: Journal entries for application, allotment, first and final call, forfeiture, reissue and transfer

Answers: Arrear on first call = 150,000; Arrear on final call = 100,000;

Share Forfeiture = Rs 250,000; Capital reserve= Rs 200,000

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

AP: 4

AM Company Ltd issued 50,000 shares of Rs 100 each at a premium of $/₹/Rs 20 per share, payable Rs 10 on application, and Rs 40 on allotment (including premium), Rs 30 on first call and the balance payable on final call.

Applications were received for 68,000 and BOD allotted as under:

	Shares allotted
Allotment in full (five applicants each applying 2000 shares) Allotments were made to 50,000 shares applicants.	10,000 shares 40,000 shares

No allotment was made for 8,000 shares and the application money was duly returned. The amount received in advance of calls was retained until the subsequent calls due dates.

All the monies were duly received in full except on 2,500 shares on which the final call was not received. The BOD forfeited these shares and reissued them at Rs 80 per shares as fully paid.

Required: Journal entries for application, allotment, first and final call, forfeiture, reissue and transfer

[Answer: Call in arrears on final call = Rs 100,000;

Share forfeiture (Cr) = Rs 150,000; Capital reserve = Rs 100,000]

*Full allotted (5 x 2,000) = 10,000 shares

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

AP: 5

ABC Company Ltd offered 10,000 shares of $/₹/Rs 50 each to the public payable as follows at a discount of Rs 5 per share:

On Application                       Rs 10 per share           On Allotment                         Rs 25 per share (with discount)           On first and final call             Rs 10 per share

Public applied for 12,000 shares. Directors decided to allot the shares on pro-rata basis. All the applicants paid the calls made on them except Mr. Raju to whom 500 shares were allotted failed to pay the allotment.

Directors forfeited the unpaid shares. Those shares were reissued to Mr. Basu at Rs 40 as fully paid with discount.

Required: Journal entries for application, allotment, first and final call, forfeiture, reissue and capital reserve

 [Answer: Arrear on allotment = 11,500; Bank = 218,500; Arrear on calls = 5,000;

Share forfeiture = 6,000; Capital reserve = 3,500]

 

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