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
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
= 75,000B
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
= 75,000C
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 |
***********
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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