Eastern Company Limited, with an authorised capital of Rs. 10,00,000 divided into equity shares of Rs. 10 each

Numerical Questions · Q7

Eastern Company Limited, with an authorised capital of Rs. 10,00,000 divided into equity shares of Rs. 10 each, issued 50,000 equity shares at a premium of Rs. 3 per share payable as follows:

Particulars	Amount (₹)
On Application	3 per share
On Allotment (including premium)	5 per share
On First Call (due three months after allotment)	3 per share
Balance	As and when required

Applications were received for 60,000 shares and the directors allotted the shares as follows: (a) Applicants for 40,000 shares received in full. (b) Applicants for 15,000 shares received an allotment of 8,000 shares. (c) Applicants for 5,000 shares received on allotment of 2,000 shares, excess money being returned. All amounts due on allotment were received. The first call was duly made and the money was received with the exception of the call due on 100 shares. Give journal and cash book entries to record these transactions of the company. Also prepare the Balance Sheet of the company.

Delhi CbseNCERTSubjective· 5mImportance★★★★★

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Concept understanding — Share Capital Accounting

Let’s begin with something you already know from everyday life.

Imagine you and two friends decide to start a small business — say, a tiffin service. You each put in some money to buy utensils, a stove, and ingredients. That money you all contributed is the capital of the business. The business doesn’t own that money; it owes it back to you, the owners. In accounting, we call you the shareholders, and the money you put in is share capital.

Now scale that up to a company. A company needs huge amounts of money to build factories, buy machinery, or develop software. It raises this money by selling shares — small units of ownership. When you buy a share, you become a part-owner of that company. The total money collected from all shareholders is the company’s share capital.

Why does share capital matter in accounting?

Because the company is a separate legal person. It does not own the money — the shareholders do. So the company must record exactly how much it has collected from whom, and in what form. This affects the balance sheet (where share capital appears under Equity and Liabilities) and the cash flow (money coming in from shareholders is a financing activity).

The precise meaning (NCERT Class 12)

Share Capital is the money raised by a company by issuing shares to the public or to promoters. It is shown under the head Shareholders’ Funds in the Balance Sheet.

There are two main types of shares:

Equity shares – ordinary shares; owners get dividends only if the company makes profit.
Preference shares – owners get a fixed dividend before equity shareholders, but usually have no voting rights.

Accounting treatment — the journal entries

When a company issues shares, it follows a standard sequence. Let’s say a company issues 10,000 equity shares of ₹10 each at par (i.e., at face value). The money is received in two instalments: ₹4 on application, ₹6 on allotment.

Step 1: Application money received

Date	Particulars	Debit (₹)	Credit (₹)
	Bank A/c Dr.	40,000
	To Share Application A/c		40,000
(Being application money received on 10,000 shares @ ₹4 each)

Step 2: Transfer application money to Share Capital

Date	Particulars	Debit (₹)	Credit (₹)
	Share Application A/c Dr.	40,000
	To Share Capital A/c		40,000
(Being application money transferred to Share Capital)

Step 3: Allotment money due

Date	Particulars	Debit (₹)	Credit (₹)
	Share Allotment A/c Dr.	60,000
	To Share Capital A/c		60,000
(Being allotment money due on 10,000 shares @ ₹6 each)

Step 4: Allotment money received

Date	Particulars	Debit (₹)	Credit (₹)
	Bank A/c Dr.	60,000
	To Share Allotment A/c		60,000
(Being allotment money received)

Note

If shares are issued at a premium (e.g., ₹10 face value, issued at ₹12), the extra ₹2 goes to a separate account called Securities Premium Reserve A/c. It is not part of share capital.

The Balance Sheet format (as per NCERT)

Under Equity and Liabilities, share capital appears like this:

Particulars	Note No.	Amount (₹)
1. Shareholders’ Funds
(a) Share Capital	1	1,00,000
(b) Reserves and Surplus	2	20,000
2. Non-Current Liabilities	...	...
3. Current Liabilities	...	...

And Note 1 (Share Capital) is typically shown as:

Particulars	Amount (₹)
Authorised Capital
1,00,000 Equity Shares of ₹10 each	10,00,000
Issued Capital
80,000 Equity Shares of ₹10 each	8,00,000
Subscribed and Paid-up Capital
80,000 Equity Shares of ₹10 each fully paid	8,00,000

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Step 1: Understanding the Problem

Eastern Company Limited has an authorised capital of ₹10,00,000 divided into 1,00,000 equity shares of ₹10 each. It issued 50,000 shares at a premium of ₹3 per share. The payment schedule is:

Application: ₹3 per share
Allotment (including premium): ₹5 per share (₹2 towards share capital + ₹3 premium)
First call: ₹3 per share
Balance (second call): ₹2 per share (₹10 face value – ₹3 application – ₹2 allotment capital – ₹3 first call)

Applications were received for 60,000 shares. The directors allotted 50,000 shares as follows:

Applicants for 40,000 shares → allotted 40,000 shares (full)
Applicants for 15,000 shares → allotted 8,000 shares (pro-rata)
Applicants for 5,000 shares → allotted 2,000 shares (pro-rata)

Excess application money on 15,000 and 5,000 applicants is adjusted towards allotment, and any remaining excess is refunded.

All allotment money was received. First call was made but not received on 100 shares.

Step 2: Calculations

Application money received: 60,000 shares × ₹3 = ₹1,80,000

Application money due on 50,000 shares: 50,000 × ₹3 = ₹1,50,000

Excess application money: ₹1,80,000 – ₹1,50,000 = ₹30,000

Allotment money due: 50,000 shares × ₹5 = ₹2,50,000

Less: Excess application money adjusted: ₹30,000

Net allotment money received: ₹2,20,000

First call due: 50,000 shares × ₹3 = ₹1,50,000

First call not received on 100 shares: 100 × ₹3 = ₹300

First call received: ₹1,50,000 – ₹300 = ₹1,49,700

Calls-in-arrears on first call: ₹300

Step 3: Journal Entries

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	1,80,000
To Share Application A/c		1,80,000
(Being application money received on 60,000 shares @ ₹3 each)
Share Application A/c Dr.	1,80,000
To Share Capital A/c		1,50,000
To Share Allotment A/c		30,000
(Being application money transferred to share capital and excess adjusted towards allotment)
Share Allotment A/c Dr.	2,50,000
To Share Capital A/c		1,00,000
To Securities Premium A/c		1,50,000
(Being allotment money due on 50,000 shares @ ₹5 each including premium ₹3)
Bank A/c Dr.	2,20,000
To Share Allotment A/c		2,20,000
(Being allotment money received after adjusting excess application)
Share First Call A/c Dr.	1,50,000
To Share Capital A/c		1,50,000
(Being first call money due on 50,000 shares @ ₹3 each)
Bank A/c Dr.	1,49,700
Calls-in-Arrears A/c Dr.	300
To Share First Call A/c		1,50,000

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Eastern Company Ltd. issued 50,000 shares of ₹10 at a ₹3 premium. Applications for 60,000 shares were allotted in three groups; excess money on one group was adjusted to allotment and on another refunded. The first call was received except on 100 shares. Since the final call (₹2) was never made, the called-up capital is ₹4,00,000, and the Balance Sheet totals ₹5,49,700 (Cash at Bank ₹5,49,700), with Calls in Arrears of ₹300.

Concept and Accounting Treatment

On oversubscription the directors may allot in groups: some applicants in full, some on a reduced (pro-rata) basis with the excess adjusted against allotment, and some with excess money refunded. The premium is credited to Securities Premium Reserve. In the Balance Sheet, only the called-up amount is shown as Share Capital — here the final call of ₹2 was not made, so only ₹8 per share (Application ₹3 + Allotment ₹2 capital + First call ₹3) is called up.

Working Notes

WN1: Allotment groups

(a) Applicants for 40,000 shares — allotted 40,000 in full (no excess).
(b) Applicants for 15,000 shares — allotted 8,000; excess on 7,000 shares × ₹3 = ₹21,000 adjusted to allotment.
(c) Applicants for 5,000 shares — allotted 2,000; excess on 3,000 shares × ₹3 = ₹9,000 refunded.
Total allotted = 50,000; total applied = 60,000.

WN2: Application money (60,000 × ₹3 = ₹1,80,000)

To Share Capital 50,000 × ₹3 = ₹1,50,000; adjusted to allotment ₹21,000; refunded ₹9,000.

WN3: Allotment (50,000 × ₹5 = ₹2,50,000; ₹2 capital + ₹3 premium)

Capital ₹1,00,000, Securities Premium ₹1,50,000. Received = ₹2,50,000 − ₹21,000 adjusted = ₹2,29,000 (all allotment received).

WN4: First call (50,000 × ₹3 = ₹1,50,000)

Received on 49,900 shares = ₹1,49,700; unpaid on 100 shares = ₹300 (Calls in Arrears).

WN5: Cash at Bank

Application ₹1,80,000 − refund ₹9,000 + allotment ₹2,29,000 + first call ₹1,49,700 = ₹5,49,700.

Journal Entries in the Books of Eastern Company Ltd.

Particulars	Debit (₹)	Credit (₹)
Bank A/c ...Dr.	1,80,000
To Share Application A/c		1,80,000
(Application money on 60,000 shares @ ₹3)
Share Application A/c ...Dr.	1,80,000
To Share Capital A/c		1,50,000
To Share Allotment A/c		21,000
To Bank A/c		9,000
(Application on 50,000 shares to capital; excess on group (b) adjusted; group (c) excess refunded)
Share Allotment A/c ...Dr.	2,50,000
To Share Capital A/c		1,00,000
To Securities Premium Reserve A/c		1,50,000
(Allotment due on 50,000 shares @ ₹5 incl. ₹3 premium)
Bank A/c ...Dr.	2,29,000
To Share Allotment A/c		2,29,000
(Allotment received: ₹2,50,000 − ₹21,000 adjusted)
Share First Call A/c ...Dr.	1,50,000
To Share Capital A/c		1,50,000
(First call due on 50,000 shares @ ₹3)
Bank A/c ...Dr.	1,49,700
Calls in Arrears A/c ...Dr.	300
To Share First Call A/c		1,50,000
(First call received except on 100 shares @ ₹3)

Cash Book (Bank Column)

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Concept and Accounting Treatment

Working Notes

WN1: Allotment groups

WN2: Application money (60,000 × ₹3 = ₹1,80,000)

WN3: Allotment (50,000 × ₹5 = ₹2,50,000; ₹2 capital + ₹3 premium)

WN4: First call (50,000 × ₹3 = ₹1,50,000)

WN5: Cash at Bank

Journal Entries in the Books of Eastern Company Ltd.

Cash Book (Bank Column)

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