Anish Limited issued 30,000 equity shares of Rs. 100 each payable:
| Particulars | Amount (₹) |
|---|---|
| On Application | 30 |
| On Allotment | 50 |
| On First and Final Call | 20 |
All money was duly received. Record these transactions in the journal of the company.
The journal entries record the receipt of application money (₹9,00,000), allotment money (₹15,00,000), and call money (₹6,00,000) for 30,000 equity shares of ₹100 each, with all amounts duly received.
Concept and Accounting Treatment
When a company issues shares, the process follows a strict sequence: application, allotment, and calls. Each stage represents a separate contractual obligation from the shareholder to pay the company. The accounting treatment is governed by the principle that the company must recognise the liability to issue shares (Share Capital) only when the money is actually due and received, not before.
The key rule: Every receipt from shareholders is first credited to a separate liability account (e.g., Equity Share Application Account) until the shares are allotted. Once allotted, these amounts are transferred to the Share Capital Account. This ensures that the company does not show share capital until the shares are legally issued.
For each stage:
- Application: Money received is a liability (the company may have to refund if shares are not allotted). Credited to "Equity Share Application Account".
- Allotment: Money due on allotment is a receivable. Debited to "Equity Share Allotment Account" and credited to "Equity Share Capital Account" (since shares are now allotted). When received, bank is debited and allotment account is credited.
- Calls: Similar to allotment — the call amount due is debited to "Equity Share First and Final Call Account" and credited to "Equity Share Capital Account". On receipt, bank is debited and call account is credited.
Since all money was duly received, there are no calls-in-arrears or forfeitures to handle.
Journal Entries
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| Bank A/c Dr. | 9,00,000 | |||
| To Equity Share Application A/c | 9,00,000 | |||
| (Being application money received on 30,000 shares @ ₹30 each) | ||||
| Equity Share Application A/c Dr. | 9,00,000 | |||
| To Equity Share Capital A/c | 9,00,000 | |||
| (Being application money transferred to Share Capital after allotment) | ||||
| Equity Share Allotment A/c Dr. | 15,00,000 | |||
| To Equity Share Capital A/c | 15,00,000 | |||
| (Being allotment money due on 30,000 shares @ ₹50 each) | ||||
| Bank A/c Dr. | 15,00,000 | |||
| To Equity Share Allotment A/c | 15,00,000 | |||
| (Being allotment money received) | ||||
| Equity Share First and Final Call A/c Dr. | 6,00,000 | |||
| To Equity Share Capital A/c | 6,00,000 | |||
| (Being first and final call money due on 30,000 shares @ ₹20 each) | ||||
| Bank A/c Dr. | 6,00,000 | |||
| To Equity Share First and Final Call A/c | 6,00,000 | |||
| (Being first and final call money received) |
A common mistake is to directly credit "Equity Share Capital" when application money is received. This is wrong because until shares are allotted, the company may need to refund the money. Always use a separate application account first.
Working Notes
Working Note 1: Application Money
- Number of shares: 30,000
- Application money per share: ₹30
- Total application money: 30,000 × ₹30 = ₹9,00,000
Working Note 2: Allotment Money
- Number of shares: 30,000
- Allotment money per share: ₹50
- Total allotment money: 30,000 × ₹50 = ₹15,00,000
Working Note 3: First and Final Call Money
- Number of shares: 30,000
- Call money per share: ₹20
- Total call money: 30,000 × ₹20 = ₹6,00,000
Working Note 4: Total Share Capital
- Face value per share: ₹100
- Total issued capital: 30,000 × ₹100 = ₹30,00,000
- This equals the sum of all receipts: ₹9,00,000 + ₹15,00,000 + ₹6,00,000 = ₹30,00,000
To verify your entries, remember that the total of all amounts received (application + allotment + calls) must equal the total face value of shares issued. Here, ₹30,00,000 matches perfectly.
The journal entries record the receipt of ₹9,00,000 on application, ₹15,00,000 on allotment, and ₹6,00,000 on the first and final call, totalling ₹30,00,000 credited to Equity Share Capital Account. All amounts were duly received with no arrears.
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