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Numerical Questions · Q6
Q.

A limited company offered for subscription of 1,00,000 equity shares of Rs. 10 each at a premium of Rs. 2 per share, and 2,00,000 10% Preference shares of Rs. 10 each at par. The amount on share was payable as under —

ParticularsEquity Shares (₹)Preference Shares (₹)
On Application (per share)33
On Allotment (per share)5 (including premium)4
On First Call (per share)43

All the shares were fully subscribed, called-up and paid. Record these transactions in the journal and cash book of the company.

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The company issued 1,00,000 equity shares at a premium and 2,00,000 preference shares at par. All amounts were fully subscribed, called, and paid. The journal entries record the application, allotment, and call money received, with the securities premium credited to a separate account. The cash book shows total receipts of ₹23,00,000.

Concept and Accounting Treatment

When a company issues shares, the process follows a strict sequence: application, allotment, and calls. Each stage represents a separate contract between the company and the shareholder. The key principle is that share capital is not credited until the shares are allotted — until then, application money is a liability.

For equity shares issued at a premium, the premium amount is collected with the allotment money (as given in the question: ₹5 per share on allotment includes ₹2 premium). The premium is credited to a Securities Premium Reserve account, which is a capital reserve and cannot be distributed as dividend.

For preference shares issued at par, there is no premium — the entire amount goes to the preference share capital account.

The Cash Book (or Bank Book) records all actual receipts. In modern accounting, we use a Bank column in the Cash Book. Each receipt from share applicants is recorded on the debit side (receipts side) of the Cash Book.

Watch out

Common Pitfall

Students often debit the Share Capital account directly on application. This is wrong — Share Capital is credited only after allotment. Application money is first recorded as a liability (Share Application account) and then transferred to Share Capital on allotment.

Journal Entries

1. For Application Money Received

DateParticularsL.F.Debit (₹)Credit (₹)
Bank A/c Dr.9,00,000
To Equity Share Application A/c3,00,000
To Preference Share Application A/c6,00,000
(Being application money received on 1,00,000 equity shares @ ₹3 and 2,00,000 preference shares @ ₹3)

Calculation: Equity: 1,00,000 × ₹3 = ₹3,00,000; Preference: 2,00,000 × ₹3 = ₹6,00,000; Total = ₹9,00,000

2. For Transfer of Application Money to Share Capital on Allotment

DateParticularsL.F.Debit (₹)Credit (₹)
Equity Share Application A/c Dr.3,00,000
Preference Share Application A/c Dr.6,00,000
To Equity Share Capital A/c3,00,000
To Preference Share Capital A/c6,00,000
(Being application money transferred to share capital on allotment)

3. For Allotment Money Due

DateParticularsL.F.Debit (₹)Credit (₹)
Equity Share Allotment A/c Dr.5,00,000
Preference Share Allotment A/c Dr.8,00,000
To Equity Share Capital A/c3,00,000
To Securities Premium Reserve A/c2,00,000
To Preference Share Capital A/c8,00,000
(Being allotment money due on equity shares @ ₹5 including premium of ₹2, and on preference shares @ ₹4)

Working Note 1: Equity allotment: 1,00,000 × ₹5 = ₹5,00,000. Of this, ₹3 per share (₹3,00,000) is capital, ₹2 per share (₹2,00,000) is premium.

Working Note 2: Preference allotment: 2,00,000 × ₹4 = ₹8,00,000 (all capital, at par).

4. For Allotment Money Received

DateParticularsL.F.Debit (₹)Credit (₹)
Bank A/c Dr.13,00,000
To Equity Share Allotment A/c5,00,000
To Preference Share Allotment A/c8,00,000
(Being allotment money received)

5. For First Call Money Due

DateParticularsL.F.Debit (₹)Credit (₹)
Equity Share First Call A/c Dr.4,00,000
Preference Share First Call A/c Dr.6,00,000
To Equity Share Capital A/c4,00,000
To Preference Share Capital A/c6,00,000
(Being first call money due on equity shares @ ₹4 and preference shares @ ₹3)

Working Note 3: Equity first call: 1,00,000 × ₹4 = ₹4,00,000

Working Note 4: Preference first call: 2,00,000 × ₹3 = ₹6,00,000

6. For First Call Money Received

DateParticularsL.F.Debit (₹)Credit (₹)
Bank A/c Dr.10,00,000
To Equity Share First Call A/c4,00,000
To Preference Share First Call A/c6,00,000
(Being first call money received)

7. For Closing of Allotment and Call Accounts (if not already closed)

Since all amounts were fully received, the allotment and call accounts will have zero balance after the above entries. No further closing entry is needed.

Cash Book (Bank Column) …

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