Ajanta Company Limited having a nominal capital of Rs. 3,00,000, divided into shares of Rs. 10 each offered fo

Numerical Questions · Q22

Ajanta Company Limited having a nominal capital of Rs. 3,00,000, divided into shares of Rs. 10 each offered for public subscription of 20,000 shares payable as follows:

Particulars	Amount (₹)
On Application	2
On Allotment	3
Balance in two calls of Rs. 2.50 each	2.50

Applications were received by the company for 24,000 shares. Applications for 20,000 shares were accepted in full and the shares allotted. Applications for the remaining shares were rejected and the application money was refunded. All moneys due were received with the exception of the final call on 600 shares which were forfeited after legal formalities were fulfilled. 400 shares of the forfeited shares were reissued at Rs. 9 per share. Record necessary journal entries and prepare the balance sheet showing the amount transferred to capital reserve and the balance in share forfeiture account.

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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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We first determine the exact amounts step by step, then record the journal entries, and finally prepare the Balance Sheet extract.

Step 1 – Share capital structure and money due

Nominal capital: ₹3,00,000 divided into 30,000 shares of ₹10 each.

Offered: 20,000 shares.

Payments: Application ₹2, Allotment ₹3, First call ₹2.50, Final call ₹2.50 (total ₹10).

Applications received: 24,000 shares.

Accepted and allotted: 20,000 shares.

Rejected: 4,000 shares – application money refunded.

Step 2 – Money received and defaults

All money received except final call on 600 shares.

Final call due on 20,000 shares = 20,000 × ₹2.50 = ₹50,000.

Not received on 600 shares = 600 × ₹2.50 = ₹1,500.

These 600 shares forfeited.

Step 3 – Forfeiture and reissue

Amount already paid on each forfeited share: Application ₹2 + Allotment ₹3 + First call ₹2.50 = ₹7.50.

Total credit to Share Forfeiture Account = 600 × ₹7.50 = ₹4,500.

400 shares reissued at ₹9 per share (i.e., ₹1 discount per share).

Discount on reissue = 400 × ₹1 = ₹400, debited to Share Forfeiture Account.

Amount received on reissue = 400 × ₹9 = ₹3,600.

Step 4 – Capital Reserve calculation

Balance in Share Forfeiture Account after reissue:

Credit balance before reissue = ₹4,500

Less: Discount on reissue = ₹400

Balance = ₹4,100

This balance relates to 200 shares still forfeited (600 – 400).

Profit per forfeited share = ₹7.50 – ₹1 discount = ₹6.50 (but only on reissued shares).

Capital Reserve = Profit on reissued shares = 400 × (₹7.50 – ₹1) = 400 × ₹6.50 = ₹2,600.

Remaining forfeiture balance (for 200 shares) = 200 × ₹7.50 = ₹1,500.

Check: ₹2,600 + ₹1,500 = ₹4,100 ✓

Journal Entries

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	48,000
To Share Application A/c		48,000
(Application money received on 24,000 shares @ ₹2)
Share Application A/c Dr.	48,000
To Share Capital A/c		40,000
To Bank A/c		8,000
(Application money on 20,000 shares transferred to capital; refund on 4,000 shares)
Share Allotment A/c Dr.	60,000
To Share Capital A/c		60,000
(Allotment money due on 20,000 shares @ ₹3)
Bank A/c Dr.	60,000
To Share Allotment A/c		60,000
(Allotment money received)
Share First Call A/c Dr.	50,000
To Share Capital A/c		50,000
(First call due on 20,000 shares @ ₹2.50)
Bank A/c Dr.	50,000
To Share First Call A/c		50,000
(First call money received)
Share Final Call A/c Dr.	50,000
To Share Capital A/c		50,000
(Final call due on 20,000 shares @ ₹2.50)
Bank A/c Dr.	48,500
To Share Final Call A/c		48,500

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Ajanta Company Ltd. issued 20,000 shares of ₹10; 600 shares were forfeited for non-payment of the final call and 400 of them reissued at ₹9. The Capital Reserve is ₹2,600 and the Share Forfeiture Account balance is ₹1,500 (for the 200 shares still forfeited). The Share Capital shown in the Balance Sheet is ₹1,99,500.

Concept and Accounting Treatment

When only some of the forfeited shares are reissued, the profit transferred to Capital Reserve is the surplus on the reissued shares only — the amount originally received on those shares less the reissue discount. The amount received on the shares not yet reissued stays in the Share Forfeiture Account and is shown as an addition to Share Capital in the Balance Sheet.

Working Notes

WN1: Money stages per share

Face ₹10: Application ₹2, Allotment ₹3, First call ₹2.50, Final call ₹2.50.

WN2: Application adjustment

Applied 24,000; 20,000 accepted in full, 4,000 rejected and refunded (4,000 × ₹2 = ₹8,000).

WN3: Forfeiture of 600 shares

The 600 shares paid application, allotment and first call = ₹7.50 per share, defaulting only on the final call. Amount to Share Forfeiture = 600 × ₹7.50 = ₹4,500; final call unpaid = 600 × ₹2.50 = ₹1,500.

WN4: Reissue of 400 shares and Capital Reserve

400 shares reissued at ₹9 (face ₹10) → discount 400 × ₹1 = ₹400.

Amount originally received on these 400 shares = 400 × ₹7.50 = ₹3,000.

Capital Reserve = ₹3,000 − ₹400 = ₹2,600.

WN5: Balance in Share Forfeiture Account

For the 200 shares not reissued: 200 × ₹7.50 = ₹1,500, carried in the account and added to Share Capital in the Balance Sheet.

Journal Entries in the Books of Ajanta Company Ltd.

Particulars	Debit (₹)	Credit (₹)
Bank A/c ...Dr.	48,000
To Share Application A/c		48,000
(Application money on 24,000 shares @ ₹2)
Share Application A/c ...Dr.	48,000
To Share Capital A/c		40,000
To Bank A/c		8,000
(Application on 20,000 shares to capital; 4,000 rejected refunded)
Share Allotment A/c ...Dr.	60,000
To Share Capital A/c		60,000
(Allotment due on 20,000 shares @ ₹3)
Bank A/c ...Dr.	60,000
To Share Allotment A/c		60,000
(Allotment money received)
Share First Call A/c ...Dr.	50,000
To Share Capital A/c		50,000
(First call due on 20,000 shares @ ₹2.50)
Bank A/c ...Dr.	50,000
To Share First Call A/c		50,000
(First call money received)
Share Final Call A/c ...Dr.	50,000
To Share Capital A/c		50,000
(Final call due on 20,000 shares @ ₹2.50)
Bank A/c ...Dr.	48,500
To Share Final Call A/c		48,500
(Final call received on 19,400 shares; 600 shares in default)
Share Capital A/c ...Dr. (600 × 10)	6,000
To Share Forfeiture A/c		4,500
To Share Final Call A/c		1,500
(600 shares forfeited for non-payment of the final call)
Bank A/c ...Dr. (400 × 9)	3,600
Share Forfeiture A/c ...Dr. (400 × 1)	400
To Share Capital A/c		4,000

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Concept and Accounting Treatment

Working Notes

WN1: Money stages per share

WN2: Application adjustment

WN3: Forfeiture of 600 shares

WN4: Reissue of 400 shares and Capital Reserve

WN5: Balance in Share Forfeiture Account

Journal Entries in the Books of Ajanta Company Ltd.

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