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Illustrations · Illustration 21
Q.

Devam Limited issued a prospectus inviting application for 30,000 equity shares of ₹10 each at a premium of ₹4 per share payable as follows:

InstalmentAmount (₹)
With Application (including premium ₹1)3
On Allotment (including premium ₹1)4
On First call (including premium ₹1)4
On Second and Final call (2+1)Balance 3

Applications were received for 45,000 shares. 20% of the applications received were rejected and their application money was refunded. Remaining applicants were allotted shares on pro-rata basis.

Mr. Sudhir, who has applied for 600 shares, failed to pay the allotment money and his shares were forfeited immediately after that.

Ms. Muskan, to whom 750 shares were allotted failed to pay the first call and hence her shares were forfeited.

The forfeited shares of Mr. Sudhir were re-issued to Lakshya for ₹8 per share as fully paid up.

Final call was made due on remaining applicants and was received except on 1,000 shares of Amit. These shares were forfeited.

Of the shares forfeited, 1,500 shares were re-issued to Devika for ₹12 per share as fully paid up, the whole of Amit's share being included. Record journal entries in the books of the company.

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Three staged forfeitures (Sudhir 500, Muskan 750, Amit 1,000); Sudhir reissued at ₹8 (₹300 to Capital Reserve) and 1,500 reissued at ₹12 (₹10,500), so ₹10,800 total goes to Capital Reserve.

Concept

Rejected applications = 20% of 45,000 = 9,000 shares (money refunded). The remaining 36,000 applicants received 30,000 shares, a pro-rata ratio of 6 : 5, so application money on 6,000 surplus shares is adjusted against allotment. On this ratio Sudhir (applied 600) was allotted 500 shares. Each forfeiture reverses only the premium that was called but never received.

Working Notes

1. Allotment money received (₹1,00,300). Due on 30,000 shares at ₹4 = ₹1,20,000. Less surplus application on 6,000 shares (6,000 × ₹3 = ₹18,000) = ₹1,02,000. Sudhir's net allotment due — allotment ₹2,000 less surplus application ₹300 (his 100 extra shares × ₹3) = ₹1,700 — is also deducted: ₹1,02,000 − ₹1,700 = ₹1,00,300.

2. Forfeiture of Sudhir's 500 shares. Called-up so far ₹5 (application ₹2 + allotment ₹3, capital only). Share Capital debited 500 × ₹5 = ₹2,500; unpaid allotment premium 500 × ₹1 = ₹500 reversed. Money received (his ₹1,800 application less the ₹500 premium element) = ₹1,300 credited to Share Forfeiture.

3. Forfeiture of Muskan's 750 shares. Paid up to allotment (capital ₹5 per share), so Share Forfeiture credited 750 × ₹5 = ₹3,750; Share Capital debited 750 × ₹8 = ₹6,000; first-call premium 750 × ₹1 = ₹750 reversed.

4. Forfeiture of Amit's 1,000 shares. Fully called at ₹10, so Share Capital debited ₹10,000 and final-call premium ₹1,000 reversed; money received to first call = 1,000 × ₹8 = ₹8,000 credited to Share Forfeiture.

5. Capital reserve. On Sudhir's reissue: ₹1,300 forfeited less ₹1,000 discount (500 × ₹2) = ₹300. On Devika's reissue of 1,500 shares (issued at a ₹2 premium, so no discount): Amit's full ₹8,000 plus Muskan's 500 shares at ₹5 = ₹2,500, giving ₹10,500. Total transferred = ₹300 + ₹10,500 = ₹10,800.

Solution

Books of Devam Limited — Journal

DateParticularsL.F.Debit (₹)Credit (₹)
Bank A/c Dr.1,35,000
To Equity Share Application A/c1,35,000
(Being application money received on 45,000 shares at ₹3 per share)
Equity Share Application A/c Dr.1,35,000
To Equity Share Capital A/c60,000
To Securities Premium Reserve A/c30,000
To Equity Share Allotment A/c18,000
To Bank A/c27,000
(Being application money on 30,000 shares transferred to capital and premium, ₹27,000 on 9,000 rejected shares refunded, and the surplus adjusted to allotment)
Equity Share Allotment A/c Dr.1,20,000
To Equity Share Capital A/c90,000
To Securities Premium Reserve A/c30,000
(Being allotment due on 30,000 shares at ₹4, including ₹1 premium)
Bank A/c Dr.1,00,300
To Equity Share Allotment A/c1,00,300
(Being allotment received after adjusting surplus application money, except on Sudhir's shares)
Equity Share Capital A/c Dr.2,500
Securities Premium Reserve A/c Dr.500
To Equity Share Allotment A/c1,700
To Share Forfeiture A/c1,300
(Being 500 shares of Sudhir forfeited for non-payment of allotment)
Equity Share First Call A/c Dr.1,18,000
To Equity Share Capital A/c88,500
To Securities Premium Reserve A/c29,500
(Being first call due on 29,500 shares at ₹4, including ₹1 premium)
Bank A/c Dr.1,15,000
To Equity Share First Call A/c1,15,000
(Being first call received on 28,750 shares)
Equity Share Capital A/c Dr.6,000
Securities Premium Reserve A/c Dr.750
To Equity Share First Call A/c3,000
To Share Forfeiture A/c3,750
(Being 750 shares of Muskan forfeited for non-payment of first call)
Bank A/c Dr.4,000
Share Forfeiture A/c Dr.1,000
To Equity Share Capital A/c5,000

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