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Illustrations · Illustration 19
Q.

Garima Limited issued a prospectus inviting applications for 3,000 shares of ₹100 each at a premium of ₹20 payable as follows:

InstalmentAmount (₹)
On Application20 per share
On Allotment (Including premium)50 per share
On First call20 per share
On Second call30 per share

Applications were received for 4,000 shares and allotments made on pro-rata basis to the applicants of 3,600 shares, the remaining applications being rejected, money received on application was adjusted on account of sums due on allotment.

Renuka to whom 360 shares were allotted, failed to pay allotment money and calls money, and her shares were forfeited.

Kanika, the applicant of 200 shares failed to pay the two calls, her shares were also forfeited. All these shares were sold to Naman as fully paid for ₹80 per share. Show the journal entries in the books of the company.

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560 shares (Renuka 360 + Kanika 200) forfeited, ₹18,640 held, reissued at ₹80 with ₹11,200 discount, and ₹7,440 transferred to Capital Reserve.

Concept

Under the pro-rata allotment, the surplus application money on the 600 over-applied shares is set against allotment, so cash received on allotment is less than the amount due. Renuka defaulted from the allotment stage onward — so her unpaid securities premium is reversed on forfeiture — while Kanika paid up to allotment and defaulted only on the calls, so her premium is retained.

Working Notes

1. Allotment money received.

ParticularsAmount (₹)
Total amount due on allotment (including premium)1,50,000
Less: application money on 600 shares adjusted towards allotment(12,000)
Net amount due on allotment on 3,000 shares1,38,000
Less: allotment on 360 shares of Renuka not received (360 ÷ 3,000 × ₹1,38,000)(16,560)
Net amount received on 2,640 shares1,21,440

Because the ₹20 premium built into the allotment was never received on Renuka's 360 shares, that premium (360 × ₹20 = ₹7,200) is written back to Securities Premium Reserve at forfeiture.

2. Amount forfeited (₹18,640). Renuka paid only application money on a pro-rata application of 432 shares (360 × 3,600 ÷ 3,000): 432 × ₹20 = ₹8,640. Kanika, holding 200 shares, paid application and allotment capital (₹20 + ₹30 per share): 200 × ₹50 = ₹10,000. Total = ₹8,640 + ₹10,000 = ₹18,640.

Solution

Books of Garima Limited — Journal

ParticularsL.F.Debit (₹)Credit (₹)
Bank A/c Dr.80,000
To Share Application A/c80,000
(Being application money received on 4,000 shares at ₹20 each)
Share Application A/c Dr.80,000
To Share Capital A/c60,000
To Share Allotment A/c12,000
To Bank A/c8,000
(Being application money on 3,000 shares transferred to capital, on 600 shares carried to allotment, and on 400 rejected shares refunded)
Share Allotment A/c Dr.1,50,000
To Share Capital A/c90,000
To Securities Premium Reserve A/c60,000
(Being allotment due on 3,000 shares at ₹50 each, including ₹20 premium per share)
Bank A/c Dr.1,21,440
To Share Allotment A/c1,21,440
(Being allotment money received, after adjustment of surplus application money and excluding Renuka's default)
Share First Call A/c Dr.60,000
To Share Capital A/c60,000
(Being first call due on 3,000 shares at ₹20 each)
Bank A/c Dr.48,800
To Share First Call A/c48,800
(Being first call received on 2,440 shares)
Share Second and Final Call A/c Dr.90,000
To Share Capital A/c90,000
(Being second and final call due on 3,000 shares at ₹30 each)
Bank A/c Dr.73,200

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