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Illustrations · Illustration 14
Q.

High Light India Ltd. invited applications for 30,000 Shares of ₹100 each at a premium of ₹20 per share payable as follows:

InstalmentAmount (₹)
On Application40 (including ₹10 premium)
On Allotment30 (including ₹10 premium)
On First Call30
On Second and Final Call20

Applications were received for 40,000 shares and pro-rata allotment was made on the application for 35,000 share. Excess application money was utilised towards allotment.

Rohan to whom 600 shares were allotted failed to pay the allotment money and his shares were forfeited immediately after allotment.

Aman who applied for 1,050 shares failed to pay first call and his share were forfeited immediately after first Call.

Second and final call was made. All the money due on second call have been received.

Of the shares forfeited, 1,000 share were reissued as fully paid-up for ₹80 per share, which included the whole of Aman’s shares.

Record necessary journal entries in the books of High Light India Ltd.

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Two forfeitures (Rohan on allotment, Aman on first call) and a reissue of 1,000 shares at ₹80 give a Capital Reserve of ₹28,667, with ₹18,333 left in the Share Forfeiture Account.

Concept

On forfeiture every entry relating to the shares is reversed except a premium that has already been received. Rohan defaulted on allotment, which included premium, so that unpaid premium is debited back to Securities Premium Reserve. Aman had paid his premium in full on application and allotment and defaulted only on the first call, so his premium stays untouched. Because only 1,000 of the 1,500 forfeited shares are reissued, only the gain attaching to those 1,000 shares is transferred to Capital Reserve; the balance for the un-reissued shares stays in the Share Forfeiture Account.

Working Notes

(I) Rohan's excess on application. Allotted 600 shares under the 7 : 6 pro-rata, so he applied for 600 × 35,000 ÷ 30,000 = 700 shares. He paid 700 × ₹40 = ₹28,000; of this 600 × ₹40 = ₹24,000 was absorbed by his own application, leaving ₹4,000 for allotment. Allotment due 600 × ₹30 = ₹18,000, less ₹4,000 carried forward = ₹14,000 unpaid.

(II) Allotment received. Due 30,000 × ₹30 = ₹9,00,000, less ₹2,00,000 excess adjusted, less Rohan's ₹14,000 = ₹6,86,000.

(III) First call received. Due on 29,400 shares (30,000 − Rohan's 600) = ₹8,82,000, less Aman's 900 × ₹30 = ₹27,000 = ₹8,55,000.

(IV) Capital reserve. The 1,000 reissued shares = Aman's 900 + 100 of Rohan's. Gain on Rohan's 100 = ₹22,000 × 100 ÷ 600 = ₹3,667; gain on Aman's 900 = ₹45,000; total ₹48,667. Less reissue loss 1,000 × ₹20 = ₹20,000. Transferred to Capital Reserve = ₹28,667.

(V) Balance in Share Forfeiture A/c. Rohan's remaining 500 shares carry ₹22,000 × 500 ÷ 600 = ₹18,333, which stays in the account.

Solution

DateParticularsL.F.Debit (₹)Credit (₹)
Bank A/c Dr.16,00,000
To Share Application A/c16,00,000
(Being application money received on 40,000 shares at ₹40 each)
Share Application A/c Dr.14,00,000
To Share Capital A/c9,00,000
To Securities Premium Reserve A/c3,00,000
To Share Allotment A/c2,00,000
(Being application money on 35,000 shares transferred to capital and premium, the excess adjusted against allotment)
Share Application A/c Dr.2,00,000
To Bank A/c2,00,000
(Being application money refunded on the 5,000 rejected shares at ₹40 each)
Share Allotment A/c Dr.9,00,000
To Share Capital A/c6,00,000
To Securities Premium Reserve A/c3,00,000
(Being allotment money due on 30,000 shares at ₹30 each, including ₹10 premium)
Bank A/c Dr.6,86,000
To Share Allotment A/c6,86,000
(Being allotment money received, net of the excess adjusted and Rohan's default)
Share Capital A/c Dr.30,000
Securities Premium Reserve A/c Dr.6,000
To Share Allotment A/c14,000
To Share Forfeiture A/c22,000
(Being 600 shares of Rohan forfeited for non-payment of allotment money)
Share First Call A/c Dr.8,82,000
To Share Capital A/c8,82,000
(Being first call money due on 29,400 shares at ₹30 each)
Bank A/c Dr.8,55,000

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