The Adarsh Control Device Ltd. was registered with the authorised capital of Rs. 3,00,000 divided into 30,000 shares of Rs. 10 each, which were offered to the public. Amount payable:
| Particulars | Amount (₹) |
|---|---|
| On Application | 3 per share |
| On Allotment | 4 per share |
| On First and Final Call | 3 per share |
These shares were fully subscribed and all money was duly received. Prepare journal and Cash Book.
The company issued 30,000 shares of ₹10 each, received all application, allotment, and call money in full. The journal entries record each stage of share capital receipt, and the Cash Book (Bank column) shows the total cash received of ₹3,00,000.
Concept and Accounting Treatment
When a company issues shares, the money is received in stages as per the terms of the prospectus. The key accounting principle here is that Share Capital is a liability (specifically, shareholders' funds under equity), and the company must record each instalment separately until the shares are fully paid.
The journal entries follow a standard pattern:
- Application stage: When application money is received, we debit Bank and credit Share Application Account (a temporary account). Once the board approves the allotment, the application money is transferred to Share Capital Account.
- Allotment stage: When allotment money becomes due, we debit Share Allotment Account and credit Share Capital Account. When received, we debit Bank and credit Share Allotment Account.
- Call stage: Similarly, when the call money becomes due, we debit Share First and Final Call Account and credit Share Capital Account. When received, we debit Bank and credit that call account.
Since all shares were fully subscribed and all money was duly received, there are no issues of under-subscription, over-subscription, or calls-in-arrears. The entire process is straightforward.
A common mistake is to directly credit Share Capital Account when application money is received. Remember: application money is first recorded in a separate account because it may need to be adjusted or refunded if shares are not allotted. Only after allotment is confirmed do we transfer it to Share Capital.
Solution
Journal of Adarsh Control Device Ltd.
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| Bank A/c Dr. | 90,000 | |||
| To Share Application A/c | 90,000 | |||
| (Being application money received on 30,000 shares @ ₹3 each) | ||||
| Share Application A/c Dr. | 90,000 | |||
| To Share Capital A/c | 90,000 | |||
| (Being application money transferred to Share Capital A/c after allotment) | ||||
| Share Allotment A/c Dr. | 1,20,000 | |||
| To Share Capital A/c | 1,20,000 | |||
| (Being allotment money due on 30,000 shares @ ₹4 each) | ||||
| Bank A/c Dr. | 1,20,000 | |||
| To Share Allotment A/c | 1,20,000 | |||
| (Being allotment money received) | ||||
| Share First and Final Call A/c Dr. | 90,000 | |||
| To Share Capital A/c | 90,000 | |||
| (Being first and final call money due on 30,000 shares @ ₹3 each) | ||||
| Bank A/c Dr. | 90,000 | |||
| To Share First and Final Call A/c | 90,000 | |||
| (Being first and final call money received) |
Notice that the Share Capital Account is credited only when the amount becomes due (i.e., at allotment and call stages), not when cash is received. The cash receipt entries are separate.
Cash Book (Bank Column)
| Date | Particulars | L.F. | Amount (₹) | Date | Particulars | L.F. | Amount (₹) |
|---|---|---|---|---|---|---|---|
| To Share Application A/c | 90,000 | ||||||
| To Share Allotment A/c | 1,20,000 | ||||||
| To Share First and Final Call A/c | 90,000 | ||||||
| 3,00,000 | 3,00,000 |
The Cash Book shown here is the Bank column only (since all receipts are through bank). In practice, the Cash Book would have both Cash and Bank columns, but here all transactions are through bank.
Working Notes
Working Note 1: Calculation of Application Money
- Number of shares applied: 30,000
- Application money per share: ₹3
- Total application money received: 30,000 × ₹3 = ₹90,000
Working Note 2: Calculation of Allotment Money
- Number of shares allotted: 30,000
- Allotment money per share: ₹4
- Total allotment money due and received: 30,000 × ₹4 = ₹1,20,000
Working Note 3: Calculation of First and Final Call Money
- Number of shares: 30,000
- Call money per share: ₹3
- Total call money due and received: 30,000 × ₹3 = ₹90,000
Working Note 4: Total Share Capital
- Face value per share: ₹10
- Total shares: 30,000
- Total subscribed and paid-up capital: 30,000 × ₹10 = ₹3,00,000
The journal entries record the receipt of ₹90,000 on application, ₹1,20,000 on allotment, and ₹90,000 on first and final call. The Cash Book (Bank column) shows total receipts of ₹3,00,000, which equals the fully paid-up share capital of the company.
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