Sunrise Company Limited offered for public subscription 10,000 shares of ₹10 each at ₹11 per share. Money was payable as follows:
| Instalment | Amount (₹) |
|---|---|
| On application | 3 |
| On allotment (including premium) | 4 |
| On first and final call | 4 |
Applications were received for 12,000 shares and the directors made pro-rata allotment.
Mr. Ahmad, an applicant for 120 shares, could not pay the allotment and call money, and Mr. Basu, a holder of 200 shares, failed to pay the call. All these shares were forfeited.
Out of the forfeited shares, 150 shares (the whole of Mr. Ahmad's shares being included) were issued at ₹8 per share. Record journal entries for the above transactions and prepare the share forfeiture account.
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Start your 14-day free trial to unlock the full solution →300 shares forfeited (₹1,560 held); 150 reissued at ₹8 with ₹300 discount; ₹360 to Capital Reserve, ₹900 balance retained.
Concept
Because 12,000 shares were applied for against 10,000 offered, the application money on the surplus 2,000 shares is carried forward and adjusted against allotment. Ahmad applied for 120 shares, so on a pro-rata basis he was allotted 100 shares. Only part of the forfeited shares are reissued, so only the proportionate profit reaches Capital Reserve.
Working Notes
1. Allotment money received. Due on 10,000 shares at ₹4 = ₹40,000. Less surplus application money on 2,000 shares (2,000 × ₹3 = ₹6,000) = net ₹34,000. Ahmad's 100 shares: (100 ÷ 10,000) × ₹34,000 = ₹340 unpaid. Received = ₹34,000 − ₹340 = ₹33,660.
2. Securities premium reversed. Premium unpaid only on Ahmad's 100 shares: 100 × ₹1 = ₹100.
3. Amount credited to Share Forfeiture (₹1,560). Ahmad paid application 120 × ₹3 = ₹360; Basu paid ₹6 per share (application ₹3 + allotment ₹3, excluding premium) on 200 shares = ₹1,200. Total = ₹1,560.
4. Capital reserve (₹360). Money on the 150 reissued shares: Ahmad's 100 = ₹360 plus Basu's 50 = (50 ÷ 200) × ₹1,200 = ₹300, giving ₹660. Less discount (150 × ₹2 = ₹300) = ₹360.
Solution
Books of Sunrise Company Limited — Journal
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| Bank A/c Dr. | 36,000 | |||
| To Share Application A/c | 36,000 | |||
| (Being application money received on 12,000 shares at ₹3 per share) | ||||
| Share Application A/c Dr. | 36,000 | |||
| To Share Capital A/c | 30,000 | |||
| To Share Allotment A/c | 6,000 | |||
| (Being application money on 10,000 shares transferred to capital and the surplus on 2,000 shares adjusted to allotment) | ||||
| Share Allotment A/c Dr. | 40,000 | |||
| To Share Capital A/c | 30,000 | |||
| To Securities Premium Reserve A/c | 10,000 | |||
| (Being allotment due on 10,000 shares at ₹4, including ₹1 premium) | ||||
| Bank A/c Dr. | 33,660 | |||
| To Share Allotment A/c | 33,660 | |||
| (Being allotment money received — see Working Note 1) | ||||
| Share First and Final Call A/c Dr. | 40,000 | |||
| To Share Capital A/c | 40,000 | |||
| (Being call money due on 10,000 shares at ₹4 per share) | ||||
| Bank A/c Dr. | 38,800 | |||
| To Share First and Final Call A/c | 38,800 | |||
| (Being call money received on 9,700 shares) | ||||
| Share Capital A/c Dr. | 3,000 | |||
| Securities Premium Reserve A/c Dr. | 100 | |||
| To Share Allotment A/c | 340 | |||
| To Share First and Final Call A/c | 1,200 |
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