Question

Alpha Ltd. invited applications for issuing 90,000 equity shares of Rs 100 each at a premium of 10%. The amount was payable as follows :

On Application - Rs 20 per share
On Allotment - Rs 30 per share
On First and Final Call - Balance (including premium)

Applications for 1,20,000 shares were received. Applications for 10,000 shares were rejected and the application money was refunded. Shares were allotted on pro-rata basis to the remaining applicants. Excess money received on application was adjusted towards the amount due on allotment. Anant, who had applied for 1,100 shares failed to pay the allotment and the first and final call money. Mehak, to whom 900 shares were allotted failed to pay the first and final call. Anant's shares were forfeited.

Pass necessary journal entries for the above transactions in the books of Alpha Ltd.. Open 'Calls in Arrears Account', wherever necessary.

Hint:

Allot 9 shares for every 11 applied. Excess application money is Rs. 4,00,000. Anant got 900 shares, so arrears are Rs. 23,000 and Rs. 54,000; forfeiture credits are Rs. 22,000 and Rs. 77,000.

Answer 1

Step 1: Understand the issue:
Face value is Rs. 100, premium is Rs. 10, so the issue price is Rs. 110 per share.
Application Rs. 20, allotment Rs. 30, so the first and final call is Rs. 110 - 50 = Rs. 60 (Rs. 50 face value and Rs. 10 premium).
Applications came for 1,20,000 shares, 10,000 were rejected, and 90,000 shares were allotted out of 1,10,000 on pro-rata basis (9:11).

Step 2: Working Note 1: Application money:
Received: 1,20,000 x Rs. 20 = Rs. 24,00,000.
Refund on 10,000 rejected shares: 10,000 x 20 = Rs. 2,00,000.
Needed on 90,000 shares allotted: 90,000 x 20 = Rs. 18,00,000.
Excess adjusted towards allotment: 24,00,000 - 2,00,000 - 18,00,000 = Rs. 4,00,000.

Step 3: Working Note 2: Allotment money and Anant:
Allotment due: 90,000 x 30 = Rs. 27,00,000. Less excess application money Rs. 4,00,000 = Rs. 23,00,000 to be received in cash.
Anant applied for 1,100 shares and got 1,100 x 9/11 = 900 shares.
Anant paid 1,100 x 20 = Rs. 22,000 on application. The need was 900 x 20 = Rs. 18,000, so Rs. 4,000 excess stands adjusted to allotment.
Allotment due from Anant: 900 x 30 = Rs. 27,000. Less Rs. 4,000 = Rs. 23,000, which he did not pay. This is calls in arrears.
Cash received on allotment = 23,00,000 - 23,000 = Rs. 22,77,000.

Step 4: Working Note 3: First and final call:
Due: 90,000 x 60 = Rs. 54,00,000, of which Share Capital is 90,000 x 50 = Rs. 45,00,000 and Securities Premium is 90,000 x 10 = Rs. 9,00,000.
Anant (900 shares) and Mehak (900 shares) did not pay: 1,800 x 60 = Rs. 1,08,000.
Cash received = 54,00,000 - 1,08,000 = Rs. 52,92,000.

Step 5: Working Note 4: Forfeiture of 900 shares of Anant:
Share Capital debited: 900 x 100 = Rs. 90,000. Securities Premium debited: 900 x 10 = Rs. 9,000, because the premium was never received.
Amount received from Anant = Rs. 22,000 (application with the excess). This goes to Share Forfeiture A/c.
Calls in arrears of Anant = Rs. 23,000 + Rs. 54,000 = Rs. 77,000.
Check: 90,000 + 9,000 = 99,000 = 22,000 + 77,000.

Step 6: Journal entries in the books of Alpha Ltd.:

Particulars	Dr (Rs.)	Cr (Rs.)
Bank A/c ... Dr	24,00,000
To Equity Share Application A/c		24,00,000
(Application money received on 1,20,000 shares at Rs. 20)
Equity Share Application A/c ... Dr	24,00,000
To Equity Share Capital A/c		18,00,000
To Equity Share Allotment A/c		4,00,000
To Bank A/c		2,00,000
(Application money transferred to capital, excess adjusted on allotment and refund made on 10,000 shares)
Equity Share Allotment A/c ... Dr	27,00,000
To Equity Share Capital A/c		27,00,000
(Allotment money due on 90,000 shares)
Bank A/c ... Dr	22,77,000
Calls in Arrears A/c ... Dr	23,000
To Equity Share Allotment A/c		23,00,000
(Allotment money received, Anant defaulted)
Equity Share First and Final Call A/c ... Dr	54,00,000
To Equity Share Capital A/c		45,00,000
To Securities Premium A/c		9,00,000
(First and final call due on 90,000 shares)
Bank A/c ... Dr	52,92,000
Calls in Arrears A/c ... Dr	1,08,000
To Equity Share First and Final Call A/c		54,00,000
(First and final call received, Anant and Mehak defaulted)
Equity Share Capital A/c ... Dr	90,000
Securities Premium A/c ... Dr	9,000
To Share Forfeiture A/c		22,000
To Calls in Arrears A/c		77,000
(900 shares of Anant forfeited for non-payment of allotment and first and final call)

Final Answer:
The six entries above are the full answer. Calls in Arrears A/c shows a debit of Rs. 1,31,000 and a credit of Rs. 77,000, leaving Rs. 54,000, which is due from Mehak (her shares are not forfeited).