Question

DDG Ltd. invited applications for issuing 75,000 equity shares of ₹75 each at a premium of ₹25 per share. The amount was payable as follows:
On Application and Allotment – ₹40 per share
On First and Final Call – Balance (including premium)
Applications for 1,25,000 shares were received. Applications for 25,000 shares were rejected and the application money was refunded. Shares were allotted to the remaining applicants on pro-rata basis.
Excess money received with applications was adjusted towards sums due on first and final call. Govind, to whom 1,500 shares were allotted, failed to pay the first and final call. Namita, who had applied for 2,000 shares, also failed to pay the first and final call. Shares of both Govind and Namita were forfeited.
Pass the necessary journal entries for the above transactions in the books of DDG Ltd.

Hint:

Under pro-rata allotment, use the ratio of application to allotment to determine final shares allotted and excess money received.

Answer 1

Step 1: Share Capital Details

• Face Value = ₹75
• Premium = ₹25
• Total Issue Price = ₹100
• Application and Allotment = ₹40
• First and Final Call = ₹60 (includes ₹25 premium)

Step 2: Applications Received and Rejected

• Shares Applied = 1,25,000
• Shares Rejected = 25,000
• ⇒ Shares considered for pro-rata = 1,00,000
• Shares Allotted = 75,000
• Pro-rata Ratio = 1,00,000 : 75,000 = 4 : 3

Step 3: Journal Entries for Issue and Allotment

Bank A/c Dr. ₹50,00,000
    To Share Application and Allotment A/c ₹50,00,000
(Being application money received on 1,25,000 shares @ ₹40)

Share Application and Allotment A/c Dr. ₹50,00,000
    To Share Capital A/c ₹30,00,000
    To Securities Premium A/c ₹18,75,000
    To Bank A/c (Refund for 25,000 shares) ₹10,00,000
    To Calls in Advance A/c ₹1,25,000
(Being allotment made, excess application adjusted, and refund made)

Step 4: Journal Entry for First and Final Call

Share First and Final Call A/c Dr. ₹45,00,000
    To Share Capital A/c ₹11,25,000
    To Securities Premium A/c ₹33,75,000
(Being first and final call money due on 75,000 shares)

Step 5: Adjust Calls in Advance and Bank Receipts

Calls in Advance A/c Dr. ₹1,25,000
Bank A/c Dr. ₹42,50,000
    To Share First and Final Call A/c ₹43,75,000
(Being money received on first and final call and adjustment of advance)

Step 6: Forfeiture of Govind’s Shares (1,500 shares)

Share Capital A/c Dr. ₹1,12,500
Securities Premium A/c Dr. ₹37,500
    To Share Forfeiture A/c ₹60,000
    To Share First and Final Call A/c ₹90,000
(Being 1,500 shares forfeited for non-payment of first and final call)

Step 7: Forfeiture of Namita’s Shares (Applied for 2,000; Allotted 1,500)

Share Capital A/c Dr. ₹1,12,500
Securities Premium A/c Dr. ₹37,500
    To Share Forfeiture A/c ₹60,000
    To Share First and Final Call A/c ₹90,000
(Being 1,500 shares (Namita) forfeited for non-payment)

Note:

Total Forfeiture = 3,000 shares → ₹60,000 + ₹60,000 = ₹1,20,000