Question

Orion Enterprises Ltd. invited applications for issue of 70,000 equity shares of Rs 10 each at a premium of Rs 1 per share. The amount was payable as follows:

On Application - Rs 4 per share (including premium Rs 1 per share)

On Allotment - Rs 6 per share

On First and final call - Balance

Applications were received for 2,00,000 shares. Allotment was made as under:

Category A: Applicants for 1,20,000 shares were allotted 60,000 shares.

Category B: Applicants for 80,000 shares were allotted 10,000 shares.

Excess money received with applications was adjusted towards sums due on allotment only. Meeta, from category A, who was allotted 500 shares, failed to pay allotment money and first and final call and Japna, from category B, who had applied for 1,600 shares, failed to pay the first and final call money.

Pass necessary journal entries in the books of Orion Enterprises Ltd. for the above transactions.

Hint:

Adjust the excess money category-wise: Rs. 3,00,000 goes to allotment and Rs. 2,20,000 is refunded. Meeta owes Rs. 1,000 on allotment, and Meeta and Japna owe Rs. 700 on the final call.

Answer 1

Step 1: Understand the question:
Orion Enterprises Ltd. issued 70,000 shares of Rs. 10 at Rs. 1 premium. Application is Rs. 4 (with Rs. 1 premium), allotment is Rs. 6, and the first and final call is the balance.
Balance = Rs. 11 - Rs. 4 - Rs. 6 = Rs. 1 per share.
Excess application money is adjusted against allotment only, and any extra is refunded.

Step 2: Working Note 1: Application money:
Received = 2,00,000 x Rs. 4 = Rs. 8,00,000.
Needed on the 70,000 allotted shares = 70,000 x Rs. 4 = Rs. 2,80,000. This splits into capital Rs. 2,10,000 (70,000 x Rs. 3) and premium Rs. 70,000 (70,000 x Rs. 1).
Excess = Rs. 8,00,000 - Rs. 2,80,000 = Rs. 5,20,000.

Step 3: Working Note 2: Excess adjusted category-wise:
Category A: applied for 1,20,000 shares and paid Rs. 4,80,000. The 60,000 allotted shares need Rs. 2,40,000, so excess = Rs. 2,40,000. Allotment due on 60,000 shares = Rs. 3,60,000. So all Rs. 2,40,000 is adjusted.
Category B: applied for 80,000 shares and paid Rs. 3,20,000. The 10,000 allotted shares need Rs. 40,000, so excess = Rs. 2,80,000. Allotment due on 10,000 shares = Rs. 60,000. So only Rs. 60,000 is adjusted.
Adjusted against allotment = Rs. 2,40,000 + Rs. 60,000 = Rs. 3,00,000.
Refund = Rs. 2,80,000 - Rs. 60,000 = Rs. 2,20,000. Check: Rs. 5,20,000 - Rs. 3,00,000 = Rs. 2,20,000.

Step 4: Working Note 3: Allotment and defaults:
Allotment due = 70,000 x Rs. 6 = Rs. 4,20,000. Less adjusted Rs. 3,00,000 = Rs. 1,20,000 to be received in cash.
Meeta (category A) was allotted 500 shares, so she applied for 1,000 shares (ratio 2 : 1) and paid Rs. 4,000. Her excess = Rs. 4,000 - Rs. 2,000 = Rs. 2,000. Allotment due = 500 x Rs. 6 = Rs. 3,000. Unpaid = Rs. 1,000.
Cash received on allotment = Rs. 1,20,000 - Rs. 1,000 = Rs. 1,19,000.
First and final call = 70,000 x Rs. 1 = Rs. 70,000. Meeta owes 500 x Rs. 1 = Rs. 500.
Japna (category B) applied for 1,600 shares, so she got 1,600 x 1/8 = 200 shares (ratio 8 : 1). She owes 200 x Rs. 1 = Rs. 200.
Unpaid call = Rs. 500 + Rs. 200 = Rs. 700. Cash received = Rs. 70,000 - Rs. 700 = Rs. 69,300.

Step 5: Journal:

Particulars	Dr. Amount (Rs.)	Cr. Amount (Rs.)
Bank A/c ... Dr.	8,00,000
To Equity Share Application A/c		8,00,000
(Application money received on 2,00,000 shares at Rs. 4 per share)
Equity Share Application A/c ... Dr.	8,00,000
To Equity Share Capital A/c		2,10,000
To Securities Premium A/c		70,000
To Equity Share Allotment A/c		3,00,000
To Bank A/c		2,20,000
(Application money transferred to Share Capital, Securities Premium and Allotment, and balance refunded)
Equity Share Allotment A/c ... Dr.	4,20,000
To Equity Share Capital A/c		4,20,000
(Share allotment due on 70,000 shares at Rs. 6 per share)
Bank A/c ... Dr.	1,19,000
Calls in Arrears A/c ... Dr.	1,000
To Equity Share Allotment A/c		1,20,000
(Allotment money received except on 500 shares)
Equity Share First and Final Call A/c ... Dr.	70,000
To Equity Share Capital A/c		70,000
(First and final call due on 70,000 shares at Rs. 1 per share)
Bank A/c ... Dr.	69,300
Calls in Arrears A/c ... Dr.	700
To Equity Share First and Final Call A/c		70,000
(First and final call received on 69,300 shares)

Step 6: Alternative treatment:
Calls in Arrears A/c may be left out. The allotment and call entries then show only the cash received, as follows.

Particulars	Dr. Amount (Rs.)	Cr. Amount (Rs.)
Bank A/c ... Dr.	1,19,000
To Equity Share Allotment A/c		1,19,000
(Allotment money received except on 500 shares)
Bank A/c ... Dr.	69,300
To Equity Share First and Final Call A/c		69,300
(First and final call received on 69,300 shares)

Final Answer:
Application money of Rs. 8,00,000 splits as Rs. 2,10,000 capital, Rs. 70,000 premium, Rs. 3,00,000 allotment and Rs. 2,20,000 refund. Calls in Arrears are Rs. 1,000 on allotment and Rs. 700 on the final call.