Question

Raga Ltd. invited applications for issuing 85,000 equity shares of Rs 100 each at par. The amount was payable as follows:

On Application - Rs 30 per share

On Allotment - Rs 40 per share

On First and final call - balance

Applications were received for 80,000 shares and allotment was made to all the applicants in full. When the allotment was due, one shareholder failed to pay the amount on 300 shares held by him and another shareholder holding 500 shares paid the entire amount on his shares. The first and final call was duly received, along with arrears of allotment.

Pass necessary journal entries for the above transactions in the books of Raga Ltd. Open 'Calls in Arrears Account' and 'Calls in Advance Account' wherever necessary.

Hint:

All 80,000 shares are allotted. Record the arrears of Rs. 12,000 and the advance of Rs. 15,000 at allotment, then adjust both when the final call is received.

Answer 1

Step 1: Read the terms of issue:
Shares offered were 85,000 but applications came for only 80,000. All 80,000 were allotted, so every figure is based on 80,000 shares.
Per share: application Rs. 30, allotment Rs. 40 and first and final call Rs. 30 (balance of Rs. 100). Shares are issued at par, so there is no premium.

Step 2: Working Note 1: Amounts due:

Instalment	Per share (Rs.)	On 80,000 shares (Rs.)
Application	30	24,00,000
Allotment	40	32,00,000
First and final call	30	24,00,000
Total	100	80,00,000

Step 3: Working Note 2: The two defaults at allotment:
Calls in arrears: one shareholder did not pay allotment on 300 shares = 300 x 40 = Rs. 12,000.
Calls in advance: another shareholder with 500 shares paid the whole amount. His allotment of 500 x 40 = Rs. 20,000 is due.
His first and final call of 500 x 30 = Rs. 15,000 is paid in advance, so it is calls in advance.
Bank at allotment = 32,00,000 - 12,000 + 15,000 = Rs. 32,03,000.

Step 4: Working Note 3: First and final call:
Call due is Rs. 24,00,000. The Rs. 15,000 already received is adjusted, so it is not paid again.
The arrears of Rs. 12,000 are paid with the call.
Bank = 24,00,000 - 15,000 + 12,000 = Rs. 23,97,000.

Step 5: Journal entries in the books of Raga 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 80,000 shares)
Equity Share Application A/c ... Dr.	24,00,000
To Equity Share Capital A/c		24,00,000
(Transfer of application money to share capital)
Equity Share Allotment A/c ... Dr.	32,00,000
To Equity Share Capital A/c		32,00,000
(Allotment money due on 80,000 shares)
Bank A/c ... Dr.	32,03,000
Calls in Arrears A/c ... Dr.	12,000
To Equity Share Allotment A/c		32,00,000
To Calls in Advance A/c		15,000
(Allotment money received after adjusting calls in arrears and calls in advance)
Equity Share First and Final Call A/c ... Dr.	24,00,000
To Equity Share Capital A/c		24,00,000
(First and final call due on 80,000 shares)
Bank A/c ... Dr.	23,97,000
Calls in Advance A/c ... Dr.	15,000
To Equity Share First and Final Call A/c		24,00,000
To Calls in Arrears A/c		12,000
(First and final call received after adjusting calls in advance, along with arrears of allotment)

Step 6: Closing of the two accounts:
Calls in arrears is debited Rs. 12,000 at allotment and credited Rs. 12,000 when arrears are paid with the call. So it ends at nil.
Calls in advance is credited Rs. 15,000 at allotment and debited Rs. 15,000 when the call falls due. So it ends at nil.
Total cash received = 24,00,000 + 32,03,000 + 23,97,000 = Rs. 80,00,000, which equals the share capital of 80,000 x 100.

Final Answer:
Share capital of Rs. 80,00,000 is fully paid. Cash received: application Rs. 24,00,000, allotment Rs. 32,03,000 and call Rs. 23,97,000.