Question

Supreme Company Limited issued 10,000 equity shares of ₹ 100 each at a premium of ₹ 10 per share. The amount payable is as follows :
On application ₹ 20
On allotment ₹ 50 (including premium)
On first and final call ₹ 40.
All the shares were subscribed and money duly received except the first and final call on 500 shares.
The directors forfeited these shares and re-issued them as fully paid-up at ₹ 80 per share.
Pass the necessary journal entries regarding issue, forfeiture and re-issue of shares.

Hint:

In forfeiture entries, if the Securities Premium has already been received (as in this case with the allotment money), it is strictly ignored. Do NOT debit the Securities Premium account during forfeiture.

Answer 1

Step 1: Understanding the Concept:
When shares are issued at a premium and a shareholder fails to pay call money, the shares can be forfeited. Upon reissue of these forfeited shares, any profit left in the Share Forfeiture account is transferred to the Capital Reserve.

Step 2: Detailed Explanation:
Let's break down the issue structure:
- Total Shares = 10,000.
- Face Value = ₹ 100. Premium = ₹ 10. Issue Price = ₹ 110.
- Application: ₹ 20
- Allotment: ₹ 50 (₹ 40 Capital + ₹ 10 Premium)
- First \& Final Call: ₹ 40
- Calls-in-Arrears = 500 shares \(\times\) ₹ 40 = ₹ 20,000.
Since the allotment money (which includes the premium) was paid on these 500 shares, the Securities Premium account will not be cancelled during forfeiture.

Step 3: Final Answer:
Journal Entries in the books of Supreme Company Limited