NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 1

Q.1 What is public company?

Ans. It is a company which

(i) is not a private company;

(ii) has a minimum paid-up capital of ₹5,00,000 or such higher amount as may be prescribed,

The minimum number of members required to form a public limited company is seven. There is no restriction on maximum number of members.

Q.2 What is a private company?

Ans. A private company is one which has a minimum paid up share capital of ₹1,00,000 or such higher paid up share capital as may be prescribed in the Companies Act, 2013 and by its Articles of Association:

(a) It restricts the right to transfer its shares, if any

(b) Limits the number of its members to 200 (excluding its present or past employee members).

(c) Prohibits any invitation to the public to subscribe for any securities of the company.

Q.3 When can shares be forfeited?

Ans. Some shareholder may fail to pay one or more installments i.e. allotment money and/or call money. In such circumstances, the company can forfeit their shares i.e. the cancel the allotment and treat the amount already received thereon as forfeited to the company within the framework of the provisions in its articles.

Q.4 What is meant by Calls in arrears?

Ans. When any shareholder fails to pay the amount due on allotment or any of the calls, such an amount is known as calls in arrears or unpaid calls.

Q.5 What do you mean by a listed company?

Ans. Company whose shares are traded on an official stock exchange. It must adhere to the listing requirements of that exchange, which may include how many shares are listed and a minimum earnings level.

Q.6 What are the uses of a securities premium?

Ans. Section 52(2) of the Companies Act, 2013 restricts the use of the amounts received as premium on securities for the following purposes:

(i) Issuing fully paid bonus shares to the members;

(ii) Writing off preliminary expenses of the company;

(iii) Writing off the expenses of, or the commission paid or discount allowed on any issue of securities or debentures of the company.

(iv)Providing for the premium payable on the redemption of any redeemable Preference Shares or any of the debentures of the company

(v) Buyback of shares

Q.7 What is meant by Calls in advance?

Ans. Sometimes shareholders pay a part or whole of the amount of the calls not yet made. The amount so received from the shareholders is known as calls in advance.

Q.8 Write a brief note on Minimum Subscription.

Ans. Section 39(1) of the Companies Act 2013 provides that a company cannot allot any securities of the company to the public unless the amount stated in the prospectus as the minimum amount has been subscribed and the sums payable on application for the amount so stated have been received by the company. According to SEBI guidelines minimum subscription has been fixed at 90% of the issued amount.

Q.9 What is meant by the word ‘Company’? Describe its characteristics.

Ans. A company is an association of person who contribute money or money’s worth to a common inventory and uses it for a common purpose. Company has certain special features which distinguish it from the other forms of organisation. These are as follows:

a) Body corporate: A company is formed according to the provisions of law enforced from time to time. Generally in India Companies are registered and formed under Companies Act.

b) Separate legal entity: A company has a separate legal entity which is which is distinct and separate from its members. It can hold and deal with any type of property. It can enter into contracts and even open a bank account in its own name.

c) Limited liability: The liability of the members of the company is limited to the extent of unpaid amount of the shares held by them.

d) Perpetual succession: A company being an artificial person created by law can be terminated only through law. The death or insanity or insolvency of any member of the company in no way affects the existence of the company.

e) Common seal: A Company being an artificial person cannot sign its name by itself. Therefore every company is required to have its own seal which acts as official signature of the company.

f) Transferability of shares: The shares of a public limited company are freely transferable. But the articles of the company can prescribe the manner in which the transfer of shares will be made.

Q.10 Explain in brief the main categories in which the share capital of a company is divided.

Ans. The various terms used in connection with the Share Capital of the company are the following:

(i) Authorised, Registered or Nominal Capital: It is the maximum capital which a company is authorised to issue shares during its lifetime. Authorised capital is stated in the Memorandum of Association.

(ii) Issued Capital: It is that part of Authorised Capital which is actually offered to the public for subscription.

(iii) Subscribed Capital: It is that part of the Issued Capital which has been subscribed for by the public. Subscribed Capital is shown in the Balance Sheet under two heads:

a) Subscribed and fully paid up: Subscribed and fully paid up capital: It is a case when entire nominal value of a share is called by the company and also paid by the shareholder.

b) Subscribed but not fully paid up: It is a case when:

(i) The company has called up the full nominal value of the share but the shareholder has not paid some part of the nominal value of the share.

(ii) The company has not called up the full nominal value of the share.

(iii) Called up Capital: It refers to that part of the face value of a share called by the directors from shareholders.

(iv) Paid up Capital: It refers to that part of the Called up Capital which has been actually received from the shareholders. When the shareholders have paid the entire call amount, the called up capital and paid up capital are same.

Q.11 What do you mean by the term ‘Share’? Discuss the types of shares, which can be issued under the Companies Act, 2013 as amended to the date.

Ans. Shares refer to the units into which the total share capital of a company is divided. Thus a share is a fractional part of the share capital and forms the basis of ownership interests in the company. The persons who contribute money through shares are called shareholders. As per Section 43 of the Companies Act, 2013 a Company may issue two types of shares:

(1) Preference Shares

(2) Equity Shares

(1) Preference Shares: These shares carry the following two preferential rights:

(a) Dividend at a fixed rate before any dividend is paid to equity shares.

(b) Repayment of capital before anything is paid to equity shares.

However, notwithstanding the above two conditions, a holder of preference shares may have a right to participate fully or to a limited extent in the surpluses of the company as specified in the Memorandum or Articles of the Company. Thus preference shares can be participating or non-participating, cumulative or non-cumulative with reference to dividend, convertible and non-convertible.

(2) Equity Shares: Equity share is that share which is not a preference share. The dividend on equity shares is not fixed and it may vary from year to year depending upon the amount of profits available for distribution. These are the most commonly issued class of shares which carry the maximum rewards and risks of the business.

Q.12 Discuss the process of allotment of shares of a company in case of over subscription.

Ans. ‘Over Subscription’ is a case when applications for more shares are received than the number offered to the public for subscription. In such condition, three alternatives are available to the directors to deal with the situation:

1) They can accept some applications in full and totally reject the others.

2) They can make a pro rata allotment to all. and

3) They can adopt a combination of the above two alternatives.

a) First alternative, when the directors decide to fully accept some applications and totally reject the others. For example, a company invited applications for 20,000 shares and received the applications for 30,000 shares. The directors rejected the applications for 10,000 shares which are in excess of the required number and refunded their application money in full.

b) Second alternative, in this directors opt to make a proportionate allotment to all applicants (called pro-rata allotment) the excess application money received is normally adjusted towards the amount due on allotment. For example, in the event of applications for 20,000 shares being invited and those received are for 30,000 shares, it is decided to allot shares in the ratio of 2:3 to all applicants. It is a case of pro rata allotment and the excess application money received on 10,000 shares would be adjusted towards the amount due on the allotment of 20,000 shares.

c) Third alternative, when the application for some shares is rejected out rightly and pro rata allotment is made to the remaining applicants, the money on rejected applications is refunded and the excess application money received from applicants to whom pro rata allotment has been made is adjusted towards the amount due on the allotment of shares allotted. For example, in the event of applications for 20,000 shares being invited and those received are for 30,000 shares. The directors decided to reject the application for 5,000 shares outright and to make pro rata allotment of 20,000 shares to the applicants for the remaining 25,000 shares so that 4 shares are allotted to every 5 shares applied. In this case, the money on applications for 5,000 shares rejected would be refunded fully and on the remaining 5,000 shares (25,000 – 20,000) would be adjusted against the allotment amount due on 20,000 shares.

Q.13 What is a preference share? Describe the various types of preference shares.

Ans. Preference Shares are the shares carry the following two preferential rights:

(a) Dividend at a fixed rate before any dividend is paid to equity shares.

(b) Repayment of capital before anything is paid to equity shares.

Preference shares can be classified as follows:

1) With reference to dividend

2) With reference to participation in surplus profit and

3) With reference to convertibility

1) With reference to dividend: Cumulative preference shares and Non-cumulative preference shares.

a) Cumulative preference shares: When unpaid dividends on preference shares are treated as arrears and are carried forward to subsequent years, then such preference shares are known as cumulative preference shares. It means unpaid dividend on such shares is accumulated till it is paid off in full.

b) Non-cumulative preference shares: These preference shares have right to get fixed rate of dividend out of the profits of current year only. They do not carry the right to receive arrears of dividend.

2) With reference to participation in surplus profit: Participating preference shares and Non- participating preference shares.

a) Participating preference shares: Those preference shares, which have right to participate in any surplus profit of the company after paying the equity shareholders, in addition to the fixed rate of their dividend, are called participating preference shares.

b) Non- participating preference shares: Preference shares, which have no right to participate on the surplus profit or in any surplus on liquidation of the company, are called non-participating preference shares.

3) With reference to convertibility: Convertible preference shares and Non- convertible preference shares.

a) Convertible preference shares: Those preference shares, which can be converted into equity shares at the option of the holders after a fixed period according to the terms and conditions of their issue, are known as convertible preference shares.

b) Non- convertible preference shares: Preference shares, which are not convertible into equity shares, are called non-convertible preference shares.

Q.14 Describe the provision of law relating to ‘Calls in Arrears’ and ‘Calls in Advance’.

Ans. When any shareholder fails to pay the amount due on allotment or any of the calls, such an amount is known as calls in arrears or unpaid calls. The company if authorised by its Articles of Association may charge interest at the specified rate on calls in arrears from due date to the date of payment. In case, the Articles of Association of the company is silent, Table F of the Companies Act, 2013 shall apply which provides for interest @ 10% p.a. However, the directors have the right to waive the interest on calls in arrears.

Sometimes shareholders pay a part or whole of the amount of the calls not yet made. The amount so received from the shareholders is known as Calls in advance. It is a liability for the company. In case of calls in advance, the company pays interest at the rate stated in its Articles of Association. In the absence of interest clause in the Articles of Association, provisions of Table F of the Companies Act, 2013 apply and the company is liable to pay interest @ 12% p.a. on calls in advance.

Q.15 Explain the terms ‘Over subscription’ and ‘Under subscription’. How are they dealt in accounting records?

Ans. ‘Over Subscription’ is a case when applications for more shares are received than the number offered to the public for subscription. In such condition, three alternatives are available to the directors to deal with the situation:

1) They can accept some applications in full and totally reject the others. The following entries are passed:

Journal Entries

2) They can make a pro rata allotment to all. The following entries are passed:

Journal Entries

3) They can adopt a combination of the above two alternatives. The following entries are passed:

Journal Entries

Under subscription is a situation where number of shares applied is less than the number for which application has been invited for subscription. For example a company offered 1, 00,000 shares for subscription to the public but the applications were received for 96,000 shares only. In such a situation, the allotment will be confirmed to 96,000 shares and entries shall be made accordingly. The following entries are passed:

Journal Entries

Q.16 Describe the purposes for which a company can use the amount of Securities Premium.

Ans. Section 52(2) of the Companies Act, 2013 restricts the use of the amounts received as premium on securities for the following purposes:

(i) Issuing fully paid bonus shares to the members;

(ii) Writing off preliminary expenses of the company;

(iii) Writing off the expenses of, or the commission paid or discount allowed on any issue of securities or debentures of the company.

(iv) Providing for the premium payable on the redemption of any redeemable Preference Shares or any of the debentures of the company

(v) Buyback of shares

Q.17 State clearly the conditions under which a company can issue shares at discount.

Ans. When a share is issued at a price which is less than its face value, it is said that it has been issued at a discount. For example, if a share of the nominal value of ₹100 is issued at ₹90, it is said to have been issued at a discount of 10%.

Prohibition of issue of shares at a discount: As per section 53 of the Companies Act 2013, Companies would no longer be permitted to issue shares at discount. The only shares that could be issued at a discount are sweat equity wherein shares are issued to employees or directors in lieu of their services under section 54 of Companies Act 2013.

Q.18 Explain the term ‘Forfeiture of Shares’ and give the accounting treatment on forfeiture.

Ans. Some shareholder may fail to pay one or more installments i.e. allotment money and/or call money. In such circumstances, the company can forfeit their shares i.e. the cancel the allotment and treat the amount already received thereon as forfeited to the company within the framework of the provisions in its articles. The following journal entries are passed on forfeiture of shares:

When issued at par:

Journal Entry

When issued at premium and premium money is already paid on forfeited shares then we will ignore the securities premium and the following entry will be passed.

Journal Entry

When issued at premium and premium money is not paid on forfeited shares then the following journal entry will be passed:

Journal Entry

Q.19 Anish Limited issued 30,000 equity shares of ₹100 each payable at ₹30 on application, ₹50 on allotment and ₹20 on 1^st and final call. All money was duly received.

Record these transactions in the journal of the company.

Ans. Journal Entries

Q.20 The Adarsh Control Device Ltd. was registered with the authorised capital of ₹3,00,000 divided into 30,000 shares of ₹10 each, which were offered to the public. Amount payable as ₹3 per share on application, ₹4 per share on allotment and ₹3 per share on first and final call. These shares were fully subscribed and all money was dully received.

Prepare journal and cash book.

Ans. Journal Entries

Cash Book (Bank column only)

Q.21 Software Solution India Ltd. invited applications for 20,000 equity shares of ₹100 each, payable ₹40 on application, ₹30 on allotment and ₹30 on first and final call. The company received applications for 32,000 shares. Application for 2,000 shares were rejected and money returned to applicants. Applications for 10,000 shares were accepted in full and applicants for 20,000 shares allotted half of the number of shares applied and excess application money adjusted into allotment. All money due on allotment and call was received. Prepare journal and cash book.

Ans.

Journal Entries

Cash Book (Bank column only)

Working notes:

Q.22 Rupak Ltd. issued 10,000 shares of ₹100 each payable ₹20 per share on application, ₹30 per share on allotment and balance in two calls for ₹25 per share. The application and allotment money were duly received. On first call, all members paid their dues except one member holding 200 shares, while another member holding 500 shares paid for the balance due in full. Final call was not made.

Give journal entries and prepare cash book.

Ans.

Journal Entries

Cash Book (Bank column only)

Working notes:

Q.23 Mohit Glass Ltd. issued 20,000 shares of ₹100 each at ₹110 per share, payable ₹30 on application, ₹40 on allotment (including premium), ₹20 on first call and ₹20 on final call. The applications were received for 24,000 shares and allotted 20,000 shares and rejected 4,000 shares and amount returned thereon. The money was duly received.

Give the journal entries.

Ans.

Journal Entries

Q.24 A limited company offered for subscription of 1,00,000 equity shares of ₹10 each at a premium of ₹2 per share, 2,00,000 10% Preference shares of ₹10 each at par.

The amount on share was payable as under:

The shares were fully subscribed, called-up and paid.

Record these transactions in the journal and cash book of the company.

Ans.

Journal Entries

Cash Book (Bank column only)

Q.25 Eastern Company Limited, with an authorised capital of ₹10,00,000 is divided into equity shares of ₹10 each, issued 50,000 shares at a premium of ₹3 share per share payable as follows:
On Application: ₹3 per share
On Allotment (including premium): ₹5 per share.
On first call (due three months after allotment): ₹3 per share. And the balance as and when required.
Applications were received for 60,000 shares and the directors allotted shares as follows:
Applicants for 40,000 shares received in full.
Applicants for 15,000 shares received an allotment of 8,000 shares.
Applicants for 5000 shares received allotment of 2000 shares, excess money being returned.
All amounts due on allotment were received.
The first call was duly made and the money was received with the exception of the call due on 100 shares.
Give journal and cash book entries to record these transactions of the companies.
Also prepare the Balance Sheet of the Company.

Ans.

Journal Entries

Cash Book (Bank column only)

Balance Sheet (Extract)

Notes to Accounts:

Amount transferred to share allotment on application

Category B excess shares 7000 x ₹3 = ₹21,000

Category C excess shares 3000 x ₹3 = ₹9,000

Amount received on allotment

Category A (40,000 x ₹5) = ₹2,00,000

Category B (8,000 x ₹5) = 40,000 – 21,000 (advance) = ₹19,000

Category C (2,000 x ₹5) = 10,000 – 9,000 (advance) = ₹11,000

Q.26 Sumit Machine Ltd. issued 50,000 shares of ₹100 each at Premium of 5%. The shares were payable ₹25 on application, ₹50 on allotment and ₹30 on first and final calls. The issue was fully subscribed and money was duly received except the final call on 400 shares. The premium was adjusted on allotment.

Give journal entries and prepare the balance sheet.

Ans.

Journal Entries

Balance Sheet (Extract)

Notes to Accounts:

Q.27 Kumar Ltd. purchased assets of ₹6,30,000 from Bhanu Oil Ltd. Kumar Ltd. issued equity share of ₹100 each fully paid in consideration. What journal entries will be made, if the shares are issued, (a) at par, and (b) at premium of 20%.

Ans. Case (i)

Journal Entries

Case (ii)

Journal Entries

Q.28 Bansal Heavy Machine Ltd. purchased machine worth ₹3,20,000 from Handa Trader. Payment was made as ₹50,000 cash and remaining amount by issue of equity shares of the face value of ₹100 each fully paid at an issue price of ₹100 each.

Give journal entries to record the above transaction.

Ans.

Journal Entries

Q.29 Naman Ltd. issued 20,000 shares of ₹100 each, payable ₹25 on application ₹30 on allotment, ₹25 on first call and the balance on final call. All money duly received except Anubha, who holding 200 shares did not pay allotment and calls money and Kumkum, who holding 100 shares did not pay both the calls. The directors forfeited the shares of Anubha and Kumkum.

Give journal entries.

Ans.

Journal Entries

Calculation of amount received on shares forfeited.

Application money on 300 shares (300 x ₹25) = ₹7,500

Allotment money on 100 shares (100 x ₹30) = ₹3,000

Q.30 Kishna Ltd. issued 15,000 shares of ₹100 each at a premium of ₹10 per share, payable as follows:

On application: ₹30

On allotment: ₹50 (including premium)

On first and final call: ₹30

All the shares subscribed and the company received all the money due, with the exception of the allotment and call money on 150 shares. These shares were forfeited and reissued to Neha as fully paid share of ₹12 each.

Give journal entries in the books of the company.

Ans.

Journal Entries

Q.31 Arushi Computer Ltd. issued 10,000 equity shares of ₹100 each at 10% premium. The net amount payable as follows:

On application: ₹20

On allotment: ₹50 (₹40 + premium ₹10)

On first call: ₹30

On final call: ₹10

A shareholder holding 200 shares did not pay final call. His shares were forfeited. Out of these 150 shares were reissued to Ms. Sonia at ₹75 per share.

Give journal entries in the books of the company.

Ans.

Journal Entries

Amount of share forfeiture on forfeited shares = 200 x ₹90 = ₹18,000.

Calculation of capital reserve

Q.32 Himalaya Company Limited issued for public subscription of 1,20,000 equity shares of ₹10 each at a premium of ₹2 share payable as under:

With application: ₹3 per share.

On allotment (including premium): ₹5 per share

On first call: ₹2 per share.

On Second and final call: ₹2 per share.

Applications were received for 1,60,000 shares. Allotment was made on pro rata basis. Excess money on application was adjusted against the amount on allotment.

Rohan, whom 4,800 shares were allotted, failed to pay for the two calls. The shares were subsequently forfeited after the second call was made. All shares forfeited were reissued to Teena as fully paid at ₹7 per share.

Record journal entries and show the transactions relating to share capital the company’s balance sheet.

Ans.

Journal Entries

Notes to Accounts:

Amount of securities premium will be ignored as it is already received on shares forfeited.

Q.33 Prince Limited issued a prospectus inviting applications for 20,000 equity shares of ₹10 each at a premium of ₹3 per share payable as follows:

With application: ₹2

On allotment (including premium): ₹5

On first call: ₹3

On second call: ₹3

Applications were received for 30,000 shares and allotment was made on pro rata basis. Money overpaid on applications was adjusted to the amount due allotment.

Mr. Mohit whom 400 shares were allotted, failed to pay the allotment more and the first call and his shares were forfeited after the first call. Mr. Joly whom 600 shares were allotted, failed to pay for the two calls and hence, the shares were forfeited.

Of the shares forfeited, 800 shares were reissued to Supriya as fully paid: ₹9 per share, the whole of Mr. Mohit’s shares being included.

Record journal entries in the books of the company.

Ans.

Journal Entries

Calculation of amount not received from Mohit on allotment:

Calculation of money received on allotment:

Capital reserve = Mohit’s capital reserve + Joly’s capital reserve

₹800 (1,200 – 400) + ₹1,200 (1,600 – 400) = ₹2,000.

Q.34 Life Machine Tools Limited issued 50,000 equity shares of ₹10 each at ₹12 per share payable at to ₹5 on application (including premium), ₹4 on allotment and the balance on the first and final call.

Applications for 70,000 shares had been received. Of the cash received, ₹40,000 was returned and ₹60,000 was applied to the amount due on allotment. All shareholders paid the call due with the exception of one shareholder of 500 shares. These shares were forfeited and reissued as fully paid at ₹8 per share. Journalise the transactions.

Ans.

Journal Entries

Q.35 The Orient Company Limited offered for public subscription 20,000 equity shares of ₹10 each at a premium of 10% payable at ₹2 on application; ₹4 on allotment including premium; ₹3 on first call and ₹2 on second and final call. Applications for 26,000 shares were received. Applications for 4,000 shares were rejected. Pro-rata allotment was made to the remaining applicants. Both the calls were made and all the money were received except the final call on 500 shares which were forfeited. 300 of the forfeited shares were later reissued as fully paid at ₹9 per share. Give journal entries.

Ans.

Journal Entries

Q.36 Alfa Limited invited applications for 4,00,000 of its equity shares of ₹10 each on the following terms:

Payable on application: ₹5 per share

Payable on allotment: ₹3 per share

Payable on first and final call: ₹2 per share

Applications for 5,00,000 shares were received. It was decided:

1. To refuse allotment to the applicants for 20,000 shares;
2. To allot in full to applicants for 80,000 shares;
3. To allot the balance of the available shares pro-rata among the other applicants; and
4. To utilise excess application money in part as payment of allotment money.

One applicant, whom shares had been allotted on pro-rata basis, did not pay the amount due on allotment and on the call and his 400 shares were forfeited. The shares were reissued @ ₹9 per share. Show the journal and prepare cash book to record the above.

Ans.

Journal Entries

Cash Book (Bank column only)

Working notes:

Calculation of amount not received on 400 shares allotted:

Calculation of money received on the allotment:

Q.37 Amit holds 100 shares of ₹10 each on which he has paid ₹1 per share as application money. Bimal holds 200 shares of ₹10 each on which he has paid ₹1 and ₹2 per share as application and allotment money respectively. Chetan holds 300 shares of ₹10 each and has paid ₹1 on application, ₹2 on allotment and ₹3 for the first call. They all failed to pay their arrears at the second call of ₹2 per share and the directors, therefore forfeited the shares. The shares are reissued subsequently for ₹11 per share as fully paid.

Journalise the transactions.

Ans.

Journal Entries

Calculation of amount transferred to capital reserve:

Q.38 Ajanta Company Limited having a normal capital of ₹3,00,000, divided into shares of ₹10 each offered for public subscription of 20,000 shares payable at ₹2 on application; ₹3 on allotment and the balance in two calls of ₹2.50 each. Applications were received by the company for 24,000 shares. Applications for 20,000 shares were accepted in full and the shares allotted. Applications for the remaining shares were rejected and the application money was refunded.

All moneys due were received with the exception of the final call on 600 shares which were forfeited after legal formalities were fulfilled. 400 shares of the forfeited shares were reissued at ₹9 per share.

Record necessary journal entries and prepare the balance sheet showing the amount transferred to capital reserve and the balance in share forfeiture account.

Ans.

Journal Entries

Balance Sheet (Extract)

Notes to Accounts:

Working notes:

Calculation of capital reserve

Q.39 Journalise the following transactions in the books of Bhushan Oil Ltd:

1. 200 shares of ₹100 each issued at a premium of ₹10 were forfeited for the non-payment of allotment money of ₹60 per share. The first and final call of ₹20 per share on these shares were not made. The forfeited shares were reissued at ₹70 per share as fully paid-up.
2. 150 shares of ₹10 each issued at a premium of ₹4 per share payable with allotment were forfeited for non-payment of allotment money of ₹8 per share including premium. The first and final calls of ₹4 per share were not made. The forfeited shares were reissued at ₹15 per share fully paid up.
3. 400 shares of ₹50 each issued at par were forfeited for non-payment of final call of ₹10 per share. These shares were reissued at ₹45 per share fully paid up.

Ans.

Case (a)

Journal Entries

Case (b)

Case (c)

Journal Entries

Q.40 Amisha Ltd. invited applications for 40,000 shares of ₹100 each at a premium of ₹20 per share. Amount payable on application ₹40: On allotment ₹40 (including premium): on first call ₹25 and second and final call ₹15.

Applications were received for 50,000 shares and allotment was made on pro-rata basis. Excess money on application was adjusted against the sums due on allotment.

Rohit to whom 600 shares were allotted failed to pay the allotment money and his shares were forfeited after allotment. Ashmita, who applied for 1,000 shares failed to pay the two calls and her shares were forfeited after the second call. Of the shares forfeited, 1200 shares were sold to Kapil for ₹85 per share as fully paid, the whole of Rohit’s shares being included.

Record necessary journal entries.

Ans.

Journal Entries

Working notes:

Calculation of amount not received from Rohit on the allotment:

Calculation of money received on allotment:

Calculation of Capital reserve

On 600 shares of Rohit + on 600 shares of Ashmita

₹21,000 + ₹27,000 = ₹48,000

Q.41 Raunak Cotton Ltd. issued a prospectus inviting applications for 6,000 equity shares of ₹100 each at a premium of ₹20 per shares, payable as follows:

On application: ₹20

On allotment: ₹50 (including premium)

On first call: ₹30

On final call: ₹20

Applications were received for 10,000 shares and allotment was made pro-rata to the applicants of 8,000 shares, the remaining applications being refused.

Money received in excess on the application was adjusted towards the amount due on allotment.

Rohit, to whom 300 shares were allotted, failed to pay allotment and calls money his shares were forfeited, Itika who applied for 600 shares failed to pay two calls and her shares were also forfeited. All these shares were sold to ‘Kartika’ as fully paid for ₹80 per share.

Give journal entries in the books of the company.

Ans.

Journal Entries

\begin{array}{l}\text{Number of shares applied by Rohit}\\ \text{=}\frac{\text{8,000}}{\text{6,000}}\text{x}\text{300}\text{= 400 shares}\\ \text{Number of shares alloted to Itika}\\ \text{=}\frac{\text{6,000}}{\text{8,000}}\text{x}\text{600}\text{= 450 shares}\text{alloted}\end{array}

Calculation of amount not received from Rohit on allotment:

Calculation of money received on allotment:

Amount transferred to forfeiture account = Amount received from Rohit + Amount received from Itika

= ₹8,000 + ₹22,500 (₹12,000 +₹10,500) = ₹30,500.

Q.42 Ashoka Limited which had issued equity shares of ₹20 each at a premium of ₹4 per share, forfeited 1,000 shares for non-payment of final call of ₹2 per share. 400 of the forfeited shares were reissued at ₹14 per share out of the remaining shares of 200 shares reissued at ₹20 per share. Give journal entries for the forfeiture and reissue of shares and show the amount transferred to capital reserve and the balance in share forfeiture account.

Ans.

Journal Entries

\begin{array}{l}\text{Capital Reserve}\\ \text{=}\frac{\text{600}}{\text{1,000}}\text{x}\text{₹18,000}\text{= ₹10,800 – ₹2,400 = ₹8,400}\end{array}