Question

Ambuja Ltd. issued for public subscription 2,00,000 equity shares of ₹20 each at a premium of ₹10 per share payable as under:
On application ₹10
On allotment ₹14 (including premium ₹10)
On first & final call ₹6
Applications were received for 3,00,000 shares. Allotment was made pro-rata to all the applicants, and the money overpaid on application was utilized towards sums due on allotment.
Pooja, who applied for 3,600 shares, failed to pay the allotment and call money, and the shares were subsequently forfeited. Two-thirds of the forfeited shares and the money paid were re-issued to Sandeep as fully paid-up at ₹16 per share. Show the journal entries to record the above transactions.

Hint:

When shares are forfeited, the forfeited amount is transferred to the Share Forfeiture Account. When shares are re-issued at a discount, the difference between the issue price and the forfeited value is credited to the Share Forfeiture Account.

Answer 1

Step 1: Application Money Received. 
When applications are received, we record the amount received in the application account. The total application money received for 3,00,000 shares at ₹10 each is: 

 

\[\text{Total Application Money} = 3,00,000 \times 10 = 30,00,000\]

 The journal entry for the application money is: 

 

\[\text{Bank A/c} \ \text{Dr.} \ 30,00,000 \\ \text{To Share Application A/c} \ 30,00,000\]

 
Step 2: Allotment Money Due and Received. 
The allotment money is ₹14 per share. The total amount due on allotment for 2,00,000 shares is: 

 

\[\text{Total Allotment Money} = 2,00,000 \times 14 = 28,00,000\]

 Since application money was received for 3,00,000 shares, excess application money is adjusted towards allotment. The journal entry for allotment is: 

 

\[\text{Share Allotment A/c} \ \text{Dr.} \ 28,00,000 \\ \text{To Share Capital A/c} \ 20,00,000 \\ \text{To Share Premium A/c} \ 8,00,000\]

 
Step 3: Forfeiture of Shares for Pooja. 
Pooja applied for 3,600 shares and failed to pay allotment and call money. Hence, her shares were forfeited. The journal entry is: 

 

Step 4: Re-issue of Forfeited Shares to Sandeep. 
Two-thirds of the forfeited shares (2,400 shares) were re-issued to Sandeep at ₹16 per share. The journal entry for re-issue is: 


Step 5: Conclusion. 
These journal entries correctly record application money received, allotment due, forfeiture of shares for non-payment, and re-issue of forfeited shares at a discount. The discount on re-issue is adjusted against the Share Forfeiture Account.