Question

Karan Ltd. invited applications for issuing 80,000 equity shares of ₹80 each at par. The amount was payable as follows:
\hspace*{0.5cm}On Application and Allotment – ₹30 per share
\hspace*{0.5cm}On First and Final Call – Balance
Applications for 1,40,000 shares were received. Applications for 20,000 shares were rejected and the money was refunded. Shares were allotted on pro-rata basis to the remaining applicants. Excess money received with applications was adjusted towards sums due on first and final call. Ravi, who had applied for 1,200 shares, paid his entire share money along with his application. Chaman, to whom 2,400 shares were allotted, failed to pay the first and final call. Chaman’s shares were forfeited.
Pass necessary journal entries for the above transactions in the books of Karan Ltd. Open ‘Calls-in-Arrears Account’ and ‘Calls-in-Advance Account’, wherever necessary.

Hint:

In pro-rata allotments, use application ratio to determine excess application money and adjust it toward future calls. Use Calls-in-Arrears and Calls-in-Advance as needed.

Answer 1

Step 1: Share Details
Face Value = ₹80 per share
On Application and Allotment = ₹30
On First and Final Call = ₹50

Shares issued = 80,000
Shares applied = 1,40,000
Shares rejected = 20,000
Pro-rata basis on 1,20,000 shares (140,000 – 20,000)
Pro-rata ratio = 1,20,000 : 80,000 = 3 : 2
Step 2: Journal Entry for Application Money Received
Total shares applied = 1,40,000
Money received @ ₹30 = 1,40,000 × 30 = ₹42,00,000
\begin{verbatim} Bank A/c Dr. 42,00,000 To Share Application and Allotment A/c 42,00,000 (Being application money received on 1,40,000 shares \@ Rs.30) \end{verbatim} Step 3: Entry for Allotment and Refund
Application money of 20,000 shares = 20,000 × 30 = ₹6,00,000
Application money adjusted for 80,000 shares = 80,000 × 30 = ₹24,00,000
Excess application = ₹12,00,000
Out of this, refunded = ₹6,00,000
Adjusted towards calls = ₹6,00,000
\begin{verbatim} Share Application and Allotment A/c Dr. 42,00,000 To Share Capital A/c 24,00,000 To Bank A/c 6,00,000 To Calls-in-Advance A/c 6,00,000 To Share First and Final Call A/c 6,00,000 (Being allotment made, money refunded and excess adjusted toward call) \end{verbatim} Step 4: Entry for First and Final Call Due
First and Final Call = 80,000 × ₹50 = ₹40,00,000
\begin{verbatim} Share First and Final Call A/c Dr. 40,00,000 To Share Capital A/c 40,00,000 (Being first and final call amount due on 80,000 shares) \end{verbatim} Step 5: Adjustments and Receipts
Calls-in-Advance already received = ₹6,00,000
Chaman (2,400 shares) failed to pay ₹50 × 2,400 = ₹1,20,000
Amount received from others = 40,00,000 – 6,00,000 (advance) – 1,20,000 = ₹32,80,000
\begin{verbatim} Bank A/c Dr. 32,80,000 Calls-in-Advance A/c Dr. 6,00,000 To Share First and Final Call A/c 38,80,000 Calls-in-Arrears A/c Dr. 1,20,000 To Share First and Final Call A/c 1,20,000 (Being call money received and adjusted, arrears recognized) \end{verbatim} Step 6: Forfeiture of Chaman’s Shares
Received on application = ₹30 × 2,400 = ₹72,000
Unpaid = ₹50 × 2,400 = ₹1,20,000
\begin{verbatim} Share Capital A/c Dr. 1,92,000 To Share Forfeiture A/c 72,000 To Calls-in-Arrears A/c 1,20,000 (Being forfeiture of 2,400 shares on non-payment of call) \end{verbatim}