Question

NCERT Solutions Class 12, Accountancy Part-II, Chapter- 1, Accounting for Share Capital

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In these NCERT Solutions for Class 12 Accountancy, we have discussed all types of NCERT intext questions and exercise questions.

Concepts covered in Class 12 Accountancy Part-II Chapter- 1 Accounting for Share Capital, are-

• Features of a company
• Types of companies
• Share capital of a company
• Nature and classes of shares
• Issue of shares
• Accounting treatment
• Forfeiture of the shares

Our NCERT Solutions for Class 12 Accountancy offer detailed explanations to help students with their homework and assignments. By thoroughly mastering and practicing the concepts from each chapter using these solutions, you can significantly boost your chances of scoring top marks in your exams. Start your preparation today to excel in your studies!

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Answer 1

NCERT Solutions Class 12, Accountancy Part-II, Chapter- 1, Accounting for Share Capital

Short Answers

1. What is a public company?

Solution:

A Public company, as per  Sec. 2(71) and Sec. 3 (1) (a) of the Company Act, 2013, means a company which has the following characteristics:

a. It is not a private company

b. It has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital as may be prescribed

c. It is a private company, being a subsidiary of a company which is not a private company.

The stock of a public company can be acquired by any individual, and it may be through IPO or trading on the stock market.

2. What is a private limited company?

Solution:

As per Section 2(68) of the Companies Act, 2013, Private limited companies are defined as companies that have the following characteristics:

1. Companies whose article of association restricts the transfer of shares

2. No minimum paid-up capital

3. Minimum 2 members and maximum of 200 members (Only one in case of One Person Company)

4. Must include “private limited” or “Pvt Ltd” in their names

5. Shares of a private company are not traded in stock exchanges

3. When can shares be forfeited?

Solution:

A shareholder has to pay allotment money for holding the shares and has to pay the calls, which are part of the share allotment. When a shareholder fails to do so, a 14 days’ notice is served to the shareholder. If the shareholder does not pay in these 14 days, the shares will be forfeited.

4. What is meant by Calls-in-Arrears?

Solution:

When an investor (shareholder) fails to pay all the instalments for the allotted shares in due time, the company expects the investor to pay the amount on subsequent calls or stages. The amount of money that is paid at later stages is called as Call-in-Arrears.

5. What do you mean by a listed company?

Solution:

Public companies whose shares are listed in recognised stock exchanges for public trading are called Listed Companies. Such companies are also known as Quota Companies. Once the securities are listed, it helps the investors know the value of their investment in a listed company. It provides the potential investors with an idea about the goodwill of the company and helps them on taking future investment decisions and evaluate the viability of investing in the company.

6. What are the uses of securities premium?

Solution:

Securities premium can be used for these activities:

1. Issuing fully paid-up bonus shares to existing shareholders.

2. Writing off the expense of the issue of shares and debentures, such as the discount given on the issue of shares.

3. Writing off preliminary expenses

4. Buying back shares

5. For paying premium payable on redemption of debentures.

7. What is meant by Calls-in-Advance?

Solution:

When the shareholder pays the whole amount before the share payment date becomes due, i.e., before the share issuing company makes a call for it. It is known as Calls-in-advance.

8. Write a brief note on ‘Minimum Subscription’.

Solution:

It refers to the minimum amount of shares that must be subscribed by the public so that the share allotting company can allot shares to the applicants. If Minimum Subscription is not attained, the company cannot allot shares to its applicants, and it should refund the amount received to the public. Minimum Subscription should not be less than 90% of the amount issued.

Long Answers

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

Solution:

Section 2(20) of the Companies Act 2013 defines the term “company” to mean “a company incorporated under the Companies Act, 2013 or any previous company law. In general parlance, a company is an artificial person created by law, having a separate legal entity, common seal, perpetual succession and limited liability. It is a voluntary association of persons who come together and contribute capital for doing business. The capital of a company is available in the form of shares, and the ownership of shares is subject to certain terms and conditions. Public and private are two forms of company.

Characteristics of a Company

1. A company is an association formed voluntarily by a group of persons having a common business goal. Minimum number of members required for a private company is two and that for a public company is seven.

2. Company is a juristic and artificial person created by law.

3. Company is a separate legal entity from shareholders and directors. It has the authority to open a bank account, sign contracts and own property in its name.

4. The liability of the members of a company is limited to the unpaid value of the shares they are holding.

5. The company has perpetual existence, which means the existence of the company is not affected by the death, insolvency or retirement of any of its members

6. The company, being an artificial person, has no individual signature; hence it carries a common seal for validating the official documents.

7. Shares of a public company are transferrable, while private companies do not allow the transfer of shares without members’ consent.

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

Solution:

The following categories of share capital are there:

1. Authorised Capital: This is the maximum amount a company can raise by issuing shares. It is the amount mentioned during the formation of the Memorandum of Association.

2. Issued Capital: A portion of authorised share capital that is offered by the company to the general public for subscription.

3. Unissued Capital: A part of authorised capital that is not yet offered to the general public for subscription but can be offered in near future.

4. Subscribed Capital: A part of issued capital which is subscribed by the general public.

5. Unsubscribed Capital: Referred to as that part of issued capital that has not been subscribed by the people (public).

6. Called up Capital: It is a portion of the subscribed capital for which the shareholders are called to pay

7. Uncalled up capital: It is that part of a subscribed capital that is not yet called up, but can be called up as per requirement.

8. Paid Up Capital: It is part of called up share capital that is received by the shareholders

9. Reserve Capital: A company may call up certain part of uncalled share capital when a company is winding up. This cannot be used for any other purpose other than paying back creditors, hence it is called reserve capital.

3. What do you mean by the term ‘share’? Discuss the type of shares, which can be issued under the Companies Act, 2013 as amended to date.

In a company, the capital is split into small denominations, which are known as shares. Shares can be easily transferred from one person to another, and this transfer is bound by certain terms and conditions. A shareholder is a person who contributes capital in the form of shares. Ownership is limited to the value of shares possessed by the shareholder. There are two types of shares:

1) Preference Shares and 2) Equity Shares

1) Preference Share: Section 43 of the Companies Act, 2013 defines preference shares as those which entitle the holder to receive dividends and also the right to receive capital invested in order of preference before equity shareholders when the company winds up.

2) Equity Shares: Equity shareholders manage the affairs of the company and also have a voting right. These types of shares do not possess any preferential right for dividend payment or capital repayment. The dividend rate is not fixed and varies year on year, which is dependent on available profit left after distributing to preference shareholders.

Answer 2

4. Discuss the process for the allotment of shares of a company in case of over subscription.

Solution:

When the total number of applications received for shares exceeds the number of shares offered by the company to the public, the situation of oversubscription arises. A company can opt for any of the three alternatives to allot shares in case of oversubscription of shares.

i) Excess applications are refused and money received on excess applications is returned to the applicants.

The company can refuse excess applications and the money received on these excess applications is returned to the applicants.

Example: Shares issued 10,000 @ Rs 10 per share and money received for 12,000 shares. Amount is payable Rs 2 on application, Rs 5 on allotment, Rs 3 on first and final call.

ii) Pro rata Basis

The company can allot shares on pro rata basis to all the share applicants. The excess amount received in the application is adjusted on the allotment.

Example: Shares issued 10,000 @ Rs 10 per share and money received for 12,000 shares. Amount is payable Rs 2 on application, Rs 5 on allotment, Rs 3 on first and final call.

iii) Pro rata and refund of money

In this case, the company follows a combination of both the method. It may reject some share applications and may allot some applications on the pro rata basis.

Example: Shares issued 10,000 @ Rs 10 per share and money received for 13,000 shares. Amount is payable Rs 2 on application, Rs 5 on allotment, Rs 3 on first and final call. If the company rejects the applications for 1,000 shares and allots the remaining on the pro rata basis.

5. What is a ‘Preference Share’? Describe the different types of preference shares.

Solution:

Preference Share: Section 43 of the Companies Act, 2013 defines preference shares as shares which entitle the holder to receive dividends and also the right to receive capital invested in order of preference before equity shareholders when the company winds up.

The different types are:

1) Cumulative Preference Share: When arrears of a dividend are cumulative, and such arrears are paid before paying any dividend to equity shareholders, such shares are known as cumulative shares.

2) Non-Cumulative Preference Share: Shares where the dividend is paid from the net profits earned each year, are known as non-cumulative preference shares. If the company does not earn profits in any of the years, the arrears of dividends cannot be claimed.

3) Participating preference share: In these types of shares, the preference shareholder has the luxury of participating in the surplus profit (i.e. apart from the fixed rate of dividend), which is remaining after paying equity shareholders.

4) Non-participating Preference Share: The condition in which the shareholder is entitled only to a fixed dividend pay-out and no share in surplus profits is known as a non-participating preference share.

5) Convertible Preference Share: A type of share which can be converted to equity shares within a period of time.

6) Non-Convertible Preference Share: Type of shares which do not have the right to convert into equity shares.

7) Redeemable Preference Shares: Those shares that can be repaid to the shareholders after a certain period as per provisions mentioned in the Companies Act, 1956

8) Guaranteed Preference Shares: These shares have the provision of getting fixed dividend, even if the company is making no profits

6. Describe the provision of law relating to ‘Calls-in-Arrears’ and ‘Calls-in-Advance’.

Solution:

When an investor (shareholder) fails to pay all the instalments for the allotted shares in due time, the company expects the investor to pay the amount on subsequent calls or stages. The amount of money that is paid at later stages is called as Call-in-Arrears. The company is authorized by its Article of Association to charge interest at a specified rate on the call in arrears amount from the due date till the date of payment. If the Article of Association does not mention or is silent about such a case, then a 5% charge is levied.

The amount is deducted from called-up share capital on the liabilities side of the Balance Sheet. If the due amount is not paid, the shares can be forfeited with proper notice to shareholders.

When the shareholder pays the whole amount before the share payment date becomes due, i.e., before the share issuing company makes a call for it, it is known as Calls-in-advance. In case of advance payment, the company has a provision in their article of association to pay interest to shareholders from the date of payment till the date of call. If the article of association is silent in this regard, then a default 6% interest is provided.

It is shown on the liabilities side of the Balance Sheet under the heading of current liabilities.

7. Explain the terms ‘Over-subscription’ and ‘Under-subscription’. How are they dealt with in accounting records?

Solution:

When the total number of applications received for shares exceeds the number of shares offered by the company to the public, the situation of oversubscription arises. A company can opt for any of the three alternatives to allot shares in case of oversubscription of shares.

i) Excess applications are refused and money received on excess applications is returned to the applicants.

The company can refuse excess applications and the money received on these excess applications is returned to the applicants.

Example: Shares issued 10,000 @ Rs 10 per share and money received for 12,000 shares. Amount is payable Rs 2 on application, Rs 5 on allotment, Rs 3 on first and final call.

ii) Pro rata Basis

The company can allot shares on pro rata basis to all the share applicants. The excess amount received in the application is adjusted on the allotment.

Example: Shares issued 10,000 @ Rs 10 per share and money received for 12,000 shares. Amount is payable Rs 2 on application, Rs 5 on allotment, Rs 3 on first and final call.

iii) Pro rata and refund of money

In this case, the company follows a combination of both the method. It may reject some share applications and may allot some applications on the pro rata basis.

Example: Shares issued 10,000 @ Rs 10 per share and money received for 13,000 shares. Amount is payable Rs 2 on application, Rs 5 on allotment, Rs 3 on first and final call. If the company rejects the applications for 1,000 shares and allots the remaining on the pro rata basis.

Under-subscription- When the number of shares applied by the public is lesser than the number of shares issued by the company, then the situation of Under-subscription arises. As per the Company Act, the Minimum Subscription is 90% of the shares issued by the company. This implies that the company can allot shares to the applicants provided if applications for 90% of the issued shares are received. Otherwise, the company should refund the entire application amount received. In this regard, necessary Journal entry is passed only after receiving and refunding of the application money.

Answer 3

8. Describe the purposes for which a company can use ‘Securities Premium Account’.

Solution:

A securities premium account can be used for these activities:

1. Issuing fully paid-up bonus shares to existing shareholders.

2. Writing off the expense of the issue of shares and debentures, such as the discount given on the issue of shares.

3. Writing off preliminary expenses

4. Buying back shares

5. For paying premium payable on redemption of debentures

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

Solution:

Under the following conditions, a company can issue shares at a discount:

1. The shares issued must belong to a class of shares that are already issued.

2. Shares can be issued at a discount after a minimum time frame of 1 year from the date business has started

3. The issue of shares at a discount is authorised by a resolution that is passed by the company in a general meeting and approved by the Company law board.

4. Shares can be issued at a discount within two months of obtaining sanction company law board.

5. Maximum rate of discount must not cross 10% of the face value or as decided by the company law board.

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

Solution:

If a shareholder fails to pay the allotment money and/or any subsequent calls, then the company has the right to forfeit shares by giving a proper notice to the shareholder.

As per the Table A of the Company Act, the procedure of forfeiting shares is mentioned below.

1. A notice is sent to default shareholder stating him/her to pay Calls in Arrears along with the interest accrued on the outstanding calls money within a period of 14 days of the receipt of notice, otherwise, the shares will be forfeited.
2. If the shareholder does not pay the amount, then the company has the right to forfeit his/her share by passing a resolution.
3. A notice of that resolution is send to the default shareholder and a public notice of the same is published in a daily newspaper.
4. The name of the shareholder is removed from the register of members (i.e. shareholders).

Accounting Treatment for Forfeiture of Shares:

i) Forfeiture of Shares that were issued at Par

Share Capital A/c	(amount called up
To Share Allotment A/c	(amount not received)
To Share Calls A/c	(amount not received)
To Share Forfeiture A/c	(amount received)
(Shares forfeited)

ii) Forfeiture of Shares that were issued at Premium

a) If premium is received, then the premium is not shown.

Share Capital A/c	(amount called up
To Share Allotment A/c	(amount not received)
To Share Calls A/c	(amount not received)
To Share Forfeiture A/c	(amount received)
(Shares forfeited)

b) If premium is not received, then the premium is shown.

Share Capital A/c	(amount called up excluding premium)
Share Premium A/c	(amount not received)
To Share Allotment A/c	(amount not received including premium)
To Share Calls A/c	(amount not received)
To Share Forfeiture A/c	(amount received including premium)
(Share forfeited)

iii) Forfeiture of Shares that were issued at Discount

Share Capital A/c	(amount called up, plus discount)
To Discount on Issue of Shares A/c	(amount of discount)
To Share Allotment A/c	(amount not received)
To Share Calls A/c	(amount not received)
To Share Forfeiture A/c	(amount received)
(Share forfeited)

Answer 4

Numerical Questions

1. Anish Limited issued 30,000 equity shares of Rs 100 each payable at Rs 30 on application, Rs 50 on allotment and Rs 20 on Ist and final call. All money was duly received. Record these transactions in the journal of the company.

Solution:

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

Solution:

3. Software solution India Ltd inviting application for 20,000 equity share of Rs 100 each, payable Rs 40 on application, Rs 30 on allotment and Rs 30 on 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 share allotted half of the number of share applied and excess application money adjusted into allotment. All money received due on allotment and call. Prepare journal and cash book.

Solution:

Working note:

4. Rupak Ltd. issued 10,000 shares of Rs 100 each payable Rs 20 per share on application, Rs 30 per share on allotment and balance in two calls of Rs 25 per share. The application and allotment money were duly received. On first call all member pays 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.

Solution:

5. Mohit Glass Ltd. issued 20,000 shares of Rs 100 each at Rs 110 per share, payable Rs 30 on application, Rs 40 on allotment (including Premium), Rs 20 on first call and Rs 20 on final call. The applications were received for 24,000 shares and allotted 20,000 shares and reject 4,000 shares and amount returned thereon. The money was duly received. Give journal entries.

Solution:

Answer 5

6. A limited company offered for subscription of 1,00,000 equity shares of Rs 10 each at a premium of Rs 2 per share. 2,00,000. 10% Preference shares of Rs 10 each at par. The amount on share was payable as under :

	Equity Shares	Preference Shares
On Application	Rs 3 per share	Rs 3 per share
On Allotment	Rs 5 per share	Rs 4 per share
	(including a premium)
On First Call	Rs 4 per share	Rs 3 per share

All the shares were fully subscribed, called-up and paid. Record these transactions in the journal and cash book of the company:

Solution:

7. Eastern Company Limited, having an authorised capital of Rs 10,00,000 in shares of Rs 10 each, issued 50,000 shares at a premium of Rs 3 per share payable as follows :

On Application	Rs 3 per share
On Allotment (including premium)	Rs 5 per share
On first call (due three months after allotment) and the balance as and when required.	Rs 3 per share

Applications were received for 60,000 shares and the directors allotted the shares as follows:

(a) Applicants for 40,000 shares received shares, in full.

(b) Applicants for 15,000 shares received an allotment of 8,000 shares.

(c) Applicants for 500 shares received 200 shares on allotment, 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 company. Also prepare the Balance Sheet of the company.

Solution:

Note: In order to solve this question, applicants of category C has been assumed as 5000  instead of 500 and allotment to the applicants of this category has been taken as 2000 in place of 200.

Notes to accounts 

8. Sumit Machine Ltd. issued 50,000 shares of Rs. 100 each at premium of 5%. The shares were payable Rs. 25 on application, Rs. 50 on allotment and Rs. 30 on first and final call. 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 balance sheet.

Solution:

Notes to Accounts

Answer 6

9. Kumar Ltd. purchased assets of Rs. 6,30,000 from Bhanu Oil Ltd. Kumar Ltd. issued equity share of Rs. 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%

Solution:

Case (a)

No. of shares issued at par \(= \frac {\text{Amount payable}}{\text{Face value}}\)

6,300 shares = \(\frac{6,30,000}{100}\)

Case (b)

No. of shares issued at premium \(= \frac {\text{Amount payable}}{\text{Face value + Premium per sahre}}\)

6,300 shares = \(\frac{5,250}{100 + 2}\)

10. Bansal Heavy machine Ltd purchased a machine worth Rs 3,80,000 from Handa Trader. Payment was made as Rs 50,000 cash and remaining amount by issue of equity share of the face value of Rs 100 each fully paid at an issue price of Rs 110 each. Give journal entries to record the above transaction.

Solution:

Working Notes:

Number of share issued

\(= \frac {\text{Amount payable}}{\text{issue prce}}\)

\(= \frac{2,70,000}{90}\)

= 3,000

11. Naman Ltd issued 20,000 shares of Rs 100 each, payable Rs 25 on application, Rs 30 on allotment , Rs 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 shares of Anubha and kumkum. Give journal entries.

Solution:

Alternatively this question can be solved by debiting Calls in Arrears Account.

Working Note:

1. Forfeited Amount

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

On application	Rs 30
On allotment	Rs 50 (including premium)
On first and final call	Rs 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 Rs 12 each Give journal entries in the books of the company.

Solution:

Note: In the solution, the reissued price of Rs 12 has been assumed as Rs 120 per share.

Answer 7

13. Arushi Computers Ltd. issued 10,000 equity shares of Rs. 100 each at 10% premium. The net amount payable as follows:

On application	Rs. 20
On allotment	Rs. 50 (Rs. 40 + premium Rs. 10)
On first call	Rs. 30
On final call	Rs. 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 Rs. 75 per share.  Give journal entries in the books of the company.

Solution:

Working Notes:

Amount Transferred to Capital Reserve A/c

Amount transferred to Capital Reserve Account = Balance per share after adjustment × Number of shares reissued

₹ 9,750 = ₹ 65 × ₹ 150 per share

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

On application	Rs 20
On allotment	Rs 50 (including premium)
On first call	Rs 30
On final call	Rs 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 toward 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 the two calls and her share were also forfeited. All these shares were sold to Kartika as fully paid for Rs 80 per shares.

Give journal entries in the books of the company.

Solution:

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

With Application	Rs 3 per share
On allotment (including premium)	Rs 5 per share
On First call	Rs 2 per share
On Second and Final call	Rs 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 due on allotment.

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

Record journal entries in the books of the company to record these transactions relating to share capital. Also show the company’s balance sheet.

Solution:

Notes To Accounts 

Answer 8

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

With Application	Rs. 2
On Allotment (including premium)	Rs. 5
On First Call	Rs. 3
On Second Call	Rs. 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 on allotment.

Mr. Mohit whom 400 shares were allotted, failed to pay the allotment money 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, his shares were forfeited. Of the shares forfeited, 800 shares were reissued to Supriya as fully paid for Rs. 9 per share, the whole of Mr. Mohit’s shares being included.

Record journal entries in the books of the Company and prepare the Balance Sheet.

Solution:

As per the Revised Schedule VI, the Balance Sheet of Prince Limited is as follows:

NOTES TO ACCOUNTS

Working notes: 

1. Number of shares applied by Mohit 

\( = \mathrm{\frac{Total\ numbers\ of \ appplied\ share}{Total \ number \ of \ alloted \ shares }\times No. \ of \ shares\ alloted}\)

\(=\frac{3,00,000}{2,00,000} \times 400\)

\(= 600\) shares

2. Amount to be transferred to Capital Reserve

17. Life machine tools Limited, issued 50,000 equity shares of Rs 10 each at Rs 12 per share, payable at to Rs 5 on application (including premium), Rs 4 on allotment and the balance on the first and final call.

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

Solution:

18. The Orient Company Limited offered for public subscription 20,000 equity shares of Rs 10 each at a premium of 10% payable at Rs 2 on application; Rs 4 on allotment including premium; Rs 3 on First Call and Rs 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 on issued as fully paid at Rs 9 per share. Give journal entries and prepare the balance sheet.

Solution:

NOTES TO ACCOUNTS

Working Notes:

Amount transferred to Capital Reserve Account, after adjustment for 300 shares = 300 Shares @ Rs 7 per share = Rs 2,100

Answer 9

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

Payable on application	Rs 5 per share
Payable on allotment	Rs 3 per share
Payable on first and final call	Rs 2 per share

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

(a) to refuse allotment to the applicants for 20,000 shares;

(b) to allot in full to applicants for 80,000 shares;

(c) to allot the balance of the available shares’ pro-rata among the other applicants; and

(d) 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 @ Rs 9 per share. Show the journal and prepare Cash book to record the above.

Solution:

Working Note:

1. Number of shares apllied by applicant

\( = \mathrm{\frac{Total\ numbers\ of \ appplied\ share}{Total \ number \ of \ alloted \ shares }\times No. \ of \ shares\ alloted}\)

\(= \frac{4,00,000}{3,20,000} \times 400 \)

\(= 500\) shares

2. Call in arrears by applicant on allotment

3.

20. Ashoka Limited Company which had issued equity shares of Rs.20 each at a premium of Rs. 4 per share, forfeited 1,000 shares for non-payment of final call of Rs.2 per share. 400 of the forfeited shares were reissued at Rs.14 per share out of the remaining shares of 200 shares reissued at Rs.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.

Solution:

Balance in Share Forfeiture Account (18,000 - 10,800) = Rs 7,200

Working Notes:

For 400 Shares

Amount of 400 shares transferred to Capital Reserve Account, after reissue 

= 400 Shares @ ₹ 12 per share

= Rs 4,800

For 200 Shares

Amount of 200 shares transferred to Capital Reserve Account, after reissue

= 200 Shares @ Rs 18 per share

= ₹3,600

Total amount transferred to capital reserve account for 600 shares

=Capital reserve for 400 shares + capital reserve for 200 shares 

= 4,800+3,600

= 8,400

Note: As per the answer amount transferred to capital reserve is ₹6,800 however, it is not correct as the shares reissued at a discount will be provided through Share Forfeiture Account and the valance will be ​₹8,400.

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

Solution:

Working Notes:

22. Ajanta Company Limited having a normal capital of Rs 3,00,000, divided into shares of Rs 10 each offered for public subscription of 20,000 shares payable at Rs 2 on application; Rs 3 on allotment and the balance in two calls of Rs 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 Rs 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.

Solution:

NOTES TO ACCOUNTS

Working Note:

Amount of 400 shares transferred to Capital Reserve Account, after reissue = 400 Shares @ Rs 6.5 per share = Rs 2,600

Answer 10

23. Journalise the following transactions in the books Bhushan Oil Ltd.:

(a) 200 shares of Rs. 100 each issued at a premium of Rs. 10 were forfeited for the non-payment of allotment money of Rs. 60 per share. The first and final call of Rs. 20 per share on these shares were not made. The forfeited shares were reissued at Rs. 70 per share as fully paid-up.

(b) 150 shares of Rs. 10 each issued at a premium of Rs. 4 per share payable with allotment were forfeited for non-payment of allotment money of Rs. 8 per share including premium. The first and final calls of Rs. 4 per share were not made. The forfeited shares were reissued at Rs. 15 per share fully paid-up.

(c) 400 shares of Rs. 50 each issued at par were forfeited for non-payment of final call of Rs. 10 per share. These shares were reissued at Rs. 45 per share fully paid-up.

Solution:

Case (a)

Case (b)

Case (c)

24. Amisha Ltd inviting application for 40,000 shares of Rs 100 each at a premium of Rs 20 per share payable; on application Rs 40; on allotment Rs 40 (Including premium): on first call Rs 25 and Second and final call Rs 15. Application were received for 50,000 shares and allotment was made on pro-rata basis. Excess money on application was adjusted on 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 his shares were forfeited after the second call. Of the shares forfeited, 1,200 shares were sold to Kapil for Rs 85 per share as fully paid, the whole of Rohit’s shares being included. Record necessary journal entries.

Solution:

Working note:

1. Number of shares applied by rohit

\(= \frac{\text{Total number of applied shares}}{\text{Total number of aloted shares}} \times \text{No.of shares alloted}\)

\(= \frac{50,000}{40,000} \times 600\)

\(= 750 \) shares

2. Call in arrears by Rohit on allotment

3.

4. Number of shares alloted to ashmita 

\(= \frac{\text{Total number of applied shares}}{\text{Total number of aloted shares}} \times \text{No.of shares alloted}\) 

\(= \frac{40,000} {50,000}\times 1000\) 

5. Profit on the forfeiture of 600 share of Rohit = Rs 30,000

Profit on the forfeiture of 600 share of Ashmita = Rs 36,000 \((48, 000 \times \frac {600}{800} = 36, 000) \)

6. Balance in Share Forfeiture Account (48,000 – 36,000) = Rs 12,000