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

Chapter at a glance

Questions for Practice – Short Answer Questions

Question SA – Q1

What is public company?

Answer

A public company is a company which is not a private company. Under the Companies Act, 2013 it must have a minimum of seven members (no maximum), at least three directors, and its shares are freely transferable. It can invite the public to subscribe to its shares and debentures. A private company which is a subsidiary of a public company is also treated as a public company.

A public company is one that is not private: at least 7 members, 3 directors, freely transferable shares and the right to invite public subscription.

Question SA – Q2

What is a private company.

Answer

A private company is one which by its articles:

1. restricts the right to transfer its shares;
2. limits the number of members to 200 (excluding present and past employee-members); and
3. prohibits any invitation to the public to subscribe to its securities.

It needs at least two members and two directors (a One Person Company needs one).

A private company restricts share transfer, limits members to 200 and cannot invite the public to subscribe; it needs at least 2 members and 2 directors.

Question SA – Q3

When can shares be Forfeited?

Answer

Shares can be forfeited when a shareholder fails to pay the allotment or call money due on them, if authorised by the articles of the company. The directors must first send a notice of at least 14 days asking for payment with interest, stating that the shares will be forfeited if payment is not made. If still unpaid, the Board passes a resolution to forfeit the shares.

On non-payment of allotment/call money, when the articles allow it, after a 14-day notice and a Board resolution.

Question SA – Q4

What is meant by Calls in Arrears?

Answer

Calls in arrears is the amount of allotment or call money called up but not paid by shareholders by the due date. It is shown as a deduction from the called-up capital (“Less: Calls in arrears”) in the notes to the balance sheet. The company may charge interest up to 10 % p.a. on it (Table F), if the articles allow.

Calls in arrears is the called-up amount (allotment/calls) not paid by shareholders; interest up to 10 % p.a. may be charged.

Question SA – Q5

What do you mean by a listed company?

Answer

A listed company is a company whose securities (shares, debentures) are listed on a recognised stock exchange (e.g. BSE, NSE), so that they can be bought and sold there. It must comply with SEBI’s listing regulations, such as periodic disclosure of results.

A listed company is one whose securities are listed for trading on a recognised stock exchange.

Question SA – Q6

What are the uses of securities premium?

Answer

As per Section 52 of the Companies Act, 2013, securities premium can be used:

1. to issue fully paid bonus shares;
2. to write off preliminary expenses;
3. to write off expenses, commission or discount on issue of shares or debentures;
4. to provide for premium payable on redemption of preference shares or debentures;
5. for buy-back of its own shares (Sec. 68).

For fully paid bonus shares, preliminary expenses, issue expenses/discount, premium on redemption and buy-back of shares.

Question SA – Q7

What is meant by Calls in Advance?

Answer

Calls in advance is the amount received from shareholders before it has been called up by the company. It is credited to Calls in Advance Account and shown under “Other Current Liabilities”. The company may pay interest up to 12 % p.a. on it (Table F); it does not carry dividend.

Calls in advance is money received before it is called up; it is a liability on which interest up to 12 % p.a. may be paid.

Question SA – Q8

Write a brief note on “Minimum Subscription”.

Answer

Minimum subscription is the minimum amount which, in the opinion of the directors, must be raised by the issue of shares to meet essential needs (preliminary expenses, purchase of property, working capital). As per SEBI guidelines, it is 90 % of the issued amount. If it is not received within 30 days of the issue of the prospectus, the application money must be refunded within the prescribed time, failing which directors are liable to pay interest. No allotment can be made until minimum subscription is received.

Minimum subscription is 90 % of the issue; without it no allotment can be made and application money must be refunded.

Questions for Practice – Long Answer Questions

Question LA – Q1

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

Answer

A company is an association of persons formed to carry on business, registered under the Companies Act. Sec. 2(20) of the Companies Act, 2013 defines it as a company incorporated under this Act or any previous company law.

Characteristics

1. Body corporate – created by law; comes into existence on registration.
2. Separate legal entity – distinct from its members; can own property, sue and be sued in its own name.
3. Perpetual succession – its life is not affected by death, insolvency or transfer of shares of members.
4. Limited liability – members’ liability is limited to the unpaid amount on their shares (or guarantee).
5. Transferability of shares – shares of a public company are freely transferable.
6. Common seal – optional now; documents may be signed by authorised persons.
7. Separation of ownership and management – owned by shareholders, managed by elected directors.
8. Artificial person – acts through its directors and officers.

A company is an artificial person registered under the Companies Act, with separate legal entity, perpetual succession, limited liability, transferable shares, optional common seal and separation of ownership from management.

Question LA – Q2

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

Answer

1. Authorised (nominal/registered) capital – the maximum capital a company can raise, as stated in its memorandum.
2. Issued capital – the part of authorised capital offered for subscription (to public, vendors, etc.).
3. Unissued capital – the part not yet offered.
4. Subscribed capital – the part of issued capital actually taken up; shown as (a) subscribed and fully paid and (b) subscribed but not fully paid.
5. Called-up capital – the part of subscribed capital called up for payment.
6. Uncalled capital – the part of subscribed capital not yet called.
7. Paid-up capital – the called-up capital actually received (called-up less calls in arrears).
8. Reserve capital – the part of uncalled capital that can be called only on winding up (by special resolution).

Authorised, issued, subscribed (fully/not fully paid), called-up, paid-up and reserve capital.

Question LA – Q3

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.

Answer

A share is a unit into which the total capital of a company is divided; Sec. 2(84) defines it as “a share in the share capital of a company and includes stock”. A shareholder is a part-owner of the company.

Under Section 43, a company can issue two kinds of shares:

Question LA – Q4

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

Answer

When applications exceed the shares offered, the directors (in consultation with the stock exchange) may:

1. Reject some applications and refund their money in full.
2. Accept some applications in full and reject the others.
3. Allot pro-rata (proportionately), e.g. 4 shares for every 5 applied; the excess application money is adjusted towards allotment (and calls), and any further excess is refunded.
4. Use a combination of the above.

Entries

• Share Application A/c Dr → To Share Capital A/c (on shares allotted).
• Share Application A/c Dr → To Bank A/c (refund on rejected applications).
• Share Application A/c Dr → To Share Allotment A/c (excess adjusted).
• Share Application A/c Dr → To Calls in Advance A/c (excess beyond allotment, if the articles allow).

Reject and refund some applications, allot some in full, allot others pro-rata with the excess adjusted against allotment/calls, or combine these methods.

Question LA – Q5

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

Answer

Preference shares are shares that carry a preferential right to (i) a fixed rate of dividend and (ii) repayment of capital on winding up, before equity shares.

Types

1. Cumulative – unpaid dividend of one year accumulates and is paid out of future profits before equity dividend.
2. Non-cumulative – unpaid dividend lapses.
3. Participating – share in surplus profits (and surplus assets on winding up) after equity dividend.
4. Non-participating – get only the fixed dividend.
5. Convertible – can be converted into equity shares after a time.
6. Non-convertible – cannot be converted.
7. Redeemable – repaid after a fixed period (must be redeemed within 20 years, Sec. 55).
8. Irredeemable – not repayable during the company’s life (not permitted now in India).

Preference shares get a fixed dividend and capital repayment before equity; types are cumulative/non-cumulative, participating/non-participating, convertible/non-convertible and redeemable/irredeemable.

Question LA – Q6

Describe the provisions of law relating to ‘Calls in Arrears’ and ‘Calls in Advance’.

Answer

Calls in arrears

• It is the amount called up but unpaid by the due date.
• The articles may provide for interest; Table F permits up to 10 % p.a. from the due date to the date of payment.
• It is shown as a deduction from called-up capital.
• Persistent non-payment may lead to forfeiture of shares.
• A member with calls in arrears may be denied voting rights (if the articles so provide).

Calls in advance

• It is the amount received before it is called; it can be accepted only if the articles allow (Sec. 50).
• Interest up to 12 % p.a. may be paid under Table F, even if there are no profits.
• It does not carry dividend or voting rights until the call is made.
• It is shown as a current liability; it is repayable on winding up after outside creditors and before shareholders’ capital.

Calls in arrears may carry interest up to 10 % p.a. and lead to forfeiture; calls in advance (if the articles permit) may carry interest up to 12 % p.a. but no dividend or voting rights.

Question LA – Q7

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

Answer

Over-subscription – applications are received for more shares than offered. Treatment (see LA 4): excess applications are rejected and refunded, or shares are allotted pro-rata with the excess application money adjusted against allotment/calls.

Share Application A/c Dr → To Share Capital, To Bank (refund), To Share Allotment (adjusted), To Calls in Advance.

Under-subscription – applications are received for fewer shares than offered. If at least the minimum subscription (90 %) is received, allotment is made to all applicants and share capital is credited only for the shares actually allotted. If minimum subscription is not received, no allotment is made and all application money is refunded.

Over-subscription is handled by refund or pro-rata allotment with excess adjusted; under-subscription means allotting only shares applied for (if minimum subscription is received) or refunding all money.

Question LA – Q8

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

Answer

Under Section 52(2) of the Companies Act, 2013, the Securities Premium Account can be applied only:

1. towards issue of unissued shares as fully paid bonus shares;
2. in writing off the preliminary expenses of the company;
3. in writing off the expenses of, commission paid, or discount allowed on any issue of shares or debentures;
4. in providing for the premium payable on redemption of redeemable preference shares or debentures; and
5. for the purchase of its own shares (buy-back) under Section 68.

It cannot be used to pay dividends.

For fully paid bonus shares, preliminary expenses, issue expenses/commission/discount, premium on redemption of preference shares or debentures, and buy-back – not for dividends.

Question LA – Q9

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

Answer

Under Section 53 of the Companies Act, 2013, a company cannot issue shares at a discount; any such issue is void and attracts a penalty. The only exceptions are:

1. Sweat equity shares issued to employees or directors under Section 54 (for know-how, intellectual property or value additions), as per the prescribed rules.
2. Shares issued to creditors on conversion of their debts into shares under a statutory resolution or restructuring scheme (e.g. RBI or IBC guidelines), as allowed by the 2017 amendment.

(Under the old Companies Act, 1956, Section 79, a company could issue shares at a discount if: the shares were of a class already issued; the issue was authorised by an ordinary resolution and sanctioned by the Central Government; the company had been in business for at least one year; the maximum discount was 10 %; and the issue was made within two months of sanction.)

Shares cannot be issued at a discount (Sec. 53), except sweat equity shares (Sec. 54) and shares issued to creditors on conversion of debt under a statutory scheme.

Question LA – Q10

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

Answer

Forfeiture means cancellation of shares by the company, and confiscation of the amount already paid on them, when a shareholder fails to pay allotment or call money, after due notice and as authorised by the articles.

Accounting treatment

The balance of the Share Forfeiture Account on shares not yet reissued is shown under share capital in the balance sheet.

Forfeiture is cancellation of shares for non-payment of calls; debit share capital (and unpaid premium), credit forfeiture with the amount received and the unpaid calls; on reissue, transfer the gain on reissued shares to capital reserve.

Questions for Practice – Numerical Questions

Question Num – Q1

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

Answer

Total share capital ₹ 30,00,000 received: ₹ 9,00,000 + ₹ 15,00,000 + ₹ 6,00,000.

Question Num – Q2

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 duly received. Prepare journal and Cash Book.

Answer

Journal

Cash Book (Bank column)

Share capital ₹ 3,00,000 fully called and received; bank balance ₹ 3,00,000.

Question Num – Q3

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.

Answer

Application money received = 32,000 × 40 = ₹ 12,80,000. Excess on the pro-rata group = 10,000 × 40 = ₹ 4,00,000, adjusted against allotment (₹ 6,00,000 due), so ₹ 2,00,000 is received in cash.

Journal

Cash Book (Bank column)

Refund ₹ 80,000; ₹ 4,00,000 adjusted to allotment; cash on allotment ₹ 2,00,000; share capital ₹ 20,00,000 and bank balance ₹ 20,00,000.

Question Num – Q4

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 of ₹ 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.

Answer

First call due = 10,000 × 25 = ₹ 2,50,000; arrears 200 × 25 = ₹ 5,000; advance 500 × 25 = ₹ 12,500. Cash on first call = 2,50,000 – 5,000 + 12,500 = ₹ 2,57,500.

Journal

Cash Book (Bank column)

Calls in arrears ₹ 5,000, calls in advance ₹ 12,500; called-up capital ₹ 7,50,000; bank ₹ 7,57,500.

Question Num – Q5

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 journal entries.

Answer

Share capital ₹ 20,00,000 and securities premium ₹ 2,00,000; refund ₹ 1,20,000.

Question Num – Q6

A limited company offered for subscription 1,00,000 equity shares of ₹ 10 each at a premium of ₹ 2 per share, and 2,00,000 10% Preference shares of ₹ 10 each at par. The amount was payable as under: Equity – Application ₹ 3, Allotment ₹ 5 (including premium), First Call ₹ 4; Preference – Application ₹ 3, Allotment ₹ 4, First Call ₹ 3. All the shares were fully subscribed, called-up and paid. Record these transactions in the journal and cash book of the company.

Answer

Journal

Cash Book (Bank column)

Equity capital ₹ 10,00,000 plus premium ₹ 2,00,000, and preference capital ₹ 20,00,000; bank balance ₹ 32,00,000.

Question Num – Q7

Eastern Company Limited, with an authorised capital of ₹ 10,00,000 divided into equity shares of ₹ 10 each, issued 50,000 equity shares at a premium of ₹ 3 per share payable as follows: On Application ₹ 3; On Allotment (including premium) ₹ 5; On first call ₹ 3; and the balance as and when required. Applications were received for 60,000 shares and the directors allotted the shares as follows: (a) Applicants for 40,000 shares received in full. (b) Applicants for 15,000 shares received an allotment of 8,000 shares. (c) Applicants for 5,000 shares received an allotment of 2,000 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 company. Also prepare the Balance Sheet of the company.

Answer

Excess application money: group (b) 7,000 × 3 = ₹ 21,000, adjusted against allotment; group (c) 3,000 × 3 = ₹ 9,000, refunded. Allotment due = 50,000 × 5 = ₹ 2,50,000 (capital ₹ 1,00,000 + premium ₹ 1,50,000); cash = 2,50,000 – 21,000 = ₹ 2,29,000.

Journal

Cash Book (Bank column)

Balance Sheet (extract)

Note 1 – Share capital: Authorised 1,00,000 equity shares of ₹ 10 each = ₹ 10,00,000. Issued 50,000 equity shares of ₹ 10 each = ₹ 5,00,000. Subscribed and not fully paid: 50,000 shares of ₹ 10 each, ₹ 8 called up = ₹ 4,00,000, less calls in arrears ₹ 300 = ₹ 3,99,700.

Refund ₹ 9,000; ₹ 21,000 adjusted to allotment; calls in arrears ₹ 300; share capital ₹ 3,99,700, securities premium ₹ 1,50,000; Balance Sheet total ₹ 5,49,700.

Question Num – Q8

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 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 the balance sheet.

Answer

Journal

Balance Sheet (extract)

Paid-up capital ₹ 49,88,000 (calls in arrears ₹ 12,000); securities premium ₹ 2,50,000; bank ₹ 52,38,000.

Question Num – Q9

Kumar Ltd. purchased assets of ₹ 6,30,000 from Bhanu Oil Ltd. Kumar Ltd. issued equity shares 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%.

Answer

1. 6,300 shares (capital ₹ 6,30,000); (b) 5,250 shares (capital ₹ 5,25,000 + premium ₹ 1,05,000).

Question Num – Q10

Bansal Heavy Machine Ltd. purchased machine worth ₹ 3,80,000 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 ₹ 110 each. Give journal entries to record the above transaction.

Answer

Shares = (3,80,000 – 50,000) ÷ 110 = 3,000 shares.

3,000 shares issued: capital ₹ 3,00,000 and premium ₹ 30,000, plus ₹ 50,000 cash.

Question Num – Q11

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.

Answer

On forfeiture of 300 shares: Share Capital Dr ₹ 30,000; Share Forfeiture Cr ₹ 10,500 (Anubha ₹ 5,000 + Kumkum ₹ 5,500).

Question Num – Q12

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 at an issue price of ₹ 12 each. Give journal entries in the books of the company.

Answer

A reissue at ₹ 12 for a ₹ 100 share is not possible: the maximum discount allowed is the ₹ 30 per share forfeited. The answer’s capital reserve of ₹ 4,500 (all of the forfeited amount) means the reissue was at par or above. The price is therefore taken as ₹ 112 (₹ 100 + ₹ 12 premium).

Forfeiture ₹ 4,500 (with unpaid premium ₹ 1,500 reversed); reissue at or above par; capital reserve ₹ 4,500.

Question Num – Q13

Arushi Computers 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.

Answer

Capital reserve ₹ 9,750; balance in share forfeiture ₹ 4,500 (on 50 shares).

Question Num – Q14

Raunak Cotton Ltd. issued a prospectus inviting applications for 6,000 equity shares of ₹ 100 each at a premium of ₹ 20 per share, 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 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 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.

Answer

Workings

• Pro-rata 6 : 8 = 3 : 4.
• Refund: 2,000 × 20 = ₹ 40,000. Excess adjusted: 2,000 × 20 = ₹ 40,000.
• Rohit (300 shares, applied 400): paid ₹ 8,000, of which ₹ 2,000 is excess adjusted. Allotment unpaid = 15,000 – 2,000 = ₹ 13,000.
• Itika (applied 600, allotted 450): paid application and allotment.
• Allotment cash = 6,000 × 50 – 40,000 – 13,000 = ₹ 2,47,000.
• First call cash = 1,80,000 – (750 × 30) = ₹ 1,57,500. Final call cash = 1,20,000 – (750 × 20) = ₹ 1,05,000.

Forfeiture: Rohit ₹ 8,000 + Itika ₹ 22,500 = ₹ 30,500; discount on reissue ₹ 15,000; capital reserve ₹ 15,500.

Question Num – Q15

Himalaya Company Limited issued for public subscription 1,20,000 equity shares of ₹ 10 each at a premium of ₹ 2 per share payable as under: With Application ₹ 3; On allotment (including premium) ₹ 5; On First call ₹ 2; On Second and Final call ₹ 2. 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, to 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 ₹ 7 per share. Record journal entries and show the transactions relating to share capital in the company’s balance sheet.

Answer

Application money = 1,60,000 × 3 = ₹ 4,80,000; excess 40,000 × 3 = ₹ 1,20,000 adjusted, so allotment cash = 6,00,000 – 1,20,000 = ₹ 4,80,000.

Balance Sheet (extract)

Capital reserve ₹ 14,400; share capital ₹ 12,00,000 fully paid; securities premium ₹ 2,40,000; bank ₹ 14,54,400.

Question Num – Q16

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 on allotment. Mr. Mohit, to 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, to 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 ₹ 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.

Answer

Workings

• Pro-rata 2 : 3.
• Mohit (400 allotted, applied 600): paid ₹ 1,200, of which ₹ 400 is excess. Allotment unpaid = 2,000 – 400 = ₹ 1,600.
• Allotment cash = 1,00,000 – 20,000 – 1,600 = ₹ 78,400.
• First call cash = 60,000 – 1,200 – 1,800 = ₹ 57,000.
• Second call (on 19,600 shares) = 58,800, less Joly ₹ 1,800 = ₹ 57,000.

Balance Sheet (extract)

Capital reserve ₹ 2,000; share forfeiture balance ₹ 800; share capital ₹ 1,98,000; securities premium ₹ 58,800; Balance Sheet total ₹ 2,59,600.

Question Num – Q17

Life Machine Tools Limited issued 50,000 equity shares of ₹ 10 each at ₹ 12 per share, payable ₹ 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.

Answer

Capital reserve ₹ 2,500.

Question Num – Q18

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 and prepare the balance sheet.

Answer

Balance Sheet (extract)

Capital reserve ₹ 2,100; share forfeiture balance ₹ 1,600; Balance Sheet total ₹ 2,21,700.

Question Num – Q19

Alfa Limited invited applications for 4,00,000 of its equity shares of ₹ 10 each on the following terms: Payable on application ₹ 5; on allotment ₹ 3; on first and final call ₹ 2. 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, to 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.

Answer

Workings

• Pro-rata group: 4,00,000 applied for 3,20,000 shares (4 : 5). Excess = 80,000 × 5 = ₹ 4,00,000, adjusted against allotment.
• Defaulter (400 allotted, applied 500): paid ₹ 2,500, of which ₹ 500 is excess. Allotment unpaid = 1,200 – 500 = ₹ 700; call unpaid ₹ 800.
• Allotment cash = 12,00,000 – 4,00,000 – 700 = ₹ 7,99,300. Call cash = 8,00,000 – 800 = ₹ 7,99,200.

Cash Book (Bank column)

Refund ₹ 1,00,000; ₹ 4,00,000 adjusted to allotment; forfeiture ₹ 2,500; capital reserve ₹ 2,100; bank balance ₹ 40,02,100.

Question Num – Q20

Ashoka Limited Company 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, 200 shares were 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.

Answer

Amount forfeited = 1,000 × 18 = ₹ 18,000 (₹ 18 per share).

Capital reserve = 4,800 + 3,600 = ₹ 8,400. Balance in forfeiture = 400 shares × 18 = ₹ 7,200.

Capital reserve ₹ 8,400; balance of Share Forfeiture Account ₹ 7,200.

Question Num – Q21

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 and the second call of ₹ 2 per share and the directors, therefore, forfeited their shares. The shares are reissued subsequently for ₹ 11 per share as fully paid. Journalise the transactions.

Answer

Called up = 1 + 2 + 3 + 2 = ₹ 8 per share. Amount received: Amit ₹ 100, Bimal ₹ 600, Chetan ₹ 1,800 = ₹ 2,500.

Forfeiture ₹ 2,500; shares reissued at a premium of ₹ 600; capital reserve ₹ 2,500.

Question Num – Q22

Ajanta Company Limited having a nominal capital of ₹ 3,00,000, divided into shares of ₹ 10 each offered for public subscription 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.

Answer

Balance Sheet (extract)

Capital reserve ₹ 2,600; share forfeiture balance ₹ 1,500; Balance Sheet total ₹ 2,02,100.

Question Num – Q23

Journalise the following transactions in the books of Bhushan Oil Ltd.: (a) 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. (b) 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. (c) 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.

Answer

(a) Application = 110 – 60 – 20 = ₹ 30; called up capital = 30 + 50 = ₹ 80.

Capital reserve: nil (the whole forfeiture is used up as discount).

(b) Application = 14 – 8 – 4 = ₹ 2; called up capital = 2 + 4 = ₹ 6.

(c)

Capital reserve: (a) Nil, (b) ₹ 300, (c) ₹ 14,000.

Question Num – Q24

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, 1,200 shares were sold to Kapil for ₹ 85 per share as fully paid, the whole of Rohit’s shares being included. Record necessary journal entries.

Answer

Workings

• Pro-rata 4 : 5. Excess = 10,000 × 40 = ₹ 4,00,000, adjusted against allotment.
• Rohit (600 allotted, applied 750): paid ₹ 30,000, of which ₹ 6,000 is excess. Allotment unpaid = 24,000 – 6,000 = ₹ 18,000.
• Ashmita (applied 1,000, allotted 800): paid application and allotment.
• Allotment cash = 16,00,000 – 4,00,000 – 18,000 = ₹ 11,82,000.
• Calls are made on 39,400 shares: first call 9,85,000, less Ashmita’s ₹ 20,000 = ₹ 9,65,000; second call 5,91,000, less ₹ 12,000 = ₹ 5,79,000.

Capital reserve ₹ 48,000; balance in Share Forfeiture Account ₹ 12,000 (200 of Ashmita’s shares).

Topic checklist

• ☒ Company, types of companies and share capital (SA 1–2, 5; LA 1–3)
• ☒ Issue of shares at par and premium (Num 1–8)
• ☒ Over-subscription and pro-rata allotment (Num 3, 7, 14–19, 24)
• ☒ Calls in arrears / advance (Num 4, 7, 8; SA 4, 7)
• ☒ Shares for consideration other than cash (Num 9, 10)
• ☒ Forfeiture and reissue, capital reserve (Num 11–24)
• ☒ Securities premium, discount, minimum subscription (SA 6, 8; LA 8, 9)

Total questions answered: 42 of 42