Page 245 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes One of the allottees (using forms marked with the name of the Seth) for 2,000 shares, fails to pay
the amount due to allotment all other money due being received in full including any due from
the share devolving upon the underwriters. The commission due is paid separately.
The shares of the indifferent allottees are finally forfeited by 30.6.2005 and are reallotted for
payment in cash of 4 per share.

You are required to pass summary journal entries to record the above events and transactions
(including cash).
Solution:
Statement showing the Liability Underwriters of underwriters in Shares

Underwriters
Particulars Total
Seth Shetty
Gross Liability 10,00,000 5,00,000 5,00,000
Less: Marked applications (excluding firm applications) 8,40,000 5,00,000 3,40,000
1,60,000 Nil 1,60,000
Less: Relief of Unmarked Applications 80,000 40,000 40,000
80,000 –40,000 1,20,000
Less: Firm underwriting 40,000 –20,000 20,000
40,000 –60,000 1,00,000
Less: Surplus of Seth given to Shetty – +60,000 –60,000
Net Liability 40,000 Nil 40,000
Add: Firm Underwriting 40,000 20,000 20,000
Total Liability 80,000 20,000 60,000

Notes Firm applications are assumed to be included in marked applications.

Journal Entries in the books of Plentiful Ltd.
Date Particulars L.F.
2005
Jan. 31 Bank Account Dr. 24,00,000
To Equity Share Capital Account. 24,00,000
(Being receipt of application money on
9,60,000 shares @ 2.50 per share)
March 31 Equity Share Allotment Account Dr. 24,00,000
To Equity Shares Capital Account 24,00,000
(Being application money transferred to
share Capital Account)
March 31 Equity Share Allotment Account Dr. 28,80,000
To Equity Share Capital Account 24,00,000
To Share Premium Account 4,80,000
(Being allotment money due on 9,60,000
shares @ 3 per share including
premium)

March 31 Bank Account Dr. 28,74,000 Contd...
To Equity Share Allotment Account 28,74,000
(Being receipt allotment money on
9,60,000 shares expect 2000 shares)
March 31 Shetty Dr. 2,20,000
238 LOVELY PROFESSIONAL UNIVERSITY
To Equity Shares Capital Account 2,00,000
To Shares Premium Account 20,000
(Being allotment of 40,000 shares to
Shetty as per underwriting agreement)
March 31 Bank Account Dr. 2,20,000
To Shetty 2,20,000
(Being receipt of the money on 40,000
shares)
March 31 Underwriting Commission Account Dr. 5,25,000
To Seth 2,62,500
To Setty 2,62,500
(Being commission due @ 5% in the
issue price 10.50 of 10,00,000 shares
distributed equally)
March 31 Seth Dr. 2,62,500
Shetty Dr. 2,62,500
To Bank Account 5,25,000
(Being payment of underwriting
commission)
June 30 Share Capital Account Dr. 10,000
Share Premium Account Dr. 1,000
To Share Allotment Account 6,000
To Share Forfeited Account 5,000
(Being forfeiture of 2,000 shares for non
payment of allotment money)
June 30 Bank Account Dr. 8,000
Shares Forfeited Account Dr. 2,000
To Equity Share Capital Account. 10,000
(Being forfeited shares reissued @ 4
per share)
June 30 Shares Forfeited Account Dr. 3,000
To Capital Reserve Account 3,000
(Being transfer of profit on sale of
reissue of forfeited shares)