Page 71 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes

Notes In solving the examination problem, students generally face a difficulty in calculating
the amount of arrears on allotment and forfeited amount, in the case on shares are allotted
the basis of pro-rata.
In such a case the following procedure may be adopted to calculate these correct amounts and to
avoid difficulties:
1. Calculate the total number of shares applied for by the defaulters (if not given) as under.
2. Calculate the total amount of application money received by the company from the
defaulters, by multiplying the number of shares applied for by defaulters and application
money per share. This is the forfeited amount which would be transferred to the forfeited
shares account.
3. Calculate application money due on shares allotted to defaulters by multiplying the
shares allotted to defaulters and application money per share and deduct it from total
application money received. The result would be the excess application money to adjust in
allotment money.

4. Calculate the allotment money due to defaulters by multiplying the number of shares
allotted to defaulters and allotment money per share and deduct it from excess application
money received from defaulters (calculated above in No. 3). This will be the net amount of
arrears on allotment, which will be credited to share allotment account at the time of
forfeiture.

Example 5: Bharat Limited invited applications for 20,000 shares of 10 each at a discount
of 5% (allowed at the time of allotment). The amount was payable as under:
On application 2.5, on allotment 5, and balance on call.

The public applied for 18,000 shares and these were allotted. All money due was received with
the exception of allotment and call money on 300 shares. These shares were forfeited after-
words. 200 of these forfeited shares were reissued as fully paid for a payment of 7.50 per share.

Journalise the transaction in the books of the company.
Solution:
Bharat Limited Journal

Date Particulars L.F. Dr. ( ) Cr. ( )
Bank Account Dr. 45,000 45,000
To Share application Account
(Being receipt of application money on 18000 shares
@ 2.50 per share)
Share Application Account Dr. 45,000 45,000
To Share Capital Account
(Being application money transferred to share capital
account)
Share Allotment Account Dr. 81,000
Discount on Issue of Shares Account Dr. 9,000
To Share Capital Account 90,000
(Being allotment money due on 18,000 shares @ 5 Contd...
per share at a discount of 5%)
Bank Account Dr. 79,650
To Share Allotment Account 79,650
LOVELY PROFESSIONAL UNIVERSITY
64 (Being allotment money received on 1700 shares)
Share Final Call Account Dr. 45,000
To Share Capital Account 45,000
(Being final call money due on 18,000 shares 2.5 per
share)
Bank Account Dr. 44,250 44,250
To Share Final Call Account
(Being final call money received on 17,700 shares)
Share Capital Account Dr. 3,000
To Share Allotment Account. 1,350
To Share Final Call Account 750
To Discount on Issue of Shares Account 150
To Forfeited Shares Account 750
(Being forfeiture of 300 shares for non-payment of
allotment and final call money)
Bank Account Dr. 1,500
Discount on Issue of Shares Account Dr. 100
Forfeited Shares Account Dr. 400
To Share Capital Account 2,000
(Being reissue of 200 forfeited shares @ 7.5 per
shares as fully paid).
Forfeited Shares Account Dr. 100
To Capital Reserve Account 100
(Profit on reissue of 200 forfeited shares transferred.)