Chapter accounting-for-share-capital: Accounting for Share Capital Application Questions | accountancy Class 12 CBSE

Chapter accounting-for-share-capital: Accounting for Share Capital Application Questions | accountancy Class 12 CBSE | ByteNotes.in

Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 1

Applied Concept

Sunrise Company Ltd. issued 20,000 equity shares of Rs. 10 each at par. Applications were received for 28,000 shares. The directors decided to reject applications for 8,000 shares and allot 20,000 shares to the remaining applicants. How would you record the share application and allotment entries, and how would the refund on rejected applications be treated?

On receipt of applications: Bank A/c Dr. Rs. 2,80,000 (28,000 × application money), To Share Application A/c Rs. 2,80,000. The entire amount is temporarily held in the application account.
On allotment: Share Application A/c Dr. Rs. 2,80,000, To Share Capital A/c (for 20,000 allotted shares) and To Bank A/c (for refund on 8,000 rejected applications); the refund must be made within the period prescribed by law.
The fact of over-subscription (28,000 applications for 20,000 shares) is not reflected in the accounting books; only the 20,000 shares actually allotted appear as subscribed capital, since subscribed capital equals issued capital in this case.

ByteNotes

Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 2

Applied Concept

With reference to Illustration 4 in the chapter (Konica Limited), explain how Calls in Arrears and Calls in Advance are treated simultaneously in the same journal entry when first call money is received.

When the first call is made, some shareholders may fail to pay (resulting in Calls in Arrears) while others may pay more than due (resulting in Calls in Advance); both can occur in the same period.
The combined entry: Bank A/c Dr. (net amount actually received), Calls in Arrears A/c Dr. (unpaid amount from defaulting shareholder), To Share First Call A/c (total call amount due), To Calls in Advance A/c (excess paid by the other shareholder).
Calls in Arrears is a receivable (deducted from called-up capital in Notes to Accounts), while Calls in Advance is a liability (shown under current liabilities); both must be disclosed separately in the balance sheet.

ByteNotes

Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 3

Applied Concept

A company invited applications for 10,000 shares of Rs. 100 each at a premium of Rs. 20 payable with allotment. Applications were received for 15,000 shares. The directors decided to reject 3,000 applications outright and make pro-rata allotment to the remaining 12,000 applicants. Show journal entries for the application and allotment stage.

Bank A/c Dr. (for total application money received on 15,000 shares), To Share Application A/c (same amount); on allotment, Share Application A/c Dr., To Share Capital A/c (for 10,000 shares), To Share Allotment A/c (excess from 2,000 pro-rata shares adjusted), To Bank A/c (refund on 3,000 rejected applications).
Share Allotment A/c Dr. (for 10,000 × allotment rate including premium of Rs. 20), To Share Capital A/c (for face value portion), To Securities Premium Reserve A/c (for Rs. 20 × 10,000 = Rs. 2,00,000 premium).
Bank A/c Dr. (net allotment money received after adjusting excess application money from pro-rata allottees), To Share Allotment A/c; the net amount received = Total allotment due minus excess application money already adjusted from pro-rata applicants.

ByteNotes

Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 4

Applied Concept

Rohan holds 300 shares of Rs. 10 each issued at a premium of Rs. 2 per share. He paid application money (Rs. 3) and allotment money (Rs. 5 including premium) but failed to pay the first call of Rs. 2 and second and final call of Rs. 2. His shares are forfeited after the second call. Pass the journal entry for forfeiture.

Since Rohan has paid application money (Rs. 3) and allotment money including premium (Rs. 5), the premium of Rs. 2 per share has been received and credited to Securities Premium Reserve; therefore, Securities Premium Reserve is NOT debited at forfeiture.
Share Capital A/c Dr. Rs. 3,000 (300 × Rs. 10 called-up), To Share First Call A/c Rs. 600 (300 × Rs. 2 unpaid), To Share Second and Final Call A/c Rs. 600 (300 × Rs. 2 unpaid), To Share Forfeiture A/c Rs. 1,800 (300 × Rs. 6 already received—application Rs. 3 + allotment Rs. 3 face value portion).
The total called-up amount debited to Share Capital (Rs. 3,000) equals the nominal value called up; Securities Premium Reserve retains the Rs. 600 (300 × Rs. 2) premium already received since it was collected before forfeiture.

ByteNotes

Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 5

Applied Concept

A company forfeited 400 shares of Rs. 100 each on which Rs. 60 had been received per share. Of these, 300 shares were reissued as fully paid at Rs. 80 per share. Calculate the amount to be transferred to Capital Reserve and the balance remaining in Share Forfeiture Account.

Total amount in Share Forfeiture Account = 400 shares × Rs. 60 = Rs. 24,000. On reissue of 300 shares at Rs. 80, discount allowed = Rs. 100 – Rs. 80 = Rs. 20 per share; total discount = 300 × Rs. 20 = Rs. 6,000; this is debited to Share Forfeiture A/c.
Amount forfeited on 300 reissued shares = 300 × Rs. 60 = Rs. 18,000; amount transferred to Capital Reserve = Rs. 18,000 – Rs. 6,000 = Rs. 12,000 (profit on reissue of 300 shares).
Balance in Share Forfeiture Account = Rs. 24,000 – Rs. 6,000 (discount) – Rs. 12,000 (transferred to Capital Reserve) = Rs. 6,000; this equals 100 (unissued forfeited shares) × Rs. 60, confirming proportionate correctness.

ByteNotes

Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 6

Applied Concept

A company purchased machinery worth Rs. 4,40,000 from a vendor. Rs. 40,000 was paid in cash and the balance by issue of fully paid equity shares of Rs. 100 each at a premium of 25%. Calculate the number of shares to be issued and pass journal entries.

Amount to be settled by shares = Rs. 4,40,000 – Rs. 40,000 = Rs. 4,00,000; Issue price per share = Rs. 100 + Rs. 25 (25% premium) = Rs. 125; Number of shares = Rs. 4,00,000 ÷ Rs. 125 = 3,200 shares.
Journal entries: Machinery A/c Dr. Rs. 4,40,000, To Bank A/c Rs. 40,000, To Vendor A/c Rs. 4,00,000 (for purchase of machinery); then Vendor A/c Dr. Rs. 4,00,000, To Share Capital A/c Rs. 3,20,000 (3,200 × Rs. 100), To Securities Premium Reserve A/c Rs. 80,000 (3,200 × Rs. 25).
Since no cash is received for the shares, there is no Bank Account entry on the share issue side; the vendor's account serves as the counterpart to both share capital and securities premium, settling the purchase consideration.

ByteNotes

Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 7

Applied Concept

With reference to the concept of 'Calls in Advance', explain how a shareholder who pays the entire remaining balance of Rs. 5 per share on 200 shares at the time of allotment (when only Rs. 3 allotment is due) would be treated in the books, when the subsequent call of Rs. 2 is yet to be made.

The shareholder has paid Rs. 3 (the allotment money properly due) and an additional Rs. 2 per share which represents payment for a call not yet made; the extra Rs. 2 × 200 = Rs. 400 is a Calls in Advance.
Journal entry: Bank A/c Dr. Rs. 600, To Share Allotment A/c Rs. 600 (for the Rs. 3 × 200 allotment due); and separately Bank A/c Dr. Rs. 400, To Calls in Advance A/c Rs. 400 (for the Rs. 2 × 200 advance).
The Calls in Advance of Rs. 400 is a liability of the company, shown under current liabilities; when the call of Rs. 2 is subsequently made, Calls in Advance A/c Dr. Rs. 400, To Share Call A/c Rs. 400 to adjust it; the company must also pay interest on this advance at up to 12% p.a.

ByteNotes

Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 8

Applied Concept

Janta Papers Ltd. invited applications for 1,00,000 shares. Applications were received for 4,00,000 shares. Under the second alternative (pro-rata allotment to all), the directors decided to allot 25% of shares applied for and adjust the balance application money against allotment and refund any remaining amount. With application money of Rs. 5 per share and allotment of Rs. 7.50 per share, calculate how much will be refunded.

Application money received = 4,00,000 × Rs. 5 = Rs. 20,00,000; application money required for 1,00,000 allotted shares = 1,00,000 × Rs. 5 = Rs. 5,00,000; excess application money = Rs. 20,00,000 – Rs. 5,00,000 = Rs. 15,00,000.
Total allotment money due = 1,00,000 × Rs. 7.50 = Rs. 7,50,000; excess application money to be adjusted against allotment = Rs. 7,50,000; balance of excess application money = Rs. 15,00,000 – Rs. 7,50,000 = Rs. 7,50,000 to be refunded.
Journal entry: Share Application A/c Dr. Rs. 20,00,000, To Share Capital A/c Rs. 5,00,000, To Share Allotment A/c Rs. 7,50,000, To Bank A/c Rs. 7,50,000 (refund); the bank entry for allotment receipt will be Bank A/c Dr. Rs. 0 since the entire allotment has been covered by excess application money.

ByteNotes

Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 9

Applied Concept

A company issues 10,000 equity shares of Rs. 10 each at a premium of Rs. 2. The allotment money (Rs. 4 including premium) is due but one shareholder holding 200 shares does not pay. The shares are forfeited after allotment. What will be the journal entry if the shareholder had paid only application money of Rs. 3 per share?

Since the allotment money including premium (Rs. 4) was not received, the premium of Rs. 2 per share for these 200 shares was never credited to Securities Premium Reserve; therefore, Securities Premium Reserve A/c must be debited at the time of forfeiture.
Journal entry for forfeiture: Equity Share Capital A/c Dr. Rs. 2,000 (200 × Rs. 10 called-up = application Rs. 3 + allotment face value Rs. 2 + any balance if applicable—but only Rs. 5 called up so far at application Rs. 3 and allotment Rs. 2 face value), Securities Premium Reserve A/c Dr. Rs. 400 (200 × Rs. 2), To Share Allotment A/c Rs. 800 (200 × Rs. 4 allotment not paid), To Share Forfeiture A/c Rs. 1,600 (200 × Rs. 8 is incorrect—correct: Rs. 600 received = 200 × Rs. 3 application).
Correct entry: Share Capital A/c Dr. Rs. 1,000 (200 × Rs. 5 called up so far), Securities Premium Reserve A/c Dr. Rs. 400 (200 × Rs. 2 not received), To Share Allotment A/c Rs. 800 (200 × Rs. 4 allotment unpaid), To Share Forfeiture A/c Rs. 600 (200 × Rs. 3 already received from application).

ByteNotes

Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 10

Applied Concept

Eastern Company Limited issued 40,000 shares of Rs. 10 each payable Rs. 4 on application, Rs. 3 on allotment and Rs. 3 on first and final call. All applications were accepted and all amounts received. Prepare the balance sheet extract showing share capital in Notes to Accounts.

Notes to Accounts — Share Capital: Authorised Capital (as stated in Memorandum), Issued Capital: 40,000 Equity Shares of Rs. 10 each = Rs. 4,00,000.
Subscribed Capital — Subscribed and Fully Paid-up: 40,000 Equity Shares of Rs. 10 each = Rs. 4,00,000 (since all allotment and call money was received, there are no calls in arrears).
Total paid-up capital = Rs. 4,00,000 (application Rs. 4 + allotment Rs. 3 + call Rs. 3 = Rs. 10 per share, fully called up and fully paid); no deduction for calls in arrears is required as all money was duly received.

ByteNotes

Premium Access

Unlock all Application Questions

You are viewing 10 free application questions from this chapter. Upgrade to Premium to unlock the remaining 12 questions.

Upgrade to Premium12 questions locked

Chapter sections

Chapter accounting-for-share-capital: Accounting for Share Capital | Application Questions

With reference to Illustration 4 in the chapter (Konica Limited), explain how Calls in Arrears and Calls in Advance are treated simultaneously in the same journal entry when first call money is received.

A company forfeited 400 shares of Rs. 100 each on which Rs. 60 had been received per share. Of these, 300 shares were reissued as fully paid at Rs. 80 per share. Calculate the amount to be transferred to Capital Reserve and the balance remaining in Share Forfeiture Account.

A company purchased machinery worth Rs. 4,40,000 from a vendor. Rs. 40,000 was paid in cash and the balance by issue of fully paid equity shares of Rs. 100 each at a premium of 25%. Calculate the number of shares to be issued and pass journal entries.

With reference to the concept of 'Calls in Advance', explain how a shareholder who pays the entire remaining balance of Rs. 5 per share on 200 shares at the time of allotment (when only Rs. 3 allotment is due) would be treated in the books, when the subsequent call of Rs. 2 is yet to be made.

Eastern Company Limited issued 40,000 shares of Rs. 10 each payable Rs. 4 on application, Rs. 3 on allotment and Rs. 3 on first and final call. All applications were accepted and all amounts received. Prepare the balance sheet extract showing share capital in Notes to Accounts.

Unlock all Application Questions