Murari Ltd. invited applications for issuing 80,000 equity shares of Rs. 10 each at a 6 premium of Rs. 4 per share. The amount per share was payable as follows: Rs. 5 on application and Rs. 9 (including premium) on allotment. Applications were received for 1,40,000 shares and allotment was made on pro-rata basis to all the applicants. Money overpaid on application was utilised towards sums due on allotment. The allotment money was duly received except from Sameer who had applied for 1,400 shares. His shares were forfeited. Pass the necessary journal entries in the books of Murari Ltd. to record the above transactions. Open calls-in-arrears account wherever required.See answer
Murari Ltd invited applications for issuing 80000 equity shares of Rs 10 each at a 6 premium of Rs 4 per share The amount per share was payable as follows Rs 5 on application and Rs 9 including…
Question
Basic Answer
Step 1: Calculate the pro-rata allotment
Total shares applied for = 140,000
Shares to be issued = 80,000
Pro-rata allotment = (80,000 / 140,000) = 4/7
Step 2: Calculate the amount received on application
Amount per share on application = Rs. 5
Total amount received on application = 140,000 shares * Rs. 5 = Rs. 700,000
Step 3: Calculate the amount due on allotment
Amount due per share on allotment = Rs. 9
Total amount due on allotment = 80,000 shares * Rs. 9 = Rs. 720,000
Step 4: Calculate the amount received on allotment
Amount received from applicants (excluding Sameer) = (80,000 – 1400) shares * Rs. 9 = Rs. 777,600
Step 5: Calculate the amount of calls-in-arrears
Amount due from Sameer = 1400 shares * Rs. 9 = Rs. 12,600
Step 6: Journal Entries
| Date | Account Title | Debit (Rs.) | Credit (Rs.) |
|---|---|---|---|
| Bank Account | 700,000 | ||
| Share Application Account | 700,000 | ||
| (Being application money received) | |||
| Share Allotment Account | 720,000 | ||
| Share Application Account | 700,000 | ||
| Share Capital Account | 800,000 | ||
| Securities Premium Account | 320,000 | ||
| Calls-in-arrears Account | 12,600 | ||
| Bank Account | 777,600 | ||
| (Being allotment money received and calls-in-arrears recorded) | |||
| Share Capital Account | 12,600 | ||
| Calls-in-arrears Account | 12,600 | ||
| (Being transfer of forfeited shares to share capital) |
Final Answer
The journal entries above record the transactions related to the share issue, including the pro-rata allotment, money received on application and allotment, and the treatment of calls-in-arrears from Sameer’s forfeited shares. Note that the forfeiture of Sameer’s shares and the subsequent transfer to share capital is a simplified representation. A more complete accounting treatment would involve separate entries for forfeiture and then transfer to share capital.