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Page No 64:

Question 1:

What is public company?

Answer:

A public company is defined as a company that offers a part of its ownership in the form of shares, debentures, bonds, securities to the general public through stock market. There must be atleast seven members to form a public company. As per the section 3 (1) (iv) of Companies Act 1956, public company means a company which:

a) is not a private company,

b) has a minimum paid up capital of Rs 5,00,000 or such higher paid up capital, as may be prescribed,

c) is a private company, being a subsidiary of a company which is not a private company.

A public company should not be mistakenly understood as a publicly-owned company, as the latter is exclusively owned and controlled by the government. A public company issues its share to general public without any restriction on maximum number of persons. A public company can be segmented into two types:

1. Listed Company- A Company whose shares are listed and traded in the stock exchange like, Tata Motors, Reliance, etc.

2. Unlisted Company- A Company whose shares are not listed in the stock exchange and thereby these shares cannot be traded in the stock exchange.

Page No 64:

Question 2:

What is private limited company?

Answer:

Private limited company is a company that is limited by shares or by guarantee by its members. A private limited company is defined as a company that has a minimum paid up share capital of Rs 1,00,000. As defined by the Section 3 (1) (iii) of Companies Act 1956, private limited company is defined by the following characteristics:

a) It restricts the right to transfer its shares.

b) There must be atleast two and a maximum of 50 members (excluding current and former employees) to form a private company.

c) It cannot invite application from the general public to subscribe its shares, or debentures.

d) It cannot invite or accept deposits from persons other than its members, Directors and their relatives.

Unlike public company, a private company cannot issue its shares or debentures to general public at large as shares of these companies are not traded in the stock exchange, for example, Coca-Cola India Private limited, etc.

Page No 64:

Question 3:

When can shares be Forfeited?

Answer:

When a shareholder fails to pay the allotment money or any subsequent calls, then the company informs the shareholder by giving him/her a proper notice.If even after the notice, the shareholder fails to pay the due money, then the company forfeits the shares allotted to him/her.

Page No 64:

Question 4:

What is meant by Calls-in-Arrears?

Answer:

When shareholder fails to pay all the instalments in due time, then company expects the shareholder to pay the outstanding amount in the later stages (or calls). Such amount of money that is being paid at the later stages is termed as Calls-in-Arrears.

Page No 64:

Question 5:

What do you mean by a listed company?

Answer:

Those public companies whose shares are listed and can be traded in a recognised stock exchange for public trading like, Tata Motors, Reliance, etc are called Listed Company. These companies are also called Quota Companies. The listing of securities (shares) helps the investor to determine the increase/decrease in value of their investment in a concerned listed company. This provides ample indication to the potential investors about the goodwill of the company and facilitates them to take various investment decisions and also to assess the viability of their investment in a company.

Page No 64:

Question 6:

What are the uses of securities premium?

Answer:

As per the Section 78 of the Companies Act of 1956, the amount of securities premium can be used by the company for the following activities:

1. For paying up un issued shares of the company to be issued to members (shareholders) of the company as fully paid bonus share,

2. For writing off the preliminary expenses of the company,

3. For writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company,

4. For paying up the premium that is to be payable on redemption of preference shares or debentures of the company.

5. Further, as per the Section 77A, the securities premium amount can also be utilised by the company to Buy-back its own shares.

Page No 64:

Question 7:

What is meant by Calls-in-Advance?

Answer:

Calls-in-Advance refers to a situation when a shareholder pays the whole amount or a part of the amount of shares before it become due, i.e. before the company calls for it. 
So, the amount of money that is being paid in advance at the earlier stages is termed as Calls-in-Advance.

Page No 64:

Question 8:

Write a brief note on ‘Minimum Subscription’.

Answer:

When shares are issued to the general public, the minimum amount that must be subscribed by the public so that the company can allot shares to the applicants is termed as Minimum Subscription. As per the Company Act of 1956, the Minimum Subscription of share cannot be less than 90% of the issued amount. If the Minimum Subscription is not received, the company cannot allot shares to its applicants and it shall immediately refund the entire application amount received to the public.

Page No 64:

Question 1:

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

Answer:

The Section 3 (1) (i) of the Company Act of 1956 defines an organisation as a company that is formed and registered under the Act or any existing company that is formed and registered under any earlier company laws. In general, a company is an artificial person, created by law that has a separate legal entity, perpetual succession, common seal and has limited liability. It is a voluntary association of person who together contributes in the capital of the company to do business. Generally, the capital of a company is divided into small parts known as shares, the ownership of which is transferable subject to certain terms and conditions. There are two types of company, public company and private company.

Characteristics of Company

1. Association of Person: A company is formed voluntarily by a group of persons to perform a common business. Minimum number of person should be two for formation of a private company and seven for a public company.

2. Artificial Person: Company is an artificial and juristic person that is created by law.

3. Separate Legal Entity: A company has a separate legal entity from its members (shareholders) and Directors. It can open a bank account, sign a contract and can own a property in its own name.

4. Limited Liability: The liability of the members of a company is limited up to the nominal value or the face value of the shares. Unlike a partnership firm, on insolvency of a company, the members and the shareholders are not liable to pay the amount due to the creditors of the company. In fact, the members and the shareholders are only liable to pay the unpaid amount of the shares held by them. For example, if the value of share is Rs 10 and Rs 6 is paid up, then the member is liable to pay only Rs 4.

5. Perpetual Existence: The existence of company is not affected by the death, retirement, and insolvency of its members. That is, the life of a company remains unaffected by the life and the tenure of its members in the company. The life of a company is infinite until it is properly wound up as per the Company Act.

6. Common Seal: The Company is an artificial person and has no physical existence; hence it cannot put its signature. Thus, the Common Seal acts as an official signature of a company that validates the official documents.

7. Transferability of Shares: The shares of public limited company is easily and freely transferable without any consent from other members. But the share of ownership of a private limited company is not transferable without the consent of the other members.

Page No 64:

Question 2:

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

Answer:

The division of the share capital of a company into main categories is diagrammatically explained below.

1. Authorised Capital: It is an amount which is stated in the Memorandum of Association. It is the maximum amount that the company can raise by issuing shares. This maximum amount can be increased as per the procedures laid down in the Company Act.

2. Issued Capital: It is a part of authorised capital which is offered by the company to the general public for subscription. For example, if the authorised capital of a company is Rs 1,00,000 divided into Rs 10 per share, then the issued capital cannot be more than Rs 1,00,000.

3. Unissued Capital: It is a part of authorised capital that is not offered till now but can be offered to the general public in future. In the above example, if the issued capital is Rs 80,000, then the unissued capital is Rs 20,000.

4. Subscribed Capital: It is a part of issued capital that is actually subscribed by the general public. For example, if the company has issued 8,000 shares of Rs 10 per share and public has subscribed for 7,500 shares, then the subscribed share capital of the company amounts to Rs 75,000.

5. Unsubscribed Capital: It is that part of the issued capital that is not subscribed by the public. For example, in the above example, 500 shares were left unsubscribed, making an unsubscribed share capital of Rs 5,000.

6. Called up Capital: It is a part of subscribed capital that is called up by the Directors from the shareholders of a company to pay. For example, if the Directors call up Rs 6 out of Rs 10 (i.e. the face value of the share) from the shareholders of 10,000 to pay, then Rs 60,000 is regarded as called up share capital.

7. Uncalled up Capital: It is that part of subscribed capital which is not called up till now but can be called up in future as per the need of the company. For example, in the above example, Rs 4 were left uncalled from shareholders holding 10,000 shares, so Rs 40,000 is uncalled up share capital.

8. Paid up capital: It is that part of called up share capital which is actually received from the shareholders. If the entire called up money of Rs 4 on 1,000 shares has been received except from a shareholder holding 300 shares, then the paid up share capital is Rs 2,800 (Rs 4,000 − Rs 1,200). The amount of Rs 1,200 is called Call in Arrears that has been called up but is unpaid.

9. Reserved Capital: As per the Section 99 of the Company Act of 1956, a limited company may call up any portion of uncalled share capital in the event of winding up of the company to pay its creditors. This amount of uncalled share capital cannot be used for any other purpose and is reserved for paying back the creditors, that is why, such portion of share capital is called reserve capital.

Page No 64:

Question 3:

What do you mean by the term ‘share’? Discuss the type of shares, which can be issued under the Companies Act, 1956 as amended to date.

Answer:

The total capital of a company is divided into equal units of small denomination termed as shares. The ownership of these shares is easily transferable, from one person to other, subject to certain conditions. The person who is contributing in the capital in the form of shares is known as shareholder. The ownership of a shareholder is limited to the value of the shares held by him/her.

Types of Shares

As per the Section 86 of the Company Act of 1956, there are two types of shares- Preference Shares and Equity Shares (also known as Ordinary Shares)

i) Preference Shares: Section 85 of the Company Act,1956 defines Preference Shares to be featured by the following rights:

a. Preference Shares entitle its holder the right to receive dividend at a fixed rate or fixed amount.

b. Preference Shares entitle its holder the preferential right to receive repayment of capital invested by them before their equity counterparts at the time of winding up of the company.

ii) Equity Shares: Equity Shareholders have a voting right and control the affairs of a company.

As per Section 85 (2) of Companies Act 1956; equity share is a share that is not a preference share. It does not possess any preferential right of payment of dividend or repayment of capital. The rate of dividend is not fixed on equity shares and varies from year to year, depending upon the amount of profit available for distribution after paying dividend to the preference shareholders.

Page No 64:

Question 4:

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

Answer:

When the total number of applications received for shares exceeds the number of shares offered by the company to the public, the situation of oversubscription arises. A company can opt for any of the three alternatives to allot shares in case of oversubscription of shares.

 

i) Excess applications are refused and money received on excess applications is returned to the applicants.

The company can refuse excess applications and the money received on these excess applications is returned to the applicants.

 

Share Application A/c

Dr.

 

To Share Capital A/c

 

To Bank A/c

(Excess application money returned)

     

 

Example: Shares issued 10,000 @ Rs 10 per share and money received for 12,000 shares. Amount is payable Rs 2 on application, Rs 5 on allotment, Rs 3 on first and final call.

 

Bank A/c

Dr.

 

24,000

 

 

To Share Application A/c

 

 

24,000

(Application money received for 12,000 shares)

 

 

           

 

Share Application A/c

Dr.

 

24,000

 

 

To Share Capital A/c

 

 

20,000

 

To Bank A/c

 

 

  4,000

(Application money transferred to Share Capital

Account and the excess money returned)

 

 

           

 

ii) Pro rata Basis

The company can allot shares on pro rata basis to all the share applicants. The excess amount received in the application is adjusted on the allotment.

 

Share Application A/c

Dr.

 

To Share Capital A/c

 

To Share Allotment A/c

(Adjustment of application money on allotment)

     

 

Example: Shares issued 10,000 @ Rs 10 per share and money received for 12,000 shares. Amount is payable Rs 2 on application, Rs 5 on allotment, Rs 3 on first and final call.

 

Bank A/c

Dr.

 

24,000

 

 

To Share Application A/c

 

 

24,000

(Application money received for 12,000 shares)

 

 

 

           

 

Share Application A/c

Dr.

 

24,000

 

 

To Share Capital A/c

 

 

20,000

 

To Share Allotment A/c

 

 

4,000

(Application money transferred to Share Capital

Account and the balance amount is transferred to

Share Allotment Account)

 

 

           

 

Share Allotment A/c

Dr.

 

50,000

 

 

To Share Capital A/c

 

 

50,000

(Amount due on allotment of 10,000 shares @ Rs 5

per share)

 

 

 

           

 

Bank A/c

Dr.

 

46,000

 

 

To Share Allotment

 

 

46,000

(Allotment money received, Rs 50,000 – Rs 4,000)

 

 

 

           

 

iii) Pro rata and refund of money

In this case, the company follows a combination of both the method. It may reject some share applications and may allot some applications on the pro rata basis.

 

Share Application A/c

Dr.

 

To Share Capital A/c

 

To Share Allotment A/c

 

To Bank A/c

(Application money transferred to Share Capital

Account and the balance amount is transferred to

Share Allotment Account and the excess application

money is refund)

     

 

Example: Shares issued 10,000 @ Rs 10 per share and money received for 13,000 shares. Amount is payable Rs 2 on application, Rs 5 on allotment, Rs 3 on first and final call. If the company rejects the applications for 1,000 shares and allots the remaining on the pro rata basis.

 

Bank A/c

Dr.

 

26,000

 

 

To Share Application A/c

 

 

26,000

(Application money received for 12,000 shares)

 

 

 

           

 

Share Application A/c

Dr.

 

26,000

 

 

To Share Capital A/c (10,000 × Rs 2)

 

 

20,000

 

To Share Allotment A/c (2,000 × Rs 2)

 

 

4,000

 

To Bank A/c (1,000 × Rs 2)

 

 

2,000

(Amount received on share application adjusted to

Share Capital and share allotment and balance is

refunded)

 

 

 

           

 

Share Allotment A/c

Dr.

 

50,000

 

 

To Share Capital A/c

 

 

50,000

(Amount due on share allotment of 10,000 share @

Rs 5 per share)

 

 

 

           

 

Bank A/c

Dr.

 

46,000

 

 

To Share Allotment A/c

 

 

46,000

(Allotment money received, Rs 50,000 – Rs 4,000)

 

 

 

           

 

 

Page No 64:

Question 5:

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

Answer:

Preference Shares: Section 85 of the Company Act,1956 defines Preference Shares to be featured by the following rights:

a. Preference Shares entitle its holder the right to receive dividend at a fixed rate or fixed amount.

b. Preference Shares entitle its holder the preferential right to receive repayment of capital invested by them before their equity counterparts at the time of winding up of the company.

Types of Preference Shares

The different types of Preference Shares are diagrammatically explained below.

1. On the basis of Dividend:

a) Cumulative Preference Shares

When a preference shareholder has a right to recover any arrears of dividend, before any dividend is paid to the equity shareholders, then the type of Preference Shares held by the shareholder is known as Cumulative Preference Shares. All Preference Shares are cumulative unless otherwise expressly stated to be non cumulative.

b) Non Cumulative Preference Share

When a preference shareholder receives dividend only in case of profit and is not entitled any right to recover the arrears of dividend, then the type of Preference Shares held by the shareholder is known as Non Cumulative Preference Shares.

2. On the basis of Participation:

a) Participating Preference Share

When a preference shareholder enjoys the right to participate in the surplus profit (in addition to the fixed rate of dividend) that is left after the payment of dividend to the equity shareholders, the type of shares held by the shareholder is known as Participating Preference Share.

b) Non participating Preference Share

When a preference shareholder receives only a fixed rate of dividend every year and do not enjoy the additional participation in the surplus profit, then the type of shares held by the shareholder is known as Non Participating Preference Shares.

It must be noted that all Preference Shares are non-participating until and unless expressly stated.

3. On the basis of Redemption:

a) Redeemable preference share

When a preference shareholder is repaid by the company after a certain specified period in accordance with the term specified in the Section 80 of Company Act of 1956, then the type of the shares held by him/her is known as Redeemable Preference Shares.

b) Non Redeemable Preference share

These shares are not repaid by the company during its lifetime. As per the Section 80A of the Company Act of 1956, no company can issue Non Redeemable Preference Shares. It is merely a theoretical concept.

4. On the basis of Convertibility:

a) Convertible Preference Share

The shareholders holding Convertible Preference Shares have a right to convert his/her shares into equity shares.

b) Non Convertible Preference Share

Unlike Convertible Preference Shares, the shareholders holding Non Convertible Preference Shares do not enjoy the right to convert their shares into equity shares.

Page No 64:

Question 6:

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

Answer:

Calls-in-Arrears: When a shareholder fails to pay the amount due on allotment or any subsequent calls, then it is termed as Calls-in-Arrears. The Company is authorised by its Article of Association to charge interest at a specified rate on the amount of Call in Arrears from the due date till the date of payment. If the Article of Association is silent in this regard, then Table A shall be applicable that is interest at 5% p.a. is charged from the shareholders. As per the Revised Schedule VI of the Companies Act, Calls-in-Arrears are deducted from the Called-up Share Capital in the Notes to Accounts (that is prepared outside the Balance Sheet) under the head 'Share Capital'. The final amount of Share Capital is shown on the Equity and Liabilities side of the Company’s Balance Sheet. The company can also forfeit the shares on account of non-payment of the calls money after giving proper notice to the shareholders.

Example- X Ltd. issued 12,000 shares of Rs 10 each. All the shares were duly subscribed, however, the first and final call of Rs 4 on 5,000 shares remained unpaid.  

X Ltd.

Balance Sheet

Particulars

Note No.

Amount

(Rs)

I. Equity and Liabilities

 

 

1. Shareholders’ Funds

 

 

 a. Share Capital

1

1,00,000

2. Non-Current Liabilities

 

-

3. Current Liabilities

 

-

 

 

 

Total

 

 

 

 

 

II. Assets

 

 

1. Non-Current Assets

 

-

2. Current Assets

 

-

 

 

 

Total

 

 

 

 

 

NOTES TO ACCOUNTS

Note No.

Particulars

Amount   

(Rs)

1

Share Capital

 

 

Authorised Share Capital

 

 

…….. shares of Rs 10 each

-

 

Issued Share Capital

 

 

 12,000 shares of Rs 10 each

1,20,000

 

Subscribed, Called-up and Paid-up Share Capital

 

 

 12,000 shares of Rs 10 each

1,20,000

 

 

     Less: Calls-in-Arrears (5,000×4)

    (20,000)

1,00,000

 

 

 

 

 

 

Calls-in-Advance: When a shareholder pays the whole amount or a part of the amount in advance, i.e. before the company calls, then it is termed as Calls-in-Advance. The company is authorised by its Article of Association to pay interest at the specified rate on call in advance from the date of payment till the date of call made. If the Article of Association is silent in this regard, then the Table A shall be applicable that is, interest at 6% p.a. is provided to the shareholders. As per the Revised Schedule VI of the Companies Act, Calls-in-Advance (along with interest on it) is added to the 'Other Current Liabilities' in the Notes to Accounts. The final amount of Other Current Liabilities is shown under the main head of 'Current Liabilities' on the Equity and Liabilities side of the Company's Balance Sheet. 

Example- X Ltd. issued 12,000 shares of Rs 10 each. All the shares were duly subscribed. The final call of Rs 3 was not yet made, however, a shareholder holding 5,000 shares paid the final call installment in advance along with the allotment money. 

X Ltd.

Balance Sheet

Particulars

Note No.

Amount

(Rs)

I. Equity and Liabilities

 

 

1. Shareholders’ Funds

 

 

   a. Share Capital

1

84,000

2. Non-Current Liabilities

 

 

3. Current Liabilities

 

 

   a. Other Current Liabilities

2

15,000

Total

 

 

 

 

 

II. Assets

 

 

1. Non-Current Assets

 

 

2. Current Assets

 

 

 

 

 

Total

 

 

 

 

 

NOTES TO ACCOUNTS

Note No.

Particulars

Amount   (Rs)

1

Share Capital

 

 

  Authorised Share Capital

 

 

   …….. shares of Rs 10 each

-

 

   Issued Share Capital

 

 

   12,000 shares of Rs 10 each

1,20,000

 

   Subscribed, Called-up and Paid-up Share Capital

 

 

   12,000 shares of Rs 10 each, Rs 7 called-up

84,000

 

 

 

2

Other Current Liabilities

 

 

    Calls-in-Advance (5,000×3)

15,000

 

 

 

Page No 64:

Question 7:

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

Answer:

When the total number of applications received for shares exceeds the number of shares offered by the company to the public, the situation of Over-subscription arises. A company can opt for any of the three alternatives to allot shares in case of Over-subscription of shares.

 

i) Excess applications are refused and money received on excess applications is returned to the applicants.

The company can refuse excess applications and the money received on these excess applications is returned to the applicants.

 

Share Application A/c

Dr.

 

To Share Capital A/c

 

To Bank A/c

(Excess application money returned)

     

 

Example: Shares issued 10,000 @ Rs 10 per share and money received for 12,000 shares. Amount is payable Rs 2 on application, Rs 5 on allotment, Rs 3 on first and final call.

 

Bank A/c

Dr.

 

24,000

 

 

To Share Application A/c

 

 

24,000

(Application money received for 12,000 shares)

 

 

           

 

Share Application A/c

Dr.

 

24,000

 

 

To Share Capital A/c

 

 

20,000

 

To Bank A/c

 

 

  4,000

(Application money transferred to Share Capital

Account and the excess money returned)

 

 

           

 

ii) Pro rata Basis

The company can allot shares on pro rata basis to all the share applicants. The excess amount received in the application is adjusted on the allotment.

 

Share Application A/c

Dr.

 

To Share Capital A/c

 

To Share Allotment A/c

(Adjustment of application money on allotment)

     

 

Example: Shares issued 10,000 @ Rs 10 per share and money received for 12,000 shares. Amount is payable Rs 2 on application, Rs 5 on allotment, Rs 3 on first and final call.

 

Bank A/c

Dr.

 

24,000

 

 

To Share Application A/c

 

 

24,000

(Application money received for 12,000 shares)

 

 

 

           

 

Share Application A/c

Dr.

 

24,000

 

 

To Share Capital A/c

 

 

20,000

 

To Share Allotment A/c

 

 

4,000

(Application money transferred to Share Capital

Account and the balance amount is transferred to

Share Allotment Account)

 

 

           

 

Share Allotment A/c

Dr.

 

50,000

 

 

To Share Capital A/c

 

 

50,000

(Amount due on allotment of 10,000 shares @ Rs 5

per share)

 

 

 

           

 

Bank A/c

Dr.

 

46,000

 

 

To Share Allotment

 

 

46,000

(Allotment money received, Rs 50,000 – Rs 4,000)

 

 

 

           

 

iii) Pro rata and refund of money

In this case, the company follows a combination of both the method. It may reject some share applications and may allot some applications on the pro rata basis.

 

Share Application A/c

Dr.

 

To Share Capital A/c

 

To Share Allotment A/c

 

To Bank A/c

(Application money transferred to Share Capital

Account and the balance amount is transferred to

Share Allotment Account and the excess application

money is refund)

     

 

Example: Shares issued 10,000 @ Rs 10 per share and money received for 13,000 shares. Amount is payable Rs 2 on application, Rs 5 on allotment, Rs 3 on first and final call. If the company rejects the applications for 1,000 shares and allots the remaining on the pro rata basis.

 

Bank A/c

Dr.

 

26,000

 

 

To Share Application A/c

 

 

26,000

(Application money received for 12,000 shares)

 

 

 

           

 

Share Application A/c

Dr.

 

26,000

 

 

To Share Capital A/c (10,000 × Rs 2)

 

 

20,000

 

To Share Allotment A/c (2,000 × Rs 2)

 

 

4,000

 

To Bank A/c (1,000 × Rs 2)

 

 

2,000

(Amount received on share application adjusted to

Share Capital and share allotment and balance is

refunded)

 

 

 

           

 

Share Allotment A/c

Dr.

 

50,000

 

 

To Share Capital A/c

 

 

50,000

(Amount due on share allotment of 10,000 share @

Rs 5 per share)

 

 

 

           

 

Bank A/c

Dr.

 

46,000

 

 

To Share Allotment A/c

 

 

46,000

(Allotment money received, Rs 50,000 – Rs 4,000)

 

 

 

           

 

Under-subscription- When the number of shares applied by the public is lesser than the number of shares issued by the company, then the situation of Under-subscription arises. As per the Company Act, the Minimum Subscription is 90% of the shares issued by the company. This implies that the company can allot shares to the applicants provided if applications for 90% of the issued shares are received. Otherwise, the company should refund the entire application amount received. In this regard, necessary Journal entry is passed only after receiving and refunding of the application money.

 

 

Page No 64:

Question 8:

Describe the purposes for which a company can use ‘Securities Premium Account’.

Answer:

As per the Section 78 of the Companies Act of 1956, the amount of securities premium can be used by the company for the following activities:

1. For paying up unissued shares of the company to be issued to members (shareholders) of the company as fully paid bonus share,

2. For writing off the preliminary expenses of the company,

3. For writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company,

4. For paying up the premium that is to be payable on redemption of preference shares or debentures of the company.

5. Further, as per the Section 77A, the securities premium amount can also be utilised by the company to Buy-back its own shares.

Page No 64:

Question 9:

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

Answer:

As per the Section 79 of the Company Act of 1956, following are the conditions under which a company can issue shares at a discount.

1. A company can issue shares at discount provided it has previously issued such type of shares.

2. The issue of shares at a discount is authorised by a resolution passed by the company in the General Meeting and sanction obtained from the Company Law Tribunal.

3. The resolution specifies that the maximum rate of discount is 10% of the face value of the shares, unless higher percentage of discount allowed by the Company Law Tribunal.

4. A company can issue shares at discount atleast after one year from the date of commencing business.

5. If a company wants to issue shares at discount, then it must issue them within two months of obtaining sanction from the Company Law Tribunal.

6. Every prospectus related to the issue of the shares should explicitly and clearly contain particulars of the discount allowed on the issue of shares.

Page No 64:

Question 10:

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

Answer:

If a shareholder fails to pay the allotment money and/or any subsequent calls, then the company has the right to forfeit shares by giving a proper notice to the shareholder.

 

As per the Table A of the Company Act, the procedure of forfeiting shares is mentioned below.

1. A notice is sent to default shareholder stating him/her to pay Calls in Arrears along with the interest accrued on the outstanding calls money within a period of 14 days of the receipt of notice, otherwise, the shares will be forfeited.

2. If the shareholder does not pay the amount, then the company has the right to forfeit his/her share by passing a resolution.

3. A notice of that resolution is send to the default shareholder and a public notice of the same is published in a daily newspaper.

4. The name of the shareholder is removed from the register of members (i.e. shareholders).

 

Accounting Treatment for Forfeiture of Shares:

 

i) Forfeiture of Shares that were issued at Par

 

Share Capital A/c

Dr.

(amount called up)

 

To Share Allotment A/c

 

(amount not received)

 

To Share Calls A/c

 

(amount not received)

 

To Share Forfeiture A/c

 

(amount received)

(Shares forfeited)

 

 

 

ii) Forfeiture of Shares that were issued at Premium

a) If premium is received, then the premium is not shown.

 

Share Capital A/c

Dr.

(amount called up)

 

To Share Allotment A/c

 

(amount not received)

 

To Share Calls A/c

 

(amount not received)

 

To Share forfeiture A/c

 

(amount received)

(Share forfeited)

 

 

 

b) If premium is not received, then the premium is shown.

 

Share Capital A/c

Dr.

(amount called up excluding premium)

Share Premium A/c

Dr.

(amount not received)

 

To Share Allotment A/c

(amount not received including premium)

 

To Share Calls A/c

(amount not received)

 

To Share Forfeiture A/c

(amount received including premium)

(Share forfeited)

 

       

 

iii) Forfeiture of Shares that were issued at Discount

 

Share Capital A/c

Dr.

(amount called up, plus discount)

 

To Discount on Issue of Shares A/c

(amount of discount)

 

To Share Allotment A/c

(amount not received)

 

To Share Calls A/c

(amount not received)

 

To Share Forfeiture A/c

(amount received)

(Share forfeited)

       

 

 



Page No 65:

Question 1:

Anish Limited issued 30,000 equity shares of Rs 100 each payable at Rs 30 on application, Rs 50 on allotment and Rs 20 on Ist and final call. All money was duly received.

Record these transactions in the journal of the company.

Answer:

 

Books of Anish Limited

 

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

 Rs

 

Bank A/c

Dr.

 

9,00,000

 

 

 

To Equity Share Application A/c

 

 

9,00,000

 

(Application money received on application for 30,000 equity shares @ Rs 30 per share)

 

 

 

 

 

 

 

 

 

 

 

Equity Share Application A/c

Dr.

 

9,00,000

 

 

 

To Equity Share Capital A/c

 

 

9,00,000

 

(Share Application money transferred to Share Capital

Account)

 

 

 

 

 

 

 

 

 

 

Equity Share Allotment A/c

Dr.

 

15,00,000

 

 

 

To Equity Share Capital A/c

 

 

15,00,000

 

(Allotment money due on 30,000 @ Rs 50 per share)

 

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

15,00,000

 

 

 

To Equity Share Allotment A/c

 

 

15,00,000

 

(Share Allotment money received for   30,000 shares @

Rs 50 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity Share First and Final Call A/c

Dr.

 

6,00,000

 

 

 

To Equity Share Capital A/c

 

 

6,00,000

 

Share First and Final call due on 30,000 shares @ Rs 20

per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

6,00,000

 

 

 

To Equity Share First and Final Call A/c

 

 

6,00,000

 

(Share First and Final Call money received for 30,000

shares @ Rs20 per share)

 

 

 

 

 

 

 

 

 

 

 

 

Page No 65:

Question 2:

The Adersh Control Device Ltd was registered with the authorised capital of Rs 3,00,000 divided into 30,000 shares of Rs 10 each, which were offered to the public. Amount payable as Rs 3 per share on application, Rs 4 per share on allotment and Rs 3 per share on first and final call. These share were fully subscribed and all money was dully received. Prepare journal and Cash Book.

Answer:

Books of Adersh Control Device Ltd

 

Journal

 

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Equity Share Application A/c

Dr.

 

90,000

 

 

 

To Equity Share Capital A/c

 

 

90,000

 

(Share Application money for 30,000 shares @ Rs 3 per share

transferred to Share Capital Account)

 

 

 

 

 

 

 

 

 

 

Equity Share Allotment A/c

Dr.

 

1,20,000

 

 

 

To Equity Share Capital A/c

 

 

 

1,20,000

 

(Share Allotment money due on 30,000 @ Rs 4 per share)

 

 

 

 

 

 

 

 

 

 

 

Equity Share First and Final Call A/c

Dr.

 

90,000

 

 

 

To Equity Share Capital A/c

 

 

 

90,000

 

(Share First and Final Call due on 30,000 @ Rs 3 per share)

 

 

 

 

 

 

 

 

 

 

 

Cash Book (Bank Column)

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

 

Equity Share Application

 

90,000

 

 

 

 

 

Equity Share Allotment

 

1,20,000

 

 

 

 

 

Equity Share First and Final Call

 

90,000

 

By Balance c/d

 

3,00,000

 

 

 

3,00,000

 

 

 

3,00,000

 

 

 

 

 

 

 

 

 

 

Page No 65:

Question 3:

Software solution India Ltd inviting application for 20,000 equity share of Rs 100 each, payable Rs 40 on application, Rs 30 on allotment and Rs 30 on 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 share allotted half of the number of share applied and excess application money adjusted into allotment. All money received due on allotment and call. Prepare journal and cash book.

Answer:

Books of Software Solution India Ltd.

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Equity Share Application A/c

Dr.

 

12,00,000

 

 

 

To Equity Share Capital A/c

 

 

8,00,000

 

 

To Equity Share Allotment A/c

 

 

4,00,000

 

(Application money transferred to Equity Share Capital for 20,000 shares @ Rs 40 and Rs 4,00,000 is adjusted towards allotment)

 

 

 

 

 

 

 

 

 

 

Equity Share Allotment A/c

Dr.

 

6,00,000

 

 

 

To Equity Share Capital A/c

 

 

 

6,00,000

 

(Equity Share Allotment money due on 20,000 @ Rs 30

per share)

 

 

 

 

 

 

 

 

 

 

 

Equity Share First and Final call A/c

Dr.

 

6,00,000

 

 

 

To Equity Share Capital A/c

 

 

 

6,00,000

 

(Equity share on First and Final call due on 20,000 @

Rs 30 per share)

 

 

 

 

 

 

 

 

 

 

 

Cash Book (Bank Column)

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

 

Equity Share Application

 

12,80,000

 

Equity Share Application

 

80,000

 

Equity Share Allotment

 

2,00,000

 

Balance c/d

 

20,00,000

 

Equity Share First and Final Call

 

6,00,000

 

 

 

 

 

 

 

20,80,000

 

 

 

20,80,000

 

 

 

 

 

 

 

 

 

Working Note:

 

Amount due on Allotment for 20,000 shares @ Rs 30 per share

6,00,000

Money adjusted on application 10,000 shares @ Rs 40 each

4,00,000

Money to be received on Allotment

2,00,000

 

Page No 65:

Question 4:

Rupak Ltd. issued 10,000 shares of Rs 100 each payable Rs 20 per share on application, Rs 30 per share on allotment and balance in two calls of Rs 25 per share. The application and allotment money were duly received. On first call all member pays 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:

Books of Rupak Ltd.

 

Journal

 

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Share Application A/c

Dr.

 

2,00,000

 

 

 

To  Share Capital A/c

 

 

 

2,00,000

 

(Application money for 10,000 shares transferred to Share Capital

Account)

 

 

 

 

 

 

 

 

 

 

Share Allotment A/c

Dr.

 

3,00,000

 

 

 

To Share Capital A/c

 

 

 

3,00,000

 

(Allotment money due on 10,000 shares @ Rs 30 per share)

 

 

 

 

 

 

 

 

 

 

 

Share First Call A/c

Dr.

 

2,50,000

 

 

 

To Share Capital A/c

 

 

 

2,50,000

 

(Share First Call due on 10,000 shares @ Rs 25 per share)

 

 

 

 

 

 

 

 

 

 

Calls in Arrears A/c

Dr.

 

5,000

 

 

 

To Share First Call A/c

 

 

 

5,000

 

(Call in arrears on 200 shares @ Rs 25 per share)

 

 

 

 

 

 

 

 

 

 

 

Cash Book (Bank Column)

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

 

Share Application

 

2,00,000

 

 

 

 

 

Share Allotment

 

3,00,000

 

 

 

 

 

Share first call

 

2,45,000

 

By Balance c/d

 

7,57,500

 

Calls in Advance

 

12,500

 

 

 

 

 

 

 

 

7,57,500

 

 

 

7,57,500

 

 

 

 

 

 

 

 

 

 

Working Note:

 

Money due on First Call for 10,000 shares @ 25 each

2,50,000

 

Less: Calls in Arrear for 200 shares @ Rs 25 per Share

(5,000)

 

Money Received on First Call

2,45,000

 

Add: Calls received in advance on 500 shares @ Rs25 per share

12,500

 

 

 

2,57,500

       

 

 

Page No 65:

Question 5:

Mohit Glass Ltd. issued 20,000 shares of Rs 100 each at Rs 110 per share, payable Rs 30 on application, Rs 40 on allotment (including Premium), Rs 20 on first call and Rs 20 on final call. The applications were received for 24,000 shares and allotted 20,000 shares and reject 4,000 shares and amount returned thereon. The money was duly received.

Give journal entries.

Answer:

Books of Mohit Glass Ltd.

 

Journal

 

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Bank A/c

Dr.

 

7,20,000

 

 

 

To Share Application A/c

 

 

7,20,000

 

(Application money received on application for 24,000 shares @ Rs 30 per share)

 

 

 

 

 

 

 

 

 

 

Share Application A/c

Dr.

 

7,20,000

 

 

 

To Share Capital A/c (Bank Column)

 

 

 

6,00,000

 

 

To Bank A/c

 

 

 

1,20,000

 

(Share Application of 20,000 shares @ Rs 30 transferred to Share

Capital Account and the balance returned)

 

 

 

 

 

 

 

 

 

Share Allotment A/c

Dr.

 

8,00,000

 

 

 

To Share Capital A/c

 

 

6,00,000

 

 

To Share Premium A/c

 

 

 

2,00,000

 

(Allotment money due on 20,000 shares @ 40 per share including

Rs 10 for premium)

 

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

8,00,000

 

 

 

To Share Allotment A/c

 

 

8,00,000

 

(Allotment money received on 20,000 shares @ Rs 40 per share)

 

 

 

 

 

 

 

 

 

 

Share First Call A/c

Dr.

 

4,00,000

 

 

 

To Share Capital A/c

 

 

 

4,00,000

 

(Share First Call money due on 20,000 shares @ Rs 20 per share)

 

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

4,00,000

 

 

 

To Share First Call A/c

 

 

4,00,000

 

(Share First Call money received on 20,000 shares @ Rs 20 per

share)

 

 

 

 

 

 

 

 

 

 

Share Final Call A/c

Dr.

 

4,00,000

 

 

 

To Share Capital A/c

 

 

 

4,00,000

 

(Share Final Call money due on 20,000 shares @ Rs 20 per share)

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

4,00,000

 

 

 

To Share Final Call A/c

 

 

 

4,00,000

 

(Share Final Call money received on 20,000 shares @ Rs 20 per share)

 

 

 

 

 

 

 

 

 

 

 

Page No 65:

Question 6:

A limited company offered for subscription of 1,00,000 equity shares of Rs 10 each at a premium of Rs 2 per share. 2,00,000. 10% Preference shares of Rs 10 each at par.

The amount on share was payable as under :

 

 

Equity Shares

Preference Shares

On Application

Rs 3 per share

Rs 3 per share

On Allotment

Rs 5 per share

Rs 4 per share

 

(including a premium)

 

On First Call

Rs 4 per share

Rs 3 per share

 

All the shares were fully subscribed, called-up and paid.

Record these transactions in the journal and cash book of the company:

 

 

Answer:

Books of A Ltd.

 

Journal

 

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Equity Share Application A/c

Dr.

 

3,00,000

 

 

10% Preference Share Application A/c

Dr.

 

6,00,000

 

 

 

To Equity Share Capital A/c

 

 

3,00,000

 

 

To 10% Preference Share Capital A/c

 

 

 

6,00,000

 

(Application money transferred to Equity Share Capital )

 

 

 

 

 

 

 

 

 

 

Equity Share Allotment A/c

Dr.

 

5,00,000

 

 

10% Preference Share Allotment A/c

Dr.

 

8,00,000

 

 

 

To Equity Share Capital A/c

 

 

3,00,000

 

 

To Securities Premium A/c

 

 

2,00,000

 

 

To 10% Preference Share Allotment A/c

 

 

8,00,000

 

(Amount due on allotment)

 

 

 

 

 

 

 

 

 

 

Equity Share First and Final Call A/c

Dr.

 

4,00,000

 

 

10% Preference Share First and Final Call A/c

Dr.

 

6,00,000

 

 

 

To Equity Share Capital A/c

 

 

4,00,000

 

 

To 10% Preference Share Capital A/c

 

 

6,00,000

 

(Amount on First and Final call due)

 

 

 

 

 

 

 

 

 

 

 

Cash Book( Bank Column)

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

 

Equity Share Application

 

3,00,000

 

 

 

 

 

10% Preference Share Application

 

6,00,000

 

 

 

 

 

Equity Share Allotment

 

5,00,000

 

 

 

 

 

10% Preference Share Allotment

 

8,00,000

 

 

 

 

 

Equity Share First and Final Call

 

4,00,000

 

 Balance c/d

 

32,00,000

 

10% Preference Share First & Final Call

 

6,00,000

 

 

 

 

 

 

 

 

32,00,000

 

 

 

32,00,000

 

 

 

 

 

 

 

 

 

 

 



Page No 66:

Question 7:

Eastern Company Limited, having an authorised capital of Rs 10,00,000 in shares of Rs 10 each, issued 50,000 shares at a premium of Rs 3 per share payable as follows :

 

On Application

Rs 3 per share

On Allotment (including premium)

Rs 5 per share

On first call (due three months after allotment) and the balance as and when required.

 

Rs 3 per share

 

Applications were received for 60,000 shares and the directors allotted the shares as follows :

(a) Applicants for 40,000 shares received shares, in full.

(b) Applicants for 15,000 shares received an allotment of 8,000 shares.

(c) Applicants for 500 shares received 200 shares on allotment, 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:

Note: In order to solve this question, applicants of category C has been assumed as 5000  instead of 500 and allotment to the applicants of this category has been taken as 2000 in place of 200. 

Books of Eastern Company Limited

 

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Share Application A/c

Dr.

 

1,80,000

 

 

 

To Share Capital A/c

 

 

1,50,000

 

 

To Share Allotment A/c

 

 

30,000

 

(Share Application money for 50,000 shares transferred to Share Capital Account and the excess money transferred to Share Allotment Account)

 

 

 

 

 

 

 

 

 

Share Allotment A/c

Dr.

 

2,50,000

 

 

 

To Share Capital A/c

 

 

1,00,000

 

 

To Share Premium A/c

 

 

1,50,000

 

(Allotment money due on 50,000 share @ Rs 5 per share including Rs 3 security premium)

 

 

 

 

 

 

 

 

 

 

Share First Call A/c

Dr.

 

1,50,000

 

 

 

To Share Capital A/c

 

 

 

1,50,000

 

(First call due on 50,000 share @ Rs 3 per share)

 

 

 

 

 

 

 

 

 

 

 

Cash Book (Bank Column)

Dr.

 

 

 

 

 

 

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

 

Share Application

 

1,80,000

 

 

 

 

 

Share Allotment

 

2,20,000

 

Balance c/d

 

5,49,700

 

Share First Call

 

1,49,700

 

 

 

 

 

 

 

5,49,700

 

 

 

5,49,700

 

 

 

 

 

 

 

 

 

Eastern Company Limited

Balance Sheet

Particulars

Note No.

Amount 

(Rs)

I. Equity and Liabilities

 

 

1.Shareholders’ Funds

 

 

a. Share Capital

1

3,99,700

b. Reserves and Surplus

2

1,50,000

2.Non-Current Liabilities

 

 

3.Current Liabilities

 

 

Total

 

5,49,700

 

 

 

II. Assets

 

 

1.Non-Current Assets

 

 

2.Current Assets

 

 

a. Cash and Cash Equivalents

3

5,49,700

Total

 

5,49,700

 

 

 

NOTES TO ACCOUNTS

Note No.

Particulars

Amount  

(Rs)

1

Share Capital

 

 

Authorised Share Capital

 

 

1,00,000 shares of Rs 10 each

10,00,000

 

Issued Share Capital

 

 

 50,000 shares of Rs 10 each

5,00,000

 

Subscribed, Called up and Paid up Share Capital

 

 

 50,000 shares of Rs 10 each, Rs 8 called-up

4,00,000

 

 

Less: Calls-in-Arrears

     (300)

3,99,700

 

 

 

2

Reserves and Surplus

 

 

Securities Premium

1,50,000

 

 

 

3

Cash and Cash Equivalents

 

 

Cash at Bank

5,49,700

 

 

 

 

Page No 66:

Question 8:

Sumit Machine Ltd issued 50,000 shares of Rs 100 each at discount of 5%. The shares were payable Rs 25 on application, Rs 40 on allotment and Rs 30 on first and final call. The issue were fully subscribed and money were duly received except the final call on 400 shares. The discount was adjusted on allotment. Give journal entries and prepare balance sheet.

Answer:

Books of Sumit Machine Ltd.

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Bank A/c

Dr.

 

12,50,000

 

 

 

To Share Application A/c

 

 

12,50,000

 

(Share Application money received on application for 50,000 shares @ Rs 25 per share)

 

 

 

 

 

 

 

 

 

Share Application A/c

Dr.

 

12,50,000

 

 

 

To Share Capital A/c

 

 

12,50,000

 

(Share Application money of 50,000 shares transferred to Share Capital Account)

 

 

 

 

 

 

 

 

 

 

Share Allotment A/c

Dr.

 

20,00,000

 

 

Discount on Issue of Shares

Dr.

 

2,50,000

 

 

 

To Share Capital A/c

 

 

 

22,50,000

 

(Share Allotment money due on 50,000 shares @ Rs 40 each at discount of Rs 5)

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

20,00,000

 

 

 

To Share Allotment A/c

 

 

 

20,00,000

 

(Allotment money received for 50,000 shares @ Rs 40 per share)

 

 

 

 

 

 

 

 

 

 

Share First and Final Call A/c

Dr.

 

15,00,000

 

 

 

To Share Capital A/c

 

 

15,00,000

 

(Share First and Final call due on 50,000 shares @ Rs 30 per share)

 

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

14,88,000

 

 

Calls in Arrears A/c

Dr.

 

12,000

 

 

 

To Share First and Final Call A/c

 

 

15,00,000

 

(Share First and Final Call received except 400 shares)

 

 

 

 

 

 

 

 

 

 

Sumit Machine Ltd.

Balance Sheet

Particulars

Note No.

Amount 

(Rs)

I. Equity and Liabilities

 

 

1. Shareholders’ Funds

 

 

 a. Share Capital

1

49,88,000

2. Non-Current Liabilities

 

 

3. Current Liabilities

 

 

Total

 

49,88,000

II. Assets

 

 

1. Non-Current Assets

 

 

 a. Other Non-Current Assets

2

2,50,000

2. Current Assets

 

 

a. Cash and Cash Equivalents

3

47,38,000

Total

 

49,88,000

 

 

 

NOTES TO ACCOUNTS

Note No.

Particulars

Amount  

(Rs)

1

Share Capital

 

 

Authorised Share Capital

 

 

…….. shares of Rs 100 each

-

 

Issued Share Capital

 

 

 50,000 shares of Rs 100 each

50,00,000

 

Subscribed, Called-up and Paid-up Share Capital

 

 

 50,000 shares of Rs 100 each

50,00,000

 

 

Less: Calls-in-Arrears

    (12,000)

49,88,000

 

 

 

2

Other Non-Current Assets

 

 

Discount on Issue of Shares

2,50,000

 

 

 

3

Cash and Cash Equivalents

 

 

Cash at Bank

47,38,000

 

 

 

 

Page No 66:

Question 9:

Kumar Ltd purchases assets of Rs 6,30,000 from Bhanu Oil Ltd. Kumar Ltd. issued equity share of Rs 100 each fully paid in consideration. What journal entries will be made, if the share are issued, (a) at par, (b) at discount of 10 % and (c) at premium of 20%.

Answer:

Case (a)

Books of Kumar Ltd

 

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Sundry Assets A/c

Dr.

 

6,30,000

 

 

 

To Bhanu Oil Ltd

 

 

6,30,000

 

(Assets purchased from Bhanu Oil Ltd.)

 

 

 

 

 

 

 

 

(a)

Bhanu Oil Ltd

Dr.

 

6,30,000

 

 

 

To Share Capital

 

 

6,30,000

 

(6,300 shares issued at par to Bhanu Ltd.)

 

 

 

 

 

 

 

 

(b)

Bhanu Oil Ltd

Dr.

 

6,30,000

 

 

Discount on Issue of Share A/c

Dr.

 

70,000

 

 

 

To Share Capital A/c

 

 

7,00,000

 

(7,000 share issued at 10% discount)

 

 

 

 

 

 

 

 

(c)

Bhanu Oil Ltd

Dr.

 

6,30,000

 

 

 

To Share Capital A/c

 

 

5,25,000

 

 

To Securities Premium A/c

 

 

1,05,000

 

(5,250 share are issued at 20% premium)

 

 

 

 

 

 

 

 

             

 

Case (b)

 

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Sundry Assets A/c

Dr.

 

6,30,000

 

 

 

To Bhanu Oil Ltd

 

 

6,30,000

 

(Assets purchased from Bhanu Oil Ltd.)

 

 

 

 

 

 

 

 

 

Bhanu Oil Ltd

Dr.

 

6,30,000

 

 

Discount on Issue of Share A/c

Dr.

 

70,000

 

 

 

To Share Capital A/c

 

 

7,00,000

 

(7,000 share issued at 10% discount to Bhanu Ltd. in

consideration of assets purchased)

 

 

 

 

 

 

 

 

 

Case (c)

 

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Sundry Assets A/c

Dr.

 

6,30,000

 

 

 

To Bhanu Oil Ltd

 

 

6,30,000

 

(Assets purchased from Bhanu Oil Ltd.)

 

 

 

 

 

 

 

 

 

Bhanu Oil Ltd

Dr.

 

6,30,000

 

 

 

To Share Capital A/c

 

 

5,25,000

 

 

To Securities Premium A/c

 

 

1,05,000

 

(5,250 share are issued at 20% premium to Bhanu Ltd. in

consideration of assets purchased)

 

 

 

 

 

 

 

 

               

 

 

 

Page No 66:

Question 10:

Bansal Heavy machine Ltd purchased machine worth Rs 3,20,000 from Handa Trader. Payment was made as Rs 50,000 cash and remaining amount by issue of equity share of the face value of Rs 100 each fully paid at an issue price of Rs 90 each.

Give journal entries to record the above transaction.

Answer:

 

Book of Bansal Heavy Machine Ltd

 

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Machinery A/c

Dr.

 

3,20,000

 

 

 

To Cash A/c

 

 

50,000

 

 

To Handa Traders

 

 

2,70,000

 

(Machine purchased from Handa Traders paid Rs 50,000 in

cash immediately)

 

 

 

 

 

 

 

 

 

Handa Trader

Dr.

 

2,79,000

 

 

Discount on Issue of Shares A/c

Dr.

 

30,000

 

 

 

To Share Capital A/c

 

 

3,00,000

 

(3,000 share issued at Rs 90 face value of Rs 100 each to

Handa Traders in consideration of amount due to him for

machinery purchased)

 

 

 

 

 

 

 

 

 

             

 

Working Notes:-

1. Number of share issued

Page No 66:

Question 11:

Naman Ltd issued 20,000 shares of Rs 100 each, payable Rs 25 on application, Rs 30 on allotment , Rs 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 shares of Anubha and kumkum.

Give journal entries.

Answer:

Books of Naman Ltd

 

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Bank A/c

Dr.

 

5,00,000

 

 

 

To Share Application A/c

 

 

5,00,000

 

(Shares Application money received for 20,000 shares @ Rs 25 each)

 

 

 

 

 

 

 

 

 

Share Application A/c

Dr.

 

5,00,000

 

 

 

To Share Capital

 

 

5,00,000

 

(Share Application money of 20,000 shares @ Rs 25 each

transferred to Share Capital Account)

 

 

 

 

 

 

 

 

 

Share Allotment A/c

Dr.

 

6,00,000

 

 

 

To Share Capital A/c

 

 

 

6,00,000

 

(Share Allotment due on 20,000 shares @ Rs 30 each)

 

 

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

5,94,000

 

 

 

To Share Allotment A/c

 

 

 

5,94,000

 

(Allotment money received for 19,800 shares @ Rs 30 per share)

 

 

 

 

 

 

 

 

 

Share First Call A/c

Dr.

 

5,00,000

 

 

 

To Share Capital A/c

 

 

5,00,000

 

(Share First Call money due on 20,000 @ Rs 25 per share)

 

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

4,92,500

 

 

 

To Share First Call A/c

 

 

 

4,92,500

 

(Share First Call received @ Rs 25 per share for 19,700 shares)

 

 

 

 

 

 

 

 

 

Share Final Call A/c

Dr.

 

4,00,000

 

 

 

To Share Capital A/c

 

 

4,00,000

 

(Share Final Call money due on 20,000 shares @ 20 per share)

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

3,94,000

 

 

 

To Share final call A/c

 

 

3,94,000

 

(Share Final Call received @ Rs 20 per Share  for 19,700

shares and 300 shares failed to pay the call)

 

 

 

 

 

 

 

 

 

Share Capital A/c

Dr.

 

30,000

 

 

 

To Share Forfeiture A/c (200×25+100×55)

 

 

10,500

 

 

To Share Allotment (200×30)

 

 

 

6,000

 

 

To Share First Call A/c (300×25)

 

 

 

7,500

 

 

To Share Final Call A/c (300×20)

 

 

 

6,000

 

(300 Shares forfeited)

 

 

 

 

 

 

 

 

 

 

 

Alternatively this question can be solved by debiting Calls in Arrears Account

 

Books of Naman Ltd

 

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Bank A/c

Dr.

 

5,00,000

 

 

 

To Share Application A/c

 

 

 

5,00,000

 

(Share Application money received on application for 20,000 shares @ Rs 25 per share)

 

 

 

 

 

 

 

 

 

 

Share Application A/c

Dr.

 

5,00,000

 

 

 

To Share Capital A/c

 

 

 

5,00,000

 

(Share Application money for 20,000 shares @ Rs 25 per share

transferred to Share Capital Account)

 

 

 

 

 

 

 

 

 

 

Share Allotment A/c

Dr.

 

6,00,000

 

 

 

To Share Capital A/c

 

 

6,00,000

 

(Share Allotment money due on 20,000 shares @ Rs 30 per share)

 

 

 

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

5,94,000

 

 

Calls in Arrears A/c

Dr.

 

6,000

 

 

 

To Share Allotment A/c

 

 

6,00,000

 

(Allotment money received for 19,800 shares @ Rs 30 per

share and 200 shares failed to pay the Allotment)

 

 

 

 

 

 

 

 

 

 

 

 

Share First Call A/c

Dr.

 

5,00,000

 

 

 

To Share Capital A/c

 

 

5,00,000

 

(Share First Call money due on 20,000 shares @ Rs 25 per share)

 

 

 

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

4,92,500

 

 

Calls in Arrears A/c

Dr.

 

7,500

 

 

 

To Share First Call A/c

 

 

5,00,000

 

(Share First Call money for 19,700 shares @ Rs 25

each received except 300 shares)

 

 

 

 

 

 

 

 

 

Share Final Call A/c

Dr.

 

4,00,000

 

 

 

To Share Capital A/c

 

 

4,00,000

 

(Share Final Call money due on 20,000 shares @ Rs 20 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

3,94,000

 

 

Calls in Arreras A/c

Dr.

 

6,000

 

 

 

To Share final call A/c

 

 

4,00,000

 

(Share Final Call money received for 19,700 shares @ Rs 20 per share

except 300 shares)

 

 

 

 

 

 

 

 

 

Share Capital A/c

Dr.

 

30,000

 

 

 

To Share Forfeiture A/c (200×25+100×55)

 

 

10,500

 

 

To Calls in Arrears A/c

 

 

19,500

 

(300 Shares forfeited on account failed to pay the money due)

 

 

 

 

 

 

 

 

 

Working Note:

 

1. Forfeited Amount

 

Amount on application

(300 shares @ Rs 25 each)

=

7,500

Amount on allotment

(100 Shares @ Rs 30 each)

=

3,000

 

 

 

10,500

 

 



Page No 67:

Question 12:

Kishna Ltd issued 15,000 shares of Rs 100 each at a premium of Rs 10 per share, payable as follows:

 

On application

Rs 30

On allotment

Rs 50 (including premium)

On first and final call

Rs 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 of Rs 12 each.

 

Give journal entries in the books of the company.

 

Answer:

Books of Krishna Ltd

 

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Bank A/c

Dr.

 

4,50,000

 

 

 

To Share Application A/c

 

 

 

4,50,000

 

(Share Application money received for 15,000 shares @ Rs 30 per share)

 

 

 

 

 

 

 

 

 

Share Application A/c

Dr.

 

4,50,000

 

 

 

To Share Capital A/c

 

 

 

4,50,000

 

(Share Application money of 15,000 shares transferred to Share

Capital Account)

 

 

 

 

 

 

 

 

 

Share Allotment A/c

Dr.

 

7,50,000

 

 

 

To Share Capital A/c

 

 

6,00,000

 

 

To Securities Premium A/c

 

 

1,50,000

 

(Share Allotment money on 15,000 shares @ Rs 50 per share

including Rs 10 securities premium due)

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

7,42,500

 

 

 

To Share Allotment A/c

 

 

 

7,42,500

 

(Share Allotment received on 14,850 shares and 150 shares

failed to pay the money due)

 

 

 

 

 

 

 

 

 

Share First and Final Call A/c

Dr.

 

4,50,000

 

 

 

To Share Capital A/c

 

 

 

4,50,000

 

(Share First and Final Call for 15,000 shares @ Rs 30 per share due)

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

4,45,500

 

 

 

To Share First and Final Call A/c

 

 

4,45,500

 

(Share First and Final Call received for 14,850 shares @ Rs 30 per share and 150 shares failed to pay amount due)

 

 

 

 

 

 

 

 

 

Share Capital A/c (150×100)

Dr.

 

15,000

 

 

Share Premium A/c (150×10)

Dr.

 

1,500

 

 

 

To Share Allotment A/c (150×50)

 

 

7,500

 

 

To Share First and Final Call A/c (150×30)

 

 

4,500

 

 

To Share Forfeiture A/c (150×30)

 

 

4,500

 

(150 shares forfeited for non-payment of Share Allotment and Share

First and Final Call  )

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

18,000

 

 

 

To  Share Capital A/c

 

 

 

15,000

 

 

To Securities Premium A/c

 

 

 

3,000

 

(150 shares of Rs 100 each reissued @ Rs 120 to Neha)

 

 

 

 

 

 

 

 

 

 

Share Forfeiture A/c

Dr.

 

4,500

 

 

 

To Capital Reserve A/c

 

 

 

4,500

 

(Balance of Share Forfeiture Account transferred to Capital Reserve

Account)

 

 

 

 

 

 

 

 

 

 

Note: In the solution, the reissued price of Rs 12 has been assumed as Rs 120 per share.

 

Page No 67:

Question 13:

Arushi Computers Ltd issued 10,000 equity shares of Rs 100 each at 10% discount. The net amount payable as follows:

 

On application

Rs 20

On allotment

Rs 30 (Rs 40 – discount Rs 10 )

On first call

Rs 30

On final call

Rs 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 Rs 75 per shares.

 

Give Journal entries in the books of the company.

 

Answer:

Books of Arushi Computers Ltd.

 

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Bank A/c

Dr.

 

2,00,000

 

 

 

To Share Application A/c

 

 

 

2,00,000

 

(Share Application money received for 10,000 shares @ Rs 20 per share)

 

 

 

 

 

 

 

 

 

Share Application A/c

Dr.

 

2,00,000

 

 

 

To Share Capital A/c

 

 

2,00,000

 

(Share Application money for 10,000 shares transferred to Share

Capital Account)

 

 

 

 

 

 

 

 

 

Share Allotment A/c

Dr.

 

3,00,000

 

 

Discount on Issue of Shares A/c

Dr.

 

1,00,000

 

 

 

To Share Capital A/c

 

 

4,00,000

 

(Allotment money due on 10,000 shares @ Rs 30 per share

excluding discount Rs 10)

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

3,00,000

 

 

 

To Share Allotment A/c

 

 

3,00,000

 

(Share Allotment money received for 10,000 shares @ Rs 30 per

share)

 

 

 

 

 

 

 

 

 

Share First Call A/c

Dr.

 

3,00,000

 

 

 

To Share Capital A/c

 

 

3,00,000

 

(Share First Call money due on 10,000 shares @ Rs 30 per share)

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

3,00,000

 

 

 

To Share First Call A/c

 

 

3,00,000

 

(First Call money received for 10,000 shares @ Rs 30 per share)