How to Solve Class 12th Accounts share capital

Pro Rata Allotment, Forfeiture, and Reissue of Shares

In this article, we will break down a comprehensive Class 12th Accounts problem on share allotment, forfeiture, and reissue step by step. If you’re preparing for exams, this blog will help you understand the journal entries in the books of SaReGaMa Ltd., ensuring clarity in every step.

Problem Overview

SaReGaMa Ltd. invited applications for issuing 80,000 equity shares of ₹100 each at a premium of ₹10. Here's the amount payable:

On Application: ₹30

On Allotment: ₹30 (including a premium of ₹10)

On First Call: ₹30

On Final Call: Balance

Additional Details:

Applications Received: 1,20,000 shares (oversubscribed by 40,000 shares).

Allotment Basis: Pro rata. Excess application money was adjusted against allotment.

Defaulters:

Dhwani: Allotted 1,600 shares; failed to pay allotment money.

Sargam: Applied for 6,000 shares; did not pay the first call money.

Forfeiture: Dhwani’s and Sargam’s shares were forfeited immediately after the first call.

Reissue: 2,000 of the forfeited shares (including all of Dhwani’s shares) were reissued to Tarang at ₹95 per share as ₹80 paid-up.

We will now journalize the transactions step by step in the books of SaReGaMa Ltd.

Step 1: Journal Entries for Share Issue and Application

a) Receipt of Share Application Money

Applications were received for 1,20,000 shares at ₹30 per share. Total application money = ₹36,00,000.

Journal Entry:

Bank A/c Dr.                      ₹36,00,000  

  To Share Application A/c          ₹36,00,000  

(Application money received for 1,20,000 shares at ₹30 each)

b) Transfer of Application Money on Allotment

Only 80,000 shares were allotted. The application money for these shares was transferred to the Share Capital Account, and the excess application money for the remaining 40,000 shares (₹12,00,000) was adjusted against the allotment.

Journal Entry:

Share Application A/c Dr.        ₹36,00,000  

  To Share Capital A/c             ₹24,00,000  

  To Share Allotment A/c           ₹12,00,000  

(Application money transferred for 80,000 shares; excess adjusted against allotment)

Step 2: Journal Entries for Allotment

a) Due Allotment Money

Allotment money per share was ₹30, including a ₹10 premium. For 80,000 shares, the total allotment amount = ₹24,00,000.

Journal Entry:

Share Allotment A/c Dr.          ₹24,00,000  

  To Share Capital A/c             ₹16,00,000  

  To Securities Premium A/c         ₹8,00,000  

(Allotment money due, including premium of ₹8,00,000)

b) Receipt of Allotment Money

The total allotment amount due was ₹24,00,000, but Dhwani (allotted 1,600 shares) failed to pay. The unpaid amount = ₹30 × 1,600 = ₹48,000.

Journal Entry:

Bank A/c Dr.                     ₹23,52,000  

Calls-in-Arrears A/c Dr.            ₹48,000  

  To Share Allotment A/c           ₹24,00,000  

(Receipt of allotment money; Dhwani failed to pay ₹48,000)

Step 3: Journal Entries for First Call

a) Due First Call Money

The first call amount was ₹30 per share. For 80,000 shares, the total amount due = ₹24,00,000.

Journal Entry:

Share First Call A/c Dr.         ₹24,00,000  

  To Share Capital A/c             ₹24,00,000  

(First call money due for 80,000 shares at ₹30 each)

b) Receipt of First Call Money

Sargam (applied for 6,000 shares) did not pay the first call money. Shares allotted to Sargam = 4,000 (on a pro rata basis). Unpaid first call = ₹30 × 4,000 = ₹1,20,000.

Journal Entry:

Bank A/c Dr.                     ₹22,80,000  

Calls-in-Arrears A/c Dr.          ₹1,20,000  

  To Share First Call A/c         ₹24,00,000  

(Receipt of first call money; Sargam failed to pay ₹1,20,000)

Step 4: Forfeiture of Shares

a) Forfeiture of Dhwani’s Shares

Dhwani’s 1,600 shares were forfeited for non-payment of allotment money. Amount paid by Dhwani = ₹30 (application money). Amount forfeited = ₹30 × 1,600 = ₹48,000.

Journal Entry:

Share Capital A/c Dr.           ₹1,60,000  

  To Calls-in-Arrears A/c          ₹48,000  

  To Share Forfeiture A/c          ₹48,000  

(Forfeiture of 1,600 shares held by Dhwani)

b) Forfeiture of Sargam’s Shares

Sargam’s 4,000 shares were forfeited for non-payment of first call money. Amount paid by Sargam = ₹60 (₹30 application + ₹30 allotment). Amount forfeited = ₹60 × 4,000 = ₹2,40,000.

Journal Entry:

Share Capital A/c Dr.           ₹4,00,000  

  To Calls-in-Arrears A/c         ₹1,20,000  

  To Share Forfeiture A/c         ₹2,40,000  

(Forfeiture of 4,000 shares held by Sargam)

Step 5: Reissue of Shares

2,000 forfeited shares (including Dhwani’s 1,600 shares) were reissued to Tarang at ₹95 per share as ₹80 paid-up.

Total reissue money = ₹95 × 2,000 = ₹1,90,000.

Share capital credited = ₹80 × 2,000 = ₹1,60,000.

Journal Entry for Reissue:

Bank A/c Dr.                    ₹1,90,000  

Share Forfeiture A/c Dr.           ₹40,000  

  To Share Capital A/c           ₹1,60,000  

  To Securities Premium A/c        ₹30,000  

(Reissue of 2,000 shares to Tarang at ₹95 each as ₹80 paid-up)

Step 6: Transfer of Forfeiture Amount to Capital Reserve

The forfeiture amount related to reissued shares is transferred to the Capital Reserve:

Forfeiture amount per share = ₹30 for Dhwani + ₹60 for Sargam = ₹90.

Total forfeiture for 2,000 shares = ₹90 × 2,000 = ₹1,80,000.

Amount already adjusted = ₹40,000. Remaining balance = ₹1,40,000.

Journal Entry:

Share Forfeiture A/c Dr.        ₹1,40,000  

  To Capital Reserve A/c         ₹1,40,000  

(Transfer of forfeiture amount to Capital Reserve)

Key Concepts Explained

1. Pro Rata Allotment: Shares are distributed proportionally when applications exceed the shares available.

2. Calls-in-Arrears: Represents unpaid amounts by shareholders.

3. Calls-in-Advance: Represents excess application money adjusted for future calls.

4. Forfeiture and Reissue: Forfeited shares can be reissued at a price lower or higher than their nominal value.