A Co. invited applications for 5,000 equity shares of Rs. 10 each payable as follows: On application Rs. 3, On allotment Rs. 2, On first and final call Rs. 5. Applications were rec... A Co. invited applications for 5,000 equity shares of Rs. 10 each payable as follows: On application Rs. 3, On allotment Rs. 2, On first and final call Rs. 5. Applications were received for 11,000 shares. The directors decided the following allotment: A - 2,000 shares, B - 1,000 shares, C - 1,000 shares, D - 7,000 shares. The company can utilize the excess application money in allotment and calls. Required: Journal entries to record above transactions.
Understand the Problem
The question is asking to record journal entries for a company that invited applications for equity shares, highlighting the applications received, shares allotted, and the amounts payable. It involves accounting entries based on shares subscribed and the processing of excess application money.
Answer
1. Bank A/C Dr. 33,000 To Share Application A/C 33,000 2. Share Application A/C Dr. 33,000 To Share Capital A/C 20,000 To Share Allotment A/C 13,000 3. Bank A/C Dr. 20,000 To Share Allotment A/C 20,000 4. Bank A/C Dr. 50,000 To Share First and Final Call A/C 50,000 5. Share Application A/C Dr. 7,000 To Bank A/C 7,000
Answer for screen readers
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Bank A/C Dr. 33,000
To Share Application A/C 33,000 -
Share Application A/C Dr. 33,000
To Share Capital A/C 20,000
To Share Allotment A/C 13,000 -
Bank A/C Dr. 20,000
To Share Allotment A/C 20,000 -
Bank A/C Dr. 50,000
To Share First and Final Call A/C 50,000 -
Share Application A/C Dr. 7,000
To Bank A/C 7,000
Steps to Solve
- Record the Application Money Received
Calculate the total application money received from the applications.
Total applications = 11,000 shares
Application money per share = Rs. 3
Total application money = $11,000 \times 3 = Rs. 33,000$
Journal entry:
Bank A/C Dr. 33,000
To Share Application A/C 33,000
- Identify Allotment Based on Applications
The shares have been allotted as follows:
- A: 2,000 shares (Allotted 1,000)
- B: 1,000 shares (Allotted 1,000)
- C: 1,000 shares (Allotted 1,000)
- D: 7,000 shares (No shares allotted)
Calculate the total allotment money:
- Total shares allotted = $1,000 + 1,000 + 1,000 + 7,000 = 10,000$
- Allotment money per share = Rs. 2
- Total allotment money = $10,000 \times 2 = Rs. 20,000$
Journal entry:
Share Application A/C Dr. 33,000
To Share Capital A/C 20,000
To Share Allotment A/C 13,000
- Record the Allotment Money Receivable
Record the journal entry to recognize the allotment money due:
Journal entry:
Bank A/C Dr. 20,000
To Share Allotment A/C 20,000
- Record the First and Final Call Money
Calculate the first and final call money total:
- First and final call per share = Rs. 5
- Total money due for 10,000 shares = $10,000 \times 5 = Rs. 50,000$
Assuming all allotment share holders pay:
Journal entry:
Bank A/C Dr. 50,000
To Share First and Final Call A/C 50,000
- Handle the Excess Application Money
The excess amount from D (7,000 shares applied but not allotted) is handled in the allotment and calls. Hence:
Journal entry:
Share Application A/C Dr. 7,000
To Bank A/C 7,000
This entry closes the application account for the excess amount reported.
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Bank A/C Dr. 33,000
To Share Application A/C 33,000 -
Share Application A/C Dr. 33,000
To Share Capital A/C 20,000
To Share Allotment A/C 13,000 -
Bank A/C Dr. 20,000
To Share Allotment A/C 20,000 -
Bank A/C Dr. 50,000
To Share First and Final Call A/C 50,000 -
Share Application A/C Dr. 7,000
To Bank A/C 7,000
More Information
These entries reflect the financial transactions related to the issuance of equity shares, including application money received, shares allotted, and call money received, accounting for the oversubscription appropriately.
Tips
- Not calculating the total application money accurately.
- Failing to account for the excess application money properly, which should be applied to calls or returned.
- Miscalculating the total money due for the allotment and calls.
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