A company 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... A company 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: Application Group A: 2,000 shares applied, 1,000 shares allotted; B: 1,000 applied and allotted; C: 1,000 applied and nil allotted; D: 7,000 applied and remaining shares allotted. Required: Journal entries to record above transactions. Read more

Steps to Solve

1. Calculate Total Applications and Allotment

   A Co. received applications for 11,000 shares, but only 5,000 are available for allotment. The allotment is done as follows:

   • Application Group A: 2,000 applied, 1,000 allotted.
   • Application Group B: 1,000 applied, 1,000 allotted.
   • Application Group C: 1,000 applied, 0 allotted.
   • Application Group D: 7,000 applied, remaining shares allotted (3,000 shares).

2. Record Application Money Received

   For applications received:

   • Total amount from Group A: $1,000 \times 3 = 3,000$
   • Total amount from Group B: $1,000 \times 3 = 3,000$
   • Total amount from Group C: $1,000 \times 3 = 3,000$
   • Total amount from Group D: $3,000 \times 3 = 9,000$

   Thus, total application money received is:

   $$ \text{Total Application Money} = 3,000 + 3,000 + 0 + 9,000 = 15,000 $$

   Journal entry:

   Bank A/c         Dr    15,000
      To Share Application A/c          15,000 
   

3. Record Allotment Money Received

   On allotment, each person is to pay Rs. 2 per share allotted:

   Total allotment money = $5,000 \times 2 = 10,000$

   Journal entry:

   Bank A/c         Dr    10,000
      To Share Allotment A/c             10,000 
   

4. Record Calls Made

   The first and final call of Rs. 5 must be paid by shareholders on 5,000 shares allotted. Total call money = $5,000 \times 5 = 25,000$.

   Journal entry:

   Bank A/c         Dr    25,000
      To Share First and Final Call A/c   25,000 
   

5. Utilize Excess Application Money

   According to the information provided, Group D's excess applications can be utilized because they failed to pay the first and final call.

   Journal entry for adjusting:

   Share Application A/c         Dr    3,000
      To Share Allotment A/c                       3,000 
   

Bank A/c                     Dr    15,000 
   To Share Application A/c              15,000 
  
Bank A/c                     Dr    10,000 
   To Share Allotment A/c                10,000 
   
Bank A/c                     Dr    25,000 
   To Share First and Final Call A/c   25,000 
  
Share Application A/c           Dr    3,000 
   To Share Allotment A/c                   3,000