(a) Generic Pharma Ltd. invited applications for using 3,00,000 equity shares of Rs. 10 each at a premium of Rs. 6 per share. The amount was payable as follows :
on Application and Allotment - Rs. 4 per share (including premium of Rs. 2 per share)
on First and Final Call - Balance
Applications for 4,00,000 shares were received. Applications for 40,000 shares were rejected and the application money was refunded. Shares were allotted on pro-rata basis to the remaining applicants. Excess money received on applications was adjusted towards sums due on first and final call. Jain, an applicant for 3,600 shares failed to pay the first and final call. His shares were forfeited.
Pass necessary journal entries in the books of Generic Pharma Ltd. for the above transactions. Open 'calls in arrears account' and 'calls in advance account', wherever necessary.
OR
(b) Pass necessary journal entries for forfeiture and reissue of forfeited shares in the following cases :
(i) Diksha Ltd. forfeited 3,000 shares of Rs. 10 each for non-payment of final call of Rs. 2 per share. Out of these, 600 shares were reissued as fully paid up in such a way that Rs. 4,200 was transferred to capital reserve.
(ii) Ashoka Ltd. forfeited 2,000 equity shares of Rs. 100 each issued at a premium of 10% for non-payment of allotment money of Rs. 60 per share (including premium). The first and final call of Rs. 20 per share was not yet made. The forfeited shares were re-issued at Rs. 70 per share fully paid up.
(3 + 3 = 6)
(a) Generic Pharma Ltd. invited applications for using 3,00,000 equity shares of Rs. 10 each at a premium of Rs. 6 per share. The amount was payable as follows :
on Application and Allotment - Rs. 4 per share (including premium of Rs. 2 per share)
on First and Final Call - Balance
Applications for 4,00,000 shares were received. Applications for 40,000 shares were rejected and the application money was refunded. Shares were allotted on pro-rata basis to the remaining applicants. Excess money received on applications was adjusted towards sums due on first and final call. Jain, an applicant for 3,600 shares failed to pay the first and final call. His shares were forfeited.
Pass necessary journal entries in the books of Generic Pharma Ltd. for the above transactions. Open 'calls in arrears account' and 'calls in advance account', wherever necessary.
OR
(b) Pass necessary journal entries for forfeiture and reissue of forfeited shares in the following cases :
(i) Diksha Ltd. forfeited 3,000 shares of Rs. 10 each for non-payment of final call of Rs. 2 per share. Out of these, 600 shares were reissued as fully paid up in such a way that Rs. 4,200 was transferred to capital reserve.
(ii) Ashoka Ltd. forfeited 2,000 equity shares of Rs. 100 each issued at a premium of 10% for non-payment of allotment money of Rs. 60 per share (including premium). The first and final call of Rs. 20 per share was not yet made. The forfeited shares were re-issued at Rs. 70 per share fully paid up.
(3 + 3 = 6)
(a) In the books of Generic Pharma Ltd.
Applications received = 4,00,000 shares; Rejected = 40,000 (refunded); Pro-rata applicants = 3,60,000 shares for 3,00,000 shares issued (ratio 5 : 6).
| Particulars | Dr. (Rs.) | Cr. (Rs.) |
|---|---|---|
| Bank A/c Dr. (4,00,000 × Rs. 4) | 16,00,000 | |
| To Equity Share Application and Allotment A/c | 16,00,000 | |
| (Being application money received on 4,00,000 shares) | ||
| Equity Share Application and Allotment A/c Dr. (40,000 × Rs. 4) | 1,60,000 | |
| To Bank A/c | 1,60,000 | |
| (Being application money on 40,000 rejected shares refunded) | ||
| Equity Share Application and Allotment A/c Dr. | 14,40,000 | |
| To Equity Share Capital A/c (3,00,000 × Rs. 2) | 6,00,000 | |
| To Securities Premium A/c (3,00,000 × Rs. 2) | 6,00,000 | |
| To Calls-in-Advance A/c | 2,40,000 | |
| (Being application money on 3,00,000 allotted shares adjusted; excess of Rs. 2,40,000 carried to Calls-in-Advance) | ||
| Equity Share First and Final Call A/c Dr. (3,00,000 × Rs. 12) | 36,00,000 | |
| To Equity Share Capital A/c (3,00,000 × Rs. 8) | 24,00,000 | |
| To Securities Premium A/c (3,00,000 × Rs. 4) | 12,00,000 | |
| (Being first and final call made) | ||
| Bank A/c Dr. | 33,26,400 | |
| Calls-in-Advance A/c Dr. | 2,40,000 | |
| Calls-in-Arrears A/c Dr. | 33,600 | |
| To Equity Share First and Final Call A/c | 36,00,000 | |
| (Being call money received, excess adjusted, and call not received from Jain on his 3,000 allotted shares) | ||
| Equity Share Capital A/c Dr. (3,000 × Rs. 10) | 30,000 | |
| Securities Premium A/c Dr. (3,000 × Rs. 4) | 12,000 | |
| To Calls-in-Arrears A/c | 33,600 | |
| To Share Forfeiture A/c | 8,400 | |
| (Being 3,000 shares of Jain forfeited for non-payment of first and final call) |
Working (Jain): Applied 3,600 shares, allotted 3,000 (pro-rata 5:6). Money received from Jain = 3,600 × Rs. 4 = Rs. 14,400. Application-and-allotment due on 3,000 allotted shares = 3,000 × Rs. 4 = Rs. 12,000 (Rs. 6,000 capital + Rs. 6,000 premium — both received). Excess = Rs. 2,400, adjusted towards the first and final call. Call due = 3,000 × Rs. 12 = Rs. 36,000 (Rs. 24,000 capital + Rs. 12,000 premium); less excess Rs. 2,400 adjusted; Calls-in-Arrears = Rs. 33,600. On forfeiture, the premium actually received (Rs. 6,000 on application and allotment) is NOT cancelled; only the call premium of Rs. 12,000 — called but never paid — is reversed. The Rs. 2,400 excess is surplus over the already-fully-paid application-and-allotment premium, so it is capital money and forms part of Share Forfeiture. Share Forfeiture = capital received = Rs. 6,000 (application-allotment capital) + Rs. 2,400 (excess) = Rs. 8,400. Check: Rs. 30,000 + Rs. 12,000 = Rs. 33,600 + Rs. 8,400 = Rs. 42,000.
(b)(i) In the books of Diksha Ltd.
| Particulars | Dr. (Rs.) | Cr. (Rs.) |
|---|---|---|
| Equity Share Capital A/c Dr. (3,000 × Rs. 10) | 30,000 | |
| To Equity Share Final Call A/c (3,000 × Rs. 2) | 6,000 | |
| To Share Forfeiture A/c (3,000 × Rs. 8) | 24,000 | |
| (Being 3,000 shares forfeited for non-payment of final call of Rs. 2 per share) | ||
| Bank A/c Dr. (600 × Rs. 9) | 5,400 | |
| Share Forfeiture A/c Dr. (600 × Rs. 1) | 600 | |
| To Equity Share Capital A/c (600 × Rs. 10) | 6,000 | |
| (Being 600 forfeited shares reissued at Rs. 9 per share, fully paid up) | ||
| Share Forfeiture A/c Dr. | 4,200 | |
| To Capital Reserve A/c | 4,200 | |
| (Being balance of Share Forfeiture on reissued shares transferred to Capital Reserve) |
(b)(ii) In the books of Ashoka Ltd.
| Particulars | Dr. (Rs.) | Cr. (Rs.) |
|---|---|---|
| Equity Share Capital A/c Dr. (2,000 × Rs. 80) | 1,60,000 | |
| Securities Premium A/c Dr. (2,000 × Rs. 10) | 20,000 | |
| To Equity Share Allotment A/c | 1,20,000 | |
| To Share Forfeiture A/c | 60,000 | |
| (Being 2,000 shares forfeited for non-payment of allotment money of Rs. 60 per share incl. premium; call of Rs. 20 not yet made) | ||
| Bank A/c Dr. (2,000 × Rs. 70) | 1,40,000 | |
| Share Forfeiture A/c Dr. (2,000 × Rs. 30) | 60,000 | |
| To Equity Share Capital A/c (2,000 × Rs. 100) | 2,00,000 | |
| (Being 2,000 forfeited shares reissued at Rs. 70 per share, fully paid up; entire forfeiture amount used as discount, nothing left for Capital Reserve) |
Marking Scheme
- 1Part (a): 1 mark for correct pro-rata ratio (5:6) and application/allotment entries; 1 mark for correct call entry (Rs. 36,00,000); 1 mark for correct calls-in-advance (Rs. 2,40,000) and calls-in-arrears (Rs. 33,600) adjustment; 1 mark for correct forfeiture entry (Share Capital Rs. 30,000, Securities Premium Rs. 12,000, Share Forfeiture Rs. 8,400).
- 2Part (b)(i): 1.5 marks for correct forfeiture entry (Rs. 24,000 to Share Forfeiture) and 1.5 marks for correct reissue entries matching the given Rs. 4,200 capital reserve.
- 3Part (b)(ii): 1.5 marks for correct forfeiture entry reversing called-up capital and unpaid premium, and 1.5 marks for correct reissue entry at Rs. 70 with the forfeiture amount fully used as discount.
Hint
Track application-allotment-call stages carefully for pro-rata shares; on forfeiture, reverse only the called-up capital and any unpaid premium, crediting Share Forfeiture with the amount actually received.
Quick Oral Answer
In pro-rata allotment, excess application money is carried forward and adjusted against the call rather than refunded; on forfeiture, the full called-up share capital is reversed, but securities premium is reversed only to the extent it was called and not actually received, with the balance credited to Share Forfeiture Account for later use in reissue.
Analysis & Explanation
This is a demanding multi-stage share capital problem combining pro-rata allotment, calls-in-arrears/advance, and forfeiture-reissue mechanics.
Concept: In pro-rata allotment, applicants who paid for more shares than they are allotted have an 'excess' that is adjusted against future calls rather than refunded.
Key rule: On forfeiture, the ENTIRE called-up share capital is reversed, but Securities Premium is reversed only to the extent it was called and NOT actually received — premium once genuinely received can never be cancelled.
Exam trap: Students often forget that a partner's/applicant's own excess application money must first be netted off against their own unpaid call before arriving at the true 'calls in arrears' figure.
Real-world use: Pro-rata allotment and forfeiture rules protect both the company (which needs called-up capital) and investors (whose excess payments are never simply forfeited outright).
Note: The excess application money is surplus over the application-and-allotment (whose Rs. 2 premium was already fully received), so on forfeiture it is treated as capital received and forms part of Share Forfeiture; the entire call premium of Rs. 12,000 — called but never paid — is reversed to Securities Premium.
Common Mistakes
- 1Forgetting to compute the pro-rata ratio (5:6) correctly and instead allotting shares in the ratio of applications received to total applications instead of applications to shares issued.
- 2Reversing the entire securities premium on forfeiture, including the portion that was already actually received — only the called-but-unpaid premium should be reversed.
- 3Not adjusting the applicant's own excess application money against their own unpaid call before computing calls-in-arrears, leading to an incorrect forfeiture amount.
Interesting Facts
Securities Premium once genuinely received by a company can never be cancelled or reversed on forfeiture — only premium that was called but never actually paid can be written back, a rule rooted in Section 52 of the Companies Act, 2013.
The maximum discount at which forfeited shares can be reissued is limited to the amount already forfeited on those specific shares — a company can never reissue below that limit without breaching capital maintenance rules.
Pro-rata allotment with excess-money-adjustment is one of the most frequently tested share capital scenarios in CBSE board exams because it combines application, allotment, and call accounting into a single continuous problem.
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Frequently Asked Questions
Why is only part of the Securities Premium reversed on forfeiture in part (a)?
Because premium already actually received (the Rs. 2 per share collected with application and allotment, i.e. Rs. 6,000 on Jain's 3,000 shares) can never be cancelled; only the Rs. 4 per share call premium — called but never paid, i.e. Rs. 12,000 — is reversed.
How is the maximum permissible discount on reissue determined?
It cannot exceed the amount already forfeited (credited to Share Forfeiture Account) on those specific shares — in part (b)(ii), the entire Rs. 60,000 forfeited was used up as the Rs. 30 per share discount, leaving nothing for Capital Reserve.
What happens to any Share Forfeiture balance left after reissue?
Any balance remaining in the Share Forfeiture Account after reissue (relating to the reissued shares only) is transferred to Capital Reserve, as done for the 600 shares in part (b)(i).