Samacheer Kalvi Class 12 Accountancy Solutions Chapter 7 Company Accounts

Tamilnadu Samacheer Kalvi 12th Accountancy Solutions Chapter 7 Company Accounts

12th Accountancy Guide Company Accounts Text Book Back Questions and Answers

I Multiple Choice Questions

Choose The Correct Answer

Question 1. A preference share is one
(i) which carries preferential right with respect to payment of dividend at fixed rate
(ii) which carries preferential right with respect to payment of capital on winding up
(a) Only (i) is correct
(b) Only (ii) is correct
(c) Both (i) and (ii) are correct
(d) Both (i) and (ii) are incorrect
Answer: (c) Both (i) and (ii) are correct
In simple words: Preference shares are special because their owners get paid dividends first and also get their capital back first if the company closes down. They have advantages over common shares.

🎯 Exam Tip: Remember the two key 'preferential rights' associated with preference shares: dividend payment and capital repayment during winding up.

Question 2. That part of share capital which can be called up only on the winding up of a company is called:
(a) Authorised capital
(b) Called up capital
(c) Capital reserve
(d) Reserve capital
Answer: (d) Reserve capital
In simple words: Reserve capital is a part of the company's capital that can only be asked for when the company is closing down. It acts like a safety net for creditors during a company's end.

🎯 Exam Tip: Distinguish clearly between capital reserve (profits set aside for specific purposes) and reserve capital (uncalled capital for winding up).

Question 3. At the time of forfeiture, share capital account is debited with
(a) Face value
(b) Nominal value
(c) Paid up amount
(d) Called up amount
Answer: (d) Called up amount
In simple words: When shares are forfeited, the share capital account is reduced by the total amount the company asked the shareholder to pay up to that point, even if it wasn't fully paid. This ensures the accounting reflects the amount called, not just paid.

🎯 Exam Tip: Always debit the share capital account with the 'called-up' amount per forfeited share, not just the paid-up amount or face value.

Question 4. After the forfeited shares are reissued, the balance in the forfeited shares account should be transferred to
(a) General reserve account
(b) Capital reserve account
(c) Securities premium account
(d) Surplus account
Answer: (b) Capital reserve account
In simple words: When a company reissues forfeited shares, any profit made from this reissue is moved to the capital reserve account. This is because it is a profit from a capital activity, not from regular business operations.

🎯 Exam Tip: Profits on reissue of forfeited shares are capital profits and should always be transferred to the capital reserve, not to general reserves or surplus.

Question 5. The amount received over and above the par value is credited to
(a) Securities premium account
(b) Calls in advance account
(c) Share capital account
(d) Forfeited shares account
Answer: (a) Securities premium account
In simple words: When a company sells its shares for more money than their actual face value, that extra money is called a premium. This premium amount is put into a special account called the securities premium account.

🎯 Exam Tip: Securities premium is a capital receipt and cannot be used for distributing dividends; it's typically used for purposes like issuing bonus shares or writing off preliminary expenses.

Question 6. Which of the following statement is false?
(a) Issued capital can never be more than the authorised capital
(b) In case of under subscription, issued capital will be less than the subscription capital
(c) Reserve capital can be called at the time of winding up
(d) Paid up capital is part of called up capital
Answer: (b) In case of under subscription, issued capital will be less than the subscription capital
In simple words: If a company offers shares but people buy fewer shares than what was offered (under subscription), the 'issued capital' is what was offered, and the 'subscribed capital' is what people actually bought. So, subscribed capital will be less than issued capital, not the other way around.

🎯 Exam Tip: Always remember that issued capital is the amount of shares offered, and subscribed capital is the amount actually applied for by the public. In under-subscription, subscribed capital is less than issued capital.

Question 7. When shares are issued for purchase of assets, the amount should be credited to
(a) Vendors A/c
(b) Sundry assets A/c
(c) Share capital A/c
(d) Bank A/c
Answer: (c) Share capital A/c
In simple words: When a company buys things like land or buildings and pays for them by giving out shares instead of cash, the value of those shares goes into the 'Share Capital Account'. This shows that new ownership parts (shares) have been created to pay for the assets.

🎯 Exam Tip: When shares are issued for 'consideration other than cash', the share capital account is always credited to reflect the increase in the company's capital by issuing shares.

Question 8. Match the pair and identify the correct option
(1) Under subscription – (i) Amount prepaid for calls
(2) Over subscription – (ii) Subscription above the offered shares
(3) Calls in arrear – (iii) Subscription below the offered shares
(4) Calls in advance –(iv) Amount unpaid on calls
(a) (1)-(i), (2)-(ii), (3)-(iii), (4)-(iv)
(b) (1)-(iv), (2)-(iii), (3)-(ii), (4)-(i)
(c) (1)-(iii), (2)-(ii), (3)-(iv), (4)-(i)
(d) (1)-(ii), (2)-(iv), (3)-(i), (4)-(ii)
Answer: (c) (1)-(iii), (2)-(ii), (3)-(iv), (4)-(i)
In simple words: Under subscription means fewer shares were bought than offered. Over subscription means more shares were bought than offered. Calls in arrear is money not paid when asked, and calls in advance is money paid before it was asked.

🎯 Exam Tip: Clearly understanding these basic terms is crucial for journal entries and solving problems related to share capital issuance.

Question 9. If a share Rs 10 on the which Rs 8 has been paid up is forfeited. Minimum reissue price is
(a) Rs 10 per share
(b) Rs 8 per share
(c) Rs 5 per share
(d) Rs 2 per share
Answer: (d) Rs 2 per share
In simple words: If a share worth Rs 10 has already had Rs 8 paid on it before being forfeited, the company must reissue it for at least Rs 2. This is to make sure the total amount received on the share (Rs 8 already paid + reissue price) is not less than its face value of Rs 10.

🎯 Exam Tip: The minimum reissue price for a forfeited share is calculated by subtracting the amount already paid on the share from its face value. This ensures the company receives at least the face value in total.

Question 10. Supreme Ltd. forfeited 100 shares of Rs 10 each for non-payment of final call of Rs 2 per share. All these shares were re-issued at Rs 9 per share. What amount will be transferred to capital reserve account?
(a) Rs 700
(b) Rs 800
(c) Rs 900
(d) Rs 1,000
Answer: (a) Rs 700

🎯 Exam Tip: When calculating profit on reissue, remember that the maximum discount allowed on reissue cannot exceed the amount already forfeited on those shares. Any surplus from the forfeited amount after adjusting for the reissue discount is transferred to Capital Reserve.

II Very Short Answer Questions

Question 1. What is a share?
Answer: The total capital of a company is divided into many small units, each with a fixed value. These small units are called shares. When you buy a share, you own a tiny part of the company. There are mainly two types of shares:
1. Preference shares
2. Equity shares
In simple words: A share is a small piece of a company's total money. If you own shares, you own a part of that company.

🎯 Exam Tip: Always define a share as a 'unit of capital' and briefly mention its types (preference and equity) for a complete answer.

Question 2. What is Over-Subscription?
Answer: Over-subscription happens when a company offers a certain number of shares to the public, but the public applies to buy more shares than the company actually offered. This shows that the shares are very popular. For example, if a company offers 100 shares but gets requests for 150 shares, it is over-subscribed.
In simple words: Over-subscription means more people want to buy a company's shares than the number of shares available to sell.

🎯 Exam Tip: In cases of over-subscription, companies typically handle excess applications by either rejecting some applications or allotting shares on a pro-rata basis.

Question 3. What is meant by calls in arrears?
Answer: Calls in arrears refer to the amount of money that a company has asked its shareholders to pay on their shares, but the shareholders have not yet paid it. This unpaid amount can be from the initial allotment payment or from subsequent calls. This is a liability for the shareholder and an asset for the company.
In simple words: Calls in arrears is money a company asked its share owners to pay, but the owners have not paid it yet.

🎯 Exam Tip: Calls in arrears is typically shown as a deduction from 'called-up capital' on the liabilities side of the balance sheet.

Question 4. Write a short note on the securities premium account.
Answer: A securities premium account is where a company keeps the extra money it gets when it sells shares for more than their face value. For example, if a share is worth Rs 10 but is sold for Rs 12, the extra Rs 2 goes into this account. This amount is seen as a capital profit and cannot be used for just any purpose, like paying regular dividends. It is shown as a separate head under 'reserves and surplus' in the Note to Account to the balance sheet.
In simple words: This account holds the extra money a company gets when it sells shares for more than their original price. This extra money is a special kind of profit.

🎯 Exam Tip: Always remember that the securities premium amount is a capital receipt and has specific permitted uses, such as issuing fully paid bonus shares or writing off preliminary expenses.

Question 5. Why are the shares forfeited?
Answer: Shares are forfeited by a company when a shareholder fails to pay the amount due on the shares, such as allotment money or call money, even after being asked to pay. Forfeiting shares means the company cancels the share allotment and takes back ownership of those shares. This action also means that any money the shareholder had already paid on those shares is lost to them and kept by the company.
In simple words: Shares are taken back by the company if the owner does not pay the money they promised for them. The money already paid is also lost.

🎯 Exam Tip: Forfeiture of shares results in the cancellation of allotment and the reduction of the company's paid-up share capital, and the company retains the amounts already paid by the defaulting shareholder.

III Short Answer Questions

Question 1. State the differences between preference shares and equity shares.
Answer: The main differences between preference shares and equity shares are as follows:
(i) Preference shares
Preference shares give their owners certain special rights over equity shareholders. These include:
• Preference towards the payment of dividend at a fixed rate during the lifetime of the company. This means preference shareholders get their dividends first, and at a set percentage.
• Preference towards the repayment of capital on winding up of the company. If the company closes, preference shareholders get their initial investment back before equity shareholders.
(ii) Equity shares
Equity shares are ordinary shares that do not come with the special rights that preference shares have. These shareholders usually do not have a fixed dividend rate; instead, their dividends depend on the company's profits. This means if the company earns more, they might get more, but if it earns less, they might get less or nothing. Also, when a company closes, equity shareholders are paid only after all other debts and preference shareholders have been paid. Equity shares are also known as common shares.
In simple words: Preference shares get fixed payments first and their money back first if the company closes. Equity shares do not get fixed payments and get their money back last, but they can earn more if the company does very well.

🎯 Exam Tip: Highlight the fixed dividend and priority in capital repayment for preference shares, and variable dividends and residual claim for equity shares as key distinguishing points.

Question 2. Write a brief note on calls in advance.
Answer: Calls in advance happen when a shareholder pays more money than what the company has actually asked for on their shares. This extra money might be paid during the application, allotment, or call stages. This amount is not yet due from the company's side but has been received early. Companies can either return this excess amount or keep it and use it to cover future payments that the shareholder will owe. If the company decides to keep it, this extra amount is recorded in a special account called a "Calls-in-Advance Account". This is a liability for the company until the actual call is made.
In simple words: Calls in advance is money paid by a shareholder before the company asks for it. The company can keep it for future payments or give it back.

🎯 Exam Tip: Calls-in-advance is a liability for the company and is shown separately on the balance sheet. No interest is payable on calls-in-advance unless specified in the Articles of Association.

Question 3. What is a reissue of forfeited shares?
Answer: Reissue of forfeited shares means that a company sells shares again that it had previously taken back (forfeited) from a shareholder who failed to pay for them. The company can sell these forfeited shares to new or existing investors at any price it chooses. However, the price for reissuing these shares cannot be less than the amount that was not paid on the original shares. If the shares are reissued for less than their original face value, the difference (loss) is taken from the "Forfeited Shares Account." If they are reissued for more than their face value (at a premium), that extra amount (premium) is credited to the "Securities Premium Account."
In simple words: Reissue means selling back the shares that a company had taken away from a shareholder. The company can sell them at any price, but not so low that the total money received is less than the original share price.

🎯 Exam Tip: When reissuing forfeited shares, the company must ensure that the total amount received (paid-up amount plus reissue price) is at least the nominal (face) value of the share.

Question 4. Write a short note on
1. Authorized capital
2. Reserve capital
Answer:
1. Authorized Capital: According to Section 2(8) of the Companies Act, this refers to the maximum amount of share capital that a company is allowed to issue to its shareholders. This limit is set in the company's Memorandum of Association. A company cannot issue shares worth more than its authorized capital. This amount represents the largest capital base a company can have.
2. Reserve Capital: As per Section 65 of the Companies Act 2013, only companies that convert from unlimited to limited status, and have a share capital, can create reserve capital. This is a special part of the company's subscribed capital that is kept aside and can only be asked for (called up) when the company is being closed down or wound up. It serves as a safeguard for the company's creditors during its dissolution.
In simple words: Authorized capital is the biggest amount of money a company is allowed to get from selling shares. Reserve capital is a part of that money saved only for when the company closes down.

🎯 Exam Tip: It is crucial to distinguish authorized capital (maximum a company can issue) from issued, subscribed, and paid-up capital. Reserve capital is a specific part of uncalled capital, available only at winding up, and is different from capital reserve.

Question 5. What is meant by the issue of shares for consideration other than cash?
Answer: Issue of shares for consideration other than cash means that a company gives out shares not in exchange for money, but in exchange for something else valuable. This usually happens when the company buys assets like land, buildings, or machinery, or takes over another business. Instead of paying cash for these purchases, the company issues its shares to the seller. The value of these shares covers the cost of the assets received. This method is common when a company wants to conserve its cash or when the seller prefers to become a shareholder in the purchasing company. This is also called issue of shares to vendors or promoters.

🎯 Exam Tip: When shares are issued for non-cash consideration, ensure the asset account is debited, the vendor account is credited, and then the vendor account is debited while the share capital (and securities premium, if applicable) accounts are credited.

IV Exercises

Question 1. Progress Ltd. issued 50,000 ordinary shares of Rs 10 each, payable Rs 2 on the application, Rs 4 on allotment Rs 2 on first call and Rs 2 on final call. All the shares are subscribed and the amount was duly received. Pass journal entries.
Answer:

🎯 Exam Tip: For problems with full subscription and receipt, remember the standard two-entry system for each stage (application, allotment, calls): one for 'due' (Share Application/Allotment/Call A/c Dr. to Share Capital A/c) and one for 'receipt' (Bank A/c Dr. to Share Application/Allotment/Call A/c).

Under Subscription

Question 2. Sampath company issued 25,000 shares at Rs 10 per share payable Rs 3 on the application, Rs 4 on allotment; Rs 3 on first and final call. The public subscribed for 24,000 shares. The directors allotted all the 24,000 shares and received the money duly. Pass necessary journal entries.
Answer:

🎯 Exam Tip: In under-subscription scenarios, all journal entries for application, allotment, and calls should be passed for the actual number of shares subscribed and allotted, not the number of shares originally offered.

Over Subscription

Question 3. Saranya Ltd. issued 20,000 equity shares of Rs 10 each to the public at par. The details of the amount payable on the shares are as follows: On application – Rs 3 per share On allotment – Rs 4 per share On first and final call – Rs 3 per share Application money was received on 30,000 shares. Excess application money was refunded immediately. Pass journal entries are as follows:
Answer:

🎯 Exam Tip: In over-subscription, always first record the total application money received, then adjust for the issued capital and refund any excess application money not used for allotment or calls-in-advance.

Question 4. Gaja Ltd issued 40,000 shares of Rs 10 each of the public payable Rs 2 on the application, Rs 5 on the allotment, and Rs 3 on the first and final call. The application was received for 50,000 shares. The Directors decided to allot 40,000 shares on a pro-rata basis and a surplus of application money was utilized for allotment. Pass journal entries assuming that the amount due was received.
Answer:

🎯 Exam Tip: When dealing with pro-rata allotment, remember to adjust the excess application money towards the allotment amount. The amount actually received for allotment will be reduced by this adjustment.

Question 5. Lalitha Ltd. offered 30,000 equity shares Rs 10 each to the public payable Rs 2 per share on the application, Rs 3 on share allotment, and the balance when required. Applications for 50,0 shares were received on which directors allotted as: Applicants for 10,000 shares Full Applicants for 35,000 shares 20,000 shares (excess money will be utilized for allotment Applicants for 5,000 shares Nil All the money due was received. Pass journal entries upto the receipt of allotment.
Answer:

🎯 Exam Tip: When there's a mix of full allotment, pro-rata allotment, and rejections, separate journal entries are needed for each category to accurately reflect the transfer of application money to share capital, adjustment to allotment, and refunds.

Calls In Advance

Question 6. Das Ltd, offered 50,000 equity shares of Rs 10 each to the public payable as follows: On applications were Rs 4; on allotment Rs 3; on first call Rs 1 and on second and final call Rs 2. Applications were received for 1,00,000 shares. All the applicants were allotted 1 share for every two shares applied. Excess application money was used for the amount due on allotment and call. Pass necessary journal entries.
Answer:

🎯 Exam Tip: In cases of over-subscription with pro-rata allotment and adjustment of excess application money towards calls, ensure you correctly calculate the amount adjusted to each subsequent call. The Bank A/c will only be debited for the remaining balance after adjustment.

Question 7. Anjali Flour Ltd. with a registered capital of Rs. 4,00,000 in equity shares of Rs. 10 each, issued 30,0 of such shares; payable 2 per share on the application, 5 per share on the allotment, and 3 shares on the first call. The issue was duly subscribed. All the money payable was duly received but on the allotment, one shareholder paid the entire balance on his holding of 500 shares. Give journal entries to record the I transactions.
Answer: The journal entries are shown in the table below. Companies must record all financial transactions accurately to maintain proper accounting records.
In simple words: This question asks us to record all the financial dealings in the company's journal up to the first call. It includes receiving money for shares and handling an advance payment from a shareholder.

🎯 Exam Tip: Always remember to pass entries for both the 'due' amount and the 'received' amount for each call, and handle advance payments correctly.

Question 8. Muthu Ltd. issued 50,000 shares of Rs. 10 each payable as follows; 2 on the application; 4 on allotment; 4 on first and final, call. All money payable was duly received except one shareholder holding 1,000 shares failed to pay the call money. Pass the necessary journal entries for calls by using calls in the arear account.
Answer: The journal entries for calls, including the calls in arrears, are presented in the following table. Maintaining accurate records of unpaid calls is essential for a company's financial transparency.
In simple words: We need to record the money due for shares and the money actually received. Since one shareholder did not pay, we record that as 'calls in arrears'.

Answer: Calls in arrear: Rs. 4,000
In simple words: The unpaid amount from the shareholder is recorded as Rs. 4,000. This shows money that was expected but not received.

🎯 Exam Tip: Always separate the entries for 'calls due' and 'cash received for calls', and clearly show any 'calls in arrears' in the cash receipt entry.

Question 9. Arjun was holding 1,000 shares Rs. 10 each of Vanavill Electronics Ltd, issued at par. He paid 3 on the application, Rs. 4 on the allotment but could not pay the first and final call of Rs. 3. The directors forfeited the shares for nonpayment of call money. Give Journal entry for forfeiture of shares.
Answer: The journal entry for the forfeiture of shares is provided below. Share forfeiture occurs when a shareholder fails to meet their payment obligations, leading to the cancellation of their shares by the company.
In simple words: Arjun did not pay his last share payment. So, the company took back his shares. We need to write down this action in the company's books.

Answer: Forfeited shares account: Rs. 7,000
In simple words: The total value of shares taken back is Rs. 10,000. From this, Rs. 3,000 was the unpaid call, and Rs. 7,000 is the amount kept by the company in the forfeited shares account.

🎯 Exam Tip: When recording share forfeiture, always debit Share Capital with the called-up amount per share and credit Forfeited Shares Account with the amount actually paid by the shareholder.

Question 10. Lakshmi was holding 50 shares of Rs. 10 each on which he paid 2 on application but could not pay 4 on the allotment and 2 on first call. Directors forfeited the shares after the first call. Give journal entry for recording the forfeiture of shares.
Answer: The journal entry for the forfeiture of Lakshmi's shares is shown in the table. Forfeiting shares is a legal process that allows companies to reclaim ownership of shares when payments are not made as per the agreed terms.
In simple words: Lakshmi did not pay all the money for her shares. So, the company took back her 50 shares. We need to write down this action in the company's accounting books.

Answer: Forfeited shares account: Rs. 100
In simple words: The company debits the share capital for Rs. 400 (Rs. 8 called up per share for 50 shares). Then, it credits the unpaid first call (Rs. 100), unpaid allotment (Rs. 200), and the amount paid by Lakshmi to the forfeited shares account (Rs. 100).

🎯 Exam Tip: When the called-up amount is not the full face value, ensure Share Capital is debited only for the amount called up on the forfeited shares, not the full face value.

Question 11. Goutham Ltd. forfeited 500 equity shares of Rs. 10 each issued at par held by Ragav for nonpayment of the final call of Rs. 2 per share. The shares were forfeited and reissued to Madhan at 8 per share. Show the journal entries for forfeiture and reissue.
Answer: The journal entries for both the forfeiture and subsequent reissue of shares are detailed in the table below. Reissuing forfeited shares allows a company to recover funds and brings new investors into the company.
In simple words: Ragav didn't pay the last Rs. 2 for his 500 shares, so Goutham Ltd. took them back. Then, the company sold these shares again to Madhan for Rs. 8 each. We need to record both taking back the shares and selling them again.

Answer: Capital reserve account: Rs. 3,000
In simple words: First, the shares are taken back by debiting share capital and crediting the unpaid call and the forfeited shares account. Then, when shares are reissued, the bank is debited for the money received, and any discount on reissue is debited to the forfeited shares account. Finally, the balance in the forfeited shares account (profit) is moved to capital reserve.

🎯 Exam Tip: Remember to calculate the profit on reissue by subtracting the discount allowed on reissue from the amount originally forfeited on those reissued shares, then transfer this profit to Capital Reserve.

Question 12. Nivetha Ltd. forfeited 1,000 equity shares of Rs. 10 each for non-payment of call of Rs. 4 per share. Of these 800 shares were reissued @ 7 per share. Pass journal entries for forfeiture and reissue?
Answer: The journal entries for the forfeiture of 1,000 shares and the subsequent reissue of 800 shares are provided in the table. Understanding these entries is crucial for accurate company accounting.
In simple words: Nivetha Ltd. took back 1,000 shares because a payment of Rs. 4 per share was not made. Then, 800 of these shares were sold again for Rs. 7 each. We need to write down these two steps.

Answer: Capital reserve account: Rs. 2,400
In simple words: The company first debits Share Capital for the full called-up amount, then credits the unpaid call and the forfeited shares account. For reissue, it debits the bank for cash received and the forfeited shares account for any discount, crediting Share Capital. Finally, any leftover money in the forfeited shares account from the reissued shares is moved to the Capital Reserve.

🎯 Exam Tip: When reissuing forfeited shares, the maximum discount allowed is the amount originally forfeited on those shares. Any profit from reissue should be transferred to Capital Reserve.

Question 13. Nathiya Textiles Ltd. forfeited 100 shares of Rs. 10 each, Rs. 8 called up, on which Mayuri had paid application and allotment money of 6 per share. Of these 75 shares were reissued to soundayya by receiving 1 per share. Pass journal entries for forfeiture and reissue?
Answer: The journal entries for the forfeiture of 100 shares and the reissue of 75 shares are shown in the table below. Properly recording these events is vital for maintaining accurate company accounts.
In simple words: Nathiya Textiles Ltd. took back 100 shares from Mayuri because she didn't pay the full amount (only paid Rs. 6 of the Rs. 8 called up). Then, 75 of these shares were sold again to Soundayya for Rs. 1 each. We need to write down both actions.

Answer: Capital reserve account Rs. 375.
In simple words: The entries show the forfeiture of shares where Share Capital is debited for the called-up amount, and unpaid calls and the amount paid are credited. For reissue, the bank receives cash, any discount is debited to forfeited shares, and Share Capital is credited. Finally, the profit from reissued shares is moved to Capital Reserve.

🎯 Exam Tip: Remember to calculate the amount to be transferred to Capital Reserve based ONLY on the shares that were actually reissued, not the total forfeited shares.

Question 14. Simon Ltd issued 50,000 equity shares of Rs. 10 each at par payable on-application 1 per share, on allotment 5 per share, on first call 2 per share, and on second and final call 2 per share. The issue was fully subscribed and all the amounts were duly received with exception of 2,000 shares held by chezhian, who failed to pay the second and final call. His shares were forfeited and reissued to Elango at 8 per share. Journalise the above transactions?
Answer: The journal entries for all the transactions, including share issue, calls, forfeiture, and reissue, are presented in the following table. Proper journal entries are fundamental for accurate financial record-keeping.
In simple words: Simon Ltd. sold 50,000 shares. Everyone paid except one person, Chezhian, who didn't pay the last Rs. 2 on 2,000 shares. So, his shares were taken back and then sold again to Elango for Rs. 8 each. We need to record all these steps in the company's journal.

Answer: Capital reserve account: Rs. 12,000
In simple words: This solution records all steps: collecting money from share applications and calls, taking back shares from Chezhian for not paying the last call, selling those shares again to Elango, and finally moving any profit from this sale to a special reserve account.

🎯 Exam Tip: When shares are reissued at a discount, ensure the discount does not exceed the amount originally received (and forfeited) on those shares. Any excess of forfeited amount over the reissue discount is a capital profit and is transferred to Capital Reserve.

Question 15. Kanchana Ltd. issued 50,000 shares Rs. 10 each payable as under? On application Rs. 1 On allotment Rs. 5 On first call Rs. 2 On final call Rs. 2 Applications were received for 70,000 shares. Applications for 8,000 shares were rejected and allotment was made proportionately towards the remaining applications. The directories made both the calls and all the amounts were received except the final call on 1,500 shares which were subsequently forfeited. Later 1.200 forfeited shares were reissued by receiving 8 per share. Give journal entries.
Answer: The calculations and journal entries for the share issue, calls, forfeiture, and reissue are provided in the following sections. This complex scenario requires careful accounting to ensure all transactions are accurately reflected in the company's books.
In simple words: Kanchana Ltd. wanted to sell 50,000 shares but got applications for more (70,000). They rejected 8,000 and adjusted the rest. All payments were made except for the final call on 1,500 shares, which were then taken back. Out of these, 1,200 were sold again for Rs. 8 each. We need to write down all these financial events.

Application money received (70,000 × Rs. 1) = Rs. 70,000
Actual amount due (50,000 × Rs. 1) = Rs. 50,000
Less: Refund on rejected Application(8000×Rs1) = Rs. 8,000
Excess adjusted towards allotment = Rs. 12,000

Working Notes

Amount received per share = Rs. 8
Amount used on reissue = Rs. 2
Profit on reissue = Rs. 6
Profit on reissue × No.of. shares reissued = Rs. 6 x 1,200 = Rs. 7,200

Answer: Capital reserve account: Rs. 7,200
In simple words: First, Kanchana Ltd. took applications for 70,000 shares but could only sell 50,000. They refunded some money and adjusted the rest. Then, they took back 1,500 shares because of unpaid calls. Out of these, 1,200 were sold again. The profit from this resale, Rs. 7,200, was put into a special reserve.

🎯 Exam Tip: When dealing with oversubscription and pro-rata allotment, always remember to adjust excess application money towards allotment and then calls, or refund if not needed.

Question 16. Viswanath Furniture Ltd. invited applications for 20,000 shares of Rs. 10 each at a premium of 2 per share payable? 2 On application 5 (including premium) on the allotment 5 On the first and final call There were oversubscription and applications were received for 30,000 shares and the excess applications were rejected by the directors. Pass the journal entries.
Answer: The journal entries for the issue of shares with premium and handling of oversubscription are detailed in the following table. Correctly accounting for share premiums and excess applications is crucial for compliance.
In simple words: Viswanath Furniture Ltd. wanted to sell 20,000 shares at Rs. 10 each, plus an extra Rs. 2 as premium. They received applications for 30,000 shares but rejected the extra 10,000 applications. We need to write down all the financial records for receiving application money, allotting shares, and collecting the remaining payments.

Application money received (30,000 × Rs.2) = Rs. 60,000
Less: Actual application money due (20,000 × Rs.2) = Rs. 40,000
Refund on rejected application (10,000 × Rs.2) = Rs. 20,000

🎯 Exam Tip: When shares are issued at a premium, always credit the Securities Premium Account with the premium amount received, separate from the share capital.

Question 17. United Industries Ltd. issued shares of Rs. 10 each at 10% premium payable 3 on the application, 4 on the allotment (including premium), 2 on the first call, and 2 on the final call. Journalise the transactions relating to forfeiture of shares for the following situations: Manoj who holds 250 shares failed to pay the second and final call and his shares were forfeited. Manoj who holds 250 shares field to pay the allotment money and first call and second and final call and his shares were forfeited. Manoj who holds 250 shares failed to pay the allotment money and first call money and his shares were forfeited after the first call.
Answer: The journal entries for the forfeiture of Manoj's shares under different scenarios are presented in the following table. Each scenario illustrates how share capital and premium accounts are treated during forfeiture.
In simple words: United Industries Ltd. sold shares with an extra fee (premium). Manoj, who bought 250 shares, failed to make payments in three different situations. We need to record how the company takes back his shares for each situation, noting what he paid and what he didn't pay.

Answer: Forfeited shares account: (i) Rs. 2,000; (ii) Rs. 750; (iii) Rs. 750
In simple words: The first scenario forfeits shares for unpaid final call. The second forfeits for unpaid allotment and all calls, including reversing the premium if not received. The third also forfeits for unpaid allotment and first call, reversing premium if not received. The forfeited shares account shows the amount kept by the company in each case.

🎯 Exam Tip: When shares issued at a premium are forfeited, remember that the securities premium account is debited only if the premium amount has not yet been received. If the premium was already received, it remains in the premium account.

Question 18. Kasthuri Ltd. had allotted 20,000 shares to applicants of 30,000 shares on a pro-rata basis. The amount payable was 1 on the application, Rs. 5 on the allotment (including a premium of 2 each), and 2 on the first call and 2 on final calls, Subin, a shareholder failed to pay the first call and final call on his 500 shares. All the shares were forfeited and out of the 400 shares were re-issued @ Rs. 8 per share. Pass necessary journal entries.
Answer: The calculations and journal entries for this complex scenario involving pro-rata allotment, forfeiture, and reissue are provided below. Accurately recording these transactions is essential for maintaining proper financial statements.
In simple words: Kasthuri Ltd. sold 20,000 shares, but many people wanted them (30,000 applications), so they adjusted the allotments. One shareholder, Subin, did not pay his first and final calls on 500 shares. So, his shares were taken back. Later, 400 of these shares were sold again for Rs. 8 each. We need to record all these steps.

Application money received (30,000 × Rs. 1) = Rs. 30,000
Less: amount due on application = Rs. 20,000
Excess adjusted towards allotment = Rs. 10,000

Working Notes

Profit on forfeiture = 6
Less on reissue = 2
Profit on reissue = 4 x No.of. shares reissued
(4 x 400) = Rs. 1,600

Answer: Capital reserve account: Rs. 1,600
In simple words: The entries show how applications were handled (some money adjusted, some shares taken back). Then, 400 of those shares were sold again at a small loss, but the company still made a profit of Rs. 1,600 from this entire process, which was moved to a special reserve.

🎯 Exam Tip: When dealing with pro-rata allotment, remember to carefully calculate the amount of application money to be adjusted towards allotment and subsequent calls.

Question 19. Vairam Ltd. issued 60,000 shares of Rs. 10 each at a premium of Rs. 2 per share payable as follows: On application Rs.6, On allotment Rs.4 (including premium), On the first and final call Rs.2. The issue was fully subscribed and the amount due was received except Saritha to whom 1,000 shares were allotted who failed to pay the allotment money and first and final call money. Her shares were forfeited. All the forfeited shares were reissued to Parimala at Rs. 7 per share. Journalise the above transactions?
Answer: