Ajanta Company Limited having a normal capital of Rs 3,00,000, divided into shares of Rs 10 each offered for public subscription of 20,000 shares payable at Rs 2 on application; Rs 3 on allotment and the balance in two calls of Rs 2.50 each. Applications were received by the company for 24,000 shares. Applications for 20,000 shares were accepted in full and the shares allotted. Applications for the remaining shares were rejected and the application money was refunded. All moneys due were received with the exception of the final call on 600 shares which were forfeited after legal formalities were fulfilled. 400 shares of the forfeited shares were reissued at Rs 9 per share. Record necessary journal entries and prepare the balance Sheet showing the amount transferred to capital reserve and the balance in Share forfeiture account.
Answers
For Ajanta Company Limited the journal entries and the balance Sheet showing the amount transferred to capital reserve and the balance in Share forfeiture account are in the attachment below :
Concept :
Capital reserve :
Capital reserve refers to those amounts which are not regarded as free of distribution by way of dividend.
These reserves are created from non trading profits such as, forfeiture of shares. It is disclosed in the balance sheet under the heading reserve and surplus.
Forfeiture of shares :
If any shareholder fails to pay the amount due on allotment or any call within the specified period , the directors may cancel his shares and forfeit the received amount . This is known as forfeiture of shares.
Accounting entries on forfeiture of shares :
On forfeiture of shares 'Share capital A/c' is debited within the amount which has been called so far. Amount already paid on the shares is forfeited and credited to 'Share Forfeiture A/c'. Amount called on allotment but not paid is credited to calls in arrears account.
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