Alfa Limited invited applications for 4,00,000 of its equity shares of Rs 10 each on the following terms : Payable on application Rs 5 per share Payable on allotment Rs 3 per share Payable on first and final call Rs 2 per share Applications for 5,00,000 shares were received. It was decided : (a) to refuse allotment to the applicants for 20,000 shares; (b) to allot in full to applicants for 80,000 shares; (c) to allot the balance of the available shares’ pro-rata among the other applicants; and (d) to utilise excess application money in part as payment of allotment money. One applicant, whom shares had been allotted on pro-rata basis, did not pay the amount due on allotment and on the call, and his 400 shares were forfeited. The shares were reissued @ Rs 9 per share. Show the journal and prepare Cash book to record the above.
Answers
For Alfa Limited to record the above the journal and Cashbook entries are in the attachment below :
Concept :
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.
Re issue of shares :
Forfeited shares can be reissued by the company at any time as Board of Directors has power to reissue forfeited shares at terms which the board thinks fit. These shares may be issued at par, premium on loss.
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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.
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