Excel Computer Ltd. makes an issue of 50,000 shares of Rs. 10 each at 20% premium to the public. The amount is payable as follows:
On application: Rs. 3
On allotment: Rs. 4 (including premium)
On first and final call: Balance (3 + 2)
Allotment was made to all applicants in full. A shareholder holding 500 shares paid the entire amount along with allotment money.
Required: Journal entries
Answer (1)
Excel Computer Ltd. issued 50,000 shares at a 20% premium, meaning each share was issued at Rs. 12 (Rs. 10 + 20% of Rs. 10). The application money was Rs. 3, the allotment money (including premium) was Rs. 4, and the first and final call was for the remaining Rs. 5 (Rs. 12 - Rs. 3 - Rs. 4). A shareholder with 500 shares paid the entire remaining amount with the allotment money.
Here's a breakdown of the calculations:
Share Capital:
50,000 shares
Rs. 10 = Rs. 500,000
Premium:
50,000 shares
Rs. 2 = Rs. 100,000
Application:
50,000 shares
Rs. 3 = Rs. 150,000
Allotment:
50,000 shares
Rs. 4 = Rs. 200,000
First and Final Call:
50,000 shares
Rs. 5 = Rs. 250,000
Calls in Advance:
500 shares
Rs. 5 = Rs. 2,500
Journal Entries (Simplified):
On Application:
Debit: Bank Account - Rs. 150,000
Credit: Share Application Account - Rs. 150,000
On Allotment:
Debit: Share Allotment Account - Rs. 200,000
Credit: Share Capital Account - Rs. 100,000
Credit: Securities Premium Account - Rs. 100,000
Debit: Bank Account - Rs. 202,500 (includes advance payment for 500 shares)
Credit: Share Allotment Account - Rs. 200,000
Credit: Calls in Advance Account - Rs. 2,500
On First and Final Call:
Debit: Share First and Final Call Account - Rs. 250,000
Credit: Share Capital Account - Rs. 250,000
Debit: Bank Account - Rs. 247,500 (total due less advance from 500 shares)
Credit: Share First and Final Call Account - Rs. 247,500
Debit: Calls in Advance Account - Rs. 2,500
Credit: Share First and Final Call Account - Rs. 2,500 (adjustment for advance payment)
Key Points:
The premium is treated as a separate component and credited to the Securities Premium Account.
The shareholder's advance payment is recorded as a liability (Calls in Advance) and later adjusted against the final call ;
