Answered

ACCOUNTING FOR COMPANIES - ISSUE OF SHARES

Q. 8. Kiran Textiles Ltd. issued 50,000 Equity Shares of [tex]₹ 10[/tex] each at a premium of [tex]₹ 2[/tex] per share and 2,000, 6% Preference Shares of [tex]₹ 100[/tex] each at par, payable as follows:

[tex]\[
\begin{array}{llc}
& \text{Equity Shares} & \text{Preference Shares} \\
\text{On Application} & 3.50 & 30 \\
\text{On Allotment} & 6.50 \text{ (including premium)} & 20 \\
\text{On First Call} & 2 & 25 \\
\text{On Final Call} & 2 & 25 \\
\end{array}
\][/tex]

All these shares were fully subscribed, called-up, and paid. Record these transactions in the journal and cash book.



Answer :

GinnyAnswer
Certainly! Below is a detailed solution showing the accounting treatment of the issue of shares for Kiran Textiles Ltd.

### Journal Entries:

1. On Application:

For Equity Shares Application Received:
```
Bank A/c Dr. ₹1,75,000
To Equity Share Application A/c ₹1,75,000
(Being application money received on 50,000 equity shares at ₹3.50 each)
```
For Preference Shares Application Received:
```
Bank A/c Dr. ₹60,000
To Preference Share Application A/c ₹60,000
(Being application money received on 2,000 preference shares at ₹30 each)
```

Transfer of Application money to Share Capital:
```
Equity Share Application A/c Dr. ₹1,75,000
To Equity Share Capital A/c ₹1,75,000
(Being transfer of equity share application money to equity share capital)
```
```
Preference Share Application A/c Dr. ₹60,000
To Preference Share Capital A/c ₹60,000
(Being transfer of preference share application money to preference share capital)
```

2. On Allotment:

For Equity Shares Allotment Due:
```
Equity Share Allotment A/c Dr. ₹3,25,000
To Equity Share Capital A/c ₹2,50,000
To Securities Premium A/c ₹75,000
(Being allotment money due on 50,000 equity shares including premium of ₹2 each)
```

For Preference Shares Allotment Due:
```
Preference Share Allotment A/c Dr. ₹40,000
To Preference Share Capital A/c ₹40,000
(Being allotment money due on 2,000 preference shares at ₹20 each)
```

Receipt of Allotment Money:
```
Bank A/c Dr. ₹3,25,000
To Equity Share Allotment A/c ₹3,25,000
(Being allotment money received on 50,000 equity shares)
```
```
Bank A/c Dr. ₹40,000
To Preference Share Allotment A/c ₹40,000
(Being allotment money received on 2,000 preference shares)
```

3. On First Call:

For Equity Shares First Call Due:
```
Equity Share First Call A/c Dr. ₹1,00,000
To Equity Share Capital A/c ₹1,00,000
(Being first call money due on 50,000 equity shares at ₹2 each)
```

For Preference Shares First Call Due:
```
Preference Share First Call A/c Dr. ₹50,000
To Preference Share Capital A/c ₹50,000
(Being first call money due on 2,000 preference shares at ₹25 each)
```

Receipt of First Call Money:
```
Bank A/c Dr. ₹1,00,000
To Equity Share First Call A/c ₹1,00,000
(Being first call money received on 50,000 equity shares)
```
```
Bank A/c Dr. ₹50,000
To Preference Share First Call A/c ₹50,000
(Being first call money received on 2,000 preference shares)
```

4. On Final Call:

For Equity Shares Final Call Due:
```
Equity Share Final Call A/c Dr. ₹1,00,000
To Equity Share Capital A/c ₹1,00,000
(Being final call money due on 50,000 equity shares at ₹2 each)
```

For Preference Shares Final Call Due:
```
Preference Share Final Call A/c Dr. ₹50,000
To Preference Share Capital A/c ₹50,000
(Being final call money due on 2,000 preference shares at ₹25 each)
```

Receipt of Final Call Money:
```
Bank A/c Dr. ₹1,00,000
To Equity Share Final Call A/c ₹1,00,000
(Being final call money received on 50,000 equity shares)
```
```
Bank A/c Dr. ₹50,000
To Preference Share Final Call A/c ₹50,000
(Being final call money received on 2,000 preference shares)
```

### Cash Book Entries:

The cash book will reflect all the deposits made into the bank on application, allotment, first call and final call stages.

1. Receipts on Application:
```
To Equity Share Application A/c ₹1,75,000
To Preference Share Application A/c ₹60,000
```

2. Receipts on Allotment:
```
To Equity Share Allotment A/c ₹3,25,000
To Preference Share Allotment A/c ₹40,000
```

3. Receipts on First Call:
```
To Equity Share First Call A/c ₹1,00,000
To Preference Share First Call A/c ₹50,000
```

4. Receipts on Final Call:
```
To Equity Share Final Call A/c ₹1,00,000
To Preference Share Final Call A/c ₹50,000
```

By following these entries, the company can accurately account for the issue and realization of funds from the equity and preference shares issued.