Company accounts 2.3

Company
Accounts
BCM2B02 FINANCIAL ACCOUNTING
2nd Semester B. Com
University of Calicut
Module 2.3

Preparation of cash book
• It may be noted that in actual practice cash transactions are not
journalized but are passed through Cash Book (Bank Column). Journal
entries will be passed only in respect of other transactions.
• Open a cash book along with the journal to make sure all entries are
duly posted
• For Share Issue Expenses:
Share Issue Expenses A/c Dr.
To Bank A/c
• If shares are issued to promoters:
Incorporation Costs A/c Dr .
To Share Capital A/c

Problem No. 7
A Ltd issued a prospectus inviting applications for 12,000 equity
shares of Rs.10 each at par, which was payable as follows:
On application Rs.3, On allotment Rs.4, On first call Rs.2 and On
final Call Rs.1.
All the shares were subscribed and fully paid-up. Shares Issue
Expenses amounted to Rs. 2000. Pass necessary journal entries
and also prepare the cash book.

Problem No.8
A Limited Company issued 25,000 Ordinary Shares of Rs.25
each payable Rs.5 on application, Rs.10 on allotment and Rs.5
each on subsequent calls, 20,000 shares were fully subscribed
and money fully received. You are required to give journal
entries, Cash Book of the Company.

Issue of two classes of shares
• When a company issues both equity and preference shares, then the journal entries
are written separately for each type of share capital. In order to distinguish the
name of the shares – Equity or Preference must be specified before the word
share.
• Ex: Equity Share Capital A/c, Preference Share Capital A/c
Problem No.9
A Ltd., was registered with an authorised capital of Rs. 50 lakhs divided into 30,000
preference shares of Rs.100 each and 20,000 equity shares of Rs.100 each. Out of
these,15000 preference shares and 10,000 equity shares were issued to public. All
shares are paid in full. Pass journal entries.
Preference Shares Equity Shares
On Application Rs.30 Rs.30
On Allotment Rs.30 Rs.40
On Call Rs.40 Rs.30

Assignment :Problem No.10
A Company was registered with an authorised capital share of Rs. 25,00,000 divided into
10,000 Preference Shares of Rs.100 each and 15,000 Equity Shares of Rs.100 each. Out
of these, 4,000 Preference Shares and 8,500 Equity Shares were issued. These shares
were payable as under:
All these shares were paid in full. Make necessary journal entries, Cash Book
Preference
Shares
Equity Shares
On Application 20 20
On Allotment 30 40
On First Call 50 40

Fraction Shares
• A fractional share refers to unit of stock that is less than one
full share. Fractional shares generally come about from stock
splits, bonus shares and similar corporate actions.
• Fractional shares cannot be acquired from the market. Sales
through company appointed trustee or major brokerage firms.
• One way investors with limited funds can buy stock in
companies with high priced shares.
• For instance: You have nine shares of XYZ Ltd that has
announced a 3-for-2 stock split. In this case, you would get an
extra 4.5 shares, which would be 13.5 shares total.

Circumstances  Fractional Shares
1. Stock splits
2. Reverse stock splits
3. Mergers and Acquisitions
4. Mutual funds and dividend stock investors-
reinvestment of dividends and capital gains
5. Reduction and consolidation of shares
#Taxability on Sale  Through company appointed trustee  NIL
Brokerage firm  15% on capital gains

• Under-subscription of shares:
Undersubscribed is a situation in which the demand for an issue
of securities such as an initial public offering (IPO) or another
offering of securities is less than the number of shares issued.
• Over-subscription of shares:
A company may receive applications for shares more than the
number of shares it has offered to the public. This is known as
over-subscription of shares.
Usually, the companies that are financially strong, have a good
reputation in the market or have profitable future prospects,
receive over-subscription of shares.

In the case of over-subscription, it is not possible for the
company to allot shares to every applicant in the number that he
desires. The company needs to allot the shares in a proper
manner.
The company has the following three alternatives:
1.Accept some applications in full and reject the others totally.
2.Make Pro-Rata Allotment.
3.Adopt a combination of the above two.

1. When a company decides to accept some applications in full
and reject the other totally
Date Particulars Amount (Dr.) Amount (Cr.)
1. On receipt of
Application money
Bank A/c (total application amount) Dr. xxx
To Share Application A/c xxx
(Being application money received
for…shares@ ₹…each)
2. Transfer of
application money to
Share Capital A/c and
refund of excess
Share Application A/c Dr. xxx
(application amount)
xxx
To Bank A/c (refund) xxx
(Being share application money on
…..shares @ ₹…each, transferred to share
capital and money on …..shares @
₹…each, refunded)

Problem : 11 – Refund of application money
A Ltd. Has an authorised capital Rs. 5,00,000 divided into shares of Rs.
10 each. The company issued 20,000 shares at par, which is payable as
follows:
On application  Rs.3 On allotment  Rs. 2 On first call  Rs. 2.50
On final Call  Rs. 2.50
Applications were received for 25000 shares. Application money on
5,000 shares were refunded. The issued shares were allotted to the
remaining applicants. All money were duly received. Pass journal
entries.

Pro-rata allotment
• Pro-rata allotment refers to the allotment of shares in proportion of the shares
applied for. When a company makes pro-rata allotment, it adjusts the excess money
received at the time of application firstly, towards the allotment and then towards
calls.
• It refunds any surplus left after adjusting the amount towards allotment and calls to
the applicants. The company advertises the allotment procedure in the
leading newspapers.
• For example, AB Ltd. offers 10000 shares to the public. The issue was
heavily oversubscribed. It receives applications for 20000 shares. When the
company decides to allot the shares at pro-rata basis, then it has to allot 10000
shares to the applicants of 20000 shares. Thus, the ratio will be 20000:10000 i.e.
2:1. Hence, an applicant for 2 shares will receive 1 share. This is Pro-rata allotment.

2. When a company makes pro-rata allotment
1. On receipt of
Application money
Bank A/c (total application amount) Dr. xxx
To Share Application A/c xxx
(Being application money received
for…shares@ ₹…each)
2. Transfer of
application money to
Share Capital A/c
To Share Capital A/c A/c
xxx
To Share Allotment A/c (excess) xxx
To Share Call A/c (balance, if any) xxx
…..shares @ ₹…each, transferred to
share capital and money on …..shares @
₹…each, utilizes towards allotment and
call)

Problem -12
B Ltd has an authorised capital of 25,00,000 divided into shares of Rs.
100 each. The company issued 20,000 shares at par, which is payable as
follows:
On application : Rs.25, On allotment: Rs. 30, On first call: Rs.20, On final
call: Rs.25.
Applications were received for 32,000 shares. Of these, applications for
2,000 shares were totally rejected and money returned. Application
money on 10,000 shares were retained for allotment and pro-rata
allotment was made. All money were duly received. Pass journal
entries.

Bank A/c Dr. (25 X 32,000)
To Share Application A/c
(Application money received on 32,000 shares @ Rs. 25 each)
8,00,000
8,00,000
Share Application A/c Dr .
To Share Capital A/c (25 X 20,000)
(Being share application money on 20,000 shares @ ₹25 each,
transferred to share capital)
5,00,000
5,00,000
Share Application A/c Dr.
To Bank (25 X 2,000)
(Application money of rejected shares refunded)
50,000
50,000
Share Allotment A/c Dr. (30 X 20,000)
(Allotment money due)
6,00,000
6,00,000
Share Application A/c
Bank A/c Dr. (6,00,000 – 2,50,000)
To Share Allotment A/c
(Allotment money received )
2,50,000
3,50,000
6,00,000
JOURNAL
# Complete the journal entries for calls

3. When the company adopts a combination of the two methods.
At the time of
transfer of the
application money
xxx
To Bank A/c (refund) xxx
To Share Allotment A/c (excess) xxx
To Share Call A/c (balance, if any)
…..shares @ ₹…each, transferred to
share capital, money on …..shares @
₹…each, refunded and money on
…..shares @ ₹…each, utilizes towards
allotment and call)

Problem 13
Arihant Ltd. Co. issues 100000 equity shares of face value of ₹10
on 1st June 2018 at 20% premium. The arrangements for payment
are:
June 1, 2018: On Application ₹2
July 1, 2018: On Allotment including Premium ₹7
September 1, 2018: On First and final call ₹3
The company receives applications for 2,85,000 shares. It deals with
them in the following manner
1.Applicants for 25,000 shares receive the full allotment.
2.The applicants for 2,25,000 shares receive one share for every three
shares applied for on pro-rata basis.
3.It rejects the applications for 35,000 shares.
The company duly receives the entire amount. Pass necessary
journal entries.

Working Note:
Cate
gory
No. of shares
applied
No. of shares
allotted
Amount
received on
the
application-
Rs.2
Application
money
required
Adjusted
towards
allotment –
Rs. 7(5+2)
Amount due
on allotment
Amount
received on
the allotment
Refund
1 25,000 25,000 50,000 50,000 Nil 1,75,000 1,75,000 Nil
2 2,25,000 75,000 4,50,000 1,50,000 3,00,000 5,25,000 2,25,000 Nil
3 35,000 Nil 70,000 Nil Nil Nil Nil 70,000
Total 285000 100000 570000 200000 300000 700000 400000 70000

1 June Bank A/c Dr. 570000
To Share Application A/c 570000
(Being application money received for
285000 shares@ ₹2 each)
1 July Share Application A/c Dr. 570000
To Share Capital A/c 200000
To Share Allotment A/c 300000
To Bank A/c 70000
(Being share application money on 100000 shares
@ ₹ 2 each, transferred to share capital, on 225000
shares adjusted towards allotment and on 35000
shares refunded)
Journal Entries
In the books of Arihant Ltd.

1 July Share Allotment A/c Dr. 700000
To Securities Premium A/c 200000
(Being share allotment due on 100000 shares @ ₹
7 each including a premium of ₹2)
1 July Bank A/c Dr. 400000
To Share Allotment A/c 400000
(Being share allotment money received)
1 Sept Share Final Call A/c Dr. 300000
(Being money on share call due on 100000 shares
@ ₹3 each,)
1 Sept Bank A/c Dr. 300000
To Share Final Call A/c 300000
(Being share call amount received)

Assignment : Problem 14
• A Ltd. makes an issue of 1,00,000 equity shares of Rs.10 each payable
Rs.3 on application, Rs.5 on allotment and Rs.2 on first and final call.
Applications were received for 2,30,000 shares. The Directors
returned the application money on 50,000 shares. Applications for
60,000 shares were accepted and allotted in full. The excess
application money received from the remaining applicants were
carried forward in part satisfaction on the amounts due on allotment.
The company did not make the first and final call. Prepare the journal,
the cash book and the ledger accounts of the company.
Page 90: Calicut University Publishing House

Capital as usual is shown on the liabilities side of the company’s
balance sheet. Share capital of the company is shown under the heads
shareholders fund. Paid up capital is the real capital which has been
actually paid by the shareholders. This capital is added to complete the
total of liabilities side. As per Schedule VI Part I of the Companies Act,
the Share Capital should be shown in the Balance Sheet in the
following manner.
Presentation of Share Capital in Company’s Balance Sheet:
As per Revised Schedule VI of Companies Act, 1956, Share
Capital is to be disclosed in a Company’s Balance Sheet in
the following manner: …
Disclosure of Capital in the Balance Sheet

Problem 15
Sony Ltd. was formed with a nominal Share Capital of
Rs. 20, 00,000 divided into 20,000 shares of Rs.100 each. The
Company offers 13,000 shares to the public payable Rs. 30 per
share on Application, Rs. 30 per share on Allotment and the
balance of First and Final Call. Applications were received for
12,000 shares. All money payable on allotment was duly received,
except on 100 shares held by X. First and Final Call was not made
by the Company.
How would you show the relevant items in the Balance Sheet of
Sony Ltd.?

Calls-In-Arrears
If a shareholder is not able to pay the call amount due on
allotment or on any calls according to the terms, the amount that
becomes due is Calls-In-Arrears. We may transfer or not
transfer the arrear amount on account of allotment or calls to
Calls-in-Arrears Account.
Methods of Accounting Treatment of Calls-In-Arrears
1. Without opening Calls-in-Arrears Account
2. By opening Calls-in-Arrears Account

1. Without opening Calls-in-Arrears Account
Under this method, we credit the receipt from shareholders to the relevant call account
and various call accounts will show debit balance equal to the total unpaid amount of
calls. On a subsequent date, when we receive the amount of Calls-in-Arrears, we debit
Bank Account and credit the relevant Call Account.
• For example, The company makes the first call @ ₹ 2 per share on 10,000 shares.
The receipt of the amount on the first call is for 9,500 shares. Entries will be as follows:
1. Shares First Call a/c Dr. 20,000
To Share Capital a/c Cr. 20,000
(being the first call money due on 10,000 shares
@ ₹ 2 per share)
2. Bank a/c Dr. 19,000
To Shares First Call a/c Cr. 19,000
(being first call money received only on 9,500
shares)

2. By opening Calls-in-Arrears Account
• Under this method, we transfer the unpaid amount to Calls-In-Arrears
Account. As a result, Shares Allotment Accounts and Shares Calls
Accounts will not show any balance.
• The Calls-in-Arrears Accounts will show a debit balance equal to the total
unpaid amount on allotment and calls. Later, on receipt of arrear amount,
we credit it to the Calls-in-Arrears Account.
In the earlier example, if we open Calls-in-Arrears Account is then the first
two entries will be the same and third entry passed will be:
3. Calls-in-Arrears A/c Dr. 1,000
(Being unpaid amount on call transferred
to calls-in-arrears A/c)

• In place of second and third entry we can also pass a combined
entry which is as follows:
2. Bank a/c Dr. 19,000
Calls-in-Arrears A/c Dr. 1,000
On receipt of Calls-in-Arrears at a subsequent date:
1. Bank a/c Dr. XXX
To Calls-in-Arrears a/c Cr. XXX
#We show the Calls-in-Arrears Account in the Notes to Accounts on Share Capital to
the Balance Sheet as a deduction from the amount of ‘Subscribed but not fully paid-up’
under ‘Subscribed Capital’.

Problem : 16
• X Ltd, made due first call @ of Rs. 3 on 10,000 shares. Raman
did not pay first call on his 200 shares. However, he paid this
amount after one month. Calls-in-arrears account was not
opened.

Interest on Calls in arrears
• If any shareholder makes a default in paying the call money within the
appointed date, the amount which is not paid, called Calls-in-Arrear.
• The interest is chargeable on Calls-in-Arrear according to the
provisions in this regard in the Articles of the company.
• If the Articles are silent, Table F will be applicable which provides that if
a sum called in respect of shares is not paid before or on the day
appointed for payment then person who failed to pay shall pay
interest thereon.
• Interest shall be chargeable from the appointed date to the time of
actual payment at a rate not exceeding 10% per annum.
• The directors have the right to waive the Amount of interest on Calls-in-
Arrear. The interest on Calls-on-Arrear Account is transferred to the

Journal entries for interest on Calls in arrears
For interest receivable:
Sundry Share holders A/c Dr.
To Interest on Calls in Arrears
For receipt of interest:
Bank A/c Dr.
To Sundry Share holders A/c
For transfer of interest to profit and Loss A/c
Interest on calls in arrears
To Profit and Loss A/c

Problem 17
• Cronic Limited issued 10,000 equity shares of Rs. 10 each payable at
Rs. 2.50 on application, Rs. 3 on allotment, Rs. 2 on first call, and the
balance of Rs. 2.50 on second and final call. All the shares were fully
subscribed and paid except of a shareholder having 100 shares who
could not pay for second and final call. Give journal entries to record
these transactions

Problem 18
Unique Pictures Limited was registered with an authorised capital of
Rs. 5,00,000 divided into 20,000, 5% preference shares of Rs. 10
each and 30,000 equity shares of Rs. 10 each. The company issued
10,000 preference and 15,000 equity shares for public subscription.
Calls on shares were made as under :
Equity Shares - Rs.2 (Application), Rs.3 (Allotment), Rs.2.50 (First
call), Rs. 2.50(Second and final call)
Preference Shares - Rs.2 (Application), Rs.3 (Allotment), Rs.2.50
(First call), Rs. 2.50(Second and final call).
All the dues were received except the second and final call on 100
equity shares and on 200 preference shares. Record these
transactions in the journal. You are also required to prepare the cash
book and balance sheet.

Calls-in-Advance
• Excess Money received by the company which has not been called up
is known as calls in advance. If authorized by its Articles, A Company
may accept call in advance from its shareholders. When a company
receives such an amount, it needs to credit it to the calls-in-advance
account.
• The company treats calls-in-advance as a debt of until it makes the
calls. The amount already paid is adjusted. Calls-in-advance may also
arise when the number of shares allotted to a person is much smaller
than the number applied by him for and the terms of issue allow the
company to retain the amount received in excess of application and
allotment money.
• The company can retain only such amount as is required to make the
allotted shares fully paid. After transferring the amount to the relevant
call accounts, the company closes the calls-in-advance account. It

Date Particulars Amount(Dr.) Amount(Cr.)
(i) On receipt of
call money
Bank Dr.
To Call-in-Advance A/c
(Being receipt of calls in
advance)
(ii) On making
calls
Calls-in-Advance A/c Dr.
To Relevant Call A/c
(Being transfer of the calls-in-
advance)

Interest on Calls in advance
• A company may pay interest on such amount received in
advance at the rate of 12% p.a. No dividend is payable on this
amount. It adjusts the amount of calls-in-advance for the
payment of calls when they become due.
• Interest payable on Calls-in- Advance is a liability against the
profits of the company. A company has to pay Interest on Calls-
in-Advance even when there is no profit.

(i) When interest on
Calls-in-Advance is
not paid in cash
Interest on Calls-in-Advance A/c Dr.
To Sundry Shareholders A/c
(Being Interest on Calls-in-Advance
due)
(ii) For payment to
shareholders
Sundry Shareholders A/c Dr.
To Bank
(being interest paid)
(iii) On transfer of
interest on Calls-in-
Advance to P & L
A/c
Profit and Loss A/c Dr.
To Interest on Calls-in-Advance A/c
(Being the transfer of interest
expenses to profit and loss A/c)

Problem 19
On 1st Jan, 2015 Reebock Ltd., issued 25,000 Equity
Shares of 10 each, payable as follows:
On Application Rs 5; On Allotment (Feb. 1) Rs 3; On Call (May 1)
Rs 2.
Applications for 30,000 shares were received. Excess money
received on applications was returned immediately. Daljit who
was allotted 1,000 shares paid call money at the time of
allotment. All amounts were duly received. Pass Journal entries.

77,000
2
2 2000
48,000
2000
12
60
60

Difference between Call in arrears and Calls in
advance

Problem : 20
Bharat Limited was registered with a Nominal Capital of Rs. 5,00,000
in shares of Rs. 100 each 3 000 of which were issued for subscription,
payable as to Rs. 12.50 on application Rs. 12.50 on allotment and Rs.
25 three months after the allotment and the balance to be called up as
and when required.
All moneys up to allotment were duly received, but as regards the call
of Rs 25, a shareholder holding 100 shares did not pay the amount
due. Another shareholder who was allotted 150 shares paid the entire
amount of the shares.
Show the necessary journal entries to record the above transactions
(including cash) and show how these appear in Balance Sheet.

Company accounts 2.3

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