Question

Why do we need to use call in advance here? and where is the 20000 x 2 call in advance from? Thank you.

Exercise 9.4 Share issue with oversubscription (Adapted). On July 2019, Denman Ltd issued a prospectus offering 160 000 of its ordinary shares payable $1 on application, $1 on allotment and $2 to be called as and when required. When applications closed on 23 July, applications had been received for 240 000 shares, including one applicant for 20 000 shares who had paid in full. The directors allotted the shares on 24 July as follows. . 1. The applicant for 20 000 shares, who paid in full, was allotted 20 000 shares. 2. Applications for 20 000 shares were rejected and the application money was refunded. 3. The remaining applicants were allotted 7 shares for every 10 applied for. The excess! application money on these shares was to be applied in part payment of allotment money. All allotment money was received by 7 August. Required (a) Prepare journal entries in general journal format to record the share issue up to 7 August.

Answer 1

Answer

part 1 - we need to use call in advance because the final call has not been called by the company till 24th july but the a person paid all money on the application . Thus company has only call application & allotment money the remaining money of that person will be liability of the company which is shown as call in advance. Further, when company call the final call money this advance will be debited.

Part 2- Company criteria to call money from applicant

Application - $1

Allotment - $1

Final call - $1

Company has called the application & allotment but not final call but one applicant has paid in full i.e. $2($4-$1-$1) is paid in advance by the applocant .

Total share of the applicant 20000 share

Call in advance - 20000 x 2 = 40000