Question

Accounting for share capital

On 1 January 2019, Funland Ltd was registered and issued a prospectus, offering 1,000,000 preference shares at $2.00 payable in full on application by 31 March 2019, and 2,000,000 ordinary shares at $6.00 with $4.00 due on application by 31 March 2019, $1.50 due within one month of allotment, and $0.50 due on a call to be made by the directors at a later date.

By 31 March 2019, the company had received applications for 800,000 preference shares and applications for 2,200,000 ordinary shares. On 15 April 2019, the ordinary and preference shares were allotted. The ordinary shares were allotted to applicants on a pro-rata basis, and the excess application money was retained and credited against amounts due on allotment. All allotment money was received by 15 May 2019.

The directors made the call on the ordinary shares on 1 August 2019, with amounts due by 1 September. By this date, amounts due on 1,960,000 ordinary shares had been received. On 15 September 2019, the shares on which call money had not been received were forfeited and sold as fully paid. An amount of $5.60 was received for each share sold. Costs of the forfeiture and reissue amounted to $7,000, and were paid. The constitution allows for the refund of any balance in the forfeited shares account after reissue to former shareholders, so refunds were made on 30 September 2019.

Required:

Prepare the journal entries to record the transactions of Funland Ltd up to and including that which took place on 30 September 2019. Show all relevant dates, narrations and workings.

Answer 1

Prepare the following journal entries to record the given transactions: 2019 Mar. 31 Cash Trust Dr 10,400,000 Applicati on (Receipt of application money.) Ct 10,400,000 Apr. 15 Applicati on 9,600,000 Dr Allotment 3,000,000 Dr Share Capital Prefer ence Share Capital - Ordinary (Issue ofordinary and preference shares.) 1,600,000 11,000,000 Cash Apr. 15 Dr 10.400,000 Cash Trust Cr 10.400.000 (Transfer of applicati on money.) May. 15 Cash Application Dt 2,200,000 800,000 Dt Allotment ,000,000 Cr (Receipt of all otment money and allocation of execess aplicati on money towards allotment.) Aug. 1 Call Dt 1,000,000 Share Capital Ordinary (Call on ordinary shares.) Cr 1,000,000 Sept. 1 Cash 980,000 Dt Call Cr 980.000 (Receipt ofcall money.) Sept. 15 Share Capital Ordinary Dt 240,000 Call Cr 20,000 For feited Share Account (Forfeiture of shares for non-payment ofcall money.) Cr 220,000 Cash 224,000 Sept. 15 Dt For feited Share Account 16,000 Dt Share Capital - Ordinary Cr 240,000 (Reissue of for feited shares.) Sept. 15 Forfeited Share Account Dt 7,000 Cash Cr 7,000 (Cost offor feiture and reissue.) For feited Share Account Sept. 30 Dt 197,000 Cash Cr 197.000 (Refind to former shareholders.)

The figures above have been calculated in the following manner:

2019 Dr (800000*2)+(2200000*4) Cash Trust Mar. 31 Application |(Receipt of application money) Cr 10400000 |Appli cation All otment Dr(800000*2)+(2000000*4) Dr 2000000*1.5 |Apr. 15 Share Capital Preference Share Capital - Ordinary (Issue of ordinary and preference shares.) -800000*2 - 2000000*5.5 Cash Dr Apr. 15 10400000 Cash Trust Cr 10400000 (Transfer of applicati on money.) 0 Dr (2000000*1.5)-800000 -200000*4 Cash Application May. 15 Dr - 2000000*1.5 Cr Allotment (Receipt of all otment money and all ocation of aplication money towards allotment) execess Call Share Capital Ordinary (Call on - 2000000*0.5 Aug. 1 Dr 1000000 Cr ordinary shares.) Cash Sept. 1 1960000*0.5 Dr 980000 Call Cr (Receipt of call money.) Share Capital -Ordinary 40000*6 Dr Sept. 15 Call 40000 *0.5 Cr 40000*5.5 For feited Share Account (For feiture of shares for non-payment ofcall money.) Cr Cash Forfeited Share Account Share Capital Ordi nary (Reissue of forfeited shares.) Sept. 15 Dr 40000*5.6 -40000*0.4 Dr 40000*6 Cr Forfeited Share Account Sept. 15 Dr 7000 Cash Cr 7000 (Cost of forfeiture and reissue.) Forfeited Share Account =220000-16000-7000 Sept. 30 Dr Cr 197000 Cash (Refund to former shareholders.)