\textbf{Case Study Description (Questions 46 to 50):}Review the share allotment data for Eicher Ltd. to answer the questions:Eicher Ltd. issued equity shares of each at a premium of per share, payable as follows:\begin{itemize}\item On Application: per share\item On Allotment: per share (including Premium)\item On First Call: per share (including Premium)\item On Final Call: Balance amount\end{itemize}Applications were received for shares. The Directors allotted shares on a pro-rata basis to applicants who applied for shares, rejecting the remaining applications. The excess application money received was adjusted against the amount due on allotment. All amounts due were received except for the first call from Rahul, who had applied for shares. His shares were forfeited immediately after the non-payment of the first call. These forfeited shares were later reissued at the minimum possible reissue price.Identify the correct journal entry to record the forfeiture of Rahul's shares:
- AShare Capital A/c Dr 20,000 \ Securities Premium Reserve A/c Dr 10,000 \ To Share 1st call A/c 10,000 \ To Share final call A/c 4,000 \ To Share forfeiture A/c 16,000
- BShare Capital A/c Dr 20,000 \ To Share 1st call A/c 10,000 \ To Share final call A/c 4,000 \ To Share forfeiture A/c 6,000
- CShare Capital A/c Dr 16,000 \ Securities Premium Reserve A/c Dr 4,000 \ To Share 1st call A/c 10,000 \ To Share forfeiture A/c 10,000
- DShare Capital A/c Dr 16,000 \ To Calls in Arrears A/c 10,000 \ To Share forfeiture A/c 6,000
Solution & Step-by-step Explanation
Let's calculate the values for the forfeiture of Rahul's shares step by step:\begin{enumerate}\item \textbf{Pro-rata Category:} , which simplifies to an application ratio of .\item \textbf{Shares allotted to Rahul:}
\item \textbf{Excess Application Money:}
\item \textbf{Allotment Adjustment:}
Since the excess application money () is less than the total allotment amount due, it is adjusted entirely against allotment. Since premium is included in allotment (), and the allotment money was fully settled, the allotment premium is considered fully received and will not be reversed during forfeiture.\item \textbf{First Call Arrears calculation:}
Rahul failed to pay this first call. This amount includes a premium of per share. Since this premium was not paid, it must be debited to reverse it:
\item \textbf{Called-up Capital Value (up to First Call):}The total nominal value called up per share excluding premium is:
\item \textbf{Amount Forfeited (Amount already paid towards face value):}
Total amount paid excluding the received premium () .\end{enumerate}Thus, the correct forfeiture journal entry is:
\item \textbf{Excess Application Money:}
\item \textbf{Allotment Adjustment:}
Since the excess application money () is less than the total allotment amount due, it is adjusted entirely against allotment. Since premium is included in allotment (), and the allotment money was fully settled, the allotment premium is considered fully received and will not be reversed during forfeiture.\item \textbf{First Call Arrears calculation:}
Rahul failed to pay this first call. This amount includes a premium of per share. Since this premium was not paid, it must be debited to reverse it:
\item \textbf{Called-up Capital Value (up to First Call):}The total nominal value called up per share excluding premium is:
\item \textbf{Amount Forfeited (Amount already paid towards face value):}
Total amount paid excluding the received premium () .\end{enumerate}Thus, the correct forfeiture journal entry is: