Question

Topic 4: Accounting for equity Light Ltd, a newly registered company, issued a prospectus on 1...

Topic 4: Accounting for equity

Light Ltd, a newly registered company, issued a prospectus on 1 January 2018 inviting the public to subscribe for 2 million shares at $6.00 each. The terms of the issue are that $4.00 is to be paid on application and the remaining $2.00 within one month of allotment. The issue was underwritten at a commission of $6,000.

Applications closed on 31 January 2018. The share issue was oversubscribed by 100,000 shares. The directors allotted all shares on 15 February 2018 on a pro-rata basis. The surplus application money is used to offset against the amount payable on allotment. On the same date the underwriter was paid with their commission.

On 15 March 2018 all allotment money is received except for holders of 20,000 shares who had failed to pay the allotment money due.

On 15 June 2018 the directors forfeited the shares on which allotment money was unpaid. The shares were resold on 30 June as fully paid for a consideration of $5.20 per share. On the same date share reissue costs of $2,000 were paid. The balance in the forfeited shares account is returned to former shareholders.

Required:

Prepare the journal entries necessary to account for the above transactions and events. Show all relevant dates and brief narrations.

Homework Answers

Answer #1
Date Particulars Debit($) Credit($)
31/1/18 Bank 12600000
To Share Application 12600000
(Application Money Received)
31/1/18 Share Application 12600000
To Share Capital(2m*6) 12000000
To Share Allotment (.1m*6) 600000
(Application money transferred to share capital and share allotment)
15/2/18 Underwriter Commission 6000
To Bank 6000
(Underwriter commission paid)
15/3/18 Share Allotment(2m*4) 8000000
To Share Capital 8000000
(Share allotment money is due)
15/3/18 Bank 7926000
Calls in Arrear(WN) 74000
To Share Allotment 8000000
(Allotment money received on 1.8m share and for 20k shares remain in Arrear)
15/6/18 Shre Capital 200000
To Share Forfeiture 126000
To Calls in arrear 74000
(Shares forfieted due to non payment of allotment money)
30/6/18 Bank(20000*5.2)-2000 102000
Share forfeiture (20k*4.8)+2000 98000
To Share Capital(20k*10) 200000
(Shares reissued at discount and expenses incurred on reissue)
15/6/18

Share Forfeiture

(126000-98000)

28000
To Shareholder 28000
15/6/18

Shreholder

To Bank

(Balance share forfeiture money refunded)

28000 28000

WN

Applicant of 21000000 shares allotted 2000000 shares

Applicant of 20000shares allotted ( 2.1m/2m *20000)=21000

Excess applicationmoney to be adjusted with allotment=1000*6=6000

Calls in arrear on allotment=(20000*4)-6000=Money due on allotment-Excess application money)

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