[pandaa]

There were two transactions.
Jan.5 Received applications for 20000 ordinary shares, at a total issue price of $10 per share, each accompanied by an initial payment of 25% of the issue price. Alloted 10000 shares to these applicants, and retained the balance of over-subscription as a payment in advance of future calls.

Jan. 28 Made a call on the partly paid ordinary shares of a further $5 per share. The call was paid in full on 8000 of the shares but the remaining 2000 shares were forfeited for non-payment of the balance of the call.

The image I've attached is the answer to transaction for Jan.28. I have circled the figures that I don't understand why they are used with blue paint.Can anyone please please explain it to me!

Thanks in advance!

[rehmanvohra]

It helps to understand the scenario. The company had offered 10,000 shares from the public and the response was over subscription which was double the offer.

The company had the option to return the monies for excess applications but instead allotted half the shares applied for and retained the excess payment as part of future calls.

Now when the company made a call for payment of $5 per share on 10,000 shares the total amount due was $50,000 (10,000 x $5) out of which $25,000 was received in advance along with the subscription amount. Hence the balance receivable was $25,000 being 10,000 x $2.50.

The actual collection was 8,000 x $2.50 or $20,000 against $25,000 leaving a call amount unpaid of 5,000. Since the amount was not paid the company canceled these shares by exercising the right of forfeiture.

Please note that amount that was paid on these shares stands forfeited. Since the total amount due was $7.50 per share and the amount actually paid was $5.00 per share which was forfeited.

However, the accounting entries made by the company can also be made as follows:

Jan 5
Debit Cash $50,000
Credit Share application $50,000

On allotment of shares
Debit Share application $50,000
Credit Share capital $25,000
Credit Share call $25,000

On Jan 28
Debit Share call $50,000
Credit Share capital $50,000

On receiving monies
Debit Cash $20,000
Credit Share Call $20,000

On forfeiture
Debit Share capital $15,000
Credit Share call $ 5,000
Credit forfeited shares $10,000