Journal Entries for Super Star Ltd. Share Transactions

Detailed Accounting Treatment from Application to Final Call

Key Highlights

Pro-rata Allotment & Application Adjustment: The oversubscription of 12,000 shares leads to a pro-rata allotment of 10,000 shares with adjustments to application money.
Calls and Forfeiture: Detailed entries for each stage – from 1st call to 2nd call – including handling defaults (400 shares on 1st call and 200 shares on 2nd call) and their subsequent forfeiture.
Reissue and Final Call: The reissue of some forfeited shares at a discount is recorded and final call receipts taking into account arrears are incorporated.

Background Information

Super Star Ltd. offered 10,000 equity shares of ₹100 each, with an additional premium of ₹20 per share. The payment schedule was as follows:

Application: ₹10 per share
Allotment: ₹40 per share (which includes the premium)
First Call: ₹20 per share
Second Call: ₹30 per share
Final Call: ₹20 per share

With an oversubscription for 12,000 shares, the allotment was made on a pro-rata basis to issue only 10,000 shares. In the first call, 400 shares did not pay their amount and were later forfeited. In the second call, while most holders paid the total, one holder of 200 shares defaulted. Later, 250 of the 400 forfeited shares were reissued at a discount – where these shares are credited with an amount of ₹80 paid, though they were reissued at ₹50 per share. The final call was met fully, including the arrears from the second call.

Step-by-Step Journal Entries

1. Receipt of Application Money

Entry Details

Since 12,000 shares were applied for @ ₹10 each, the total application money received is:
₹10 × 12,000 = ₹1,20,000.

Journal Entry:

// Debit Bank and credit Share Application Account
Debit: Bank A/c ................. ₹1,20,000
    Credit: Share Application A/c ........ ₹1,20,000
  (Being application money received for 12,000 shares at ₹10 each)

2. Allotment of Shares

Pro-rata Allotment

Only 10,000 shares are allotted on a pro-rata basis. The application money lying in excess for 2,000 shares may be adjusted against the allotment. The allotment amount per share is ₹40 (including premium). Therefore, the allotment money to be received is:
10,000 × ₹40 = ₹4,00,000.

Assume that out of the ₹1,20,000 received, ₹1,00,000 remains appropriate for the issued shares (10,000 × ₹10) and the excess ₹20,000 is adjusted towards the allotment.

Journal Entry:


// Adjusting application money against share capital and allotment
Debit: Share Application A/c .... ₹1,00,000
    Credit: Share Capital A/c ........ ₹1,00,000
(To record the nominal value portion for 10,000 shares allotted at ₹10 each)

Now, record the allotment (including premium) due:
Total Allotment due = 10,000 shares × ₹40 = ₹4,00,000
Less: Adjusted amount from Application = ₹20,000 
Remaining Allotment receivable = ₹4,00,000 - ₹20,000 = ₹3,80,000

Debit: Share Allotment A/c ........ ₹3,80,000
    Credit: Securities Premium A/c ...(₹20 premium per share, part of ₹4,00,000 total) 
    Credit: (Appropriate partition into Share Capital if needed)

Note: Depending on the structure used, the premium portion needs to be separately credited to the Securities Premium A/c. The total allotment credited will have to reflect that ₹2,00,000 (10,000 shares × ₹20) is premium and the balance (₹2,00,000) is further share capital increment.

3. Receipt of Allotment Money

Collection of Balance Due

The company then receives the remaining allotment money after adjustment.

Journal Entry:


// Receipt of remaining allotment money
Debit: Bank A/c ................. ₹3,80,000
    Credit: Share Allotment A/c ........ ₹3,80,000
  (Being receipt of allotment money after adjusting excess application funds)

4. First Call on Shares

Demand for First Call Payment

The first call is made at ₹20 per share on the 10,000 allotted shares.

Journal Entry for First Call Recording:


// Raising first call demand
Debit: Share First Call A/c ........ ₹2,00,000
    Credit: Share Capital A/c ........ ₹2,00,000
  (Being first call of ₹20 per share on 10,000 shares)

However, 400 shares defaulted on payment.

Receipt Entry for First Call Money:


// Receipt of first call money from paying shareholders (9,600 shares)
Debit: Bank A/c ................. ₹1,92,000
    Credit: Share First Call A/c ........ ₹1,92,000
  (Being receipt of first call money received for 9,600 shares @ ₹20 per share)

5. Forfeiture of Shares for Non-payment of First Call

Forfeiture Process

400 shares defaulted on the first call and were forfeited after due notice. The total paid-up amount on each share is the sum received till that point:

Application: ₹10
Allotment: Adjusted portion (effectively, each share bears allotment of ₹40; however, note that ₹20 adjusted from application was already utilized, so the net receipts may vary)
First Call: ₹20 (not received for forfeited shares)

The accounting treatment will involve writing off the share capital for these shares and transferring the amounts received to the Forfeited Shares Account.

Journal Entry:


// Forfeiture for 400 shares (Total paid-up per share typically is ₹10 + apportioned allotment + partial call receipts)
// Here, assuming full paid up (₹10 + ₹40 + ₹20 = ₹70 per share) except first call was not received:
Debit: Share Capital A/c ........ ₹(400 × ₹100)       [This reduces the capital account by the face value considering the share price]
Debit: Share First Call A/c ...... ₹(400 × ₹20)        [For the unreceived first call amount]
    Credit: Forfeited Shares A/c . ₹(Total credited as amount received on these shares)

For our computation, if we assume that the amount received on application (₹10) and on allotment (₹40 adjusted or net effective receipt) has been credited, then the forfeited amount per share is the cumulative amount paid (₹10 + effective allotment receipt). Given the earlier adjustments, many textbooks show the treatment by debiting the Share Capital account (at paid-up value) and crediting Forfeited Shares for the amount actually received. Here, we use:

For 400 shares:
Amount expected per share = ₹100
Total expected for 400 shares = ₹40,000 (400 × ₹100)
Less: Amount received (₹10 on application + portion of allotment credited, say ₹? depends on adjustment)

Note: The exact breakdown depends on how the premium and allotment adjustments have been explicitly recorded. For illustration, we assume:


// Suppose, for forfeited shares, the credited (received) amount is ₹(₹10 + ₹X) per share, then write off the shortfall.
Example Entry:
Debit: Share Capital A/c ........ ₹40,000   (400 × ₹100)
Debit: Share First Call A/c ...... ₹8,000    (400 × ₹20 unreceived)
    Credit: Forfeited Shares A/c . ₹48,000   (aggregate of amounts received on these shares)

This entry reflects that ₹48,000 had been received on those shares (combining application and allotment receipts) and the remaining is written off.

6. Second Call on Shares

Entry and Partial Default

The second call is due @ ₹30 per share on the 10,000 shares. Thus:
Total second call amount expected = 10,000 × ₹30 = ₹3,00,000.

Journal Entry for Second Call:


// Recording second call demand
Debit: Share Second Call A/c ........ ₹3,00,000
    Credit: Share Capital A/c ........ ₹3,00,000
  (Being second call of ₹30 per share on 10,000 shares)

According to the problem, second call money was received in full except for one holder of 200 shares. Therefore, amount received will be from 9,800 shares.

Receipt Entry for Second Call Money:


// Receipt from 9,800 shares at ₹30 per share
Debit: Bank A/c ................. ₹2,94,000
    Credit: Share Second Call A/c ........ ₹2,94,000
  (Being receipt of second call money for 9,800 shares)

For the defaulting 200 shares, we have an amount of:
200 × ₹30 = ₹6,000 outstanding.

Forfeiture Entry for Non-payment of Second Call on 200 Shares:


// Forfeiture for 200 shares defaulting on second call:
Debit: Share Capital A/c ........ ₹20,000   (200 × ₹100 per share reduction)
Debit: Share Second Call A/c ...... ₹6,000    (200 × ₹30 not received)
    Credit: Forfeited Shares A/c . ₹26,000   (Aggregate of amounts received on these shares)

This treatment records the forfeiture for the 200 shares that failed to pay the full second call.

7. Re-issue of Forfeited Shares

Details of Re-issue

Out of the total 400 forfeited shares (400 shares from 1st call default, out of which 200 from second call departure might be additional – note that the problem explicitly states that 250 of the 400 forfeited shares were reissued), 250 shares are reissued:

Reissue Price per share: ₹50
These shares are credited with an amount of ₹80 per share (representing the amount already paid by the shareholder before forfeiture).

Thus, for 250 reissued shares:
Total re-issue proceeds received = 250 × ₹50 = ₹12,500.

The entry would adjust the Forfeited Shares account for the difference between the credited amount (₹80 per share) and the reissue price.

Journal Entry for Re-issue:


// Re-issue of 250 forfeited shares
Debit: Bank A/c ................. ₹12,500   (250 × ₹50)
Debit: Forfeited Shares A/c ...... ₹(250 × (₹80 - ₹50)) = ₹7,500   [This debit adjusts the forfeited shares account for discount on re-issue]
    Credit: Share Capital A/c ........ ₹25,000   (250 × ₹100, representing the face value restored)
  (Being re-issue of forfeited shares at ₹50 per share, with forfeited amount of ₹80 being adjusted)

Note: The above entry may vary depending on whether the forfeited shares account is separately credited with premium and basic share value. The provided figures integrate the amounts to reflect a net reduction for the discount realized on reissue.

8. Final Call on Shares

Final Settlement Including Arrears

The final call is stated to be ₹20 per share on the remaining outstanding shares. Since the final call is met in full, including any arrears from the second call (₹6,000 outstanding for the 200 shares defaulted earlier but later cleared with the final call), we record:

Total final call amount = 10,000 shares × ₹20 = ₹2,00,000.

Journal Entry for Final Call Demand:


// Recording final call demand
Debit: Share Final Call A/c ........ ₹2,00,000
    Credit: Share Capital A/c ........ ₹2,00,000
  (Being final call of ₹20 per share on 10,000 shares)

Receipt Entry for Final Call Money (including arrears):


// Receipt of final call money including arrears of second call for defaulting shares
Debit: Bank A/c ................. ₹2,00,000
    Credit: Share Final Call A/c ........ ₹2,00,000
  (Being receipt of final call money for 10,000 shares with arrears from second call settled)

Summary Table of Transactions

Transaction	Amount (₹)	Description
Application Money Received	1,20,000	12,000 shares @ ₹10 each
Allotment	4,00,000	10,000 shares @ ₹40 each (including premium)
Excess Application Adjusted	20,000	Excess from application money applied to allotment
Net Allotment Receivable	3,80,000	After adjustment for excess application funds
First Call Demand	2,00,000	10,000 shares @ ₹20 each
First Call Received	1,92,000	From 9,600 shares @ ₹20 each
Forfeiture (400 shares 1st Call)	~48,000	Amount received on forfeited shares credited
Second Call Demand	3,00,000	10,000 shares @ ₹30 each
Second Call Received	2,94,000	From 9,800 shares @ ₹30 each
Forfeiture (200 shares 2nd Call)	~6,000 (plus capital adjustment)	For the unreceived second call of 200 shares
Re-issue of Forfeited Shares	12,500	250 shares reissued @ ₹50 per share
Discount on Re-issue	7,500	Difference adjusted in forfeited shares account
Final Call Demand	2,00,000	10,000 shares @ ₹20 each
Final Call Received	2,00,000	Final settlement including arrears

Additional Explanatory Details

Considerations in the Accounting Process

Application and Allotment Adjustments

In oversubscribed issues, the excess application money is not wasted; rather, it is adjusted against future dues such as the allotment. In this case, since the company received application money for 12,000 shares but allotted only 10,000, a portion of ₹20,000 was set aside from the application proceeds to offset a part of the allotment calls.

Handling Calls and Defaulters

As the company issues calls in stages, each call is recorded as a separate receivable. When a default occurs, as seen with the 400 shares in the first call and 200 shares in the second call, the respective amounts not received are recognized in the accounting ledgers. The forfeiture entries are designed to both penalize the defaulters by writing off their share capital and simultaneously hold a record of any amounts that had been received, which may later be adjusted upon reissue.

Reissue of Forfeited Shares at a Discount

The reissuance of forfeited shares offers the company the opportunity to recover a portion of the money lost on defaulting shareholders. Here, 250 forfeited shares are reissued for ₹50 per share, even though they are credited with ₹80 previously. The accounting entry reflects a discount adjustment, with the forfeited shares account absorbing the difference. This process not only brings back some liquidity but also maintains the integrity of the share capital records.

Final Call Settlement Including Arrears

The final call is critical to ensuring that the full amount due from shareholders is eventually collected. In our scenario, despite the default in the second call, the final call collection included arrears from the unsettled second call dues. This enables the maintenance of the share capital at its intended level.