• The prospectus specified that $2.50 was payable on application, a further $1.25 was payable on allotment and the final $1.25 was payable at call. • On 31 January 2012 ABC issued 100,000 shares. • On 31 May 2012, the company made the call for the outstanding balance of $1.25 per share. The call was payable by 30 June 2012. • At 30 June 2012, the call on 10,000 shares remained unpaid. Required: Prepare the journal entries to account for the issue of shares for ABC.
Australian School of Business Issue of shares – Deposit on application, instalment on allotment, balance on call (Example 3) 1 January 2012 Dr Cash trust 250,000 Cr Application 250,000 To record receipt of application monies prior to issuing the shares 31 January 2012 Dr Application 250,000 Dr Allotment 125,000 Cr Share capital 375,000 Issue of shares applied for Dr Cash 250,000 Cr Cash trust 250,000 Transfer from cash trust on issue of shares (100,000 shares x $2.50) (100,000 shares x $3.75)
Australian School of Business Issue of shares – Deposit on application, instalment on allotment, balance on call (Example 3) 31 January 2012 Dr Cash 125,000 Cr Allotment 125,000 Cash received on allotment 31 May 2012 Dr Call 125,000 Cr Share capital 125,000 Call of $1.25 per share on 100,000 shares issued Balance of share capital a/c now $500,000 The call account is a temporary account used when further amounts are owing when a call is made – represents a receivable of the company
Australian School of Business Issue of shares – Deposit on application, instalment on allotment, balance on call (Example 3) 30 June 2012 Dr Cash 112,500 Cr Call 112,500 Cash received on allotment • The balance in the call account is $12,500, being $1.25 x 10,000 shares. • Unpaid calls are referred to as calls in arrears and are shown as a reduction of share capital in the company’s financial statements. • The balance in the share capital account at 30 June is as follows: Share capital (100,000 ordinary shares @ $5) 500,000 Less: Calls in arrears (10,000 shares @ $1.25) (12,500) TOTAL SHARE CAPITAL 487,500 (100,000 – 10,000 = 90,000 shares x $1.25)
Australian School of Business Under/Oversubscription • The number of shares applied for may exceed the number of shares available for issue. • In such cases the directors of the company may: • Reduce the number of share to be issued to each applicant (on a pro-rata basis) • Issue shares only to certain applicants (eg on a first-in-first-served basis) • The treatment of excess application monies depends on the terms of a company’s constitution. Options include: • Refunding excess application monies to unsuccessful applicants; or • Retaining the excess application money as an advance on future calls The calls in advance account is treated as contributed equity even though it is legally a liability
Australian School of Business Oversubscription (Example 4) • ABC issued a prospectus for 100,000 $5 shares on 1 January 2012. • The prospectus required payment of $3 on application and $2 in one years time. • The company received applications for a total of 125,000 shares – these applications were received throughout the month of January.
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