(being refund to unsuccessful applicants) Share Capital/Share Issue Costs Dr 12 400 Cash/Payables Cr 12 400 (being payment of share issue costs) Cash Dr 1 500 000 Cash Trust Cr 1 500 000 (transfer of application money) To 1 October Cash Dr 900 000 Allotment Cr 900 000 (being receipt of allotment money due)
3 1 Feb 2021 Call Dr 1 800 000 Share Capital Cr 1 800 0000 (being first and final call for $3) To 1 March Cash Dr 1 800 000 Call Cr 1 800 000 (being receipt of call money) Question 2.8 Forfeiture of shares The notice shown below appeared in the Financial News on 1 October 2020. Assume the following: • 1 000 000 shares were forfeited • the forfeited shares were all paid to $1.50 per share • all the shares were sold at the auction for $1.80 per share and will be credited to $2.00 • costs of forfeiture and reissue amounted to $4000 • the balance of the Forfeited Shares account will be refunded to the former shareholders. Required Discuss the benefits to a company from forfeiting and reissuing shares, and prepare journal entries to record the forfeiture and reissue above. The main benefit to a company for forfeiting and reissuing shares is to tidy up the share capital account and the share register. Shares are usually forfeited for non-payment of calls; hence, by forfeiting and reissuing these shares, the company can ensure that all shareholders are paid up to the same amount on their shares. This makes it easier in the future when dividends are declared on a per share basis in that all shareholders are paid up to the same amount and no proportionate dividends need to be calculated.
4 ARGAN NL General Journal 2020 Share Capital Dr 2 000 000 Call Cr 500 000 Forfeited Shares Liability Cr 1 500 000 (Forfeiture of 1 000 000 shares called to $2 for non-payment of 50c call) 1 Nov Cash Dr 1 800 000 Forfeited Shares Liability Dr 200 000 Share Capital Cr 2 000 000 (Reissue of forfeited shares at public auction for $1.80, paid to $2) Forfeited Shares Liability Dr 4 000 Cash Cr 4 000 (Expenses of forfeiture and reissue) Forfeited Shares Liability Dr 1 296 000 Cash Cr 1 296 000 (Refund to former shareholders)
5 Question 2.23 Issue by instalments, oversubscription, forfeiture and reissue On 1 April 2019, Magnolia Ltd was incorporated and a prospectus was issued inviting applications for 100 000 shares, at an issue price of $10, payable $5 on application, $2.50 on allotment and $1.25 on each of two calls to be made at intervals of 4 months after the date of allotment. By 30 April, applications were received for 120 000 shares. On 3 May, the directors allotted 100 000 ordinary shares to the applicants in proportion to the number of shares for which applications had been made. The surplus application money was offset against the amount payable on allotment. The balance of the allotment money was received by 10 May. Legal costs of forming the company were $1300 and were paid on 11 May. Share issue costs of $800 were also paid on the same date.
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