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ILLUSTRATION QUESTION
Huduma international Limited, a manufacturing firm has an authorized
capital of Sh.500,000 divided into 5,000 ordinary shares of Sh.100 each.
On 1 January 2016, the Board of directors decided to issue 4,000 shares
at Sh.125 each payable as Sh.50 on application. Sh.50 on allotment
(including the Sh.25 premium) and Sh. 25 on first and final call. The
applications were receivable on 20 January 2016 when allotment was
made. The allotment money was receivable by 15 February 2016. The
first and final call was made on 15 March 2016 and the call money
receivable by 31 March 2016. Applications were received for 6,000
shares. The directors decided to refund money for 1,000 shares and the
other applicants were allotted prorata with the excess money utilized to
meet part of the allotment money. The balance of the allotment money
was received on the due date. The first and final call was made and the
call money received on the due date except for allotees of 200 shares.
The 200 shares with calls arrears were forfeited on 10 April 2016 and
sold for cash at Sh.85 each on 12 April 2016.
Required:
i) Show the journal entries
(ii) Relevant accounts to record the above transactions. (12 marks)
(iii) Balance sheet extract as at 12 April 2016 (3 marks)
Working:
1. Cash received on application (6,000 x 50) =300,000
Dr Bank 300,000
Cr Application and allotment 300,000
2. Application account:
-Entry to ordinary share capital application (4000 x sh. 50) = Sh. 200,000
-Entry to ordinary share capital Allotment (4000 x sh. 25) = sh. 100,000
Total = Sh. 300,000
Dr. Application and allotment 300,000
Cr OSC 300,000
Cr Bank 50,000
To transfer the balance in the forfeiture a/c to the share premium account (with balancing figure)
Dr. Forfeiture account 12,000
Cr. Share premium account 12,000
Sh. Sh.
OSC 300,000 Bank 300,000
Share premium 100,000 Bank 150,000
Bank 50,000 j
450,000 450,000
Sh. Sh.
OSC 100,000 Bank 95,000
j Call in arrears 5,000
100,000 100,000
Sh. Sh.
Forfeited shares 20,000 Application and allotment 300,000
First and final call 100,000
Bank 17,000
Bal c/d 400,000 Forfeited shares 3,000
420,000 420,000
Sh. Sh.
Application & allotment 100,000
Bal c/d 112,000 Forfeited shares 12,000
112,000 112,000
Sh. Sh.
First and final call 5,000 Forfeited shares 5,000
5,000 5,000
Forfeited shares account
Sh. Sh.
Call in arrears 5,000 OSC 20,000
OSC 3,000
Share Premium (Bal. Fig) 12,000 l
20,000 20,000
Bank account
Sh. Sh.
Application and allotment 300,000 Application and allotment 50,000
Application and allotment 150,000
First and final call 95,000
Forfeited shares 17,000 Bal. c/d 512,000
562,000 562,000
(ii)
Huduma International Ltd.
Balance sheet extract as at 12 April 2016
Bank 512,000
512,000