Dr.

Moshi James
(Ph.D. in Fin Mgt; MSc. A&F; BAF)

Lecturer, Researcher and Consultant

(Financial management, Financial accounting and Financial reporting issues)
Acc 212
Financial Accounting II
Topic 2.
Accounting for the Issue, forfeiture and re-issue of
shares.
Introduction:
A Company is an association of persons created by law with a
perpertual succession and a common seal.

A company is characterized by the following features:

-It is a voluntary association of two or more persons
-It has got a distinct separate legal entity in the eyes of law
-It has got a common seal
-It has a perpetual succession because of its separate legal entity
-The liability of the members of a company is either unlimited, or
limited to the extent of the share-holdings or by guarantee.
Sec.3 of the Company’s Act (2002)
A company may be either -
(a) a company having the liability of its members limited by the
memorandum to the amount, if any, unpaid on the shares respectively
held by them (in this Act termed ''a company limited
by shares''); or

(b) a company having the liability of its members limited by the

memorandum to such amount as the members may respectively
thereby undertake to contribute to the assets of the company in
the event of its being wound up (in this Act termed ''a company
limited by guarantee"); or

(c) a company not having any limit on the liability of its members
(in this Act termed ''an unlimited company'').
Memorandum Association
• It is a legal document prepared during the formation and
registration process of a company to define its relationship
with shareholders and it specifies the objectives for which the
company has been formed.
• Sec.4.-(l)The memorandum of every company shall be printed
in the English language and shall state:-
- name of the company, with ''public limited company'' as the
last words of the name in the case of a public company, or
with ''limited'' as the last word of the name in the case of a
company limited by shares or by guarantee (not being a public
company);
- the objects of the company.
- the liability of its members.
- the amount of share capital with which the company proposes
to be registered and the division thereof into shares of a fixed
amount;
- no subscriber of the memorandum may take less than one
share;
- the name of each subscriber the number of shares he takes.
- The memorandum shall be dated and shall be signed by each
subscriber in the presence of at least one attesting witness. Of
memorandum
- full names, his occupation and postal address.
Articles of Association
• It is a legal document that along with the memorandum of
association serves as the constitution of the company. It is
comprised of rules and regulations that govern the company’s
internal affairs.
• It is concerned with the internal management of the company
and aims at carrying out the objectives as stated in the
memorandum of association.
• They are contracts between the shareholders and the
organization and among shareholders themselves.
• Provisions in the Articles of Association:
- The share capital (issue, calls, forfeiture, reissue, transfer,
alteration, reduction, etc.)
- Directors (number, remuneration, appointment, removal,
disqualifications, proceedings etc.)
- Meetings (Notes, proceedings etc.)
- Voting rights
- Dividends and reserves
- Audit
- Wound up
- Names and descriptions of the founder members
Types of Companies:
There are mainly two types of companies and these are:

-Statutory companies
-Registered companies
Statutory Companies
These are the companies which are formed by the Special
Act of the Parliament. They are not required to submit
the Memorandum or Articles of Association, nor they are
not required to use the word “Limited” after their name.
Their activities are mainly governed by the special act of
the parliament and the CAG usually conducts the annual
audit of the final Accounts.
The TANESCO, the AIR TANZANIA, the TRC etc. are some
examples of Statutory Companies.
Registered Companies
These are companies registered under the companies Act of the
respective country, and these may be Private or Public
companies, and they may be limited or unlimited companies.
• Sec.3.- (I) Any two or more persons, associated for any lawful
purpose may, by subscribing their names to a memorandum of
association and otherwise complying with the requirements of
this Act in respect of registration, form an incorporated
company, with or without limited liability.
Limited Liability companies
• Sec.3(2) Such a company may be either -
(a) a company having the liability of its members limited by the
memorandum to the amount, if any, unpaid on the shares
respectively held by them (''a company limited by shares'');
or

(b) a company having the liability of its members limited by the

memorandum to such amount as the members may respectively
thereby undertake to contribute to the assets of the company in
the event of its being wound up (''a company limited by
guarantee");
Unlimited Liability
companies
Sec3(2) (c) a company not having any limit on the liability of its
members is termed as ''an unlimited company''.
• When the company’s property is not sufficient to pay off its
debts, the private property of its members can be used for the
purpose.
• In other words, the creditors can claim their dues from its
members.
Private and Public Companies
On the basis of number of members a company may be
Private or Public.

-Private Company: Sec27

Is a company which by its articles of association, restricts
the right of the members to transfer shares, limits the
number of members to fifty excluding past or present
employees of the company, prohibits any invitation to
the public to subscribe for its shares or debentures.
Private Company cont…
It has to get its accounts audited by the certified auditor and has
to file the copies of final accounts with the registrar of
companies.
It can be limited or unlimited.
It can not offer its shares for subscription to the public at large.
It can not trade its shares in the stock exchange market.
Public Companies
These are the companies that are not Private Companies.
• Sec.(3) A ''public company'' is a company limited by
shares or limited by guarantee and having a share
capital, being a company the memorandum of which
states that it is to be a public company.

Their minimum number of membership is seven and its

maximum may exceed fifty.
They are required to use the word public Limited Company,
or the abbreviation “PLC” as part of its name.
They are allowed to offer their shares to the public at large
for subscription, and if quoted they are allowed to trade
in the stock exchange market.
• Examples of unlisted companies
-
-
-
-
-
Examples of listed companies
-
-
-
-
-
Share Capital of a Company
• A company, being an artificial person, cannot generate its own
capital which has necessarily to be collected from several
persons through shares.
• These persons are known as shareholders and the amount
contributed by them is called share capital.
• Since the number of shareholders is very large, a separate
capital account cannot be opened for each one of them. Hence,
innumerable streams of capital contribution merge their
identities in a common capital account called as ‘Share Capital
Account’.
Shares Capital cont.
• Share capital is that part of capital of a company that comes
from the issue of shares.
• Is the amount of money a company raises by issuing common
or preferred stock. This can change over time with additional
public offerings.
• There are two general types of share capital which are
common stock and preferred stock.
The capital of a limited company is divided into shares. Shares
can be of any nominal value e.g. Tshs.100, Tshs.650 etc.
To become a member or owner of the company, a person must
buy one or more of the shares hence become a shareholder.
Shares cont…
The share price is paid either in full on application or by
instalments.
If shareholders have paid in full for their shares, their
liability is limited to what they have already paid for
those shares.
If a company looses all its assets, all those shareholders
can loose is their shares.
They cannot be forced to pay anything more in respect of
the company’s losses.
But for the shareholders who have only partly paid for
their shares can be forced to pay the balance owing on
the shares, but nothing more.
Types of shares
Common stock/Ordinary shares:
• This is the most common class of share representing the
owners' interest in a company.
• Holders of these shares are usually allowed to take part
in the management of the company, e.g the directors,
and their shares do not bear any percentage of profit
instead they depend on the remainder.
Types of shares cont…
Preferred stock/Preference shares:
These are the shares with a fixed percent of dividend.
The holders of preference shares are entitled to their
dividend before ordinary shareholders and rank above
ordinary shareholders if should the company be wound
up.
Preference shares are share capital but not equity share
capital, they act as liabilities to the company, and their
shareholders are not allowed to take part in the
management of the company.
They may be Cumulative & Non-Cumulatve.
Preference shares cont…
Non-cumulative Preference shares:
Holders of these shares get their percentage rate of dividend
each year. If the amount paid is less than the maximum agreed
amount, the short fall is lost by the shareholder.
That means the shortfall cannot be carried forward and paid in
the future year.
Preference shares cont…
Cumulative preference shares:
These also have an agreed percent of dividend. However any
shortfall of dividend paid in a year is carried forward to be
paid in the next accounting year(s). The arrears of preference
dividends will have to be paid before the ordinary shares
receive anything.
Types of Share Capital
There are different categories of share capital:

- Authorised Share Capital is also referred to, at times, as registered

share capital. This is the total of the share capital which a limited
company is allowed (authorized) to issue to its shareholders during
its all life time.
- Issued Share Capital is the total of the share capital that has already
been issued to public for subscription.
- Called up Share Capital is the total amount of issued capital for
which the shareholders are required (called-up) to pay.
- Paid up Share Capital is the amount of share capital that has already
been paid by the shareholders.
Types of Share Capital cont.
Example:
• Sunrise Company Ltd., has registered its capital as
TZS400,000,000, divided into 4,000,000 shares of TZS100
each.
• The company offered to the public for subscription of
2,000,000 shares of TZS100 each, as TZS20 on application,
TZS30 on allotment, TZS30 on first call and the balance on final
call.
• The company received applications for 2,500,000 shares. The
company finalized the allotment on 2,00,000 shares and
rejected applications for 50,000 shares. The company did not
make the final call.
• The company received all the amount except on 20,000 shares
where call money has not been received.
• Show how the above details will be shown in the balance
sheet of Sunrise Company Ltd.
Issue of shares
• A salient characteristic of the capital of a company is that the
amount on its shares can be gradually collected in easy
instalments spread over a period of time depending upon its
growing financial requirement.
• The first instalment is collected along with application and is
thus, known as application money,
• The second on allotment (termed as allotment money), and
• the remaining instalments are termed as first call, second call
and so on. The word final call is suffixed to the last instalment.
• However, this in no way prevents a company from calling the
full amount on shares right at the time of application.
Procedure for issue of shares
Par Value: this is the face value of the share. It is also
known as the nominal value or denomination of the
share.
To issue shares a company follows a definite procedure
which is controlled and regulated by the Companies Act
and the Security Exchange Board.
There are two different ways of issue of shares, these are:
i) for cash, and ii) for consideration other than cash
Issue of shares for consideration other than
cash
a) Sometimes share are issued to promoters of the company in
lieu of the services provided by them during the incorporation
of the company. The issue price of these shares is normally
debited to ‘Goodwill Account’ and credit the ‘Share Capital
Account’ by the value of the shares issued.
Issue of shares for consideration other than
cash Cont…
b) Sometimes a company does not have sufficient funds for the
purchase of fixed assets or for payment to creditors it may offer and
allot its shares to vendors/creditors in lieu of cash.
e.g. a building is purchased and payment is made by issuing shares,
the entries shall be:
Dr. Asset A/c
Cr. Creditors A/c
With the value of the Asset purchased, then,

Dr. Creditor’s A/c

Cr. Share Capital A/c
With the Value of the shares issued to pay the creditors
The important steps in the procedure of
share issue are :

• Issue of Prospectus:
Prospectus is an invitation to the public that a new company has come
into existence and it needs funds for doing business. It contains
complete information about the company and the manner in which the
money is to be collected from the prospective investors.
• Receipt of Applications:
prospective investors intending to subscribe the share capital of the
company make application along with the application money and
deposit the same with a scheduled bank as specified in the prospectus.
• Allotment of Shares: If minimum subscription has been received, the
company proceed for the allotment. Letters of allotment are sent to
those whom the shares have been alloted, and letters of regret to those
to whom no allotment has been made. Allotment results in a valid
contract between the company and the applicants who now became
the shareholders of the company.
Accounting treatments:
1. Receipt of share money in one installment

In this case the company receives the share money along with
application.
The accounting treatments are:
Dr. Bank account
Cr. Share application account
(With the money received on application)

Dr. Share Application account

Cr. Share Capital account
(with the money received on application being transferred to the
Share Capital account)
2. Share money received in two or more
installments
In this case the first installment is the amount of which the
applicant pays when applying for the shares, and it is
known as application money.
On the allotment of the shares the allottees are required
to pay the second installment which is termed as
allotment money.
If the company decides to call the share money in more
than two installments the other installment is/are
termed as call money (i.e. first-call, second call or final
call)
Start by receiving the application money
Dr. Bank Account
Cr. Share Application Account
(with the amount received on application)

After the applicants are allotted with the shares, then their application
money is transferred to the share capital account. Hence;

Dr. Share Application account

Cr. Share Capital account
(with the amount of application money transferred to share capital
account)
Then receive the money on allotment
When the allotment becomes due, the applicants are required to pay
the allotment money, being the second installment. The following
entries should be done in the books of accounts:
Dr. Share Allotment account
Cr. Share Capital account
(with the amount due on allotment)

When the allotment money are received:

Dr. Bank account

Cr. Share Allotment account
(with the amount received on allotment)
Calls on Shares
After the receipt of application and allotment money, the money that
remains unpaid can be called up by the company as and when
required.
Therefore a call is a demand made by the company asking the
shareholders to remit the called up amount on shares allotted to
them.
The company may demand the remaining amount in more than two
installments. The amount called after the allotment is known as the
call money.
There may be one or more calls depending on the funds requirements
of the company.
When a call is made, that call’s money becomes due.
Calls on Shares Cont…
Dr. First Call account
Cr. Share Capital
(with the call money due on shares allotted)

When the call money are received;

Dr. Bank account
Cr. First Call account
(with the amount received on first call)

NOTE: the same accounting treatment is followed for recording second

or third call money due and their receipt. And the last call made is
termed as Final Call.
 FULL, UNDER & OVER SUBSCRIPTION OF
SHARES
When the company decides to issue shares to raise capital, it
invites public to buy these share. Since the public is just
invited, without even knowing the number of shares issued,
there may be three situations;
i) Full subscription
ii) Under subscription, and
iii) Over subscription
1. Full subscription
The company may receive applications equal to the number of
shares offered. This is called full subscription.
In this case the accounting treatments are the same as discussed
above on application allotment and calls.
2. Under subscription
This is when the company receives applications less than
the number of shares offered to the public for
subscription.
In this situation a company does not face any problem
regarding the allotment since every applicant will be
allotted all the shares he/she has applied for.
But this can be done only if the subscription for the shares
meets the minimum requirements of the company.
Again the accounting treatments are just the same.
3. Over subscription
When company receives applications for more number
of shares than the number of shares offered to the public
for subscription it is a case of over
subscription.
A company cannot allot more shares than what it has.
In this case, a company has the following options :
• Rejecting the excess application and send letters of
regret with their respective refund.
• Allot shares on prorate base and the excess money
adjusted towards sums due on allotment
(i) Rejection of Excess Applications and Money Returned

The company may reject the applications for shares in excess of the
shares offered for issue and a letter of rejection is sent to such
applicants.
In this case the application money received from these applicants is
refunded to them in full.
The journal entry to be made is as follows:

Dr. Share Application A/c

Cr. Bank A/c
(being application money on …rejected shares refunded to the
applicants)
(ii) Excess application money adjusted towards
sums due on allotment.

Journal entry to be made is :

Dr. Shares Application A/c

Cr. Share Allotment A/c
(Excess application adjusted towards amount due on allotment)
Option II cont…
If the application money received on partially accepted applications is
more than the amount required for adjustment towards allotment
money, the excess money is refunded.
However, if the Articles of the company so authorize, the directors
may retain the excess money as calls in advance to be adjusted
against the call/calls falling due later on.

The entries to be made is as follows

Dr. Share Application A/c/ Share allotment A/c
Dr. Call-in-advance A/c
(being the adjustment of excess share application money retained as
call-in advance in respect of ... shares).
Example:

For example if an applicant has applied for 5000 shares and

is allotted only 2000 shares, then the applications is said
to have been partially accepted.
The company usually evolves some formula of accepting
applications partially or making proportionate allotment/
the Prorata allotment which means that the applicants
are allotted shares proportionately.
In such a case the company adjusts the excess share
money received on application towards share allotment
money due on partially accepted applications.
Accounting treatments:

The journal entry recording the adjustment of application

money towards share allotment money, is as under :

Dr. Share Application A/c

Cr. Share Allotment A/c
(Share application money transferred to Share Allotment
Account in respect of ... shares).
Illustration1
The Full Health Care Ltd has offered to public for subscription 200,000
shares of TZS.1,000 each payable as TZS.300 per share on
application, TZS.300 per share on allotment and the balance on call.
Applications were received for 300,000 shares.
Applications for 50,000 shares were rejected all together and
application money was returned.
Remaining applicants were allotted the offered shares. Their excess
application money was adjusted towards some due on allotment.
Calls were made and duly received.

Required: Make journal entries in the books of the company.

CALLS IN ADVANCE AND CALLS IN ARREARS

If a shareholder pays any amount to company before it is

demanded, that amount is called Call-in-Advance.
This amount is put in a separate account known as Calls-in-
Advance A/c.
This amount is not shown as capital of the company, untill
such time the company makes a demand from all the
shareholders.
Call-in-Advance A/c is shown on the liabilities side of the
Balance Sheet.
Example:
ABC Company Ltd. Has 5,000 shares of TZS1,000 each on
issue, in which TZS.600 has already been called up.
Against the uncalled portion of TZS400 per share the
company makes a call TZS300 per share.
A shareholder holding 600 shares pays TZS400 per share
including the uncalled amount of TZS100 per share along
with the call money.
Required:
Prepare the Accounting entries in the books of ABC
company.
Illustration2
India Software Ltd. offered 50,000 shares of tshs.100 each
to the public payable as:
Tshs. 20 on application
Tshs. 30 on allotment
Tshs. 20 on First call and the balance as and when
required.
All the shares were applied for and duly allotted but
Musket a shareholder holding 2000 shares paid the
entire balance on allotment.
Make necessary journal entries.
Calls in arrears
When the company sends notice to the shareholders to
pay allotment and/or call money, it has to be paid by
them within the specified time period.
If it is not paid by any one or more of the shareholders, the
unpaid amount becomes arrears due from them.
Such arrears are transferred to an account termed as Calls-
in-Arrears A/c.
Accounting Treatment
The following journal entry is made to record Calls-in-Arrears:
Dr. Calls-in-Arrears A/c
Cr. Share Allotment/Call A/c
(with Share allotment/ Call money not received on …. shares)

When the unpaid balance is received later, the following journal entry
is made:
Dr. Bank A/c
Cr. Calls in Arrears A/c
(Amount due on allotment/ call remaining unpaid now received on……
shares.)
Illustration3
X Ltd. made its first call of TZS200 per share on 1st July 2019.
Zaire holding 2,000 shares failed to pay the call money. He
could pay the money only on 31st December, 2019. Company
charged interest of 12% p.a. on arrears.
Make necessary journal entry
Premium and discount on issue of shares

A company can issue its shares at their face value.

When a company issues its shares at their face value, the
shares are said to have been issued at par.
A company can also issue its shares at a price more or less
than its face value i.e., at ‘Premium’ or at ‘Discount’
respectively.
When shares are issued at premium or at discount an
accounting treatment different from shares issued at par
is required.
Issue of shares at premium
If a company issues its shares at a price more than its
face value, the shares are said to have been issued at
Premium.
The difference between the issue price and face value or
nominal value is called ‘Premium’.
If a share of TZS600 is issued at TZS620, it is said to have
been issued at a premium of TZS20 per share.
The money received as premium is transferred to Share
Premium A/c.
Share premium is a capital gain to the company.
Issue of shares at premium cont.
The Premium money may be demanded by the company
with application, allotment or with calls.

A company may demand the total amount of premium in

more than one installment.

In case a company doesn’t specify the particular call with

which Share Premium is to be paid, it is by default
supposed to be called at the time of Allotment.
Accounting Treatments

(a) Share premium collected with share Application money :

If the Share premium is collected on application and the

company has taken decision about the allotment of shares,
the following journal entry should be made :

Dr. Share Application A/c

Cr. Share Premium A/c

(with the amount of Share premium received on application

of the allotted shares transferred to Share Premium A/c)
Accounting Treatment cont.

(b) Premium collected with Allotment money or Calls.

If the company decides to demand the premium with

share Allotment or/and share call money, the journal
entry to be made is:
Dr. Share Allotment A/c
Or/and
Dr. Share Call A/c
Cr. Share Premium A/c
(Adjustment of share premium due on…shares Tshs.. per
share.)
Illustration4
Luxury Cars Ltd. issued 100,000 shares of TZS2,000 each at
a premium of TZS200 per share on 1st January, 2019,
payable as:
- On application TZS700 (including TZS100 premium) per
share up to 31st March, 2019
- On allotment TZS800 (including 100 premium) per share
on 31st June, 2019
- On first and final call TZS700 per share, on 30th
September, 2019.
Applications were received for 120,000 shares and
allotment was made to all on prorate basis.

Make journal entries.

Use of the share premium
• Sec.59(2) of the Companies Act:
The share premium account may be applied by the company:
 In paying up unissued shares of the company to be issued to
members of the company as fully paid bonus shares,
 In writing off -
(a) the preliminary expenses of the company; or
(b) the expenses of, or the commission paid or discount allowed
on, any issue of shares or debentures of the company, or in
providing for the premium payable on redemption of any
redeemable shares or of any debentures of the company.
ISSUE OF SHARES AT
DISCOUNT
When the issue price of share is less than the face value,
shares are said to have been issued at discount.
For example if a company issues its shares of TZS100 each
at TZS90 each, the shares are said to be issued at a
discount of TZS10 per share.
The discount on issue of shares is a loss to the company,
and it is therefore according to the company’s act offset
through the share premium account.
If the amount of share premium is not enough to write-off
the discount amount, then it should be deducted from
the profit of the year in the income statement.
Illustration5
Shina Agro Chemical Ltd. Is a company registered with a
capital of TZS500,000,000 divided into 500,000 shares of
TZS1,000 each. It issued 100,000 shares at discount of
TZS100 per share, payable as :
TZS400 per share on application
TZS300 per share on allotment
TZS200 per share on call.
The Company received applications for 150,000 shares.
Applicants for 120,000 shares were allotted 100,000 shares
and applications for the remaining shares were sent letters
of regret and their application money was returned. Call
was made. Allotment and call money was duly received.
Make journal entries in the books of the company.
Conditions for issue of shares at a discount

• Sec.60.- (1) it shall be lawful for a company to issue at a discount

shares in the company of a class already issued Provided that -
(a) the issue of the shares at a discount must be authorized by
resolution passed in general meeting of the company, and must
be sanctioned by the court;
(b) the resolution must specify the maximum rate of discount at
which the shares are to be issued;
(c) not less than one year must, at the date of the issue, have
elapsed since the date on which the company was entitled to
commence business;
(d) the shares to be issued at a discount must be issued within one
month after the date on which the issue is sanctioned by the
court or within such extended time as the court may allow.
Issue of shares for consideration other than cash

• Any allotment of shares against which cash is not to be

received is called ‘issue of shares for consideration other
than cash’.
• Sometimes shares are issued to the promoters of the
company in lieu of the services provided by them during
the incorporation of the company.
• The issue price of these shares is normally debited to
‘Goodwill A/c’ and journal entry is made as follows:

Dr. Goodwill A/c

Cr. Share Capital A/c
• In case a company does not have sufficient funds for the
purchase of fixed assets or for payment to creditors it may
offer and allot its shares to vendors/creditors in lieu of cash.
• In case of purchase of assets like building, machinery, stock
of materials, etc. the following journal entry is made :
1.
Dr. Assets A/c
Cr. Vendors/Creditors A/c
(Assets purchased)
2.
Dr. Vendors/Creditors A/c
Cr. Share Capital A/c
(Issue of shares of TZS…….each fully paid up)
Sec.55.-(1) Whenever a company limited by shares or
a company limited by guarantee and having a share
capital makes any allotment of its shares, the
company shall within sixty days thereafter deliver to
the registrar for registration - Return as to allotments
(a) a return of the allotments, stating the number
and nominal amount of the shares comprised in the
allotment, the names, addresses and descriptions of
the allottees, and the amount, if any, paid or due and
payable on each share; and
(b) in the case of shares allotted as fully or partly
paid up otherwise than in cash, a contract in writing
constituting the title of the allottees to the
allotment together with any contract of sale, or for
services or other consideration in respect of which
that allotment was made, such contracts being duly
stamped, and a return stating the number and
nominal amount of shares so allotted, the extent to
which they are to be treated as paid up, and the
consideration for which they have been allotted.
Bonus and Rights issue
Rights issue is when the shares are issued to the existing
shareholders at a price which is lower than the par value.
Bonus issue is made when shares are being issued to the
existing shareholders free of charge.
The Company’s act is silent about the treatment of the
rights issue, however the practice has been to treat the
difference in the share premium account.
Sec59(2) among other things, states that the share
premium amount can be utilized to write off the loss as a
result of bonus issue of shares.
Underwriting and commission on issue of
shares
'Underwriting of shares' means to purchase the issued
shares from the principal company and then to resell the
shares to the public.
This action is basically performed by the banks and the
issuing company gives a commission to the bank for
undertaking to sell the shares on its behalf.
After selling the shares to the public, and getting its
commission, the banks get free from any liability.
Moreover, underwriting of shares is primarily done
during Initial Public Offer (IPO) when shares are issued
for the first time by the company.
Question 1
Good luck Ltd. issued 50,000 shares of TZS650 each at a
Premium of TZS50 per share payable as :
- On Application TZS200 per share
- On Allotment TZS220 per Share (including Premium of
TZS20)
- On first and final Call TZS230 per share (including Premium
of TZS30)
Over payment on applications were to be applied towards
sums due on allotment only. Applications were received for
75,000 shares.
Applicants for 15,000 shares were sent letters of regret and
money returned to them in full.
Applicants for 15,000 shares were allotted only 5,000 shares.
All money due on Allotment and call was duly received.
Open up necessary accounts in the books of Good luck Ltd.
Question 2
Super India Petro Chemicals Ltd. is registered with a capital
of TZS100,000,000 divided into equity shares of TZS1,000
each. The company purchased plant of TZS25,000,000 and
paid the amount by issuing shares at a premium of TZS250
per share. The company also issued shares of
TZS50,000,000 to the general public at a premium of
TZS250 per share.
The amount payable was:
TZS650 on application and allotment
TZS300 on first call and the balance on final call.
Company received applications for 75,000 shares and the
allotment was made as follows :
Applicants for: 10,000 shares nil; applicants for 40,000
shares were allotted in Full; applicants for 25,000 shares
were allotted 10,000 shares.
Question 2 cont…
Allotment money was received in full but when calls were
made all shareholders paid the amount in full except a
shareholder holding 4,000 shares belonging to the category
who were allotted full shares failed to pay the 1st call money
which he paid along with the amount of final call.
The company allows interest on call in advance @6% per
annum and charges interest on call-in-arrears @ 12% p.a.
After allotment the calls are made at an interval of 2 months.

Make necessary journal entries in the books of the company.

SOLUTION
DR CR

Plant 25,000,000
Share Capital 20,000,000
Share Premium 5,000,000
(Being plant acquired by issues of shares at a premium)

Bank 48,750,000
Application and Allotment 48,750,000
(Being cash received on application and allotment)

Allotment 48,750,000
Share Capital 20,000,000
Share Premium 12,500,000
Bank 6,500,000
Call in Advance 9,750,000
(Being Application and allotment money transferred to
respective accounts to complete the double entry)
Call in Advance 9,750,000
Bank 4,050,000
Calls in arreas 1,200,000
First call 15,000,000
(Being amount relevant to in the 1st call)

Interest on calls in advance (Payable) 97,500

Bank 97,500
(Being payment of interest on advance receipts)

First call 15,000,000

Share Capital 15,000,000
(Being first call amount transferred to Share
capital account)
Bank 16,224,000
Final call 15,000,000
Calls in arrears 1,200,000
Interest on calls in arrears (Receivable) 24,000
(Being amounts received together with the final call)

Interest on calls in arrears 24,000

Profit and Loss 97,500
Interest on calls in advance 97,500
Profit and Loss 24,000

(Being interest received and interest paid transfred to

the Profit and loss account)

TOTAL 168,943,000 168,943,000