Excess money on Sahre Application
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
19 August 2010
X applied for 150 shares and 100 shares allotted to him. FV of Rs. 10.
Issue Price Rs. 12 per share {Rs. 2 Application., (3 on Allot. + Rs. 2 on Securities Premium due at d time of allotment) Rs. 5 on First and final call.
Now My Qn. is How we treat the excess amount received on application at the time of forfeiture of these shares.
excess of amount of Rs 100 used for Capital or securities premium.
What will be Forfeiture.
Issue Price Rs. 12 per share {Rs. 2 Application., (3 on Allot. + Rs. 2 on Securities Premium due at d time of allotment) Rs. 5 on First and final call.
Now My Qn. is How we treat the excess amount received on application at the time of forfeiture of these shares.
excess of amount of Rs 100 used for Capital or securities premium.
What will be Forfeiture.
Querist : Anonymous
Querist :
Anonymous
(Querist)
22 August 2010
dear expert plz sove the query..
21 July 2024
In the scenario you've described, let's break down the treatment of excess amount received on application and its forfeiture:
1. **Excess Amount Received on Application:**
- X applied for 150 shares at Rs. 12 per share.
- The face value (FV) of each share is Rs. 10.
- The issue price includes:
- Rs. 2 per share as application money.
- Rs. 3 per share as allotment money (due at the time of allotment).
- Rs. 5 per share as first and final call money.
Therefore, the total amount payable per share upon application is Rs. 10 (FV) + Rs. 2 (application) = Rs. 12.
X applied for 150 shares, amounting to Rs. 1,800 (150 shares * Rs. 12 per share).
However, only 100 shares were allotted to X, totaling Rs. 1,200 (100 shares * Rs. 12 per share).
Hence, X has paid Rs. 600 in excess of the amount required for the 100 shares allotted (Rs. 1,800 - Rs. 1,200).
2. **Treatment of Excess Amount Received:**
- The excess amount received on application (Rs. 600) can be treated in different ways:
- **As Securities Premium**: Typically, excess application money received over and above the nominal value (FV) of shares can be treated as securities premium. This enhances the capital base of the company without increasing the nominal share capital.
- **As Capital**: In certain cases, if permitted by the company's articles of association and applicable laws, the excess amount can also be utilized as part of the share capital.
3. **Forfeiture of Shares:**
- If shares are forfeited due to non-payment of subsequent calls (in this case, the first and final call money of Rs. 5 per share), the treatment of the excess amount received on application depends on company policy and legal requirements.
- The forfeited shares revert to the company, and the excess amount paid on application (Rs. 600) can be utilized as per the company's discretion:
- If treated as securities premium, it remains in the securities premium account and can be used for specified purposes like issuing bonus shares, writing off preliminary expenses, etc.
- If treated as part of the share capital, it becomes part of the company's equity base.
4. **Accounting Entries:**
- At the time of application:
- **Bank Account Dr.** Rs. 1,800 (Total application money received)
- **Share Application Account Cr.** Rs. 1,800 (Recording application money received)
- At the time of allotment:
- **Share Application Account Dr.** Rs. 1,200 (Amount due for 100 shares allotted)
- **Share Allotment Account Cr.** Rs. 1,200 (Recording allotment of shares)
- The excess Rs. 600 remains in the Share Application Account until further action is taken (forfeiture or adjustment).
5. **Forfeiture Entry (if shares are forfeited):**
- **Share Allotment Account Dr.** Rs. 1,200 (Forfeited amount)
- **Share Capital Account Cr.** Rs. 1,000 (Nominal value of forfeited shares)
- **Share Application Account Cr.** Rs. 200 (Excess application money)
- **Securities Premium Account Cr.** Rs. 600 (If treated as securities premium)
These entries illustrate the accounting treatment when shares are forfeited, ensuring proper recording and compliance with accounting standards.
Always consult with a qualified accountant or financial advisor for specific guidance tailored to your company's circumstances and legal requirements.
1. **Excess Amount Received on Application:**
- X applied for 150 shares at Rs. 12 per share.
- The face value (FV) of each share is Rs. 10.
- The issue price includes:
- Rs. 2 per share as application money.
- Rs. 3 per share as allotment money (due at the time of allotment).
- Rs. 5 per share as first and final call money.
Therefore, the total amount payable per share upon application is Rs. 10 (FV) + Rs. 2 (application) = Rs. 12.
X applied for 150 shares, amounting to Rs. 1,800 (150 shares * Rs. 12 per share).
However, only 100 shares were allotted to X, totaling Rs. 1,200 (100 shares * Rs. 12 per share).
Hence, X has paid Rs. 600 in excess of the amount required for the 100 shares allotted (Rs. 1,800 - Rs. 1,200).
2. **Treatment of Excess Amount Received:**
- The excess amount received on application (Rs. 600) can be treated in different ways:
- **As Securities Premium**: Typically, excess application money received over and above the nominal value (FV) of shares can be treated as securities premium. This enhances the capital base of the company without increasing the nominal share capital.
- **As Capital**: In certain cases, if permitted by the company's articles of association and applicable laws, the excess amount can also be utilized as part of the share capital.
3. **Forfeiture of Shares:**
- If shares are forfeited due to non-payment of subsequent calls (in this case, the first and final call money of Rs. 5 per share), the treatment of the excess amount received on application depends on company policy and legal requirements.
- The forfeited shares revert to the company, and the excess amount paid on application (Rs. 600) can be utilized as per the company's discretion:
- If treated as securities premium, it remains in the securities premium account and can be used for specified purposes like issuing bonus shares, writing off preliminary expenses, etc.
- If treated as part of the share capital, it becomes part of the company's equity base.
4. **Accounting Entries:**
- At the time of application:
- **Bank Account Dr.** Rs. 1,800 (Total application money received)
- **Share Application Account Cr.** Rs. 1,800 (Recording application money received)
- At the time of allotment:
- **Share Application Account Dr.** Rs. 1,200 (Amount due for 100 shares allotted)
- **Share Allotment Account Cr.** Rs. 1,200 (Recording allotment of shares)
- The excess Rs. 600 remains in the Share Application Account until further action is taken (forfeiture or adjustment).
5. **Forfeiture Entry (if shares are forfeited):**
- **Share Allotment Account Dr.** Rs. 1,200 (Forfeited amount)
- **Share Capital Account Cr.** Rs. 1,000 (Nominal value of forfeited shares)
- **Share Application Account Cr.** Rs. 200 (Excess application money)
- **Securities Premium Account Cr.** Rs. 600 (If treated as securities premium)
These entries illustrate the accounting treatment when shares are forfeited, ensuring proper recording and compliance with accounting standards.
Always consult with a qualified accountant or financial advisor for specific guidance tailored to your company's circumstances and legal requirements.
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