Unit – 1

Accounting Principles

Q1) Ashokraj Electronics Ltd. invited application for 15,000 shares of Rs.100/- each. The share amount was payable as under –

Rs.20/- on Application

Rs.30/- on Allotment

Rs.20/- on First Call &

Rs.30/- on Final Call

Applications were received for 10,000 shares. An applications were accepted by the directors. All moneys were called and duly received. Pass necessary journal entries

A1)

Journal Entries in the books of Ashokraj Electronics Ltd

Q2) Cinemax Production Ltd. issued 20,000 shares of Rs.100/- each at a premium of Rs.10/- per share. The share amount was payable as under –

On Application Rs.20/-

On Allotment Rs.40/- (including premium of Rs.10/-)

On First Call Rs.30/-

On Final Call Rs.20/-

Applications were received for 30,000 shares. The shares were allotted as under.

To the applicants of 15,000 shares – full.

To the applicants of 10,000 shares – 5,000 shares &

To the applicants of 5,000 shares – nil.

The application money on the totally rejected applicants was refunded. The excess of application money received from applicants to whom partial allotments was made, was to be retained by the company for utilization against money due on allotment and the calls. The Director made all the calls except the final call. All the money was received except the first call on 1,000 shares.

Give Journal entries

A2)

IN THE BOOKS CINEMAX PRODUCTION Ltd.

Working Note:

Q3) XY Co. Ltd. had part of its share capital in 2000 preference shares of Rs.10 each fully paid up and these have become due for redemption. The preference share capital was to be redeemed out of a fresh issue of equity shares at par made particularly for this purpose and the general reserve of the company stood at Rs. 25,000. Show the journal entries for the above transactions.

A3)

Q4) Kitkat Co. Ltd. Issued 50,000 Equity shares of Rs.10 each and 3000, 10% Preference shares of Rs.100 each, all shares being fully paid. On 31.3.18, Profit and Loss Account showed an undistributed profit of Rs. 50,000 and General Reserve Account stood at Rs.1,20,000. On 2.3.18, the directors decided to issue 1500, 6% Preference shares of Rs.100 each for cash and to redeem the existing preference shares at Rs.105 utilizing as much as would be required for the purpose. Show the journal entries to record the transactions.

A4)

Q5) Explain redemption of preference shares

A5) Preference shares cannot be redeemed unless they are fully paid up. In other words partly paid-up shares cannot be redeemed. Preference shares can be redeemed in two ways- one is profits which would be available for dividend. The other one is out of the proceeds of a fresh issue of shares made with the object of redemption.

When Preference shares are redeemed out of profits available for distribution as dividend, a sum equal to the nominal amount of the shares so redeemed must be transferred out of profits to a reserve account to be called ‘Capital Redemption Reserve Account’. Such reserve can be used for issuing fully paid bonus shares to the shareholders.

Conditions for redemption of preference shares

Before going for redemption, the company must follow the following conditions

The redeemable preference shares can be redeemed by a) the proceeds of a fresh issue of equity shares/ preference shares, b) the capitalization of undistributed profit i.e. creating capital redemption reserve account, or c) a combination of both (a) and (b).

Accounting entries required for redemption of preference shares.

When new shares are issued at par:

Bank A/c …………………Dr.

To Share Capital A/c.

When new shares are issued at premium:

Bank A/c ……………………..Dr.

To Share Capital A/c

To Share Premium A/c

When new shares are issued at a discount:

Bank A/c ………………Dr.

Discount on Issue of Share Capital………..Dr.

To Share Capital A/c.

Conversion of partly paid shares into fully paid shares:

a) Share Call A/c ………..Dr.

To Share Capital A/c

b) Bank A/c ……………..Dr.

To Share Call A/c.

When preference shares are redeemed at par:

Redeemable Preference Share Capital A/c ………………Dr.

To Preference shareholders A/c.

When preference shares are redeemed at a premium:

Redeemable Preference Share Capital A/c ………………Dr

Premium of Redemption Preference Share Capital A/c….Dr.

To Preference shareholders A/c.

Adjustment of premium on redemption:

Profit and Loss A/c………………..Dr.

Share Premium A/c ……………….Dr.

To Premium of Redemption Preference Share Capital A/c

Transferring the amount to Capital Redemption Reserve Account:

General Reserve A/c …………….Dr.

Profit and Loss A/c …………….Dr.

To Capital Redemption Reserve A/c

Expenses on issue of shares:

Expenses on Issue of shares A/c…………….Dr.

To Bank A/c.

When payment is made to preference shareholders:

Preference Shareholders A/c ……………Dr.

To Bank A/c.

When the fully paid bonus shares are issued:

Capital Redemption Reserve A/c …………….Dr.

General Reserve A/c …………………………..Dr.

Share Premium A/c ……………………………Dr.

Profit & Loss A/c …………………………….. Dr.

To Bonus to Shareholders A/c

Capitalization of profit:

Bonus to Shareholders A/c ………………Dr.

To Equity share capital A/c