Question

In: Accounting

A newly registered company, Golden Mile Investments Ltd, has issued a prospectus dated 1st January 2018...

A newly registered company, Golden Mile Investments Ltd, has issued a prospectus dated 1st January 2018 inviting the public to apply for the following classes of shares. Both classes of shares have voting rights:

216,000 Ordinary A shares at $6 per share. The terms of the shares on issue are $2.50 on application, $1.50 on allotment, $1.20 on the first call and $0.80 on the second call.

200,000 Ordinary B shares at $3 per share, $2.00 on application and $1.00 on allotment.

If the issue is oversubscribed the directors will make a pro-rata issue of shares and the excess application money will be applied to allotment and calls before any refunds will be given.

On 28th February 2018 applications closed and applications had been received for the following:

Ordinary A Shares

Applications were received for 240,000 shares in total, with applications for 50,000 shares paying $6, applications for 100,000 shares paying $4.00 and the remainder paying only the application fee.

Ordinary B Shares

Applications were received for 250,000 Ordinary B shares, with all applications received paying the full $3.00.

On the 28th of March the shares were allotted, with all allotment money owed paid by the 15th of April. On the 28th of March, share issue costs of $10,000 for the Ordinary A shares and $15,000 for the Ordinary B shares were also paid. The share issue costs related to legal expenses associated with the share issue and fees associated with the drafting and advertising of the prospectus and share issue.

On 1st May the first call is made on the Ordinary A shares and on 1st June the call money was received except for the call on 6,000 shares. The shares were forfeited on 15th June. On 20th June the $6 shares were reissued at $5 paid to $5.20. Costs associated with reissuing the forfeited shares totalled $5,000. The money has not yet been refunded to the defaulting shareholders.

Required:

(Include all workings)

Prepare separate schedules, one for the Ordinary A share issue and one for the Ordinary B share issue that shows the break-up of:

number of shares applied for;

number of shares allotted;

total cash received;

cash received that relates to application;

cash received that relates to allotment;

cash received that relates to calls (in advance); and

cash refunded.                                                                                          

Prepare journal entries for the above transactions. Note: each class of ordinary shares should have separate application, allotment and share capital accounts and the entries should be in strict date order of the underlying event. (Narrations required)

Solutions

Expert Solution

Schedule : Ordinary A share ($6/share)

Description

Fully paid shares

Paid $ 4/share

Paid $ 2.50/share

Total ($)

Nos. of shares applied for

50000

100000

90000

240000

nos. of shares allotted

45000

90000

81000

216000

Total cash received

300000

400000

225000

925000

Cash received that relates to application

112500

225000

202500

540000

Cash received that relates to allotment

67500

135000

22500

225000

Cash received that relates to calls (in advance)

90000

40000

0

130000

Cash refunded

30000

0

0

30000

Schedule : Ordinary B share ($3/share)

Description

Amount ($)

Nos. of shares applied for

250000

nos. of shares allotted

200000

Total cash received

750000

Cash received that relates to application

400000

Cash received that relates to allotment

200000

Cash refunded

150000

Journal Entries

S. No.

Date

Description

Debit ($)

Credit ($)

1

28.02.2018

Bank A/c

1675000

Share Application (Share A)   A/c

925000

Share Application (Share B)   A/c

750000

(Being share application money received )

2.

28.03.2018

Share Application (Share A)   A/c

540000

Share Application (Share B)   A/c

400000

Share Capital A/c

900000

(Being allotment of share made and application money transferred to share capital A/c i.e. $2.50 & $ 2 /share for share A & b respectively)

3.

28.03.2018

Share Issue Expenses A/c

25000

Bank A/c

25000

(Being expenses for issue of shares of Rs. $10000 for share A & $ 15000 for share B)

4

28.03.2018

Share Application (Share A)   A/c

30000

Share Application (Share B)   A/c

150000

Bank A/c

180000

5.

15.04.2018

Bank A/c

99000

Share Application (Share A)   A/c

225000

Share Application (Share B)   A/c

200000

Share Capital A/c

524000

(Being allotment money received and earlier received was transferred from share application a/c i.e. $1.50 & $ 1 /share for share A & b respectively)

6

01.05.2018

Share First Call (Share A) A/c

259200

Share Capital A/c

259200

(being first call due on Share A for $ 1.20/share)

7

01.06.2018

Bank A/c Dr.

158000

Share Application (Share A)   A/c

94000

Share First Call (Share A) A/c

252000

(Being call money received for 210000 shares of $ 1.20 each)

8.

15.06.2018

Share Capital A/c

31200

Share Forfeiture A/c

24000

Share First Call (Share A) A/c

7200

(Being 6000 shares A forfeited due to non-payment of first call)

9.

20.06.2018

Bank A/c

30000

Share Forfeiture A/c

1200

Share Capital A/c

31200

(Being 6000 forfeited share A were reissued at $5 paid to $5.20)


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