Question

ASX Ltd makes an offer of shares to the public. In its prospectus it notes that the shares are to be issued at $1.00 per share. The shares are to be paid in three instalments. The first payment, to be made on application is $0.40. A second amount of $0.40 will be due within one month of allotment and the third amount of $0.20 will be due within one month of the first and final call. ASX Ltd will seek to issue 10 million shares. The closing date for applications is 31 August 2019.

By the closing date applications have been received for 14 million shares. To deal with the oversubscription, ASX Ltd has decided to issue shares to all subscribers on a pro rata basis.

All amounts due on allotment are paid by the due date. The first and final call for $0.20 is made on the 30 November 2019, with the amounts being due by 31 December 2019. Holders of two million shares fail to pay the amount due on the call by the due date and on the

15 January 2020 these holders have their shares forfeited. The forfeited shared are auctioned on the 15 February 2020. An amount of $0.70 per share is received. The cost of holding the auction is $5000. The shares are sold as “fully paid”.

Required:

Provide the accounting journal entries necessary to account for:

1) The forfeiture of the shares

2) To refund the balance remaining in the forfeited shares account to the former shareholders

Note – you are only required to provide two journal entries in total

Answer 1

	ASX Ltd makes an offer of shares to the public
	Company Seek to Issue 10 Million Shares
	Issue Price $ 1 Per Share
	Amount to be paid in Installment
	First	Application	$0.40
	Second	Allotment	$0.40
	Last	First and Final Call	$0.20
			$1.00
	Application for 14 Million Share Received
	Share to be Alloted 10 Million Shares
1)	Application			2)	Allotment
	Money Received on Application			Money total due on Allotment
		(14 Million * $0.40 = $ 5.60 Millions )		(10 Million * $0.40 = $ 4 Million)
	Money Adjusted on Application			Less Excess on application $ 1.60 Million
		(10 Million * $0.40 = $ 4 Millions)
						Balance due on Allotment $ 2.40 Million
	Excess Money on Application	$ 1.60 Million		Received by Due Date
3)	First and Final Call
	Money total due on I and Final Call
		(10 Million * 0.20 = $ 2 Million)
	Amount Not Received by Due date
		(2 Million * 0.20 = $ 0.40 Million)
	Amount Received on First Call
		(8 Million * 0.20 = $ 1.60 Million)
	Journal Entries			(in Millions)
	Forfeited Shares			Debit	Credit
	15-Jan	Share Capital			$2		(2 Million * $ 1 )	Total Call
			Call in Arrear (1st Call)	$0.40	Amount not Received
			Forfeited Shares		$1.60	Amount Received
	15-Feb	Bank			$1.40
		Forfeited shares			$0.60
			Share Capital		$2
		(Reissue in Auction)
		Forfeited shares			$0.005
			Bank			$0.005
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