Question

Morning Star Ltd was registered on 1 July 2018, as a company with a constitution limiting the

shares that could be offered to 7 000 000 Ordinary shares (including all classes) and 2 000 000

preference shares. The company issued a prospectus dated 1 July 2018 inviting the public to

apply for 4 000 000 Ordinary A class shares at $3.00 per share. The terms of the shares on issue

are $1.50 on application, $1.00 on allotment and $0.50 to be called within six months of

allotment before 31 December 2018.

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 15 July, the directors also decided to issue 1 000 000 non-voting Ordinary B shares as fully

paid to the promoters for a payment of $2.00 per share.

On 30 July applications closed. Applications for 5 000 000 shares in total had been received with

applicants for 3 500 000 shares paying the full price and 1 500 000 shares paying only the

application fee.

On 1 August, the shares were allotted with all allotment money owed paid by the 30 August.

The company paid share issue costs of $100,000 for the issuing of Ordinary A shares on 1

September. 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.

The call on the Ordinary A shares was made on 15 Septmber and due by 30 September. All call

money was received except for the call on 75 000 shares. The directors met and forfeited the

shares on 15 October. On 30 October the forfeited shares were reissued at $2.80 fully paid to

$3.00. Costs associated with reissuing the forfeited shares totalled $5,000. The remaining money

was refunded to the defaulting shareholders on 15 November.

The directors decided on 1 November to make a one-day offer of a non-renouceable rights issue

to existing Ordinary A shareholders to purchase additional shares at $1 each for every 5 shares

of holding. Holders of 2 000 000 shares exercised their right.

On 1 January 2019, Morning Star Ltd issued via a private placement semi-annual coupon

debentures (which pay interest every 6 months) with a nominal value of $300,000. The debenture

term is five years and the coupon rate is 12% per year. The market requires a rate of return of

10% per year. The money came in and the debentures were allotted on the same date.

The company issued via a private placement 1 million redeemable preference shares of $2.00

each on 30 June 2019. The shares offer a fixed dividend of 7 per cent per annum. The shares are

later redeemed to non-voting Ordinary Class B shares at the options of the shareholders on 30

June 2021.

Required:

(a) Prepare journal entries for the above transactions for the year ended 30 June 2019.

Note: the entries should be in strict date order of the underlying event.

Answer 1

Journal Entries in the Books of Morning Star Ltd (Year Ending 30.06.2019)

Date Particulars Amount ($ Dr.) Amount ($ Cr.)

30.07.2018 Bank A/c --------Dr. 1,17,50,000

To Share Application A/c 1,17,50,000

(Being application of 50,00,000 shares money received out of which 35,00,000 shares paid in full)

30.07.2018 Share Application A/c Dr. 80,00,000

To Preference Share Capital Account     20,00,000

To Ordinary Share Capital Account 60,00,000

(Being application money received from non-voting rights preference shares alloted to Directors and )

30.08.2018 Share Allotment A/c Dr. 40,00,000   

To Ordinary Share Capital A/c 40,00,000

(Being Allotment Money |Due on 40 lakhs ordinary shares)

30.08.2018 Bank A/c Dr. 15,00,000

Share Application A/c Dr. 25,00,000

To Share Allotment A/c 40,00,000

(Being Allotment money received on 15 lakh shares and 25 lakh shares allotment money adjusted with excess money received on application)

01.09.2018 Legal Expenses Dr. 100000

To Bank A/c 100000

(Being legal expenses related to issue of ordinary shares paid)

15.09.2018 Share Call Money A/c Dr. 20,00,000

To Share Capital A/c 20,00,000

(Being Call Money Due)

30.09.2018 Bank A/c -----Dr 7,12,500

Share Application A/c ....Dr. 12,50,000

Calls in Arrear A/c ----Dr. 37,500

To Share Call Money 20,00,000

(Being all call money received except for 75,000 shares @ $ .50 per shares)

15.10.2018 Share Capital A/c Dr.. 2,25,000

To Calls in Arrear A/c    37,500

To Shares Forfeited A/c 1,87,500

(Being 75,000 shares forfeited)

30.10.2018 Bank A/c ----Dr.    2,10,000

Shares Forfeited A/c Dr. 15,000  

To Share Capital Capital A/c    2,25,000

(Being 75000 shares re-issued at $ 2.8 per shares)

30.10.2018 Shares Forfeited A/c -----Dr. 5000

To Bank A/c 5000

(Being $5000 paid on re-issue on shares)

01.11.2018 Bank A/c Dr. 4,00,000

To Right Issue of Shares A/c 4,00,000

(Being 4,00,000 right issue of shares exercised and issued)

01.11.2018 Right Issue of Shares A/c 4,00,000

To Share Capital A/c 4,00,000

(Being 4,00,000 right issue of shares exercised and issued)

15.11.2018 Shares Forfeited A/c -----Dr. 1,67,500

To Bank A/c 1,67,500

(Being balance amount credit in shares forfeited a/c refunded to share folders)   

01.01.2019 Bank A/c Dr. 3,00,000

To 12% Debentures A/c 3,00,000

(Being Debentures issued at coupan rate 12% p.a.)

30.06.2019 Interest on Debentures A/c Dr. 18,000

To Bank A/c 18000

(Being interest on debenture paid @ 12% on $300000 for 6 month)

30.06.2019 Bank A/c Dr 20,00,000

To Preference Shares Capital A/c 20,00,000

(Being 1 million preference shares issued @ $2 per shares through private placement)