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RCK Ltd issues a prospectus inviting the public to subscribe for 90 million ordinary shares of...

RCK Ltd issues a prospectus inviting the public to subscribe for 90 million ordinary shares of $2.00 each. The terms of the issue are that $1.00 is to be paid on application and the remaining $1.00 within one month of allotment.

Applications are received for 108 million shares during July 2018. The directors allot 90 million shares on 15 August 2018. All applicants receive shares on a pro rata basis. The amounts payable on allotment are due by 20 September 2018. By 20 September 2018 the holders of 18 million shares have failed to pay the amounts due on allotment. The directors forfeit the shares on 30 September 2018.

The shares are resold on 15 October 2018 as fully paid. An amount of $2.00 per share is received. The balance of forfeited shares is refunded on 20 October 2018.

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Expert Solution

July 2018

Bank A/c $108,00,0000 ($108 million*$1=$ 108 million)

To Share application A/c $ 108,000,000

(being share application money received for 108 million shares at $ 1 each)

15 Aug 2018

Share application A/c $ 108,000,000

To Share Capital $ 90,000,000    (90 million*$1=$ 90,000,000)

To Share Allotment A/c $ 18,000,000 (18 million Shares*$1= $ 18,000,000)

(being prorata allotment made)

Prorata is adjusting the excess application money against allotment and alloting small proportion of shares to all applicants less than they have applied on prorata basis)

For ex: if one has applied for 100 shares ,Under prorata allotment he will get 80 shares alloted and his excess application money will be alloted against his allotment money due)

Prorata is made when excess application money is received .All applicants are given chance on prorata basis rather than rejecting excess applications received

In this case the excess 18 million Over subscription is adjusted against allotment due . ( 90/108 is prorata allotment done here which means everyshare applicant will get 0.83% of number of shares they have appllied for)   

20 Sep 2018

Share allotment A/c 90,000,000 (90million shares*$1 each)

To Share Capital 90,000,000  

(being allotment money due on 90 million shares at $ 1 per share)

Bank A/c 54,000,000

To share Allotment 54,000,000

(being share allotment money actually received after excess application money adjustement of $ 18million and failure of 18 million shares to pay $1 on allotment)  

90 million-18 million-18 million=54 million

(excess application money adjusted (18 million*$1 )and 18 million*$1 defaulter who failed to pay money)

on Forfeiture

30 sep 2018

Share Capital A/c Dr $ 36,000,000 (18 million*$2 per share) ($1 on application +$1 on allotment)

To Share   Allotment $ 18,000,000 ($18 million*$1 which was not received credited back )   

To Forfeited Shares $ 18,000,000 ($18 million*$1 received on application now forfeited)

on reselling

15 Oct 2018

Bank A/c $ 36,000,000 ( 18 million shares*$2=$ 36 million fully paid)

To Share Capital $ 36,000,000  

(being that 18 million defaulted shares fully resold at fully paid $ 2 per share)

20 Oct 2018

Forfeited Shares $ 18,000,000 (balance of forfeited shares refunded)

To Bank A/c $ 18,000,000

(being amount on forfeited shares refunded)

(which means $18 million received on share application (18 million*$1 per share)on defaulted shares which was forfeited earlier now paid back)


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