Question

Rippa Ltd was incorporated on 1 July 2017. The following transactions and events occurred during the year ended 30 June 2018:

1 Jul 2017: Rippa Ltd makes an offer to the public for investors to subscribe for 5,000,000 shares, at an issue price of $4.00 per share, with $2.50 payable on application, $1.00 being payable within one month of allotment, and $0.50 payable on a call to be made at a later date. The issue is underwritten at a commission of $12,000.

31 Jul 2017: Applications close, with applications received for 6,000,000 shares.

10 Aug 2017: 5,000,000 shares are allotted in proportion to the number of shares for which applications had been made. The surplus application money is offset against the amount payable on allotment.

12 Aug 2017: The underwriter’s commission is paid.

10 Sep 2017: All allotment money is received.

1 Feb 2018: The call is made, with money due by 28 February 2018.

28 Feb 2018: All call money is received except for holders of 40,000 shares who fail to meet the call.

20 Mar 2018: The shares on which call money was not received are forfeited and sold as fully paid. An amount of $3.20 is received for each share sold. Costs of the forfeiture and reissue amount to $4,000, and are paid.

25 Mar 2018: The balance of the Forfeited Shares Account is returned to the former shareholders.

Required:

i) Prepare the journal entries to record the transactions of Rippa Ltd up to and including that which took place on 25 March 2018. Show all relevant dates and narrations.

ii) After returning money to the former shareholders on 25 March 2018, one of the former shareholders has contacted you in relation to the amount of money that he received. He tells you that he paid the application money and allotment money for the shares that he had, so he should get an amount back of $3.50 per share. Explain why the amount returned to the former shareholders was not $3.50 per share, and prepare workings to show how the refund per share was calculated.

Answer 1

Solution:

Working note:1

Table for Shares Applied,Alloted ,cash received related to application& Excess cash received

(1) : preparation of Jpurnal Entries In the Books of Rippa Ltd

(2) :  Explaining why the amount returned to the former shareholders was not $3.50 per share

The Amount discounted was not equivalent to 3.50 as requested by one investor since when he neglected to pay the sum his offers are Forfeited and the organization has likewise to bring about Additional cost of 4,000 for Re-issuing it.

At the point when the organization has re-issued these offers it will get just 3.20 and not 4.

Subsequently the organization needs to endure lost 0.80 =(4 - 3.20) and furthermore needs to acquire re-issue cost of 0.10 =(4,000/40,000)

Subsequently, Total misfortune end up 0.90 =(0.80+0.10) and this misfortune must be conceived by the investors.

In this manner ,investor Will not get $3.50 per share rather they will get just $2.60 per share