Question

Accounting for share capital

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

Journal entries in the books of Rippa Ltd.
Date	Particulars	Debit	Credit
31/07/2017	Bank	15000000
	Share Application		15000000
	Being application money received for 6000000 shares @ $2.5 per share)
31/07/2017	Underwriting Commission	12000
	Underwriting Commission Payable		12000
	Being liability of commission recognised
10/08/2017	Share Application	15000000
	Share Capital		12500000
	Calls in Advance		2500000
	Being application money transferred to Capital and the excess money to calls in advance to be adjusted against allotment
12/08/2017	Underwriting Commission Payable	12000
	Bank		12000
	Being underwriting commission paid
10/09/2017	Share Allotment	5000000
	Share Capital		5000000
	Being the amount of allotment money receivable recognised
10/09/2017	Bank	2500000
	Calls in Advance	2500000
	Share Allotment		5000000
	Being money received during application adjusted against allotment and the balance allotment money of $1 per share received
01/02/2018	Share Call	2500000
	Share Capital		2500000
	Being call made for shares
28/02/2018	Bank	2480000
	Calls in Arrears	20000
	Share call		2500000
	Being call money received except on 40000 shares @ $0.5 per share
20/03/2018	Share Capital	160000
	Share forfeiture		140000
	Calls in arrears		20000
	Being shares of 40000 forfeited for non-receipt of call money
20/03/2018	Bank	128000
	Share forfeiture	32000
	Share Capital		160000
	Being the forfeited shares reissued at $3.2 per share as fully paid
20/03/2018	Share forfeiture	4000
	Bank		4000
	Being expenses incurred in forfeiture and reissue
	Balance in share forfeiture account	140000-32000-4000
		104000
	Number of former shareholders	5000000-40000
		4960000
	Refund per share	0.020967742
25/03/2018	Shareholders	104000
	Bank		104000
	Being the profit on forfeiture refunded to former shareholders
	As the profit on forfeiture is only $104000, shareholder cannot get $3.5 per share despite he paying that amount