High Land India Ltd. invited applications for 50,000 Shares of Rs. 100 each per share. Applications were received for 70,000 shares and pro-rata allotment was made on the application for 50,000 shares. Rohan to whom 600 shares were allotted failed to pay the allotment money and his shares were forfeited immediately after allotment. Of the shares forfeited, 500 share were reissued as fully paid-up for Rs. 80 per share.
Order to be followed for recording entries will be
(A) Forfeiture of shares
(B) Calculation of amount received on allotment
(C) Adjustment of excess money received on application towards allotment
(D) Reissue of shares
Choose the correct answer from the options given below:
High Land India Ltd. invited applications for 50,000 Shares of Rs. 100 each per share. Applications were received for 70,000 shares and pro-rata allotment was made on the application for 50,000 shares. Rohan to whom 600 shares were allotted failed to pay the allotment money and his shares were forfeited immediately after allotment. Of the shares forfeited, 500 share were reissued as fully paid-up for Rs. 80 per share.
Order to be followed for recording entries will be
(A) Forfeiture of shares
(B) Calculation of amount received on allotment
(C) Adjustment of excess money received on application towards allotment
(D) Reissue of shares
Choose the correct answer from the options given below:
Solution
Looking at the chronological flow of events in this share transaction:
Understanding the scenario: Applications were received for 70,000 shares while only 50,000 shares were to be allotted. This creates an oversubscription situation where excess application money needs to be adjusted first.
Logical sequence of recording entries:
Since applications were received for 70,000 shares but only 50,000 were allotted on a pro-rata basis, there is excess application money with the company. This excess money must be adjusted towards allotment money first before any further transactions.
(C) Adjustment of excess money received on application towards allotment → This happens immediately after allotment is decided, as the company retains excess application money and adjusts it toward the next call.
(B) Calculation of amount received on allotment → After adjusting excess application money, we calculate the remaining allotment money that shareholders need to pay.
(A) Forfeiture of shares → When Rohan fails to pay the allotment money (after adjustment), his shares are forfeited. This can only happen after the allotment stage is complete.
(D) Reissue of shares → Finally, the forfeited shares are reissued. Reissue is always the last step as it can only occur after forfeiture.
The correct sequence is (C), (B), (A), (D), which matches Option 3.
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