Accounting for share capital Rippa Ltd was incorporated on 1 July 2017. The foll

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.

Explanation / Answer

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

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