ACW2491 Financial Accounting

Semester 2 2016
Lecture Handout/Illustrative Examples
Topic 2: Financing Company Operations
Chapter 2: Issuance of shares/ debentures
Chapter 3: Company Operations

Steps in share issuance:

1. Invitation

2. Application

3. Allotment of shares
a. __________________________
b. __________________________
c. __________________________
d. __________________________

4. Allotment money received

5. Call made

6. Call money received

7. Shares forfeited

8. Reissuance of forfeited shares

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 ACW2491 Financial Accounting
Semester 2 2016
Lecture Handout/Illustrative Examples
Topic 2: Financing Company Operations
Illustrative Example 1: Practice Question 2.5 Jacaranda Ltd
On 30 September 2016, Jacaranda Ltd issues a prospectus calling for applications for 600,000 ordinary
shares at an issue price of $3, payable $1.50 on application and $1.50 on allotment. By the closing
date of 31 October 2016, the company had received the following application money:

From applicants for 500,000 shares $750,000

From applicants for 120,000 shares 360,000

On 15 November, it was decided to allot to applicants who paid more than the application money the
number of shares applied for, and to applicants who paid only the applications money 480,000 shares.
Application money was refunded to unsuccessful applicants.

The constitution gives the directors the power to apply excess application money to allotment. All
other allotment money was received by 31 December 2016.

Required:
Prepare journal entries to record the above transactions.

Solution for Jacaranda Ltd:

To record the receipt of application money

Dr
Cr

To refund excess money to unsuccessful applicants

Dr
Cr

Allotment of shares
Dr
Dr
Cr

Transfer of application money to allotment

Dr
Cr

Close cash trust account

Dr
Cr

Cash received from allotment

Dr
Cr

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 ACW2491 Financial Accounting
Semester 2 2016
Lecture Handout/Illustrative Examples
Topic 2: Financing Company Operations
Illustrative Example 2
A prospectus was issued by Cumin Ltd on 1 October 2013, inviting applications for 2,500 8% $100
debentures, payable $50 on application and $50 on allotment. Applications for 3,400 debentures were
received by 31 October. The debentures were allotted, with excess application money being refunded
to the unsuccessful applicants. All allotment money was received by 30 November. Interest was
payable half-yearly on 30 June and 31 December (in proportion to amount paid up).
The debentures were subsequently redeemed at a 10% premium on 1 October 2015, and appropriate
interest paid.

Required
Provide general journal entries for the above transactions, including entries for half-yearly interest
payments. Assume the end of the reporting period is 30 June.

Solution for Cumin Ltd

1Oct2013 31Oct2013 30Nov2013 31Dec2013 30Jun2014

2 months
1 month

2013
Oct 31

(Cash received on 3 400 $100 debentures payable $50 on application)

Oct 31

(Allotment of debentures)

Oct 31

(Refund to unsuccessful applicants)

Oct 31

(Transfer from trust account)

Nov 30

(Cash received on allotment)

Dec 31

(Interest paid on debentures)

2014
June 30

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 ACW2491 Financial Accounting
Semester 2 2016
Lecture Handout/Illustrative Examples
Topic 2: Financing Company Operations

(Interest on $250 000 @ 8% for ½ year)

Dec 31

(Interest on $250 000 @ 8% for ½ year)

2015
June 30

(Interest on $250 000 @ 8% for ½ year)

Oct 1

(Redemption of 2 500 $100 debentures for $110 each)

(Interest expense for three months)

Oct 1

(Cash paid)