Arati Drugs Limited wanted to extend its production operations in the northern region of India. For this, the directors issued
Arati Drugs Limited wanted to extend its production operations in the northern region of India. For this, the directors issued a prospectus inviting applications for 50,00,000 equity shares of ₹10 each, at a premium of ₹1 per share. The amount payable was ₹4 on application, ₹5 (including premium) on allotment and the balance on the first and final call.
The equity issue was fully subscribed and all the money due was received, except in the case of Rajesh, to whom 500 shares were allotted, and Brajesh, to whom 2,000 shares were allotted. Both failed to pay the allotment money. The directors of the company were empowered by the articles of the company to forfeit the shares on which any amount remained unpaid. Accordingly, the directors sent a 14 days’ notice to Rajesh and Brajesh asking them to pay the amount due, along with the accrued interest. After the expiry of the notice period, the board of directors passed a resolution to forfeit all the shares on which the amount was not paid.
Pass the journal entries under the two cases:
(a) Shares were forfeited upon non-payment of allotment money.
(b) Shares were forfeited upon non-payment of call money only.
Also, suggest the maximum discount that can be allowed on a reissue of the forfeited shares under both the above cases, by the directors of Arati Drugs Limited.
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