Hi, My names Rachel and I am new to the book-keepers forum. I really enjoy reading all the advice and comments left by all and has opened my eyes to lots of new and interesting things I didnt know. I am currently doing ICB Level 3 diploma in Manual book-keeping and have one assignment to complete. I have had no trouble with any of the others and everything is explained very well for me to complete my assignmnets but I seem to be struggling with the Shares, Application and Allotment. I just cant seem to get my head around this chapter. I have bought books and looked on websites but still I cant seem to understand where and what should be put in the ledgers. I wondered if anyone else has stuggled with this and can offer any advice or books you have used to help you through it. I cant put in for my mock exam until the assignment is correct. Please can anyone help. I would be very grateful for any response. Thanks Rachel
What specifically is the problem? Can you put it in an example and we'll explain it for you.
I won't go into a long explanation yet as I'm sure that you probably understand more than you think you do and I would just be teaching stuff you already know.
Sometimes I find that just phrasing a question finds the answer anyway.
Talk in a bit,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Hi, Thanks for replying. Ill explain one of the questions so you can understand where im coming from, hope this is alright. Authorised Share Capital of £50,000 £1 ordinary shares, issued shares stand at £35,000. Another £10,000 £1 ordinary shares have been issued at £1.20 with share premium due on allotment. 10p on application, 50p on allotment, 40p on first call and 20p on second call. 15,370 applications for shares , refund made on 370 shares, the remaining applications were scaled down and the excess money retained against allotment. Ive had to enter these transactions into the ledger accounts and cashbook and am struggling with the Application and Allotment account. In my Bank account ive got DR, applic & allot £1537, applic & allot £4500, first call £4000, second call £2000 and CR Applic & allot £37 (refund on shares) In my Applic & Allotment acc I have DR Share Premium £2000, bank £37, (cant work out the ordinary share capital or balance c/f figures, DR i have Bank £37 and Bank £ not sure of figure, ( i thought it would be £4500) as above in the bank acc. The other ledgers seem fine do you ned to know the figures in them. Can you let me know how to work out the figures which Im missing? Really appreciate your replying Thanks Rachel
These questions are difficult and I jumped at the chance for some practice. My accounts are described below. Note, though, that money is coming out of the Bank to the other accounts so most of these transactions are CR the bank.
Bank
DR App & Allot 37,
CR App & Allot 1537, App & Allot 4500, First Call 4000, Second Call 2000
Balance 12000 CR
App & Allot
DR Bank 1537, Bank 4500
CR Ordinary Share Cap 1000, Bank 37, Ordinary Share Cap 3000, *Share Premium 2000
Balance 0
First Call
DR Bank 4000
CR Ordinary Share Cap 4000
Balance 0
Second Call
DR Bank 2000
CR Ordinary Share Cap 2000
Balance 0
Ordinary Share Capital
DR Balance b/d 35000, App & Allot 1000, App & Allot 3000, First Call 4000, Second Call 2000,
Balance 45000 DR
Share Premium DR App & Allot 2000
Balance DR 2000
*You didnt say when the premium was taken so I've assumed it was on allocation.
I hope this helps and I hope it's right!
Cheers
Neil
-- Edited by Neil on Wednesday 17th of March 2010 11:34:06 AM
-- Edited by Neil on Wednesday 17th of March 2010 11:35:05 AM
-- Edited by Neil on Wednesday 17th of March 2010 11:35:32 AM
Hi Neil, Thanks for your help. This is what I had so far. The figures ive left out in the application and allotment account with question marks are the ones I got wrong. Everything else was correct. Theres supposed to be a c/f and b/d figure!!
bank account DR applic & allot £1537 CR applic & allot £37 applic & allot £4500 first call £4000 sec call £2000
applic and allot account
DR Share premium £2000 CR Bank £1537 Bank £37 Bank ???? Ordinary Sh Cap £4000 ? Bal c/f ?????? totals?????? ?????? bal b/f ?????
ordinary share capital account DR bal c/f £45,000 CR bal b/f £35,000 applic & allot £4000 applic & allot £4000 first call £4000 sec call £2000 £45,000 £45,000 bal b/f £45,000
share premium acc CR applic & allot £2000
first call acc ordinary share capital £4000 Bank £4000
second call account ordinary share capital £2000 Bank £2000
I just need some help and explanation as to how to get the missing totals I cant get my head around them. Thanks Rachel, sorry the original queation for this is above.
-- Edited by Rpotterrach on Wednesday 17th of March 2010 12:09:53 PM
The bit that really seems to complicate this is the additional money for the over subscription being kept against the shares actually issued. Hope that I read the question right.
Ok, there are 10,000 shares available.
15370 have been applied for.
370 refunded immediately.
15000 remaining applications means that for every 3 shares applied for 2 will be allocated. Which makes each £1 share sell at £1.80 rather than the indicated £1.20.
Hope that I've calculated this right. (sure someone will soon jump on me if I haven't) :
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
that's more or less the way that I went originally with this one but then got to thinking about the way Rachel phrased the bit about the monies being retained for the over subscription.
I don't think that the issued share Capital should appear in the share premium account in my explanation but I couldn't think where else to put it to show the actual carried down premium as being £8000.
What do you think?
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
bank account DR applic & allot £1537 CR applic & allot £37 applic & allot £4500 first call £4000 sec call £2000
applic and allot account
DR Share premium £2000 CR Bank £1537 Bank £37 Bank ???? Ordinary Sh Cap £4000 ? Bal c/f ?????? totals?????? ?????? bal b/f ?????
ordinary share capital account DR bal c/f £45,000 CR bal b/f £35,000 applic & allot £4000 applic & allot £4000 first call £4000 sec call £2000 £45,000 £45,000 bal b/f £45,000
share premium acc CR applic & allot £2000
first call acc ordinary share capital £4000 Bank £4000
second call account ordinary share capital £2000 Bank £2000
I just need some help and explanation as to how to get the missing totals I cant get my head around them. Thanks Rachel, sorry the original queation for this is above.
-- Edited by Rpotterrach on Wednesday 17th of March 2010 12:09:53 PM
The Company has Authorised Share Capital of £50,000 £1 ordinary shares, issued shares stand at £35,000 on 1st January. During the year £10,000 £1 ordinary shares have been issued at £1.20 with share premium due on allotment. payment terms were, 10p on application, 50p on allotment, 40p on first call and 20p on second call. 15,370 applications were received for shares ,a refund was made on 370 shares, the remaining applications were scaled down and the excess money retained against allotment.
I have got the above correct except the totals with ????? marks, I just cant seem to work out how to get these totals. Is this question confusing or is it me? Thanks for helping anyway. I really do appreciate it. Thanks Rachel
Oh this is what I received back from my tutor!!
If 10,000 shares are issued and you receive applications for 15,000 you have 5000 extra applications paid for. 5000 x 10p = £500. this excess money is retained against the allotments meaning you have to deduct this money from the allotment account. In other words the 5000 excess applications are not put forward as allotments otherwise it would be over subscribed against only 10,000 shares available. The applications can be retained against a new share issue or refunded, but at the time of entering the figures we have. Ignoring the 370 refunded ones for now as you have already accounted for it. 15,000 applications against only 10,000 possible shares available. The excess £500 is already entered within the £1500 for applications, in other words you are holding £500 too much. Allotments can only be for 10,000 shares at 50p which is £50000 but you have to deduct the over subscriptions for application of £500, therefore allotments would be £45000
Does this make sense to anyone because I cant still make it out. Thanks Rachel
-- Edited by Rpotterrach on Wednesday 17th of March 2010 12:42:51 PM
That line about excess money retained against allotment screams out that the 10000 shares are being traded at £1.80, not £1.20 so I reckon that the share premium should be based on 80p rather than 20p.
Ignoring that for a moment though, from your ?'s The missing credit is the Allocation credit of £4500.
The figure taken to calulate the premium would be the balancing figure from the Application & allotment account.
DR Bank £37 CR Bank £1537 Bank £4500
Bal c/f £6000 totals £6037 £6037 bal b/f £6000
The £6000 would feed into the share premium calculation per my example earlier.
Still think that you should be using the £1.80 rather than £1.20 per share though.
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Oops, my formatting didn't stay at all! perhaps just as well as I was giving you an answer to your missing question marks but your tutor is actually agreeing with me... In an overly complex and non student friendly way!
Oh, amongst the figures your tutor means 5000 and 4500. Not 50000 and 45000.
Not very impressed with their explanation but decoding it they are agreeing with me in that the money for the extra 5000 shares has been retained adding 60p to the price paid for each share.
I think that my pasted pici does actually give the right answer apart from that the issued share capital in the share premium account seems out of place. The results are correct but I suspect that I need to have another T account in there... Let me think about that. Just going to have a play with that and the Ordinary share account to see if I can tweak it a bit.
cheers,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
how about this version that includes the ordinary shares T account (hopefully the picture will post a bit better than the last one!) :
Which gives us the double entry on the issued share capital that was missing from the original.
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I've copied my first answer to add the missing balances. It's just standard bookkeeping though.
Bank
DR App & Allot 37, Balance c/f 12000 TOTAL 12037
CR App & Allot 1537, App & Allot 4500, First Call 4000, Second Call 2000 TOTAL 12037, Balance b/d 12000
App & Allot
DR Bank 1537, Bank 4500, TOTAL 6037
CR Ordinary Share Cap 1000, Bank 37, Ordinary Share Cap 3000, *Share Premium 2000, TOTAL 6037
First Call
DR Bank 4000, TOTAL 4000
CR Ordinary Share Cap 4000, TOTAL 4000
Second Call
DR Bank 2000, TOTAL 2000
CR Ordinary Share Cap 2000, TOTAL 2000
Ordinary Share Capital
DR Balance b/d 35000, App & Allot 1000, App & Allot 3000, First Call 4000, Second Call 2000, TOTAL 45000 Balance b/d 45000
CR Balance c/f 45000 TOTAL 45000
Share Premium
DR App & Allot 2000, TOTAL 2000 Balance b/d 2000
CR Balance c/f 2000 TOTAL 2000
Shaun. As I've learned this, when the monies are retained against allocation it just means that they're held in the App & Allot account until the allocation occurs. Because each subscriber has overpaid 3:2 for the shares they've been allocated there is a discount on the amount they need to pay on allotment. I'm not sure a company can revise the share price after an offer has been made.
The tutor's explanation doesn't appear to clarify anything. Here's how I understand the sequence of events:
1. The company offers 10,000 £1 shares at £1.20, so there is a premium of £ 0.20
2. 15370 shares are applied for, that's £ 1537
3. £37 is refunded leaving £1500
3. Since only 10,000 shares can be issued, each applicant is allotted 2 shares for every 3 they applied for (10,000 versus 15,000)
4. The amount due on application for 10,000 shares is £1,000 which is transferred immediately to share capital. The remaining £500 is retained pending allotment.
5. For 10,000 shares, £5000 would be due from subscribers but they have already overpaid £500 so only £4500 is collected.
...
10,000 shares were issued adding to the 35,000 already issue making the total 45,000.
Thanks so much, this has really helped me now, you two really know what you are doing. I really am thankful for your help and explanations. Ive submitted my assignment now and hopefully will be able to send for my mock by the end of the day. I cant believe how one assignment can cause so much stress. I wish id known about this website before. Ill let you know how I get on. Thanks again Rachel x
I'm seriously interested to know what the answer is on this one. I don't think that there's much point asking Rachels teacher as I'm under the impression that he/she understands it much less than we do and is giving a cryptic overly complex (and incorrect) explanation to try and avoid further questions!
I'm not convinced on the retention of funds. I totally agree that it would be wrong in the real world to offer shares on this basis but just from the way that the question was phrased I'm not sure that those living in the alternate universe of academia might not set a non commercially viable question.
You've lived in that world. I'm sure that you know what I mean!
Rachel,
no probs at all, glad to have been some help... You do of course owe us an answer now though!
From you're tutors answer I think maybe you should be paying Neil and myself rather than them!
Logically Neils correct but as mentioned above I'm suspecting that the question is not completely logically sound.
Have fun and talk soon,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I found this subject the toughest on Level III and had protracted discussion with my tutor about it. She bemoaned the lack of material on this subject but most of my examples were more complicated than this as they involved forfeited shares due to non-payment.
However, I'm pretty sure that retaining the balance of an oversubscription against allotment is standard practice so this is a realistic scenario. I agree, though, that the tutor isn't answering the question at all.
