Re-Issue of Forfeited Shares – At a Discount

Re-Issue of Forfeited Shares – At a Discount :

If forfeited shares are re-issued at a discount, the amount of discount can, in no case, exceed the amount credited to Shares Forfeited Account. Discount thus allowed on re-issue has to be debited to Shares Forfeited Account. If the discount allowed on re-issue is less than the forfeited amount, there will be a surplus left in the Shares Forfeited Account which will be treated as net gain on forfeiture. As this gain is in the nature of capital profits, it should be transferred to Capital Reserve Account. Capital Reserve Account will appear on the liabilities side of the balance sheet under the head “Reserves and Surplus”.

JOURNAL ENTRIES

1. On re-issue of shares:

Bank Dr. (with the amount received on re-issue.)

Shares Forfeited A/c Dr. (with the discount allowed on re-issue.)
To Share Capital A/c (with the total.)

2. On transfer of balance in Shares Forfeited Account, if any, to Capital Reserve Account:

Shares Forfeited A/c Dr. (with the net gain, if any, on shares re- issued.)

To Capital Reserve A/c

Important Note: In case only a part of the forfeited shares are re-issued, only the proportionate amount representing the net gain on the shares re-issued should be transferred to Capital Reserve Account and the balance representing the amount received on forfeited shares not yet re-issued should be left in the Shares Forfeited Account itself. This amount should be shown as addition to the paid up capital on the liabilities side of the balance sheet.

Illustration :

X Ltd. forfeited 1,000 equity shares of Rs. 10 each issued at par for non-payment of the first call of ` 2 per share and the final call of ` 3 per share. Give journal entry for the forfeiture.

Solution:

In the books of X Ltd.
Journal Entries

Particulars

Dr. (Rs.)

Cr. (Rs.)

Equity Share Capital A/c (1,000 x10)* Dr.	10,000
To Shares Forfeited A/c (1,000 xRs.5)*		10,000
To Calls-in-Arrear A/c (1,000 x5)*
(Forfeiture of 1,000 equity shares for non-payment of the first call @ Rs.2 per share and the final call @ Rs.3 per share as per Board’s resolution dated…)
Alternatively:
Equity Share Capital A/c (1,000 x Rs.10)* Dr.	10,000
To Shares Forfeited A/c (1,000 x Rs.5)*		5,000
To Equity Share First Call A/c		2,000
To Equity Share Final Call A/c		3,000
(Forfeiture of 1000 equity shares for non-payment of the first call @ Rs. 2 per share and the final call @Rs.3 per share as per Board’s resolution dated…)

Illustration :

X Ltd. forfeited 1,500 equity shares of Rs. 10 each, issued at a premium ofRs. 5 per share for non-payment of allotment money of Rs.8 per share (including share premium Rs.5 per share) the first call @Rs. 2 per share and the final call @ ` 3 per share. Give the journal entry for the forfeiture.

Solution

In the books of X Ltd.
Journal Entries

Particulars	Dr. (Rs.)	Cr. (Rs.)
Equity Share Capital A/c (1,500 x `10)* Dr.	15,000
Securities Premium A/c (1,500 x `5)* Dr.	7,500
To Shares Forfeited A/c (1,500 x ` 2)*		3,000
To Equity Share Allotment A/c		12,000
To Equity Share First Call A/c		3,000
To Equity Share Final Call A/c		4,500
(Forfeiture of 1,500 equity shares of Rs.10 each for nonpayment of allotment money @ Rs. 8 per share, including a premium @ Rs. 5 per share, first call money @ Rs.2 per share and the final call money @ Rs.3 per share as per Board’s resolution dated…)

Illustration :

X Ltd. forfeited 1,500 equity shares of Rs.10 each issued at a premium of Rs.5 per share payable with the allotment money, for non-payment of the first call money of Rs.2 per share and the final call money of Rs.3 per share. Give journal entries.

Solution:

In the books of X Ltd.
Journal Entries

Particulars	Dr. (Rs.)	Cr. (Rs.)
Equity Share Capital A/c (1,500 x `10)* Dr.	15,000
To Shares Forfeited A/c (1,500 x ` 5)*		7,500
To Equity Share First Call A/c		3,000
To Equity Share Final Call A/c		4,500
(Forfeiture of 1,500 equity shares of Rs.10 each for nonpayment of the first call money @ Rs. 2 per share and the final call money @ Rs. 3 per share as per Board’s resolution dated…)

Note: As the premium has already been received on these shares, Securities Premium Account will not be debited.

Illustration 10:
Give journal entries for the forfeiture and re-issue of shares in the following cases:

(a) P Ltd. forfeited 300 shares of Rs.10 each, fully called up for non-payment of final call @ Rs. 4 per share. These shares were subsequently re-issued by the company @Rs. 10 per share as fully paid-up.

(b) Q Ltd. forfeited 300 shares of Rs.10 each, fully called up for non-payment of final call @Rs. 4 per share. These shares were subsequently re-issued by the company @Rs. 12 per share as fully paid-up.

(c) R Ltd. forfeited 200 shares of Rs. 10 each, Rs.8 per share being called up on which a shareholder paid application and allotment money @ Rs.5 per share but did not pay the first call money @Rs. 3 per share. Of these forfeited shares, 150 shares were subsequently re-issued by the company as fully paid-up @ Rs. 8 per share.

(d) S Ltd. forfeited 100 shares of Rs. 10 each, Rs.8 per share having been called up, which were issued at a discount of 10% for non-payment of first call money @Rs. 3 per share. Of these forfeited shares, 80 shares were subsequently re-issued by the company @Rs.5 as Rs.8 paid-up.

Solution:

(a) In the books of P Ltd.
Journal Entries

Particulars	Debit	Credit
Share Capital A/c (300 x Rs.10) Dr.	3,000
To Shares Forfeited A/c (300 x Rs. 6)		1,800
To Share Final Call A/c (300 x Rs. 4)		1,200
(Forfeiture of 300 shares of Rs.10 each for non-payment of the final call money @ Rs.4 per share as per Board’s resolution dated…)

Bank Dr.	3,000
To Share Capital A/c (300 x Rs.10)		3,000
(Re-issue of 300 forfeited shares of ` 10 each fully paid-up as per Board’s resolution dated…)

Shares Forfeited A/c Dr.	1,800
To Capital Reserve A/c		1,800
(Transfer of profit on re-issue of forfeited shares to Capital Reserve A/c)

(b) In the books of Q Ltd.
Journal Entries

Particulars	Debit	Credit
Share Capital A/c (300 x Rs.10) Dr.	3,000
To Shares Forfeited A/c (300 x Rs. 6)		1,800
To Share Final Call A/c (300 x Rs. 4)		1,200
(Forfeiture of 300 shares of Rs.10 each for non-payment of the final call money @ Rs.4 per share as per Board’s resolution dated…)

Bank (300 x Rs.12) Dr.	3,600
To Share Capital A/c (300 x Rs.10)		3,000
To Securities premium A/c (300 xRs.2)		600
(Re-issue of 300 forfeited shares of Rs. 10 each at a premium of Rs. 2 per share as per Board’s resolution dated…)

Shares Forfeited A/c Dr.	1,800
To Capital Reserve A/c		1,800
(Transfer of profit on re-issue of forfeited shares to Capital Reserve A/c)

Particulars	Debit	Credit
Share Capital A/c (200 xRs.8) Dr.	1,600
To Shares Forfeited A/c (200 x Rs. 5)		1,000
To Share First Call A/c (200 x Rs.3)		600
(Forfeiture of 200 shares of Rs.10 each,Rs.8 being called up for non-payment of the first call money @ ` 3 per share as per Board’s resolution dated…)

Bank (150 x Rs.8) Dr.	1,200
Shares Forfeited A/c (150 x Rs.2)	300
To Share Capital A/c (150 x Rs.10)		1,500
(Re-issue of 150 forfeited shares of Rs.10 each fully paid-up @ Rs.8 per share as per Board’s resolution dated…)

Shares Forfeited A/c Dr.	450
To Capital Reserve A/c		450
(Transfer of capital profit proportionate to forfeited shares reissued i.e. on 150 shares to Capital Reserve A/c)

(d) In the books of S Ltd.
Journal Entries

Particulars	Debit	Credit
Share Capital A/c (100 x Rs.8) Dr.	800
To Shares Forfeited A/c (100 x Rs.4)		400
To Discount on issue of shares (100 xRs.1)		100
To Share First Call A/c (100 x Rs.3)		300
(Forfeiture of 100 shares of Rs.10 each, Rs.8 being called up, issued at a discount of Re. 1 per share for non-payment of first call @ Rs.8 per share as per Board’s resolution dated…)

Bank Dr.	400
Discount on Issue of Shares A/c Dr.	80
Share Forfeited A/c Dr.	160
To Share Capital A/c (300 xRs.10)		640
(Re-issue of 80 forfeited shares of Rs. 10 each, Rs. 8 being called up originally issued at a discount of 10% for Rs.5 per share credited asRs. 8 per share as per Board’s resolutions dated…)

Shares Forfeited A/c Dr.	160
To Capital Reserve A/c		160
(Transfer of capital profit proportionate to forfeited shares reissued, i.e., on 80 shares to Capital Reserve A/c)

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