Forfeiture of shares – issued at Par

The effect of forfeiture is to cancel the allotment given to the shareholder. So, all entries passed earlier must be reversed now. The accounting entry passed to record the same is:

It should be noted that share capital is debited with the amount called up till the stage of forfeiture and not the nominal value of shares. The balance in the share forfeited account is shown as an addition to the total paid-up capital of the company under the heading ‘Share Capital’ on the liability side of the Balance Sheet.

Illustration :

Banu Ltd. issued 5000 shares of Rs.10 each at par payable on application Rs.3 per share, on allotment Rs.3 per share, on first call
Rs.2 per share & final call Rs.2. Mr.Raju was allotted 50 shares. Give the necessary journal entry relating to forfeiture of shares in each of the following alternative cases.

a) If Mr.Raju failed to pay first call money and his shares were forfeited.

b) If Mr.Raju failed to pay both the calls and his shares were forfeited.

Solution:

Books of Banu Ltd.
Journal Entries

Date	Particulars	LF	Debit Rs.	Credit Rs.
	Case a :
	Share Capital A/c (50×8)                                             Dr		400
	To Forfeited Shares A/c (50×6)			300
	To Share First call A/c (50×2)			100
	(50 shares forfeited for non payment of first call money)
	Case b :
	Share Capital A/c (50×10)                                          Dr		500
	To Forfeited Share A/c (50×6)			300
	To Share First Call A/c			100
	To Share Final Call A/c			100
	(50 shares forfeited for non payment of first & fmal call)

Forfeiture of shares – issued at Premium

1. When premium is received :

When shares originally issued at premium, on which premium amount has been received are forfeited, then the premium once collected cannot be cancelled (Sec.78). The accounting entry passed to record the same is:

2. When premium is not received :

When shares originally issued at a premium on which the premium amount has not yet been received are forfeited, Securities Premium account has to be debited now. The accounting entry passed to record the same is:

Illustration : 

Kumar Ltd issued 1000 shares of Rs.10 each at Rs.12 per share. The amount is payable as under

Rs.3 on application; Rs.5 on allotment (including premium); Rs.2 on first call; Rs.2 on final call.

The Company did not make the final call, Mr.Mani was allotted 25 shares. Give journal entries for forfeiture in the following cases.

a) If Mr.Mani failed to pay first call money and his shares were forfeited.

b) If Mr.Mani failed to pay first and final call money, his shares were forfeited .

Solution:

Books of Kumar Ltd.
Journal Entries

Date	Particulars	L.F	Debit	Credit
	Case a:
	Share Capital A/c (25×8)                                                                Dr		200
	To Forfeited Shares A/c (25×6)			150
	To Share First call A/c (25×2)			50
	(25 shares forfeited for non payment of First call money)
	Case b:
	Share Capital A/c (25×10)                                                               Dr		250
	To Forfeited Shares A/c (25×6)			150
	To Share First call A/c (25×2)			50
	To Share Final Call A/c (25×2)			50
	(25 shares forfeited for non payment of First call money)