53. (Issue at Par/Forfeiture/Re-issue at Discount) Reliance industries Ltd. was registered
with a nominal capital of * 5,00.000 in the shares of 10 each. It purchased a property from
Shah for 1.00.000 payable in fully paid shares of company.
Remaining 40.000 shares were offered to the public, pavable as follows:-
72 on application : 2 on allotment : 73 on first call and 3 on final call.
All the shares were subscribed and allotted.
Raman, who holds 100 shares failed to pay both the calls and his shares were
forfeited. These were re-issued to Mohit at 8.50 per share fully paid.
Record the above in the company's journal and prepare a balance sheet.
Ans. Transfer to capital reserve ? 250 : B/S total 5,00,250)
Answers
Journal entry for forfeiture of shares is:
Date Particulars Amount (Dr.) Amount (Cr.)
Share Capital A/c Dr. XXX
To Forfeited Shares Account A/c Cr. XXX
To Shares Allotment A/c Cr. XXX
To Shares Call A/c Cr. XXX
If, we maintain Calls-in-Arrears Account we will credit Calls-in-Arrears Account instead of “Shares Allotment Amount” and “Shares Call Account”.
Journal entry for this will be:
Date Particulars Amount (Dr.) Amount (Cr.)
Equity Share Capital A/c Dr. XXX
To Forfeited Shares Account A/c Cr. XXX
To Calls-in-Arrears A/c Cr. XXX
2. Forfeiture of Shares which were originally issued at Premium
When shares issued at a premium are forfeited, two following possibilities exist:
a. Securities Premium amount has been received:
In this case, we will debit the Share Capital Account with the amount called up and will credit Forfeited Shares (amount received less premium), Shares Allotment (amount not received on allotment), First Call (amount not received on calls); Final Call Account in the same manner.
Journal entry will be:
Date Particulars Amount (Dr.) Amount (Cr.)
Share Capital A/c Dr. XXX
To Shares Allotment A/c Cr. XXX
To Forfeited Shares A/c Cr. XXX
To First Call A/c Cr. XXX
b. Securities Premium amount has not been received:
In this case, we will debit the Share Capital Account with the amount called-up. If Securities Premium has not been received, we will debit Securities Premium in order to cancel it.
Learn more about Shares Issued at Premium here in detail.
And we will credit Forfeited Shares (amount received less premium), Shares Allotment (amount not received on allotment), First Call (amount not received on calls); Final Call Account in the same manner.
Date Particulars Amount (Dr.) Amount (Cr.)
Share Capital A/c Dr. XXX
Securities Premium A/c Dr. XXX
To Shares Allotment A/c Cr. XXX
To Forfeited Shares A/c Cr. XXX
To First Call A/c Cr. XXX
Solved Example on Forfeiture of Share
Give Journal entry relating to ‘Forfeiture of Shares’ for the following:
1.ABC Ltd. Issued 10,000 equity shares of ₹ 10 each at a premium of ₹ 2 per share. The amount is payable as ₹ 4 per share on the application, ₹ 5 per share (including premium) on the allotment, ₹ 3 per share on first and final call.
The company allows 200 shares to Mr. Gaurav.
Case 1: If Gaurav fails to pay allotment money and on his subsequent failure to pay the first and final call, the company forfeits his shares.
Case 2: If Gaurav fails to pay the first and final call and company forfeits his shares.
2. XYZ Ltd. Issued 5,000 equity shares of ₹ 10 each at par payable as ₹ 2 per share on the application, ₹ 3 per share on the allotment, ₹ 3 on first and final call and ₹ 2 per share on second and final call. The company allots 40 shares to Mr. Ashish.
Case 1: If Mr. Ashish fails to pay allotment money and company forfeits his shares.
Case 2: If Mr. Ashish fails to pay the first call and on his subsequent failure to pay the final call, the company forfeits his shares.
Ans:
1. Journal Entries
IN THE BOOKS OF ABC LTD.
Date Particulars Amount (Dr.) Amount (Cr.)
Case 1 Equity Share Capital A/c (200 x ₹ 10) Dr. 2,000
Securities Premium A/c (200 x ₹ 2) Dr. 400
To Shares Allotment A/c (200 x ₹ 5) Cr. 1,000
To Forfeited Shares A/c (200 x ₹ 4) Cr. 800
To First and final Call A/c (200 x ₹ 3) Cr. 600
(Being 200 shares forfeited for non-payment of allotment and first and final call money)
Case 2 Equity Share Capital A/c (200 x ₹ 10) Dr. 2,000
To Forfeited Shares A/c (200 x ₹ 7) Cr. 1,400
To First and final Call A/c (200 x ₹ 3) Cr. 600
(Being 200 shares forfeited for non-payment of first and final call money)
2. Journal Entries
IN THE BOOKS OF XYZ LTD.
Date Particulars Amount (Dr.) Amount (Cr.)
Case 1 Equity Share Capital A/c ( 40 x ₹ 5) Dr. 200
To Shares Allotment A/c ( 40 x ₹ 3) Cr. 120
To Forfeited Shares A/c (40 x ₹ 2) Cr. 80
(Being 40 shares forfeited for non-payment of allotment money )
Case 2 Equity Share Capital A/c (40 x ₹ 10) Dr. 400
To Forfeited Shares A/c (40 x ₹ 5) Cr. 200
To Shares First Call A/c (40 x ₹ 3) Cr. 120
To Shares Second and Final Call A/c (40 x ₹ 2) Cr. 80
(Being 40 shares forfeited for non-payment of first and second and final call)
Transfer to capital reserve? 250:B/S total 5,00,250