Question

Can anyone explain how to calculate capital reserve amount when all forfeited shares are not reissued?

Answer 1

If all the forfeited shares are reissued,the Share Forfeited Account will show a zero balance because of the amount of this account after adjusting the discount allowed on the reissue will be transferred to capital reserve account.But incase,only a part of forfeid are reissued and others remain cancelled;the amount forfeited shares not reissued will remain in the shares forfeited account.Thus;
    
Total forfeited amount                     x     Number of shares reissued
Total number of shares forfeited 

Answer 2

Answer:

Lets discuss this with the help of an example :

Company “A” forfeited 100 shares on non payment of final call of Rs. 2/-; likewise :

a) Face value of Rs. 10 each

b) Out of total forfeited shares 60 were re-issued for Rs. 7 each as fully paid up.

Solution :

Journal entry for forfeiture :

Share Capital a/c Dr. Rs.1000 (100*10)

To Forfieture Rs. 800 (100*8)

To Share final call Rs. 200 (100*2)

In the above entry amount received till now from the shares are booked under forfeiture a/c (as this amount has now become the income of the company)

Journal entry for re-issue :

Bank a/c Dr. Rs.420 (60*7)

Forfeiture a/c Dr. Rs.180

To Share Capital Rs.600 (60*10)

In the above entry we have incurred loss, because a share of Rs.10 has to be re-issued at Rs.7 (fully paid-up), therefore a loss of Rs. 3/- per share. Hence total loss on 60 re-issued shares would sum up to Rs. 180 (3*60).

As earlier, on forfeiture we have booked income over these shares and credited forfeiture share a/c, now on incurring loss on same shares during re-issue would be charged from forfeiture a/c only, hence in the above entry forfeiture a/c has been debited.

Amount to be transferred to capital reserve a/c

This is the most confusing part in company a/c for students. But this is the easiest. I will discuss this part in Q&A form.

Q1: How many shares have been forfeited ?

Ans : 100 shares

Q2: Forfeiture income of these 100 shares ?

Ans : Rs. 8/- per share hence Rs. 800

Q3: How many shares are being re-issued out of total forfeited shares ?

Ans : 60 shares are being re-issued.

Q4: Does total forfeiture income belongs to these 60 shares ?

Ans : No forfeiture income is of all 100 forfeited shares, we are re-issuing 60 out of total 100 forfeited shares. Therefore, forfeiture income of 60 shares would be proportionate i.e Rs. 480 (800/10*60)

Q5: How much amount have been used out of forfeiture ?

Ans : As per Journal entry three above Rs.180 have been debited from forfeiture account.

Q6 : What will be transferred to CR ?

Ans : Rs. 300 (480–180) will be transferred only. As we know, only 60 shares are re-issued, therefore we will not transfer the income of 40 (shares which are not re-issued) to CR account.

I hope it helps.