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Forfeiture and Reissue of Shares Notes

The document outlines the processes of forfeiture and reissue of shares, defining forfeiture as the cancellation of shares due to non-payment by shareholders. It includes accounting treatments with journal entries for both forfeiture and reissue of shares, along with examples to illustrate the entries. Additionally, it specifies rules regarding discounts on reissued shares and the transfer of gains to a capital reserve.

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24 views3 pages

Forfeiture and Reissue of Shares Notes

The document outlines the processes of forfeiture and reissue of shares, defining forfeiture as the cancellation of shares due to non-payment by shareholders. It includes accounting treatments with journal entries for both forfeiture and reissue of shares, along with examples to illustrate the entries. Additionally, it specifies rules regarding discounts on reissued shares and the transfer of gains to a capital reserve.

Uploaded by

ianmokamba
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Forfeiture and Reissue of Forfeited Shares

Forfeiture of Shares

Definition:

Forfeiture of shares refers to the cancellation of shares by a company when a shareholder fails to pay the

allotment or call money (amounts due on shares).

Accounting Treatment

Journal Entry for Forfeiture of Shares:

When shares are forfeited:

Share Capital A/c Dr. (Called-up amount)

To Share Allotment A/c (Unpaid Allotment)

To Share Call A/c (if any) (Unpaid Call money)

To Forfeited Shares A/c (Amount paid by shareholder)

Example:

If a shareholder holding 100 shares of Rs.10 each (Rs.7 called-up), fails to pay Rs.2 on allotment and Rs.2

on first call:

Share Capital A/c Dr. Rs.700

To Share Allotment A/c Rs.200

To Share First Call A/c Rs.200

To Forfeited Shares A/c Rs.300

Reissue of Forfeited Shares


Forfeiture and Reissue of Forfeited Shares

Definition:

Reissue of forfeited shares means selling the previously forfeited shares to a new or the same shareholder,

usually at a discount.

Rules:

- The discount on reissue cannot exceed the amount originally forfeited on those shares.

- Reissue price can be less than face value, but the maximum discount = amount forfeited.

Journal Entry for Reissue:

Bank A/c Dr. (Amount received on reissue)

Forfeited Shares A/c Dr. (Discount allowed on reissue)

To Share Capital A/c (Face value of shares reissued)

Entry to transfer gain on reissue to Capital Reserve:

Forfeited Shares A/c Dr.

To Capital Reserve A/c

Example:

Suppose 100 forfeited shares of Rs.10 each (Rs.7 called-up, Rs.3 unpaid) are reissued at Rs.8 per share:

Bank A/c Dr. Rs.800

Forfeited Shares A/c Dr. Rs.200

To Share Capital A/c Rs.1000


Forfeiture and Reissue of Forfeited Shares

Then transfer balance in Forfeited Shares A/c to Capital Reserve:

Forfeited Shares A/c Dr. Rs.100

To Capital Reserve A/c Rs.100

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