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Forfeiture Reissue and Transfer of Shares (Discount)

Arjun EP

Published on: July 11, 2020

Shares Forfeiture

When shareholder(s) cannot pay his due amount, it is called calls in arrears.

These calls in arrears may be in allotment, first call and final call.

According to Company Act, the company provides 90 days’ time to pay due amount with interest.

When shareholders cannot pay his due amount in 90 days, the company provides other 30 days periods.

Even after this notice, if no payment is made, another notice should be served to defaulter shareholder(s) about forfeiture of shares.

Thus only calls in arrears shares can be forfeited.

Paid amount of shareholders on share forfeiture will not return.

There are three methods to forfeiture of shares. They are:

a. Forfeiture of shares issued at par

b. Forfeiture of shares issued at discount

c. Forfeiture of shares issued at premium

Forfeiture of shares issued at par
Equity share capital account To Calls in arrear (on allotment) To Calls in arrear (on first call) To Calls in arrear (on final call) To Shares forfeiture account (Being- ….. shares forfeiture for non-payment)	Dr	No. of shares @ called up amount No. of Shares @ unpaid Amount No. of shares @ unpaid amount No. of shares @ unpaid amount paid or b/f
Forfeiture of shares issued at discount
Equity share capital account To Calls in arrear (on allotment) To Calls in arrear (on first call) To Calls in arrear (on final call) To Discount on issue of shares To Shares forfeiture account (Being- ….. shares forfeiture for non-payment)	Dr	No. of shares @ called up amount No. of Shares @ unpaid Amount No. of shares @ unpaid amount No. of shares @ unpaid amount No. of shares @ discount amount paid or b/f
Forfeiture of shares issued at premium
Equity share capital account Premium on issue of shares account To Calls in arrear (on allotment) To Calls in arrear (on first call) To Calls in arrear (on final call) To Shares forfeiture account (Being- ….. shares forfeiture for non-payment)	Dr Dr	No. of shares @ called up amount if not paid, No. of shares @ premium amount No. of Shares @ unpaid Amount No. of shares @ unpaid amount No. of shares @ unpaid amount paid or b/f

Keep in Mind (KIM)

Discount on issue of shares always credited at the time of share forfeited

Premium on issue of shares is debited only if premium amount is not paid on forfeited shares

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =

PROBLEM: 29A [issued at discount]

Modi Xerox Ltd forfeited 5,000 equity shares of $/₹/Rs 100 each issued at 10% discount for non-payment of Rs 20 on allotment, Rs 25 on first call and Rs 15 on second and final call. These shares were forfeited by BOD after proper notice.

Required: Journal entry for share forfeiture

[Answer: share forfeiture Rs 150,000]

Solution:

Given and working note:

Shares

Issued

Price

Installation

Arrears and

Advance

Share

Applied

Shares

Allotted

100–10D

Application

Allotment

First call

S&F call

20 [30C–10D]

–5,000

Journal Entries

In the book of Modi Xerox Ltd

Date

Particulars

Amount

Shares forfeiture

Equity shares capital A/c [5,000 shares x Rs 100]

To Calls in arrears (on allotment)

To Calls in arrears (on first call)

To Calls in arrears (on final call)

To Discount on shares

To Share forfeiture account (paid or b/f)

(Being–5,000 shares forfeited for non-payment)

5,00,000

100,000

125,000

75,000

50,000

150,000

Journal Entries

In the book of Modi Xerox Ltd

Date

Particulars

Amount

Shares forfeiture

Equity shares capital A/c [5,000 shares x Rs 100]

To Calls in arrears (total)

To Discount on shares

To Share forfeiture account (paid or b/f)

(Being–5,000 shares forfeited for non-payment)

5,00,000

300,000

50,000

150,000

Reissue of Forfeiture Shares

Article of Association provides authority to reissue of forfeiture shares.

Such shares can be reissued at par, at discount or at premium.

After reissued of forfeiture shares, there may be capital gain or credit balance of share forfeiture.

That amount should be transferred to capital reserve.

There are two methods for reissue of forfeiture shares.

· Without adjusted original discount and premium

· With adjusted original discount and premium

Journal Entry

Without original discount and premium		With original discount and premium
Reissued at par
Bank account To Equity share capital (Being-	Dr	Bank account To Equity share capital account (Being-	Dr
Reissued at discount
Bank account Share forfeiture account (b/f) To Equity share capital (Being-	Dr Dr	Bank account Share forfeiture account (b/f) Discount on issue of share account To Equity share capital account (Being-	Dr Dr Dr
Reissued at premium
Bank account Share forfeiture account(b/f) To Equity share capital (Being-	Dr Dr	Bank account Share forfeiture account(b/f) To Equity share capital account To Premium on issue of share A/c (Being-	Dr Dr

Transfer Entry

The company forfeitures arrear shares always.

These forfeiture shares should be reissued.

At the time of reissue, it may be at par, at discount or at premium.

For transfer entry, there must be credit balance of share forfeiture amount.

This credit share forfeiture balance amount is transferred to capital reserve.

Share forfeiture Cr

Share forfeiture Dr

= capital profit

= capital loss

Share forfeiture Cr balance

= capital reserve

Journal Entries

In the book of XYZ Company Ltd

Date

Particulars

Amount

Transfer entry

Share forfeiture account

To Capital reserve account

(Being- balance share forfeiture amount transferred to

capital reserve)

xxxx

Keep in Mind (KIM)

There is always credit balance or zero balance of share forfeiture.

Debit balance is never possible.

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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =

PROBLEM: 29B [forfeiture of shares issued at discount]

Usha Electric Ltd forfeited 800 equity shares of $/₹/Rs 100 each issued at 10% discount, for non-payment of Rs 20 on allotment, Rs 45 on first and final calls. These shares were reissued at Rs 85 fully paid.

Required: Journal entry for share forfeiture, reissue and transfer

When forfeiture shares reissued without discount

When forfeiture shares reissued with discount

[Answer: Capital reserve Rs 8,000 and Rs 16,000]

SOLUTION

Given and working note:

Shares

Issued

Price

Installation

Arrears and

Advance

Share

Applied

Shares

Allotted

100–10D

Application ?

Allotment

F&F Call

20 [30C–10D]

–800

Journal Entries

In the book of ABC Company Ltd

Date

Particulars

Amount

Shares forfeiture

Equity shares capital A/c [800 shares x Rs 100]

To Calls in arrears (on allotment)

To Calls in arrears (on first and final call)

To Discount on shares account

To Share forfeiture account (paid or b/f)

(Being- 800 shares forfeited for non-payment)

80,000

16,000

36,000

8,000

20,000^#

Journal Entries

In the book of ABC Company Ltd

Date

Particulars

Amount

Shares forfeiture

Equity shares capital A/c [800 shares x Rs 100]

To Calls in arrears (on allotment)

To Discount on shares account

To Share forfeiture account (paid or b/f)

(Being- 800 shares forfeited for non-payment)

100,000

52,000

8,000

20,000^#

800 shares reissued out of 800 forfeited shares without discount

Journal Entries

In the book of Usha Electric Ltd

Date	Particulars		LF	Amount	Amount
	Reissued
	Bank account [800 shares x Rs 85] Share forfeiture account [800 shares x Rs 15] To Equity shares capital account (Being- 800 shares of Rs 100 each reissued @ Rs 85, discount adjusted from share forfeiture amount)	Dr Dr		68,000 12,000^b	80,000
	Transfer
	Share forfeiture account To Capital reserve account (Being- balance share forfeiture amount transferred to capital reserve)	Dr		8,000^c	8,000

Share forfeiture Cr

Share forfeiture Dr

= capital profit

= capital loss

20,000^#

12,000^b

Share forfeiture Cr balance

= capital reserve

8,000^c

800 shares reissued out of 800 forfeited shares with discount

Journal Entries

In the book of Usha Electric Ltd

Date	Particulars		LF	Amount	Amount
	Reissued
	Bank account [800 shares x Rs 85] Discount on shares A/c [800 shares x Rs 10] Share forfeiture account [800 shares x Rs 5] To Equity shares capital account (Being- 800 shares of Rs 100 each reissued @ Rs 85, deficit adjusted from share forfeiture amount)	Dr Dr Dr		68,000 8,000 4,000²	80,000
	Transfer
	Share forfeiture account To Capital reserve account (Being- balance share forfeiture amount transferred to capital reserve)	Dr		16,000³	16,000

Share forfeiture Cr

Share forfeiture Dr

= capital profit

= capital loss

20,000^#

4,000¹

Share forfeiture Cr balance

= capital reserve

16,000²

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PROBLEMS AND ANSWERS

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =

Basic Problem: 29

XYZ Company Limited forfeited 600 equity shares of Rs 100 each, issued at 10% discount. On which Rs 20 per share received only on application. Those shares were subsequently reissued at Rs 50,000 without discount.

Required: Journal entries for forfeiture, reissue and transfer

[Answer: Share forfeiture = Rs 12,000; Capital reserve = Rs 2,000]

AP: 18

AH Company Ltd forfeited 350 shares of Rs 100 each issued at 5% discount for non-payment of first and final call money of Rs 25 per share.

Required: Journal entries for forfeiture, reissue and transfer on following conditions:

(a) Reissued 350 shares at Rs 70 per shares as fully paid without discount.

(b) Reissued 350 shares at Rs 70 per shares as fully paid with discount.

(d) 200 shares reissued at Rs 65 per share as fully paid up with discount.

[Answer: Share forfeiture = Rs 24,500; Capital reserve = Rs 7,000)

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