Forfeiture Reissue and Transfer of Shares (Premium)
Arjun EP
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: 30A [issued at premium but shareholder did not pay premium]
ABC Company Ltd forfeited 1,000 equity shares of Rs 100 each issued at 10% premium for non-payment of Rs 50 on allotment and Rs 30 on first and final calls. These shares were forfeited by BOD after proper notice.
Required: Journal entry for share forfeiture
[Answer: share forfeiture Rs 30,000]
Solution:
Given and working note:
|
Shares Issued |
Issued Price |
Installation |
|
Arrears and Advance |
|
Share Applied |
Shares Allotted |
|
|
100+10P |
Application Allotment F&F call |
? 50 [40C+10P] 30 |
. –1,000 –1,000 |
|
|
|
Here, premium is with allotment; shareholder did not pay allotment amount (company did not receive).
In this condition, company debits share premium
Journal Entries
In the book of ABC Company Ltd
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Shares forfeiture |
|
|
|
|
|
|
Equity shares capital A/c [1,000 x Rs 100] Share premium (security premium) [1,000 x Rs 10] To Calls in arrears (on allotment) To Calls in arrears (on first and final call) To Share forfeiture account (paid or b/f) (Being–1,000 shares forfeited for non-payment) |
Dr Dr
|
|
100,000 10,000
|
50,000 30,000 30,000
|
Or
Journal Entries
In the book of ABC Company Ltd
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Shares forfeiture |
|
|
|
|
|
|
Equity shares capital A/c [1,000 x Rs 100] Share premium (security premium) [1,000 x Rs 10] To Calls in arrears (total) To Share forfeiture account (paid or b/f) (Being–1,000 shares forfeited for non-payment) |
Dr Dr
|
|
100,000 10,000
|
80,000 30,000
|
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#####
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 30B [issued at premium and shareholder paid premium]
XYZ Company Ltd. forfeited 3,000 equity shares of $/₹/Rs 100 each issued at 20% premium for non-payment of Rs 20 on first call and Rs 30 on second final calls. Application was Rs 30. BOD forfeited these shares after proper notice.
Required: Journal entry for share forfeiture
[Answer: share forfeiture Rs 150,000]
Solution:
Given and working note:
|
Shares Issued |
Issued Price |
Installation |
|
Arrears and Advance |
|
Share Applied |
Shares Allotted |
|
|
100+20P |
Application Allotment (b/f) First call Final call |
30 40 [20C+20P] 20 30 |
. . –3,000 –3,000 |
|
|
|
Here, premium is with allotment; shareholder paid allotment amount (company received).
In this condition, company does not debit share premium
Journal Entries
In the book of ABC Company Ltd
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Shares forfeiture |
|
|
|
|
|
|
Equity shares capital A/c [3,000 sh x Rs 100] Share premium (security premium) [3,000 x Rs 0] To Calls in arrears (on first call) To Calls in arrears (on final call) To Share forfeiture account (paid or b/f) (Being–3,000 shares forfeited for non-payment) |
Dr Dr
|
|
300,000 Nil
|
60,000 90,000 150,000
|
Or
Journal Entries
In the book of ABC Company Ltd
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Shares forfeiture |
|
|
|
|
|
|
Equity shares capital A/c [3,000 shares x Rs 100] Share premium (security premium) [3,000 shares x Rs 0] To Calls in arrears (total) To Share forfeiture account (paid or b/f) (Being–3,000 shares forfeited for non-payment) |
Dr Dr
|
|
300,000 Nil
|
150,000 150,000
|
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 account (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 account (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 account (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 |
|
LF |
Amount |
Amount |
|
|
Transfer entry |
|
|
|
|
|
|
Share forfeiture account To Capital reserve account (Being- balance share forfeiture amount transferred to capital reserve) |
Dr
|
|
xxxx
|
xxxx
|
Keep in Mind (KIM)
|
There is always credit balance or zero balance of share forfeiture. Debit balance is never possible. |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 30C [forfeiture of shares issued at premium]
AS Corporation Ltd forfeited 600 equity shares of Rs 100 each issued at 10% premium, for non-payment of Rs 40 on allotment, Rs 35 on first and final calls.
Required: Journal entry for share forfeiture, reissue and transfer on following condition:
(a) 600 forfeiture shares reissued at Rs 80 fully paid without premium.
(b) 600 forfeiture shares reissued at Rs 80 fully paid with premium.
(c) 400 forfeiture shares reissued at Rs 80 fully paid with premium.
[Answer: Share forfeiture = Rs 21,000;
Capital reserve (a) Rs 9,000; (b) Rs 3,000; (c) Rs 2,000]
SOLUTION:
Given and working note:
|
Shares Issued |
Issued Price |
Installation |
|
Arrears and Advance |
|
Share Applied |
Shares Allotted |
|
|
100+10P |
Application? Allotment F&F Call |
40 [30C+10P] 35 |
. –600 –600 |
|
|
|
Journal Entries
In the book of AS Corporation Ltd
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Shares forfeiture |
|
|
|
|
|
|
Equity shares capital A/c [600 shares x Rs 100] Share premium (security premium) [600 x Rs 10] To Calls in arrears (on allotment) To Calls in arrears (on first and final call) To Share forfeiture account (paid or b/f) (Being- 600 shares forfeited for non-payment) |
Dr Dr
|
|
60,000 6,000
|
24,000 21,000 21,000# |
Or
Journal Entries
In the book of AS Corporation Ltd
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Shares forfeiture |
|
|
|
|
|
|
Equity shares capital A/c [600 shares x Rs 100] Share premium (security premium) [600 x Rs 10] To Calls in arrears (total) To Share forfeiture account (paid or b/f) (Being- 600 shares forfeited for non-payment) |
Dr Dr
|
|
60,000 6,000
|
45,000 21,000# |
(a) 600 forfeiture shares reissued at Rs 80 fully paid without premium.
Journal Entries
In the book of AS Corporation Ltd
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Reissued |
|
|
|
|
|
|
Bank account [600 shares x Rs 80] Share forfeiture account [600 shares x Rs 20] To Equity shares capital account (Being- 600 shares of Rs 100 each reissued @ Rs 80, discount adjusted from share forfeiture amount) |
Dr Dr
|
|
48,000 12,000b
|
60,000
|
|
|
Transfer |
|
|
|
|
|
|
Share forfeiture account To Capital reserve account (Being- balance share forfeiture amount transferred to capital reserve) |
Dr |
|
9,000c |
9,000 |
.
|
Share forfeiture Cr Share forfeiture Dr |
= capital profit = capital loss |
21,000# 12,000b |
|
|
Share forfeiture Cr balance |
= capital reserve |
9,000c |
|
(b) 600 forfeiture shares reissued at Rs 80 fully paid with premium.
Journal Entries
In the book of AS Corporation Ltd
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Reissued |
|
|
|
|
|
|
Bank account [600 shares x Rs 80] Share forfeiture account [b/f] To Equity shares capital account To Share premium (security premium) (Being- 600 shares of Rs 100 each reissued @ Rs 80, discount adjusted from share forfeiture amount) |
Dr Dr
|
|
48,000 18,0002
|
60,000 6,000
|
|
|
Transfer |
|
|
|
|
|
|
Share forfeiture account To Capital reserve account (Being- balance share forfeiture amount transferred to capital reserve) |
Dr |
|
3,0003 |
3,000 |
.
|
Share forfeiture Cr Share forfeiture Dr |
= capital profit = capital loss |
21,000# 18,0001 |
|
|
Share forfeiture Cr balance |
= capital reserve |
3,0002 |
|
(c) 400 forfeiture shares reissued at Rs 80 fully paid with premium.
Journal Entries
In the book of AS Corporation Ltd
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Reissued |
|
|
|
|
|
|
Bank account [400 shares x Rs 80] Share forfeiture account [b/f] To Equity shares capital account To Share premium (security premium) [400 x Rs 10] (Being- 400 shares of Rs 100 each reissued @ Rs 80) |
Dr Dr
|
|
32,000 12,0002
|
40,000 4,000 |
|
|
Transfer |
|
|
|
|
|
|
Share forfeiture account To Capital reserve account (Being- balance share forfeiture amount transferred to capital reserve) |
Dr |
|
2,0003 |
2,000 |
.
|
Share forfeiture Cr Share forfeiture Dr |
= capital profit = capital loss |
14,0001 12,0002 |
On 600 shares, SF On 400 shares, SF |
= 21,000# = 21,000 x 400 ÷ 600 |
|
Share forfeiture Cr |
= capital reserve |
2,0003 |
|
= 14,0001 |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 30D [forfeiture of shares issued at premium but not paid]
ABC Company Ltd forfeitures 800 shares of Rs 100 each at premium for Rs 10 to Mr A on which he has paid Rs 40 on application. He failed to pay Rs 50 (including premium) on allotment and Rs 20 on first and final call. His shares were forfeited.
Required: Journal entry for share forfeiture, reissue and transfer on following condition:
(a) Entire forfeiture shares reissued @ Rs 90 fully paid including premium.
(b) 800 forfeiture shares reissued at Rs 90 fully paid excluding premium.
(c) 700 forfeiture shares reissued at Rs 90 fully paid without premium
[Answer: Share forfeiture = Rs 40,000;
Capital reserve = Rs 10,000 & Rs 14,000;
SOLUTION
Given and working note:
|
Shares Issued |
Issued Price |
Installation |
|
Arrears and Advance |
|
Share Applied |
Shares Allotted |
|
|
100+10P |
Application Allotment F&F Call |
40 50 [40C+10P] 20 |
. –800 –800 |
|
|
|
Journal Entries
In the book of ABC Corporation Ltd
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Shares forfeiture |
|
|
|
|
|
|
Equity shares capital A/c [800 shares x Rs 100] Share premium (security premium) [800 x Rs 10] To Calls in arrears (on allotment) To Calls in arrears (on first and final call) To Share forfeiture account (paid or b/f) (Being- 1,000 shares forfeited for non-payment) |
Dr Dr
|
|
80,000 8,000
|
40,000 20,000 28,000# |
Or
Journal Entries
In the book of ABC Corporation Ltd
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Shares forfeiture |
|
|
|
|
|
|
Equity shares capital A/c [800 shares x Rs 100] Share premium (security premium) [800 x Rs 10] To Calls in arrears (total) To Share forfeiture account (paid or b/f) (Being- 800 shares forfeited for non-payment) |
Dr Dr
|
|
80,000 8,000
|
60,000 28,000# |
(a) Entire forfeiture shares reissued @ Rs 90 fully paid including premium.
Journal Entries
In the book of ABC Corporation Ltd
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Reissued |
|
|
|
|
|
|
Bank account [800 shares x Rs 90] Share forfeiture account [b/f] To Equity shares capital account To Share premium (security premium) (Being- 800 shares of Rs 100 each reissued @ Rs 90) |
Dr Dr
|
|
72,000 16,000a
|
80,000 8,000
|
|
|
Transfer |
|
|
|
|
|
|
Share forfeiture account To Capital reserve account (Being- balance share forfeiture amount transferred to capital reserve) |
Dr |
|
12,000b |
12,000 |
|
Share forfeiture Cr Share forfeiture Dr |
= capital profit = capital loss |
28,000# 16,000a |
|
|
Share forfeiture Cr balance |
= capital reserve |
12,000b |
|
(b) 800 forfeiture shares reissued @ Rs 90 fully paid excluding premium.
Journal Entries
In the book of ABC Corporation Ltd
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Reissued |
|
|
|
|
|
|
Bank account [800 shares x Rs 90] Share forfeiture account [b/f] To Equity shares capital account (Being- 800 shares of Rs 100 each reissued @ Rs 90) |
Dr Dr
|
|
72,000 8,000x
|
80,000 |
|
|
Transfer |
|
|
|
|
|
|
Share forfeiture account To Capital reserve account (Being- balance share forfeiture amount transferred to capital reserve) |
Dr |
|
20,000y |
20,000 |
|
Share forfeiture Cr Share forfeiture Dr |
= capital profit = capital loss |
28,000# 8,000x |
|
|
Share forfeiture Cr balance |
= capital reserve |
20,000y |
|
(c) 700 forfeiture shares reissued at Rs 90 fully paid with premium
Journal Entries
In the book of ABC Corporation Ltd
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Reissued |
|
|
|
|
|
|
Bank account [700 shares x Rs 90] Share forfeiture account [b/f] To Equity shares capital account To Share premium (security premium) (Being- 700 shares of Rs 100 each reissued @ Rs 90) |
Dr Dr
|
|
63,000 14,0002
|
70,000 7,000
|
|
|
Transfer |
|
|
|
|
|
|
Share forfeiture account To Capital reserve account (Being- balance share forfeiture amount transferred to capital reserve) |
Dr |
|
10,5003 |
10,500 |
|
Share forfeiture Cr Share forfeiture Dr |
= capital profit = capital loss |
24,5001 14,0002 |
On 800 shares, SF On 700 shares, SF |
= 28,000# = 28,000 x 700 ÷ 800 |
|
Share forfeiture Cr |
= capital reserve |
10,5003 |
|
= 24,5001 |
***********
|
PROBLEMS AND ANSWERS |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Basic Problem: 30
Kapilvastu Oil Company Limited forfeited 1,200 equity shares of Rs 10 each, issued at 20% premium. For non-payment of Rs 5 on allotment and Rs 3 on first and final call per share. Out of those forfeited shares, 450 shares were reissued at Rs 10 per share including premium.
Required: Journal entries for forfeiture, reissue and transfer
[Answer: Share forfeiture = Rs 4,800; capital reserve = Rs 900]
AP: 19
AD Company Ltd forfeitures 1,000 shares of Rs 100 each issued at premium for Rs 20 to Mr. A on which he has paid Rs 40 on application. He failed to pay Rs 50 (including premium) on allotment and Rs 30 on first and final call. His shares were forfeited;
Required: Journal entries for forfeiture, reissue and transfer on following conditions:
(a) Reissued 1,000 shares at Rs 90 per shares as fully paid without premium.
(b) Reissued 1,000 shares at Rs 90 per shares as fully paid with premium.
(c) 800 shares reissued at Rs 95 per share as fully paid including premium.
(d) 800 shares reissued at Rs 95 per share as fully paid excluding premium.
[Answer: Share forfeiture = Rs 40,000;
Capital reserve (a) 30,000; (b) 10,000; (c) 12,000; (d) 28,000
***********
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