Question

Pass necessary journal entries for forfeiture and reissue of forfeited shares in the following cases:

(i) Diksha Ltd. forfeited 3,000 shares of Rs 10 each for non-payment of final call of Rs 2 per share. Out of these, 600 shares were reissued as fully paid up in such a way that Rs 4,200 was transferred to capital reserve.

(ii) Ashoka Ltd. forfeited 2,000 equity shares of Rs 100 each issued at a premium of 10% for non-payment of allotment money of Rs 60 per share (including premium). The first and final call of Rs 20 per share was not yet made. The forfeited shares were re-issued at Rs 70 per share fully paid up.

Hint:

On forfeiture credit the money received to share forfeiture. On reissue use the discount, and keep the remaining forfeiture as capital reserve.

Answer 1

Step 1: Case (i) Working: Diksha Ltd.:
Final call was Rs. 2, so each share had Rs. 8 paid before forfeiture.
Forfeited amount = 3,000 x Rs. 8 = Rs. 24,000. Unpaid final call = 3,000 x Rs. 2 = Rs. 6,000. Share capital debited = 3,000 x Rs. 10 = Rs. 30,000.
Forfeited amount on the 600 reissued shares = 600 x Rs. 8 = Rs. 4,800.
Rs. 4,200 goes to capital reserve, so Rs. 4,800 - Rs. 4,200 = Rs. 600 is used as discount on reissue.
Discount per share = 600 / 600 = Re. 1, so the reissue price is Rs. 9 and cash received is 600 x 9 = Rs. 5,400.

Step 2: Case (i) Journal entries:

Particulars	Dr. (Rs.)	Cr. (Rs.)
Share Capital A/c ... Dr.	30,000
To Share Forfeiture A/c		24,000
To Share Final Call A/c / Calls in Arrears A/c		6,000
(3,000 shares forfeited for non-payment of final call of Rs. 2 per share)
Bank A/c ... Dr.	5,400
Share Forfeiture A/c ... Dr.	600
To Share Capital A/c		6,000
(600 shares reissued as fully paid up)
Share Forfeiture A/c ... Dr.	4,200
To Capital Reserve A/c		4,200
(Gain on reissue transferred to capital reserve)

Step 3: Case (ii) Working: Ashoka Ltd.:
Issue price is Rs. 110, made up of Rs. 100 face value and Rs. 10 premium (10 percent of Rs. 100).
The first and final call of Rs. 20 is not made, so the called-up value is Rs. 80 per share.
Allotment is Rs. 60 per share, including premium Rs. 10, so the face value in allotment is Rs. 50. Then application money was 110 - 60 - 20 = Rs. 30 per share.
Amount received = Rs. 30 per share, so share forfeiture = 2,000 x 30 = Rs. 60,000.
Share capital debited = 2,000 x 80 = Rs. 1,60,000. Securities premium debited = 2,000 x 10 = Rs. 20,000 because the premium was due with allotment and not paid.
Unpaid allotment = 2,000 x 60 = Rs. 1,20,000.

Step 4: Case (ii) Journal entries:

Particulars	Dr. (Rs.)	Cr. (Rs.)
Equity Share Capital A/c ... Dr.	1,60,000
Securities Premium A/c ... Dr.	20,000
To Share Forfeiture A/c		60,000
To Equity Share Allotment A/c / Calls in Arrears A/c		1,20,000
(2,000 equity shares forfeited for non-payment of allotment money)
Bank A/c ... Dr.	1,40,000
Share Forfeiture A/c ... Dr.	60,000
To Equity Share Capital A/c		2,00,000
(2,000 shares reissued at Rs. 70 per share as fully paid up)

Step 5: Explain the reissue of Ashoka Ltd.:
Shares are reissued at Rs. 70 as fully paid up, so Rs. 100 is credited to capital but only Rs. 70 comes in cash.
The shortfall of Rs. 30 per share is the discount, which is 2,000 x 30 = Rs. 60,000.
This equals the whole forfeited amount of Rs. 60,000, so share forfeiture is nil and no capital reserve arises.

Final Answer:
Diksha Ltd.: capital reserve Rs. 4,200 and reissue cash Rs. 5,400. Ashoka Ltd.: share forfeiture Rs. 60,000, fully used on reissue, so no capital reserve.