Question

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

(i) Sanya Ltd. forfeited 2,000 shares of Rs 10 each, issued at a premium of Rs 2 per share, Rs 8 called up, for non-payment of allotment money of Rs 5 per share (including premium). Out of these, 700 shares were reissued to Dev as Rs 8 paid up for Rs 10 per share.

(ii) Moksh Ltd. forfeited 5,000 shares of Rs 10 each on which first call of Rs 3 per share was not received. The second and final call of Rs 2 per share has not yet been called. Out of these, 2,000 shares were issued to Geeta as Rs 8 paid up for Rs 7 per share.

Hint:

Debit the called-up capital on forfeiture. Credit the amount received to share forfeiture. On reissue, discount reduces forfeiture and the rest is capital reserve.

Answer 1

Step 1: Case (i) Working: Sanya Ltd.:
Issue price is Rs. 12, made up of Rs. 10 face value and Rs. 2 premium. Only Rs. 8 of face value is called up.
Allotment of Rs. 5 includes the premium of Rs. 2, so face value in allotment is Rs. 3. So application money is 8 - 3 = Rs. 5 per share.
Share capital debit = 2,000 x 8 = Rs. 16,000. Premium debit = 2,000 x 2 = Rs. 4,000, because allotment with premium was not paid.
Share forfeiture = 2,000 x 5 = Rs. 10,000 (application money). Unpaid allotment = 2,000 x 5 = Rs. 10,000.
Reissue of 700 shares: cash = 700 x 10 = Rs. 7,000. Capital credited = 700 x 8 = Rs. 5,600. Premium = 700 x 2 = Rs. 1,400.
Forfeiture on 700 shares = 700 x 5 = Rs. 3,500. There is no discount, so all of it is capital reserve.

Step 2: Case (i) Journal entries:

Particulars	Dr. (Rs.)	Cr. (Rs.)
Share Capital A/c ... Dr.	16,000
Securities Premium A/c ... Dr.	4,000
To Share Forfeiture A/c		10,000
To Share Allotment A/c / Calls in Arrears A/c		10,000
(2,000 shares, Rs. 8 per share called up, forfeited for non-payment of allotment money of Rs. 5 per share including premium)
Bank A/c ... Dr.	7,000
To Share Capital A/c		5,600
To Securities Premium A/c		1,400
(700 shares reissued as Rs. 8 per share paid up for Rs. 10 per share)
Share Forfeiture A/c ... Dr.	3,500
To Capital Reserve A/c		3,500
(Gain on reissue of 700 shares transferred to capital reserve)

Step 3: Case (ii) Working: Moksh Ltd.:
Face value is Rs. 10. First call of Rs. 3 was not paid. The second call of Rs. 2 was not made, so the called-up amount is Rs. 8 per share.
Money received = 8 - 3 = Rs. 5 per share. Share forfeiture = 5,000 x 5 = Rs. 25,000.
Share capital debit = 5,000 x 8 = Rs. 40,000. Unpaid first call = 5,000 x 3 = Rs. 15,000.
Reissue of 2,000 shares as Rs. 8 paid up for Rs. 7: cash = 2,000 x 7 = Rs. 14,000. Discount = 2,000 x 1 = Rs. 2,000. Capital credited = 2,000 x 8 = Rs. 16,000.
Forfeiture on these 2,000 shares = 2,000 x 5 = Rs. 10,000. After discount Rs. 2,000, the capital reserve is Rs. 8,000.

Step 4: Case (ii) Journal entries:

Particulars	Dr. (Rs.)	Cr. (Rs.)
Share Capital A/c ... Dr.	40,000
To Share Forfeiture A/c		25,000
To Share First Call A/c / Calls in Arrears A/c		15,000
(5,000 shares, Rs. 8 per share called up, forfeited for non-payment of first call of Rs. 3 per share)
Bank A/c ... Dr.	14,000
Share Forfeiture A/c ... Dr.	2,000
To Share Capital A/c		16,000
(2,000 shares reissued as Rs. 8 per share paid up for Rs. 7 per share)
Share Forfeiture A/c ... Dr.	8,000
To Capital Reserve A/c		8,000
(Gain on reissue of 2,000 shares transferred to capital reserve)

Step 5: Check of each case:
Sanya Ltd.: forfeiture Rs. 10,000 less the 700 shares part Rs. 3,500 leaves Rs. 6,500 for the 1,300 shares still held (1,300 x 5).
Moksh Ltd.: forfeiture Rs. 25,000 less Rs. 10,000 for 2,000 shares leaves Rs. 15,000 for 3,000 shares (3,000 x 5).
Premium is credited only for the reissued shares of Sanya Ltd., because the original premium was never received.

Final Answer:
Sanya Ltd.: forfeiture Rs. 10,000, capital reserve Rs. 3,500. Moksh Ltd.: forfeiture Rs. 25,000, capital reserve Rs. 8,000 (after discount Rs. 2,000).