Question

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

(i) Dharma Ltd. forfeited 600 shares of Rs 100 each, Rs 80 per share called up, issued at 10% premium (to be paid at the time of allotment) for non-payment of first call of Rs 20 per share. Out of these, 300 shares were reissued as Rs 80 paid up for Rs 60 per share.
(ii) Vikram Ltd. forfeited 1,000 shares of Rs 10 each issued at a premium of Rs 2 per share for non-payment of allotment money of Rs 4 per share (including premium) and first call of Rs 3 per share. The second and final call of Rs 1 per share was not made. The forfeited shares were reissued at Rs 7 per share fully paid up.

Hint:

Debit Share Capital at the called-up amount and credit Forfeiture with money received. On reissue debit the discount to Forfeiture and move the balance to Capital Reserve: Rs. 12,000 and Rs. 1,000.

Answer 1

Step 1: Case (i): Read the data of Dharma Ltd.:
Face value Rs. 100, called up Rs. 80, so the first call of Rs. 20 is the only unpaid money.
Premium of Rs. 10 per share was due at allotment, so it was received. It is not touched on forfeiture.
Money paid per share = Rs. 80 - Rs. 20 = Rs. 60.

Step 2: Case (i): Entry for forfeiture of 600 shares:
Share Capital is debited at the called-up value: 600 x 80 = Rs. 48,000.
Share Forfeiture is credited with money received: 600 x 60 = Rs. 36,000.
Calls in Arrears (first call not paid) is credited: 600 x 20 = Rs. 12,000.

Particulars	Dr (Rs.)	Cr (Rs.)
Share Capital A/c ... Dr	48,000
To Share Forfeiture A/c		36,000
To Share First Call A/c / Calls in Arrears A/c		12,000
(600 shares forfeited for non-payment of first call of Rs. 20 per share)

Step 3: Case (i): Reissue of 300 shares:
Reissue is at Rs. 60 per share, shown as Rs. 80 paid up. Bank gets 300 x 60 = Rs. 18,000.
Discount allowed = 300 x 20 = Rs. 6,000, debited to Share Forfeiture. Share Capital credited at 300 x 80 = Rs. 24,000.

Particulars	Dr (Rs.)	Cr (Rs.)
Bank A/c ... Dr	18,000
Share Forfeiture A/c ... Dr	6,000
To Share Capital A/c		24,000
(300 shares reissued as Rs. 80 paid up for Rs. 60 per share)

Step 4: Case (i): Capital Reserve:
Forfeiture on 300 shares reissued = 300 x 60 = Rs. 18,000. Less discount Rs. 6,000 = Rs. 12,000 gain.

Particulars	Dr (Rs.)	Cr (Rs.)
Share Forfeiture A/c ... Dr	12,000
To Capital Reserve A/c		12,000
(Balance of forfeiture on reissued shares transferred to Capital Reserve)

Step 5: Case (ii): Read the data of Vikram Ltd.:
Face value Rs. 10, premium Rs. 2, so price is Rs. 12 per share.
Allotment is Rs. 4 (Rs. 2 capital and Rs. 2 premium). First call is Rs. 3. Second call of Rs. 1 is not made.
Application money = 12 - 4 - 3 - 1 = Rs. 4 per share, and only this was paid.
Called up capital = 4 + 2 + 3 = Rs. 9. Premium of Rs. 2 was due but not received.

Step 6: Case (ii): Forfeiture of 1,000 shares:
Share Capital debit: 1,000 x 9 = Rs. 9,000. Securities Premium debit: 1,000 x 2 = Rs. 2,000.
Share Forfeiture credit (application received): 1,000 x 4 = Rs. 4,000.
Allotment unpaid: 1,000 x 4 = Rs. 4,000. First call unpaid: 1,000 x 3 = Rs. 3,000.

Particulars	Dr (Rs.)	Cr (Rs.)
Share Capital A/c ... Dr	9,000
Securities Premium A/c ... Dr	2,000
To Share Forfeiture A/c		4,000
To Share Allotment A/c		4,000
To Share First Call A/c		3,000
(1,000 shares forfeited for non-payment of allotment of Rs. 4 and first call of Rs. 3)

Step 7: Case (ii): Reissue and Capital Reserve:
Reissue at Rs. 7 fully paid: Bank gets 1,000 x 7 = Rs. 7,000. Loss on reissue = 10 - 7 = Rs. 3 per share = Rs. 3,000.
Share Capital is credited at Rs. 10,000. Forfeiture balance = 4,000 - 3,000 = Rs. 1,000 goes to Capital Reserve.

Particulars	Dr (Rs.)	Cr (Rs.)
Bank A/c ... Dr	7,000
Share Forfeiture A/c ... Dr	3,000
To Share Capital A/c		10,000
(1,000 shares reissued at Rs. 7 per share fully paid)
Share Forfeiture A/c ... Dr	1,000
To Capital Reserve A/c		1,000
(Balance of forfeiture transferred to Capital Reserve)

Final Answer:
Dharma Ltd.: forfeiture Rs. 48,000, reissue Rs. 18,000 and Rs. 6,000, Capital Reserve Rs. 12,000. Vikram Ltd.: forfeiture Rs. 9,000 and Rs. 2,000, reissue Rs. 7,000 and Rs. 3,000, Capital Reserve Rs. 1,000.