Question

Pass the necessary journal entries for forfeiture and reissue of shares in the following cases:
(i) Premier Ltd. forfeited 600 shares of Rs 10 each issued at a premium of Rs 3 per share (payable with allotment) for non-payment of allotment money of Rs 7 per share including premium. The first and final call of Rs 3 per share was not yet made. The forfeited shares were reissued at Rs 13 per share fully paid up.
(ii) Risha Ltd. forfeited 1000 shares of Rs 10 each, Rs 8 per share called up issued at a premium of Rs 2 per share to Atul, for non-payment of allotment money of Rs 6 per share (including premium). Out of these, 800 shares were reissued at Rs 7 per share, Rs 8 paid up.

Hint:

Forfeiture \& Reissue Key Points: - Debit Share Capital with Called-up Face Value. - Debit Securities Premium only if it was due but not received. - Credit Share Forfeiture with the amount actually paid by the shareholder towards face value. - Credit Calls-in-Arrears/Specific Call account with the total unpaid amount. - On Reissue: Bank Dr (Amount Received), Share Forfeiture Dr (Discount, if any), To Share Capital Cr (Paid-up Value). - Transfer to Capital Reserve: (Forfeited Amount per share - Discount on Reissue per share) * No. of Shares Reissued.

Answer 1

Case (i): Premier Ltd.

Forfeiture Entry:

Date	Account Title and Explanation	Debit (Rs)	Credit (Rs)
	Share Capital A/c (600 * Rs 7)	4,200
	Securities Premium Reserve A/c (600 * Rs 3)	1,800
	To Share Forfeiture A/c (600*3)		1,800
	To Share Allotment A/c (600 * Rs 4)		2,400
(Being forfeiture of 600 shares for non-payment of allotment money including premium. The first and final call of Rs 3 per share was not yet made.)

Reissue Entry:

Date	Account Title and Explanation	Debit (Rs)	Credit (Rs)
	Bank A/c (600 * Rs 13)	7,800
	To Share Capital A/c (600 * Rs 10)		6,000
	To Securities Premium Reserve A/c (600 * Rs 3)		1,800
(Being reissue of 600 forfeited shares at Rs 13 per share fully paid up)

Transfer of Forfeiture Balance Entry:

Date	Account Title and Explanation	Debit (Rs)	Credit (Rs)
	Share Forfeiture A/c	1,800
	To Capital Reserve A/c		1,800
(Being balance on share forfeiture a/c transferred to capital reserve)

Case (ii): Risha Ltd.

Forfeiture Entry:

Date	Account Title and Explanation	Debit (Rs)	Credit (Rs)
	Share Capital A/c (1000 * Rs 8)	8,000
	Securities Premium Reserve A/c (1000 * Rs 2)	2,000
	To Share Forfeiture A/c (1000*4)		4,000
	To Share Allotment A/c (1000 * Rs 4)		4,000
(Being forfeiture of 1000 shares for non-payment of allotment money including premium)

Reissue Entry:

Date	Account Title and Explanation	Debit (Rs)	Credit (Rs)
	Bank A/c (800 * Rs 7)	5,600
	Share Forfeiture A/c (800 * Rs 1)	800
	To Share Capital A/c (800 * Rs 8)		6,400
(Being reissue of 800 forfeited shares at Rs 7 per share, Rs 8 paid up)

Transfer of Forfeiture Balance Entry:

First calculating the profit on forfeited shares and adjusted by the discount on reissue.
Amount forfeited on 1000 shares= Rs 4000
Amount related to 800 shares= 4000*800/1000= Rs 3200
Discount given on reissue of 800 shares= Rs 800
Capital reserve= 3200-800= Rs 2400

Date	Account Title and Explanation	Debit (Rs)	Credit (Rs)
	Share Forfeiture A/c	2,400
	To Capital Reserve A/c		2,400
(Being balance on share forfeiture a/c transferred to capital reserve)

Important Notes:

• Securities Premium: If the premium is not received on shares forfeited, the Securities Premium Reserve account needs to be debited to reverse the initial credit.
• Share Forfeiture Account: This account represents the amount already paid by the shareholder before forfeiture. It is essentially a gain for the company.
• Reissue Discount: The discount allowed on reissue of forfeited shares cannot exceed the amount forfeited on those shares.
• Capital Reserve: The balance remaining in the Share Forfeiture account after reissue is transferred to Capital Reserve, as it represents a capital profit for the company.
• Remember to provide narrations for each journal entry to clearly explain the transaction.