Question

Rao Ltd. forfeited 750 equity shares of ₹ 10 each for non-payment of first call of ₹ 3 per share (including premium of ₹ 1 per share). The second and final call of ₹ 3 per share was not yet made. Of the forfeited shares, 500 were re-issued for ₹ 2,500, ₹ 7 per share paid-up. Pass necessary journal entries for the above transactions in the books of Rao Ltd.

Hint:

When shares are forfeited, the amount received is transferred to Share Forfeiture A/c. On re-issue, discount is debited to Share Forfeiture A/c. The remaining balance on re-issued shares is transferred to Capital Reserve.

Answer 1

In the Books of Rao Ltd.

Journal Entries

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	Equity Share Capital A/c Dr. (750 × ₹10) Securities Premium A/c Dr. (750 × ₹1)     To Share Forfeiture A/c     To Calls-in-Arrears A/c  (Being 750 shares forfeited for non-payment of first call of ₹3 per share including ₹1 premium)		7,500 750	6,000 2,250
	Bank A/c Dr. Share Forfeiture A/c Dr.     To Equity Share Capital A/c (500 × ₹10)     To Securities Premium A/c  (Being 500 forfeited shares re-issued at ₹5 per share as ₹7 paid-up)		2,500 1,000	5,000 500
	Share Forfeiture A/c Dr.     To Capital Reserve A/c  (Being profit on re-issue transferred to Capital Reserve)		3,000	3,000

Working Notes

1. Share Money Details

Face Value per Share = ₹10 Total Premium per Share = ₹1 First Call per Share = ₹3 (including ₹1 premium) Second & Final Call per Share = ₹3 (not yet called) Amount called up before forfeiture: \[ 11 - 3 = 8 \text{ per share} \] ---

2. Amount Received on Forfeited Shares

Amount received per share = ₹8 \[ 750 \times 8 = 6,000 \] So Share Forfeiture A/c credited = ₹6,000 ---

3. Forfeiture Entry Explanation

Called-up capital: \[ 750 \times 10 = 7,500 \] Premium unpaid: \[ 750 \times 1 = 750 \] First call unpaid: \[ 750 \times 3 = 2,250 \] Amount received: \[ 750 \times 8 = 6,000 \] ---

4. Re-issue of 500 Shares

Re-issue price: \[ 500 \times 5 = 2,500 \] Share Forfeiture available for 500 shares: \[ \frac{500}{750} \times 6,000 = 4,000 \] Discount on re-issue: \[ 1,000 \] ---

5. Transfer to Capital Reserve

Share Forfeiture balance before re-issue = ₹6,000 Less: Discount on re-issue = ₹1,000 Less: Balance relating to 250 shares: \[ \frac{250}{750} \times 6,000 = 2,000 \] Amount transferred: \[ 6,000 - 1,000 - 2,000 = 3,000 \]