Question

Surabhi, a shareholder holding 5,000 shares of Rs. 10 each, did not pay the allotment money of Rs. 4 per share (including premium of Rs. 2) and the first and final call of Rs. 3 per share. Her shares were forfeited after first and final call. Give journal entry for forfeiture of shares.

Hint:

When premium is unpaid at allotment, it must always be cancelled on forfeiture.

Answer 1

Surabhi failed to pay allotment money (including premium) and first & final call. The total unpaid amount per share is Rs. 4 (allotment) + Rs. 3 (call) = Rs. 7. When shares are forfeited, the called-up capital is cancelled. Since premium was not received, it must be reversed. Amount received on application remains in share forfeiture account. The journal entry is recorded as follows: 
Journal Entry for Forfeiture of Shares 
Called-up capital = Application Rs. 3 + Allotment Rs. 4 + Call Rs. 3 = Rs. 10 per share. 
Share capital to be cancelled = 5,000 × 10 = Rs. 50,000. 
Premium not received = 5,000 × 2 = Rs. 10,000. 
Calls unpaid = 5,000 × 7 = Rs. 35,000. 
Amount received (application) = 5,000 × 3 = Rs. 15,000 (credited to Forfeiture A/c). 
\[ \begin{array}{lcl} \text{Share Capital A/c Dr.} & 50,000 \\ \text{Securities Premium A/c Dr.} & 10,000 \\ \text{To Calls in Arrears A/c} & 35,000 \\ \text{To Share Forfeiture A/c} & 15,000 \\ \end{array} \]