FORFEITURE OF SHARES
Forfeiture of shares means cancelling the shares. Shares are cancelled for non-payment of calls due. However, shares can be forfeited only if the Articles of Association Allows forfeiture .
Accounting Entries on Forfeiture of Shares
Forfeited shares may have been issued at par or at premium. Accounting entry for forfeiture will vary according to situation .
(a) Forfeiture of Shares which were Issued at Par-:
The entry for forfeiture of shares is:
- Share Capital A/c Dr. [Number of Shares Forfeited x Called-up Value per share]
To Forfeited Shares A/c [With amount received on forfeited shares]
To Shares Allotment A/c [With the amount due but not paid on allotment]
To Shares Call/Calls A/c [With the amount due but not paid on call]
* If “Calls-in-Arrears Account” is maintained, “Calls-in- Arrears Account” is credited in place of “Shares Allotment A/c” and “Shares Call/Calls A/c”.
* On forfeiture. Share Capital Account is debited with the called-up amount up to the date of forfeiture and not by the nominal (face) value of shares.
Forfeiture of Shares which were Originally Issued at Premium
When shares issued at premium are forfeited, two following possibilities exist :
(i) Securities Premium amount has been received; and
(ii) Securities Premium amount has not been received .
(i) When Securities Premium Amount has been Received
The amount received as securities Premium on shares forfeited is not cancelled . Securities Premium Reserve Account is not debited when the Shares are forfeited . Securities Premium Reserve is not debited Because Securities Premium Credited to Securities Premium Reserve Account .
(ii) When Securities Premium Amount has not been Received
The amount of the premium credited to the Securities Premium Reserve Account but not received on forfeited shares is debited to the account. The Provisions of Section 52(2) of theCompanies Act, 2013 is not violated since the amount although credited is not received.
Accounting Entries for Forfeiture of Shares Issued at a Premium
(a) When Calls-in-Arrears Account is not maintain
(i) If Securities Premium is received:
Share Capital A/c Dr. [Amount called-up less premium]
To Shares Allotment A/c [Amount not received on allotment]
To Shares Call/Calls A/c [Amount not received on calls]
To Forfeited Shares A/c [Amount received less premium]
(ii) If Securities Premium is not received:
Share Capital A/c Dr. [Amount called-up less premium]
Securities Premium Reserve A/c Dr. [Premium amount called-up but not received]
To Shares Allotment A/c [Amount not received on allotment]
To Shares Call/Calls A/c [ Amount not received on calls]
To Forfeited Shares A/c [Amount received less premium]
(b) When Calls-in-Arrears Account is maintained:
(i)_If Securities Premium is received:
Share Capital A/c Dr. [Amount called-up as Share Capital]
To Calls-in-Arrears A/c [Amount not received on calls]
To Forfeited Shares A/c [Amount received less premium]
(ii) If Securities Premium is not received;
Share Capital A/c Dr. [Amount called-up as Share Capital]
Securities Premium Reserve A/c Dr. [Amount not received as premium]
To Calls-in-Arrears A/c [Amount not received on calls]
To Forfeited Shares A/c [Amount received less premium]
Example-12: (Forfeiture of Shares which were Issued at Premium, Different Cases).
Nival Ltd. issued 1,00,000 equity shares of ₹ 10 each at a premium of ₹ 2 per share. The amount is payable as:
On Application – ₹ 4
On Allotment – ₹ 5 ( including premium )
On First and Final Call – ₹ 3
Guru was allotted 2,000 Shares . Pass Journal Entries for “ Forfeiture Of Share” in Each of the Following Cases .
Case (a) if A did not pay Allotment Money And his Share were forfeited Before Making the First and final call .
Case(b) if A did not pay Allotment Money And subsequently failed to pay the First and final call Money His Shares were Forfeited .
Case (c) If A did not pay the first and final call and his shares were forfeited .
Solution -:
|
In the Books of Nival Ltd. |
||||
|
Date |
Particular |
l.F. |
Dr. Amount ₹ |
Cr. Amount ₹ |
|
|
Equity Share Capital A/c (2000 x ₹7) Dr. |
|
14,000 |
8,000 |
|
|
Equity Share Capital A/c (2000 x ₹10) Dr. |
|
20,000 |
8,000 |
|
|
Equity Share Capital A/c (2000 x ₹10) Dr. |
|
20,000 |
14,000 |
Shri is a holder of 100 shares of ₹ 100 each in a company payable ₹ 20 per share on application, ₹ 30 per share on allotment and ₹ 20 per share on first call. He paid application money but failed to pay the allotment and first call money. His shares were forfeited by the company. Make necessary journal entry for forfeiture in the books of the company.
Solution-:
|
In the Books ….Ltd. |
||||
|
Date |
Particular |
l.F. |
Dr. Amount ₹ |
Cr. Amount ₹ |
|
|
Share Capital a/c 100 x 70) Dr. |
|
7000 |
3,000 |
Question-: A Company offered 1 lakh equity shares of ₹ 10 each to the public. The amount payable was ₹ 3 on application per share, ₹ 4 on allotment per share and the balance as and when required. Applications for 70,000 equity shares were received and the company made allotment as under 40,000 applications were given 40,000 equity shares. 25,000 applications were given 10,000 equity shares. 5,000 applications were given nil. Excess application money received was to be adjusted towards allotment money due and the balance was to be returned. A holder of 500 equity shares who was allotted 500 equity shares failed to pay allotment money. His shares were forfeited. Pass necessary journal entries to record the above transactions.
Solution-:
|
In the Books of Ltd. |
||||
|
Date |
Particular |
l.F. |
Dr. Amount ₹ |
Cr. Amount ₹ |
|
|
Bank a/c Dr. |
|
2,10,000 |
2,10,000 |
|
|
Equity share Application a/c Dr. |
|
2,10,000 |
1,50,000 |
|
|
Equity Share Allotment a/c Dr. |
|
2,00,000 |
2,00,000 |
|
|
Bank a/c Dr. |
|
1,58,000 |
1,58,000 |
|
|
Equity Share Capital a/c Dr. |
|
3,500 |
2,000 |
Question-: Chand limited issued 20,000 shares of ₹ 10 each at 10% premium payable ₹ 2 per share on application, ₹ 3 per share on allotment (including premium) ₹2 per share on first call and ₹ 4 per share on second call. Suresh, holder of 1000 shares did not pay allotment and first call money. His shares were forfeited after first call. Gajesh, holder of 600 shares failed to pay first and second call money. His shares were forfeited after second call. Make necessary journal entries for forfeiture of shares in the books of the company.
Solution-:
|
In the Books of Chand Ltd. |
||||
|
Date |
Particular |
l.F. |
Dr. Amount ₹ |
Cr. Amount ₹ |
|
|
Share Capital a/c (1,000 x 6)+(600×10) Dr. (Forfeiture of 1,000 shares on which ₹ 6 Pershare was called, for non-payment of allotment,premium and first call & 600 Shares for non payment of First and Second Call Money ) |
|
12,000 |
3,000 |
