Reissue of Forfeited Shares

Reissue of Forfeited Shares

Reissue of shares is not an issue of shares shares  but selling of the shares that were issued earlier  and were cancelled by the company these shares may be reissued by the company on the terms as it may decide .
Forfeited shares may be reissued by the company at Par , At premium or At Discount However the discount allowed on reissue did not exeeds amount received on Forfeiture of shares .
If Forfeited Shares reissued at Par Accounting Entry Will Passed as :
Bank A/c                                                    Dr.                     [With the amount received on reissue

                  To Share Capital A/c                                    [With the amount credited as paid-up]
In case, the forfeited shares are reissued at discount, accounting entry passed is:

 Bank A/c                                               Dr.               [With the amount received on reissue] 

 Forfeited Shares A/c*                       Dr.               [With the discount allowed on reissue]

                     To Share Capital A/c                                         [With the amount credited as paid-up]
(*The amount debited to Forfeited Shares Account is calculated as under: No. of shares reissued x (Paid-up Value – Reissue price per share)

If the forfeited shares are reissued at a price higher than their nominal (face) value, the excess of reissue price over nominal (face) value is credited to Securities Premium Reserve Account. The entry passed is:
Bank A/c                                                          Dr.             [With the amount received on reissue]

            To Share Capital A/c                                        [With the amount credited as paid-up]

             To Securities Premium Reserve A/c         [With the excess amount received on reissue    
                                                                                                                      over credited as paid-up]
Maximum Permissible Discount on Reissue of Forfeited Shares

 Maximum discount that can be allowed on reissue of forfeited shares is the amount forfeited on the reissued shares.
Accounting Treatment:
(1) When all Forfeited Shares are Reissued

 After reissue of all the forfeited shares, balance Left in Forfeited Account is transferred to the Capital Reserve Account The Entry Passed is –:
Forfeited Shares A/c                            Dr.

                  To Capital Reserve A/c

 (Gain on reissue transferred to Capital Reserve)
When Partly Called-up Shares are Forfeited and Reissued
 If forfeited shares which were partly called up are reissued then the conditions would we as follows ;
if the question is silent about the the shares reissued as fully paid up or Partly paid up the paid value to be taken will be the amount called up to the date of forfeiture.
(ii) When All Forfeited Shares are not Reissued

When Some Of the forfeited shares are reissued , Gain on reissued shares is transferred to Capital Reserve .
Example-13: (Forfeiture of Shares issued at Premium and Reissued at Discount).

 Arun Ltd. forfeited 600 Equity Shares of ₹ 10 each issued at a premium of 20% to Ram had applied for 720 Equity Shares, for non-payment of allotment money of ₹ 5 per share (including premium) and the first and final call of ₹ 5 per equity share. Out of 200 Equity Shares were reissued to Shyam credited as fully paid for ₹ 9 per equity share. According to the terms of issue, company was to retain the excess application money to adjust against .

Pass Journal entries to record forfeiture and reissue of shares.
Solution-:

In the Books of  Arun Ltd.
JOURNAL

Date

Particular

l.F.

Dr. Amount ₹

Cr. Amount ₹

 

Share Capital A/c                                                 Dr.
Securities Premium Reserve A/c                            Dr.
          To Forfeited Shares A/c
          To Shares Allotment A/c
          To Shares First and Final Call A/c
(600 shares forfeited for non-payment of allotment and call money) (WN 1)

 

6,000
1,200

1,440
2,760
3,000

 

Bank A/c                                                         Dr.
Forfeited Shares A/c                                   Dr.
To Share Capital A/c
(200 forfeited shares reissued as fully paid-up for {9 per share)

 

1,800
200

2,000

 

Forfeited Shares A/c                               Dr.
To Capital Reserve A/c
(Transfer of gain on reissue to Capital Reserve) (WN 2)

 

280

280

Working Notes:

  1. Calculation of the amount due but not paid as allotment:

(a) Total No. of shares applied = 720

(b) Total money paid on application (720 x ₹  2)                                       1,440

(c ) Excess application money R 1,440 – (600 x ₹  2)                                  1,200

(d)Total amount due on allotment (600 x ₹ 5)                                                             3, 000
(e ) Amount due but not paid on allotment ( 3,000 – ₹  240)                                   2,760

2. Amount transferred to Capital Reserve:

 Amount forfeited on 600 shares                                                                                         1,440

 Amount forfeited on 200 shares ( 1,440/600 x 200)                                                          480     

less: Discount allowed on 200 shares reissued                                                                    200

 Gain on reissue to be transferred to Capital Reserve                                                        280

Example-14:  (Calculation of Gain on reissue when only a Part of Shares Forfeited are reissued).

 Aman Ltd. forfeited 300 Equity Shares of ₹ 10 each, fully called-up, held by Ram for

non-payment of allotment money of ₹ 3 per equity share and first and final call money of

₹  4 per equity share. Out of these, 250 shares were reissued to Shyam for a total payment of 2,000.

Pass Journal entries for forfeiture and reissue.
Solution-:

In the Books of  Aman Ltd.
JOURNAL

Date

Particular

l.F.

Dr. Amount ₹

Cr. Amount ₹

 

Share Capital A/c (300 x ₹10)                    Dr.

          To Forfeited Shares A/c (300 x ₹ 3)
               To Shares Allotment A/c (300 x ₹3
              To Shares First and Final Call A/c (300 x ₹4)

 (300 shares forfeited for non-payment of allotment and first and final call)

 

3,000

900
900
1,200

 

Bank A/c (250x₹ 8)                                     Dr.
Forfeited Shares A/c (250 x ₹2)                Dr
          To Share Capital A/c (250x₹10)
(250 forfeited shares reissued for ₹ 8 per share)

 

2,000
500

2,500

 

Forfeited Shares A/c (250 x ₹ 1)               Dr.
To Capital Reserve A/c (250 x ₹ 1)
(Transfer of gain on reissue) (WN)

 

250

250

Working Note:
Calculation of Gain (profit) on Reissue of shares:
Total amount forfeited on 300 shares @₹ 3 per share                                                   900|
Amount forfeited on 250 shares reissued @ ₹ 3 per share                                           750
Less: Discount allowed on reissue of forfeited shares                                                    500
Gain on reissue of forfeited shares transferred to Capital Reserve                              250

FORFEITURE OF SHARES UNDER PRO RATA CATEGORY
When shares that were issued on pro rata basis are forfeited amount in arrears on allotment is to be determined . Following process is followed to determine the Amount in Arrears :
1. Calculate total number of shares applied (if not given ) by the shareholder whose shares are being Forfeited applying the following formula ;
Total Shares Applied under Pro rata Category / Total Shares Allotted under Pro rata Category = No. of Shares Alloted to Shareholder
2. Calculate the total number of shares allotted (if not given) as under:
Total Shares Allotted under Pro rata Category / Total Shares Applied under Pro rata Category = No. of Shares Applied By Shareholder
Example-: (Comprehensive Example )
Sharad Ltd. issued 80,000 Shares of ₹ 10 each, for ₹ 12 each payable as under:
on Application -: ₹ 2 per Share
On Allotment -:                        ₹  5 per Share ( including Premium )
on First Call -:                          ₹  2 per Share
On Second & Final Call -:      ₹  3 per Share
Application Were Received For 1,20,000 Shares Allotment Was made on Pro Rata Basis to the Applicants  96,000 shares , Remaining applications being refused Money overpaid on application was applied towards amount due on Allotment .
Amit to Whom 3,200 Shares were allotted , failed to pay the allotment money And Basant to whom 4,000 shares were allotted , failed to pay two calls . these were Subsequently forfeited after the second and final call .
Pass Necessary Journal Entries In The Books of Shagoon Ltd. .
Solution -:

In the Books of  Sharad Ltd.
JOURNAL

Date

Particular

l.F.

Dr. Amount ₹

Cr. Amount ₹

 

Bank A/c                                                                   Dr.
To Shares Application A/c
(Application money received on 1,20,000 shares)

 

2,40,000

2,40,000

 

Shares Application A/c                                                Dr.
             To Share Capital A/c
             To Bank A
           To Shares Allotment A/c
(Application money adjusted and surplus refunded

 

2,40,000

1,60,000
48,000
32,000

 

Shares Allotment A/c                                                  Dr.
        To Share Capital A/c
     To Securities Premium Reserve A/c
(Allotment money due)

 

4,00,000

2,40,000
1,60,000

 

Bank A/c                                                                        Dr.
             To Shares Allotment A/c
(Allotment money received on 76,800 shares) (WN 2)

 

3,53,280

3,53,280

 

Shares First Cali A/c                                             Dr.
To Share Capital A/c
(First call money due on 80,000 shares)

 

1,60,000

1,60,000

 

Bank A/c                                                                        Dr.
              To Shares First Call A/c
 (First call money received on 72,800 shares @ ₹ 2 per Share )

 

1,45,600

1,45,600

 

Shares Second and Final Call A/c             Dr.
                  To Share Capital A/c
 (Second and final call money due)

 

2,40,000

2,40,000

 

Bank A/c                                                          Dr.
To Shares Second and Final Call A/c
(Second and final call money received on 36,400 shares)

 

2,18,400

2,18,400

 

Share Capital A/c                                        Dr.
 Securities Premium Reserve A/c        Dr.
               To Shares Allotment A/c
            To Shares First Call A/c
            To Shares Second and Final Call A/c
            To Forfeited Shares A/c

 (3,200 shares forfeited for non-payment of allotment and calls money and 4,000 shares for non-payment of two calls money) (WN 1)

 

72,000
6,400

14,720
14,400
21,600
27,680

Ramesh applied for 1,00,000 shares of ₹ 10 each in Z Limited payable as under-
(i) On application ₹ 2 per share.
(ii) On allotment ₹ 3 per share.
(iii) On first call ₹ 2 per share.
(iv) On second call ₹ 3 per share.
He paid application and allotment money but failed to pay first and second call money. The Directors forfeited all his shares and re-issued the same for ₹ 9,000 as fully paid for cash. Pass necessary journal entries in the books of the company.
Solution-:

In the Books of  Ramesh Ltd.
JOURNAL

Date

Particular

l.F.

Dr. Amount ₹

Cr. Amount ₹

 

Bank a/c                                                         Dr.
To Share Application a/c
(Amount received on application for 1,00,000 shares)

 

2,00,000

 

2,00,000

 

Share Application a/c                                             Dr.
To Share Capital a/c
(Amount due on application for 1,00,000 shares)

 

2,00,000

 

2,00,000

 

Share Allotment a/c                                                 Dr.
To Share Capital a/c
 (Amount due on allotment for 1,00,000 shares)

 

3,00,000

 

3,00,000

 

Bank a/c                                                                        Dr
               To Share Allotment a/c
(Amount received on allotment for 1,00,000 shares)

 

3,00,000

 

3,00,000

 

 

Share First Call a/c                                                     Dr.
            To Share Capital a/c
(Amount due on first call for 1,00,000 shares)

 

2,00,000

 

2,00,000

 

 

Share Second Call a/c                                                  Dr.
                   To Share Capital a/c
(Amount due on second call for 1,00,000 shares)

 

3,00,000

 

3,00,000

 

 

Share Capital a/c                                                          Dr.
To Share First Call a/c (1,00,000 x 2)
To Share Second Call a/c (1,00,000 x 3)
To Share Forfeited a/c
(Shares forfeited for non-payment of calls)

 

10,00,000

 

2,00,000
3,00,000
5,00,000

 

Share Forfeited a/c                                                     Dr.
Bank a/c                                                                        Dr.
To Share Capital a/c
 (Forfeited shares re-issued at discount)

 

1,00,000
9,00,000

 

1,00,000
9,00,000

 

Share Forfeited a/c                                                      Dr.
             To Capital Reserve a/c
(Surplus transferred to capital reserve 5,00,000 – 1,00,000)

 

4,00,000

4,00,000

Area limited company issued 20,000 shares of ₹ 10 each payable as ₹ 3 per share on application, ₹ 3 per share on allotment and ₹ 4 per share on call. All the moneys were duly received except call money on 3,000 shares. The Directors forfeited these shares and re-issued the same for cash for ₹ 35,000. Make necessary journal entries in the books of the company.
Solution-:

In the Books of Area Ltd.
JOURNAL

Date

Particular

l.F.

Dr. Amount ₹

Cr. Amount ₹

 

Bank a/c                                                          Dr.
To Share Application a/c
(Amount received on application for 20,000 shares)

 

60,000

 

60,000

 

Share Application a/c                                         Dr.
To Share Capital a/c
(Amount due on application for 20,000 shares)

 

60,000

 

 

60,000

 

 

Share Allotment a/c                                              Dr.
To Share Capital a/c
(Amount due on allotment for 20,000 shares)

 

60,000

 

60,000

 

 

Bank a/c                                                                        Dr.
To Share Allotment a/c
(Amount received on allotment for 20,000 shares)

 

60,000

 

60,000

 

 

Share First and Final Call a/c                           Dr.
To Share Capital a/c
(Amount due on first and final call for 20,000 shares)

 

80,000

 

80,000

 

Bank a/c                                                                   Dr.
             To Share First and Final Call a/c
(Amount received on first and final call for 17,000 shares)

 

68,000

 

68,000

 

 

Share Capital a/c                                                          Dr.
To Share First and Final Call a/c
To Share Forfeited a/c
( 3,000 shares forfeited for non-payment of call)

 

30,000

12,000
18,000

 

Bank a/c                                                                       Dr.
To Share Capital a/c
To Securities Premium Reserve a/c
(Re-issue of 3,000 shares at premium)

 

35,000

30,000
5,000

 

Share Forfeited a/c                                                     Dr.
To Capital Reserve a/c
(Surplus transferred to Capital Reserve)

 

18,000

18,000

 Question-:   Record the Journal entries for forfeiture and reissue in the Below case: iron Ltd. forfeited 100 shares of ₹ 100 each, ₹ 70 called up, on which the shareholders had paid application and allotment money of ₹ 50 per share. Out of these, 75 shares were re-issued to Naresh as ₹ 70 paid up for ₹ 80 per share.
Solution-:

In the Books of iron  Ltd.
JOURNAL

Date

Particular

l.F.

Dr. Amount ₹

Cr. Amount ₹

 

Share Capital A/c ( 100 x ₹ 70)                  Dr.
To Forfeited Shares A/c (100 x ₹ 50)
To Share First Call A/c (100 x ₹20)(100 shares forfeited due to non-payment of first call @ ₹ 20)

 

700

500
200

 

Bank A/c (75 x ₹ 80)                                     Dr.
To Share Capital A/c (75 x ₹ 70)
 To Securities premium Reserve A/c
(75 forfeited shares re-issued, ₹ 70 paid up or ₹ 80 per shares)

 

6,000

5,250
750

 

Forfeited Shares A/c                                    Dr
              To Capital Reserve
(The transfer of profit on re-issue of 75 shares)

 

3,750

3,750

 

Question-:  Bihari Ltd. forfeited 4,700 equity shares of ₹ 20 each issued at a premium of ₹ 3 per share for the non-payment of allotment money of 8 (including premium ₹ 3 and first call of ₹ 5 per share. Final call of ₹ 5 per share was not made. Out of these, 2,350 shares were reissued at ₹ 19 each fully paid.
Pass necessary Journal entries for the above transactions in the books of Bihari Ltd.
Solution-:

In the Books of Bihari Ltd.
JOURNAL

Date

Particular

l.F.

Dr. Amount ₹

Cr. Amount ₹

 

Share Capital A/c (4,700 x ₹ 15)                Dr.
Securities premium Reserve (4,700 x ₹3)Dr.
To Forfeited Shares A/c (4,700 x ₹ 5)
To Share Allotment A/c (4,700 x ₹ 8)
 To Share First Call A/c (4,700 x ₹5)
(Being 4,700 shares forfeited due to non-payment of first call)

 

70,500
14,100

23,500
37,600
23,500

 

Bank A/c (2,350 x ₹ 19)                              Dr
Forfeited Shares A/c (2,350 x ₹ 1)             Dr
To Share Capital A/c (2,350 x ₹ 20)
(235 forfeited shares re-issued at ₹ 19 each fully paid)

 

44,650
2,350

47,000

 

Forfeited Shares A/c (2,350 x ₹ 4)            Dr.
                    To Capital Reserve A/c
(Profit on re-issued of 2,350 forfeited shares transferred to Capital Reserve)

 

9,400

 

9,400

Question-: Ram Ltd. Invited applications for issuing 40,000 Equity Shares of ₹ 100 each at a premium of ₹ 40 per share. The amount was payable as follows :
On Application ₹ 35 per share (including ₹ 30 Premium)
On Allotment ₹ 80 per share (including ₹ 40 Premium)
On First and Final Call Balance.
Applications for 38,500 shares were received. Shares were allotted to all the applicants. Sundram to whom 3,500 shares were allotted failed to pay the allotment money. His shares were forfeited immediately after allotment. Afterwards the first and final call was made. Satyam the holder of 250 shares failed to pay the first and final call. His shares were also forfeited. Out of the forfeited shares 500 shares were re-issued at ₹ 50 per share fully paid up. The re-issued shares included all the shares of Satyam.
Pass necessary Journal entries for the above transaction in the books of Shyam Ltd.
Solution-:

In the Books of Ram Ltd.
JOURNAL

Date

Particular

l.F.

Dr. Amount ₹

Cr. Amount ₹

 

Bank A/c                                                  Dr.
To Equity Share Application A/c
(The share application money @ ₹ 35 received on 38,500 shares)

 

1,347,500

1,347,500

 

Equity Share Application A/c                                   Dr
To Equity Share Capital A/c (38,500 x ₹50)
To Securities Premium Reserve (38,500 x ₹30)
(Application money adjusted)

 

30,80,000

1,925,000
1,155,000

 

 

Equity Share Allotment A/c                                     Dr.
To Equity Share Capital A/c (38,500 x₹40)
To Securities Premium Reserve (38,500 x ₹40)
(The allotment money due on 38,500 shares @ ₹80 per share)

 

30,80,000

1,540,000
1,540,000

 

Bank A/c                                                                Dr
Calls in arrears A/c                                                    Dr.
                  To Equity Share Allotment A/c
(Allotment money received except on 3,500 shares)

 

28,00,00
2,80,000

30,80,000

 

Equity Share Capital A/c (3,500 x ₹90)                 Dr.
Securities premium Reserve (3,500 x ₹40)        Dr.
To Forfeited Shares A/c (3,500 x ₹50)
To Equity Shares Allotment A/c (3,500 x ₹80)
(3,500 share forfeited due to non-payment of allotment money)

 

31,5000
14,0000

17,5000
28,0000

 

Equity Share First and Final Call A/c (35,000 x ₹70)    Dr.
To Equity Share Capital A/c (35,000 x ₹10)
To Securities Premium Reserve (35,000 x ₹60) 
(The amount due on first and final call on 35,000 shares)

 

2,45,0000

3,50,000
2,10,000

 

Bank A/c                                                                    Dr.
Calls in arrears A/c                                                    Dr.
To Equity Share First and Final Call A/c
(The first and final call money received except on 500 shares)

 

2,500
1,500

4,000

 

Bank A/c (50 x 250)                                                  Dr.
To Equity Share Capital A/c
To Securities Premium Reserve
(250 forfeited shares re-issued and fully paid for ₹ 50 per share)

 

12,500

12,500

 

Forfeited Shares A/c                                                 Dr.
To Capital Reserve A/c
(Profit on re-issue of shares transferred to Capital

 

3,500

3,500
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