Shares- Issue, Reissue
& Forfeiture
By
Asok Nadhani
26.1 Share Capital of a Company
Generally ‘Capital’ means a
particular amount of money invested in business to earn revenue.
Share Capital is that part
of the capital of a company which is represented by the total nominal value of
the shares which it has issued. In the context of the company law, share
capital is used in following different contexts:
(i)
Nominal or Authorized
Capital: It means the face value (face value is the amount stated on a share
certificate) of the shares which the company is authorised to issue by its
memorandum. (e.g. H. Ltd incorporated with an Authorised Capital of Rs.10,
00,000 divided into 1, 00,000 shares of Rs.10 each.)
(ii)
Issued Capital: It is that part of Authorised Capital which is issued to the public for
subscription and allotment, (say Rs.5,00,000 through 50,000 shares of Rs.10
each.)
(iii)
Subscribed Capital: It is that part of the Issued
Capital which has been subscribed by the public, (e.g. Rs.4,00,000, i.e. 40,000
shares of Rs.10 each).
(iv)
Called-up Capital: It is that part of the Subscribed
Capital which the directors have called up. (Say, Rs.6 per share has been
called up, i.e., 40,000 x Rs.6 = Rs.2,40,000).
(v)
Paid-up Capital: It is that part of the
called up capital which is actually received in cash by the company, say, Rs.1,94,000
(one shareholder allotted with 1,000 shares, failed to pay the call @ Rs.6 per
share.)
(vi)
Uncalled Capital: It is that part of the
subscribed capital which has not yet been called up the directors. The
difference between the Subscribed Capital and Called Up capital is represented
by the uncalled capital (i.e. Rs.1,60,000).
(vii)
Reserve Capital: A limited company may, by
special resolution, determine that any portion of its share capital which has
not been already called-up shall not be capable of being called up, except in
the event of winding up. This uncalled portion of the share capital is called
‘Reserve Capital’.
26.2 Types of Shares
Under the Companies Act, the company can issue
two types of shares viz.
i) Preference
Shares: Such Shareholders have only preferential
rights and get a fixed rate of
dividend, and repayment of capital before the payment to equity shareholders. They have no voting rights.
ii)
Equity Shares: Equity
is the risk capital of the business. They carry voting rights and higher expected
return with higher risks than preference shares. In case of winding up of the company, equity
shareholders are paid the surplus, only after the preference shareholders are
paid fully paid up.
26.3 Stock
Stock is the aggregate of
fully paid-up shares legally consolidated and portion of which aggregate may be
transferred or split up into fractions of any amount without regard to the
original nominal amount of shares.
26.3.1 Distinction between Shares and Stock
i.
Shares are in units but stock is in lump holding.
ii.
Shares can be issued directly but stock cannot be
issued directly (it has to be converted from shares).
iii.
Shares need not be fully paid but stock must be
fully paid.
iv.
Shares must be numbered but stock is not numbered.
v.
Shares cannot be transferred in fractional amount
but stock can be transferred in fractional amount.
26.4
Accounting Entries for Issuing Share
26.4.1
Issue at Par
Normally, shares are issued
at face value (called Issue at par).
26.4.1.1 Accounting Entries
for shares issued at per:
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(1)
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On
receipt of share application money
|
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Bank A/c
To Share
Application A/c
(The application money
received for…shares @ Rs. each)
|
Dr.
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(2)
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On
allotment of shares
Share Application A/c
To Share
Capital A/c
(The application money on...
shares @ Rs…each transferred to Share Capital as per Board’s resolution No…
Dated…)
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Dr.
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(3)
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On
refund of excess application money
Share Application A/c
To Bank A/c
(The excess application
money (or not allotted) on... shares @ Rs…each refunded as per Board’s
resolution No… Dated…)
|
Dr.
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(4)
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On
retention of excess application money against allotment money due
Share Application A/c
To Share
Allotment A/c (adjustment against allotment)
To
Calls-in-advance A/c (surplus after adjustment)
(The excess application
money on... shares @ Rs…each adjusted against as per Board’s resolution No…
Dated…)
Note:
Any
surplus money after adjustment against allotment should be transferred to
Calls-in-advance account. It will be adjusted when call is made and excess money
will be refunded.
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Dr.
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||
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(6)
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On
allotment money becoming due
Share Allotment A/c
To Share
Capital A/c
(The allotment money on...
shares @ Rs…each transferred to Share Capital as per Board’s resolution No…
Dated…)
|
Dr.
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(7)
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On
receipt of allotment money
Bank A/c
To Share
Allotment A/c
(The allotment money
received for…shares @ Rs. each)
|
Dr.
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(8)
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On
share first call becoming due
Share First Call A/c
To Share
Capital A/c
(The first call money on... shares @ Rs…each transferred to
Share Capital as per Board’s resolution No… Dated…)
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Dr.
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(9)
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On
receipt of first call money
Bank A/c
To Share First
Call A/c
(Call money
received on ... shares @ Rs…each
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Dr.
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(10)
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On
share final call becoming due
Share Final Call A/c
To Share
Capital A/c
(The final
call money on... shares @ Rs…each
transferred to Share Capital as per Board’s resolution No… Dated…)
|
Dr.
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(11)
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On
receipt of final call money
Bank A/c
To Share Final
Call A/c
(Final Call
money received on ... shares @ Rs…each.)
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Dr.
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(12)
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On
transfer of amount, not received, to call-in-arrears account
Call-in-arrears A/c
To Share
Allotment A/c
To Share Final Call
A/c
(Amount not received for
on ... shares @ Rs…each transferred to Call-in-arrears.)
|
Dr.
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||
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Example 1: (Issue of Shares at premium)
M Ltd. issued 10,000 equity
shares of Rs.10 each to the public at per. The share money is payable on the
shares are as follows:
|
Date
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Call
|
Rs. Per Share
|
|
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Application
|
2.00
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Allotment
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3.00
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Final Call
|
5.00
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Application monies were
received on 12,000 shares. Excess application monies were refunded immediately
to the applicants. All other amounts were received excepting final call money
on 100 shares.
Pass Journal Entries to record
the above in the books of M Ltd.
Solution:
In
the Books of M Ltd.
Journal
Entries
|
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Dr.
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Cr.
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Date
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Particulars
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Rs.
|
Rs.
|
|
2009
|
|
|
|
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April, 1
|
Bank A/c
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Dr.
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24,000
|
|
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To Equity Share
Application A/c
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24,000
|
|
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(Application money received on 12,000 shares @ Rs.2 each)
|
|
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Equity Share Application A/c
|
Dr.
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24,000
|
|
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To Equity Share Capital
A/c
|
|
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20,000
|
|
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To Bank A/c
|
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4,000
|
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(The application money received on 10,000 shares @ Rs.2 transferred to
Equity Shares Capital Account and application money on 2,000 shares refunded
to applicants as per Board’s Resolution No….. Dated…….)
|
|
|
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Equity Share Allotment A/c
|
Dr.
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30,000
|
|
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To Equity Share Capital
A/c
|
|
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30,000
|
|
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(The allotment money due on 10,000 shares @ Rs.3 each as per Board’s
Resolution No….. Dated…….)
|
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June, 1
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Bank A/c
|
Dr.
|
30,000
|
|
|
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To Equity Share Allotment
A/c
|
|
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30,000
|
|
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(The allotment money received on 10,000 shares @ Rs.3 each)
|
|
|
|
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Equity Share Final Call A/c
|
Dr.
|
50,000
|
|
|
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To Equity Share Capital
A/c
|
|
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50,000
|
|
|
(The final call money due on 10,000 shares @ Rs.5 each as per Board’s
Resolution No….. Dated…….)
|
|
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July, 1
|
Bank A/c
|
Dr.
|
49,500
|
|
|
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To Equity Share Final Call
A/c
|
|
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49,500
|
|
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(The final call money received on 9,900 share @ Rs.5 each)
|
|
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Calls-in-Arrear A/c
|
Dr.
|
500
|
|
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To Equity Share
Final Call A/c
|
|
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500
|
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(Amount not received for
on 100shares @ Rs.5 each transferred to Call-in-arrears.)
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26.4.2
Issue at Premium
Shares
may be issued at a price above its nominal value. The extra amount received is
called shares premium. The amount received as premium is credited to a separate
account called as” Security Premium Account”. The amount of security
premium may be utilized only for the following purposes as per Sec. 78 of the Companies Act 1956.
(1) To write off preliminary expenses.
(2) To write off expenses of issue of shares or debentures.
(3) To write off commission paid on issue of shares or debentures.
(4) To write off discount on issue of shares or debentures.
(5) To provide for premium payable on redemption of preference shares or
debentures.
(6) To issue fully paid-up bonus shares to the equity shareholders of the
company.
(7) To buy back of shares or securities.
The
use of share premium for any purpose other than stated above is not
permissible. Its use for any
other purpose is treated as reduction of capital.
-
Securities premium can
not be distributed as dividend in cash and can not be treated as free reserve
also.
-
It must be disclosed as a
separate item in Balance Sheet.
26.4.2.1 Accounting Entries
for shares issued at premium:
|
(1)
|
On
receipt of share premium with application money
|
|
|
|
Bank A/c
To Share
Application A/c
|
Dr.
|
|
|
Share Application A/c
To Share
Capital A/c
To Security
Premium A/c
|
Dr.
|
|
|
|
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(2)
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On
receipt of share premium with allotment money
Share Allotment A/c
To Share Capital A/c
To Security
Premium A/c
|
Dr.
|
|
|
|
|
|
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Bank A/c
To Share
Allotment A/c
|
Dr.
|
|
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||
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(3)
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On
receipt of share premium with call money
Share Call A/c
To Share
Capital A/c
To Security
Premium A/c
|
Dr.
|
|
|
|
|
|
|
Bank A/c
To Share Call
A/c
(The allotment money
received for…shares @ Rs. each)
|
Dr.
|
|
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Example 2: (Issue of Shares at premium)
R
Ltd. invites applications for 20,000 shares at Rs.10 each, at a premium of Rs.2
per share, payable as to Rs.2 on application, Rs.5 on allotment (including
premium) and balance on call. All the shares are subscribed, allotted and paid
for at due dates. Show journal entries (except cash) and prepare cash book.
Solution:
Journal Entries
in the books of R Ltd.
|
|
|
|
Dr.
|
Cr.
|
|
Date
|
Particulars
|
|
Rs.
|
Rs.
|
|
1.
|
Share Application A/c
|
Dr.
|
40,000
|
|
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To Share Capital A/c.
(20,000 x 2)
|
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40,000
|
|
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(The share application money transferred to share capital A/c)
|
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2.
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Share Allotment A/c
|
Dr.
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1,00,000
|
|
|
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To Share Capital A/c.
(20,000 x 3)
|
|
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60,000
|
|
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To Security Premium A/c
(20,000 x 2)
|
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40,000
|
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(The allotment money due on 20,000 shares @ Rs.3 per share including
Share Premium @ Rs.2 per share)
|
|
|
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3.
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Share Call A/c
|
Dr.
|
1,00,000
|
|
|
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To Share Capital A/c
(20,000 x 5)
|
|
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1,00,000
|
|
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(The share call money due on 20,000 shares @ Rs.5 per share)
|
|
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Cash Book (Bank column only)
|
Dr.
|
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Cr.
|
|
|
Particulars
|
Rs.
|
Particulars
|
Rs.
|
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To Share Application A/c
|
40,000
|
By Balance c/d
|
2,40,000
|
|
(Application
money on 20,000 shares @ Rs.2 per share)
|
|
|
|
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To Share Allotment A/c
|
1,00,000
|
|
|
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(Allotment
money on 20,000 shares @ Rs.5 per share)
|
|
|
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To Share Call A/c
|
1,00,000
|
|
|
|
(Share
call on 20,000 shares @ Rs.5 per share)
|
|
|
|
|
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2,40,000
|
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2,40,000
|
26.4.3 Issue at discount
i)
A company can issue shares at a discount, if the
following conditions are satisfied [Section 79].
a.
Ordinary resolution must be passed in general
meeting specifying the maximum rate of discount at which the shares shall be
issued.
b.
The shares must be of a class already issued.
c.
The issue must have been sanctioned by the Central
Government.
d.
The maximum rate of discount shall not exceed 10
per cent (the Central Government may sanction a higher rate of discount in
special circumstances).
e.
The company must have been working for at least a
year before it can issue shares at a discount.
f.
The shares shall be issued within 2 months of
approval of the Central Government.
g. The prospectus
shall contain particulars of the discount allowed on the issue of the shares or
of so much of that discount, that has not been written off at the date of the
issue of the prospectus.
ii)
Penalty: In case of
default complying with this provision, the company, and every defaulting
officer shall be punishable with fine extending to Rs.500.
iii)
Discount on Issue of
Shares Account appears asset side of the Balance Sheet under “Miscellaneous
Expenditure” and gradually written off against Profit & Loss Account or
Securities Premium Account.
26.4.3.1
Accounting Entries for shares issued at discount:
Discount
on issue of shares is recorded with the entry for allotment money due. The
Journal Entry will be as under:
|
(1)
|
On
allotment money due
|
|
|
|
Share
Allotment A/c
Discount
on Issue of Shares A/c
To Share Capital
A/c
|
Dr.
Dr.
|
|
(2)
|
On
receipt of allotment money
Bank A/c
To Share Allotment
A/c
|
Dr.
|
|
|
|
Example
3: (Issue of Shares at discount)
N
Ltd. Issued 20,000 shares of Rs.10 each at a discount of 10% payable as: on
Application Rs.2; on Allotment Rs.4; and on Final Call Rs.3. All shares offered
were subscribed for and money was duly received. Pass entries in the Cash Book
and Journal of the company and also show the Balance Sheet of the company.
Solution:
In
the Books of N Ltd.
Cash
Book (Bank column only)
|
Dr.
|
|
|
|
|
Cr.
|
|
Date
|
Particulars
|
Rs.
|
Date
|
Particulars
|
Rs.
|
|
|
To Share Application A/c
|
40,000
|
|
By Balance c/d
|
1,80,000
|
|
|
(Being application money received on 20,000
shares @ Rs.2 each)
|
|
|
|
|
|
|
To Share Allotment A/c
|
80,000
|
|
|
|
|
|
(Being allotment money received on 20,000
shares @ Rs.4 each)
|
|
|
|
|
|
|
To Share Final Call A/c
|
60,000
|
|
|
|
|
|
(Being call money received on 20,000 shares
@ Rs.3 each)
|
|
|
|
|
|
|
|
1,80,000
|
|
|
1,80,000
|
Journal
Entries
|
|
|
|
Dr.
|
Cr.
|
|
Date
|
Particulars
|
|
Rs.
|
Rs.
|
|
|
Share Application A/c
|
Dr.
|
40,000
|
|
|
|
To
Share Capital A/c
|
|
|
40,000
|
|
|
(Being application money on 20,000 shares
transferred to Share Capital Account @ Rs.2 per share as per Board’s
Resolution No…… dated….)
|
|
|
|
|
|
Share Allotment A/c
|
|
80,000
|
|
|
|
Discount on Issue of Share A/c
|
|
20,000
|
|
|
|
To
share Capital A/c
|
|
|
1,00,000
|
|
|
(Being allotment money due on 20,000 shares
@ Rs.4 each as per Board’s Resolution No…… dated….)
|
|
|
|
|
|
Share Final Call A/c
|
|
60,000
|
|
|
|
To
Share Capital A/c
|
|
|
60,000
|
|
|
(Being final call money due on 20,000 shares
@ Rs.3 each as per Board’s Resolution No…… dated …..)
|
|
|
|
Balance
Sheet of N Ltd as on …….
|
Liabilities
|
Rs.
|
Assets
|
Rs.
|
|
Share Capital
|
|
Current Assets
|
|
|
Authorised Capital
|
|
Cash at Bank
|
1,80,000
|
|
-
Shares of ……. Each
|
***
|
Miscellaneous expenditure
|
|
|
Issued Capital
|
 |
Discount on issue of Shares
|
20,000
|
|
20,000 shares of Rs.10 each
|
2,00,000
|
|
|
|
|
2,00,000
|
|
2,00,000
|
26.5 Calls- in-Arrear
Calls-in-arrear
refers to that portion of the capital, which has been called up but not yet
paid by the shareholders. When a shareholder fails to pay the amount due on
allotment and/or calls, the Allotment Account and/or Calls Account will show
debit balance in respect of total unpaid amount of each installment. Generally,
such amount is transferred to a special account called ‘Calls-in-Arrear
Account’.
The purpose of opening a Calls-in-Arrear Account
is to close allotment or any other Calls Account with the amount not yet
received.
26.5.1 Accounting Entries for Calls in Arrear:
|
i) Opening Calls-in-Arrear A/c
|
|
||
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Calls-in-Arrear A/c
|
Dr.
|
|
|
|
To
Share Allotment A/c
|
|
|
|
|
To
Share Call A/c
|
|
||
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ii) When money is collected from such defaulting shareholders, the
following entry is passed:
|
|
||
|
Bank
A/c
|
Dr.
|
|
|
|
To
Calls-in-Arrear A/c
|
|
|
|
iii) The balance of ‘Calls-in-Arrear Account’, at the year end, is shown in
the Balance Sheet as a deduction from respective Share Capital Account. It is
shown in the Balance Sheet until the shares on which money unpaid are
forfeited.
iv) At the time of forfeiture of shares, the entry will be:
|
Share
Capital A/c
|
Dr.
|
|
|
To
Calls-in-Arrear A/c
|
|
|
26.6 Calls-in- Advance
i)
Calls in Advance
generally arises when there is an over subscription of shares. The excess
application money received is adjusted against the amount due on allotment or
calls. The excess application money, after adjustment for allotment, should be
transferred to a special account called ‘Calls-in-Advance Account’.
ii)
Accounting Entries for Calls in Advances:
|
(a)
For transferring excess application money
|
|
|
Share
Application A/c
|
Dr.
|
|
To
Calls-in-Advance A/c
|
|
|
(b)
For Money received in advance against call
|
|
|
Bank
A/c
|
Dr.
|
|
To
Calls-in-Advance A/c
|
|
|
(c)
For adjusting with call
|
|
|
Calls-in-Advance
A/c
|
Dr.
|
|
To
Calls A/c
|
|
26.7 Pro-rata Allotment
i) When there is over-subscription (application received are more than
proposed issue), the company may reject some applications altogether, allot in
full on some application and make a pro-rata allotment on some
applications.
ii) Pro-rata allotment means that allotment on every application is made in
the ratio which the number of shares allotted bears to number of shares
applied.
For example, if pro-rata application is made for 10,000 shares on
application of 15,000 shares, it means 2 shares are allotted for every 5 shares
applied for (ratio is 10,000:15,000 i.e.2:3).
Example
4: (Pro-rata Allotment)
A
Ltd. issued 1,00,000 shares of Rs.10 each at a discount , payable as Rs.3 on
application, Rs.2 on allotment and Rs.4 on first and final call.
The
company received applications for 1,80,000 shares. Pro-rata allotment was
made on the applications for 1,50,000 shares. Give journal entries assuming
that an applicant who was allotted 100 shares did not pay allotment and first
and final call moneys.
Solution:
Working
Notes:
1. Net due on Allotment on 100 shares
|
|
Rs.
|
|
Excess application money
retained for allotment of 1,00,000 shares, (50,000xRs.3)
|
1,50,000
|
|
Proportionate excess on
100 shares which failed to pay allotment and call money [(Rs.1,50,000/1,00,000shares)
x 100]
|
150
|
|
Allotment money due on 100
shares (100 x 2)
|
200
|
|
Less: surplus money
retained by the issuing company
|
150
|
|
Net due on allotment of
100 shares (it will be transferred to Call-in-Arrear
account.)
|
50
|
2.
Calculation of
Amount received on Allotment
|
Total net amount
receivable on allotment Rs.(2,00,000 – 1,50,000)
|
50,000
|
|
Less: amount not received
on 100 shares
|
50
|
|
Amount received on
allotment
|
49,950
|
Journal
Entries in the books of A Ltd.
|
|
|
|
Dr.
|
Cr.
|
|
Date
|
Particulars
|
|
Rs.
|
Rs.
|
|
1.
|
Bank A/c
|
Dr.
|
5,40,000
|
|
|
|
To
Share Application A/c
|
|
|
5,40,000
|
|
|
(Application money received on 1,80,000
shares @ Rs.3 per share.)
|
|
|
|
|
2.
|
Share Application A/c
|
|
90,000
|
|
|
|
To
Bank A/c
|
|
|
90,000
|
|
|
(Application money for 30,000 i.e. (1,80,000
– 1,50,000) shares returned as per as per Board’s Resolution No…… dated….)
|
|
|
|
|
3.
|
Share Application A/c (1,50,000 x 3)
|
|
4,50,000
|
|
|
|
To
Share Allotment A/c (50,000 x 3)
|
|
|
1,50,000
|
|
|
To
Share Capital A/c (1,00,000 x 3)
|
|
|
3,00,000
|
|
|
(Application money for 1,00,000 shares
converted into capital A/c and that for 50,000 shares utilized for allotment
money as per Board’s Resolution No…… dated….)
|
|
|
|
|
4.
|
Share Allotment A/c (1,00,000 x 2)
|
Dr.
|
2,00,000
|
|
|
|
Discount on Issue of Share A/c(1,00,000 x 1)
|
Dr.
|
1,00,000
|
|
|
|
To
Share Capital A/c
|
|
|
3,00,000
|
|
|
(Allotment money at Rs.2 per share and
discount on share at Re.1 per share brought into A/c as per Board’s
Resolution No…… dated….)
|
|
|
|
|
5.
|
Bank A/c
|
Dr.
|
49,950
|
|
|
|
Share
Allotment A/c [Wn.2]
|
|
|
49,950
|
|
|
(Allotment money due on 99,900 i.e.(1,00,000-100)
shares @ Rs.5 each received)
|
|
|
|
|
6.
|
Call-in-Arrear A/c
|
Dr.
|
50
|
|
|
|
To
Share Allotment A/c[Wn.1]
|
|
|
50
|
|
|
(Allotment money due on 100 shares @ Rs.5
each not received transferred to call-in-arrear A/c as per Board’s Resolution
No…… dated….)
|
|
|
|
|
7.
|
Share First and Final Call A/c
|
Dr.
|
4,00,000
|
|
|
|
To
Share Capital A/c
|
|
|
4,00,000
|
|
|
(First and Final Call money at Rs.4 per
share due on 1,00,000 shares as per Board’s Resolution No…… dated….)
|
|
|
|
|
8.
|
Bank A/c
|
Dr.
|
3,99,600
|
|
|
|
To
Share First and Final Call A/c
|
|
|
3,99,600
|
|
|
(First and Final Call at Rs.4 per share due
received on 99,900 shares)
|
|
|
|
|
9.
|
Calls-in-Arrear A/c
|
Dr.
|
400
|
|
|
|
To
Share First and final Call A/c
|
|
|
400
|
|
|
(Call money due on 100 shares @ Rs.4 each not
received, transferred to call-in-arrear account as per Board’s Resolution
No…… dated….)
|
|
|
|
26.8 Forfeiture of Shares
a)
When the shareholders
fail to pay the amount due on call, the directors may, if so authorized by the
articles, take back his shares. This is called forfeiture of shares.
b)
Rules of forfeiture of shares:
1.
Articles of Association: It should be in accordance with the articles.
2.
Proper notice to be served: At least 14 days
notice must be served before actual forfeiture of shares are done.
3.
Resolution for
forfeiture: An ordinary resolution is passed.
4.
Good faith: Forfeiture must
be done in good faith.
c) Effect of forfeiture:
1. A person whose shares are forfeited ceases to be a member in respect of
the forfeited shares.
2. The liability of the person whose shares are forfeited ceases, if the
amount due on the date of forfeiture is paid.
3. If liquidation takes place within one year of forfeiture, the former
holder remains liable as a part member.
4. On forfeiture, the forfeited shares become the property of the company.
26.8.1 Accounting Entries for Forfeiture of Shares:
|
1.
|
If shares were issued at
par:
|
|||
|
|
Share
Capital A/c ( the called-up amount)
|
Dr.
|
||
|
|
To Call A/c [Calls in Arrears] (the amount due on call)
|
|||
|
|
To Share Forfeiture A/c (the amount received)
|
|||
|
2.
|
If shares were issued at a
premium and premium money is unpaid:
|
|||
|
|
Share
Capital A/c (the called-up amount)
|
Dr.
|
|
|
|
|
Security
Premium A/c (the amount of premium)
|
Dr.
|
|
|
|
|
To Call A/c (the amount of call due)
|
|
|
|
|
|
To Share Forfeiture A/c(the amount received)
|
|
|
|
|
3.
|
If shares were issued at
premium, already received:
|
|||
|
|
Share
Capital A/c (the called-up amount)
|
Dr.
|
|
|
|
|
To Call A/c [Calls in Arrears] (the amount of call due)
|
|
|
|
|
|
To Share Forfeiture A/c (the amount received excluding share premium)
|
|
|
|
|
4.
|
If shares were issued at a
discount:
|
|||
|
|
Share
Capital A/c (the called-up amount)
|
Dr.
|
|
|
|
|
To Call A/c(the amount of call due)
|
|
|
|
|
|
To Discount on Issue of Shares A/c (the amount of discount)
|
|
|
|
|
|
To Share Forfeiture A/c (the amount received)
|
|
|
|
i) Note:
When shares are issued at a discount, “Discount on
Issue of Share” is debited. At the time of forfeiture, “Discount on Issue of
Share” is credited to cancel it.
ii) In case of issued at premium, “Security Premium A/c” is credited. If
premium money has not been received on forfeited shares, “Security Premium A/c”
will be debited to cancel the previous entry.
iii) If premium money is already received by the company, it can not be
cancelled in future, if the shares are forfeited.
26.9 Reissue of Forfeited Share
a) Board of Directors can reissue forfeited
shares subject to some conditions. These may be issued at par, at premium or at
discount.
b) The following conditions should be
fulfilled for reissue of forfeited shares.
i)
If
such shares are issued at a discount, the maximum discount cannot exceed the
amount already forfeited.
ii)
Any
balance left in the forfeited shares account after reissue, will be transferred
to Capital Reserve account.
c)
Accounting Entries for Reissue of Forfeited Shares:
|
1.
|
If shares are reissued at
par
|
|||||
|
|
Bank
A/c (the total amount received)
|
Dr.
|
|
|||
|
|
To Share Capital A/c
(Reissue
of ….shares @ Rs… each as per Board’s Resolution No. dated.)
|
|
||||
|
2.
|
If shares are reissued at
a discount:
|
|||||
|
|
Bank
A/c (the total amount received)
|
Dr.
|
|
|||
|
|
Share
Forfeiture A/c(the discount on reissue)
|
Dr.
|
|
|||
|
|
To Share Capital A/c (the paid up value of shares.)
(Reissue
of ….shares @ Rs… each as per Board’s Resolution No. dated.)
|
|
||||
|
3.
|
If shares are reissued at
premium
|
|||||
|
|
Bank
A/c (the total amount received)
|
Dr.
|
|
|||
|
|
To Security Premium A/c (premium on reissue)
|
Dr.
|
|
|||
|
|
To Share Capital A/c (the paid up value of shares.)
(Reissue
of ….shares @ Rs… each as per Board’s Resolution No. dated.)
|
|
||||
Any balance left on the Share
Forfeiture A/c is transferred to Capital Reserve Account.
|
|
Share
Forfeiture A/c
|
Dr.
|
|
|
|
To Capital Reserve A/c
|
|
|
Note: If shares were originally issued at a
discount and also reissued at a discount, then
“Share Forfeiture Account” will be debited with
additional discount amount, and
“Discount on Issue of Shares” will be debited with the
actual discount.
Example 5: (Forfeiture of Shares, reissued at par, at a
discount and at a premium)
A Ltd. forfeited 100 equity shares of Rs.10 each for
non payment of First call of Rs.2 per share and the Final Call of Rs.3 per share.
These shares are reissued at (i) Rs.10, (ii) Rs.7, (iii) Rs.11 per share.
Give necessary journal entries of forfeiture and
reissue.
Solution:
Journal
Entries in the books of A Ltd.
|
|
|
|
Dr.
|
Cr.
|
|
|
Date
|
Particulars
|
|
Rs.
|
Rs.
|
|
|
|
On
Forfeiture:
|
|
|
|
|
|
|
Share Capital A/c
|
Dr.
|
1,000
|
|
|
|
|
To
Share First Call A/c (100 x 2)
|
|
|
200
|
|
|
|
To
Share Final Call A/c (100 x 3)
|
|
|
300
|
|
|
|
To
Share Forfeiture A/c
|
|
|
500
|
|
|
|
(The forfeiture of 100 equity shares of
Rs.10 each fully called up for non payment of first call of Rs.2 and final
call of Rs.3 as per Board’s Resolution No…… dated….)
|
|
|
||
|
(i).
|
On
Reissue at Par:
|
|
|
|
|
|
|
Bank A/c
|
Dr.
|
1,000
|
|
|
|
|
To
Share Capital A/c
|
|
|
1,000
|
|
|
|
(Reissue of 100 shares at par as fully paid
up as per Board’s Resolution No…… dated….)
|
|
|
||
|
|
Share Forfeiture A/c
|
|
500
|
|
|
|
|
To
Capital Reserve A/c
|
|
|
500
|
|
|
|
(Profit on reissue transferred to Capital
Reserve, 100 shares x Rs.(3 + 2) = Rs.500.)
|
|
|
|
|
|
(ii).
|
On
Reissue at a discount:
|
|
|
|
|
|
|
Bank A/c (100 x 7)
|
Dr.
|
700
|
|
|
|
|
Share Forfeiture A/c (100 x 3)
|
Dr.
|
300
|
|
|
|
|
To
Share Capital A/c
|
|
|
1,000
|
|
|
|
(Reissue of 100 shares @ Rs.7 per share as
fully paid up as per Board’s Resolution No…… dated….)
|
|
|
||
|
|
Share Forfeiture A/c (500 – 300)
|
Dr.
|
200
|
|
|
|
|
To
Capital Reserve A/c
|
|
|
200
|
|
|
|
(Profit on reissue transferred to Capital
Reserve.)
|
|
|
|
|
|
(iii).
|
On
Reissue at a premium:
|
|
|
|
|
|
|
Bank A/c (100 x 11)
|
Dr.
|
1,100
|
|
|
|
|
To
Security Premium A/c (100 x 1)
|
Dr.
|
|
100
|
|
|
|
To
Share Capital A/c
|
|
|
1,000
|
|
|
|
(Reissue of 100 shares @ Rs.11 per share as
fully paid up as per Board’s Resolution No…… dated….)
|
|
|
||
|
|
Share Forfeiture A/c
|
Dr.
|
500
|
|
|
|
|
To
Capital Reserve A/c
|
|
|
500
|
|
|
|
(Profit on reissue transferred to Capital
Reserve.)
|
|
|
|
|
Note: As per Sec.78 of
the Companies Act 1956, the extra amount received on issue of share is credited
to “Security Premium Account”. In the Balance Sheet, Capital Reserve and
Security Premium will come separately under the head “Reserve & Surplus”.
Example 6: (Forfeiture of Shares, issued at a premium, reissued at a premium and at a discount)
A Ltd. forfeited 100 equity shares of Rs.10 each,
issued at a premium of Rs.5 per share, for non payment of Allotment money of
Rs.8 per share (including premium), the First call of Rs.2 per share, and the
Final Call of Rs.3 per share. These shares are reissued.
Give necessary journal entries if reissued at (i) Rs.11,
(ii) Rs.8 per share.
Solution:
In this case, total amount
payable is Rs.15 per share and unpaid amount for the 100 shares is Rs.(8 + 2 +
3) = Rs.13 per share. So, Rs.2 per share has been paid up for there 100 shares
being forfeited.
Journal
Entries in the books of A Ltd.
|
|
|
|
Dr.
|
Cr.
|
|
Date
|
Particulars
|
|
Rs.
|
Rs.
|
|
|
On
Forfeiture:
|
|
|
|
|
|
Share Capital A/c (100 x 10)
|
Dr.
|
1,000
|
|
|
|
Securities Premium A/c (100 x 5) [Note 1]
|
Dr.
|
500
|
|
|
|
To
Share Allotment A/c (100 x 8)
|
|
|
800
|
|
|
To
Share First Call A/c (100 x 2)
|
|
|
200
|
|
|
To
Share Final Call A/c (100 x 3)
|
|
|
300
|
|
|
To
Share Forfeiture A/c (100 x 2)
|
|
|
200
|
|
|
(The forfeiture of 100 equity shares of
Rs.10 each fully called up for non payment of allotment, first call and final
call as per Board’s Resolution No…… dated….)
|
|
|
|
|
(i).
|
On
Reissue at Premium:
|
|
|
|
|
|
Bank A/c(100 x11)
|
Dr.
|
1,100
|
|
|
|
To
Share Capital A/c
|
|
|
1,000
|
|
|
To
Security Premium A/c
|
|
|
100
|
|
|
(Reissue of 100 shares of Rs.10 each @ Rs.11
(premium Re.1) per share fully paid up as per Board’s Resolution No……
dated….)
|
|
|
|
|
|
Share Forfeiture A/c
|
|
200
|
|
|
|
To
Capital Reserve A/c
|
|
|
200
|
|
|
(Profit on reissue (paid up Rs.2 per share) transferred
to Capital Reserve.)
|
|
|
|
|
(ii).
|
On
Reissue at a discount:
|
|
|
|
|
|
Bank A/c (100 x 8)
|
Dr.
|
800
|
|
|
|
Share Forfeiture A/c (100 x 2) [Note 2]
|
Dr.
|
200
|
|
|
|
To
Share Capital A/c
|
|
|
1,000
|
|
|
(Reissue of 100 shares @ Rs.8 per share as
fully paid up as per Board’s Resolution No…… dated….)
|
|
|
|
Note:
1. As the shares were originally issued at a premium and the premium amount was
unpaid on forfeited shares, the Security Premium A/c is debited on forfeiture
of such shares to cancel the previous entry.
2.
In case
of reissue at a discount, no amount will be transferred to Capital Reserve as
there is no balance in Share Forfeiture Account.
Example 7: (Forfeiture of Shares, issued at a discount, reissued at a premium and at a discount)
A Ltd. forfeited 100 equity shares of Rs.10 each,
issued at a discount of Re.1 per share for non payment of the First call of
Rs.2 per share and the Final Call of Rs.3 per share. These shares are reissued.
Give necessary journal entries if reissued at (i)
Rs.11, (ii) Rs.7 per share.
Solution:
Journal
Entries in the books of A Ltd.
|
|
|
|
Dr.
|
Cr.
|
|
Date
|
Particulars
|
|
Rs.
|
Rs.
|
|
|
On Forfeiture:
|
|
|
|
|
|
Share
Capital A/c (100 x 10)
|
Dr.
|
1,000
|
|
|
|
To Share First Call A/c (100 x 2)
|
|
|
200
|
|
|
To Share Final Call A/c (100 x 3)
|
|
|
300
|
|
|
To Discount on Issue of share (100 x 1) [Note 1]
|
|
|
100
|
|
|
To Share Forfeiture A/c (100 x 4)
|
|
|
400
|
|
|
(The
forfeiture of 100 equity shares of Rs.10 each fully called up for non payment
of first call and final call of as per Board’s Resolution No…… dated….)
|
|
|
|
|
(i).
|
On Reissue at Premium:
|
|
|
|
|
|
Bank A/c(100 x11)
|
Dr.
|
1,100
|
|
|
|
To Share Capital
A/c
|
|
|
1,000
|
|
|
To Security
Premium A/c
|
|
|
100
|
|
|
(Reissue of 100 shares of Rs.10 each @Rs.11
per share fully paid up as per Board’s Resolution No…… dated….)
|
|
|
|
|
|
Share
Forfeiture A/c
|
|
400
|
|
|
|
To Capital Reserve A/c
|
|
|
400
|
|
|
(Profit
on reissue transferred to Capital Reserve.)
|
|
|
|
|
(ii).
|
On Reissue at a
discount:
|
|
|
|
|
|
Bank
A/c (100 x 7)
|
Dr.
|
700
|
|
|
|
Discount
on Issue of Share(100 x 1) [Note 2]
|
Dr.
|
100
|
|
|
|
Share
Forfeiture A/c (100 x 2)
|
Dr.
|
200
|
|
|
|
To Share Capital A/c
|
|
|
1,000
|
|
|
(Reissue
of 100 shares @ Rs.8 per share as fully paid up as per Board’s Resolution
No…… dated….)
|
|
|
|
|
|
Share
Forfeiture A/c (400 -200)
|
|
200
|
|
|
|
To Capital Reserve A/c
|
|
|
200
|
|
|
(Profit
on reissue transferred to Capital Reserve.)
|
|
|
|
Note: 1. The shares were originally issued at a discount. On forfeiture of such
shares, the Discount on Issue of share A/c is credited to
cancel the previous entry.
2. As the shares were originally issued at a discount and are reissued at a
discount, so Share Forfeiture A/c will
be debited with the additional discount amount only i.e. (9-7)= Rs.2. Discount
on Issue of Share will be debited with the actual discount i.e. Re.1.
