Asok Nadhani-Accountancy-Company Accounts - Shares- Issue, Reissue and Forfeiture

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:

(1)	On receipt of share application money
	Bank A/c To Share Application A/c (The application money received for…shares @ Rs.  each)	Dr.
(2)	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…)	Dr.
(3)	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.
(4)	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.	Dr.
(6)	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.
(7)	On receipt of allotment money Bank A/c To Share Allotment A/c (The allotment money received for…shares @ Rs.  each)	Dr.
(8)	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…)	Dr.
(9)	On receipt of first call money Bank A/c To Share First Call A/c (Call money received on ... shares @ Rs…each	Dr.
(10)	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.
(11)	On receipt of final call money Bank A/c To Share Final Call A/c (Final Call money received on ... shares @ Rs…each.)	Dr.
(12)	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.

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	Call	Rs. Per Share
1st April, 2009	Application	2.00
1st June, 2009	Allotment	3.00
1st July, 2009	Final Call	5.00

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

			Dr.	Cr.
Date	Particulars		Rs.	Rs.
2009
April, 1	Bank A/c	Dr.	24,000
	To Equity Share Application A/c			24,000
	(Application money received on 12,000 shares @ Rs.2 each)
	Equity Share Application A/c	Dr.	24,000
	To Equity Share Capital A/c			20,000
	To Bank A/c			4,000
	(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…….)
	Equity Share Allotment A/c	Dr.	30,000
	To Equity Share Capital A/c			30,000
	(The allotment money due on 10,000 shares @ Rs.3 each as per Board’s Resolution No….. Dated…….)
June, 1	Bank A/c	Dr.	30,000
	To Equity Share Allotment A/c			30,000
	(The allotment money received on 10,000 shares @ Rs.3 each)
	Equity Share Final Call A/c	Dr.	50,000
	To Equity Share Capital A/c			50,000
	(The final call money due on 10,000 shares @ Rs.5 each as per Board’s Resolution No….. Dated…….)
July, 1	Bank A/c	Dr.	49,500
	To Equity Share Final Call A/c			49,500
	(The final call money received on 9,900 share @ Rs.5 each)
	Calls-in-Arrear A/c	Dr.	500
	To Equity Share Final Call  A/c			500
	(Amount not received for on 100shares @ Rs.5 each transferred to Call-in-arrears.)

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.
(2)	On receipt of share premium with allotment money Share Allotment A/c To  Share Capital A/c To Security Premium A/c	Dr.
	Bank A/c To Share Allotment A/c	Dr.
(3)	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.

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
	To Share Capital A/c. (20,000 x 2)			40,000
	(The share application money transferred to share capital A/c)
2.	Share Allotment A/c	Dr.	1,00,000
	To Share Capital A/c. (20,000 x 3)			60,000
	To Security Premium A/c (20,000 x 2)			40,000
	(The allotment money due on 20,000 shares @ Rs.3 per share including Share Premium @ Rs.2 per share)
3.	Share Call A/c	Dr.	1,00,000
	To Share Capital A/c (20,000 x 5)			1,00,000
	(The share call money due on 20,000 shares @ Rs.5 per share)

Cash Book (Bank column only)

Dr.			Cr.
Particulars	Rs.	Particulars	Rs.
To Share Application A/c	40,000	By Balance c/d	2,40,000
(Application money on 20,000 shares @ Rs.2 per share)
To Share Allotment A/c	1,00,000
(Allotment money on 20,000 shares @ Rs.5 per share)
To Share Call A/c	1,00,000
(Share call on 20,000 shares @ Rs.5 per share)
	2,40,000		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
Calls-in-Arrear A/c		Dr.
To Share Allotment A/c
To Share Call A/c
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.