Forfeiture of Shares

Forfeiture of shares means

cancellation of shares due to
nonpayment of allotment money
or call money within a specified
period.
A company can forfeit the shares
only if it is authorized by its
Articles.

Accounting treatment
Forfeiture of shares which were
issued at par: In this case,
following journal entry is to be
passed:
Share Capital A/C Dr (with the amt
called up)

To Sh Allotment A/C (Unpaid amt

on allotment)
To Share Call A/C (unpaid amt on
call)

 The balance of forfeited shares

A/C should be shown by way of
an addition to called up capital
on the liability side of the B/S till
the shares are reissued.

Forfeiture of Shares which were issued at

premium:

a. Forfeiture of shares when allotment money

(including premium) & call money are not
paid:
. Share Capital A/c Dr (amt called up)
. Security Premium A/C Dr (with the premium
unpaid)
.
To Share Allotment (allotment money
+premium unpaid)
.
To Share Call A/C (call money unpaid)
.
To Forfeited Shares A/C(total amt paid
excluding premium)

b. Forfeiture of shares when

call money is not paid:
Share Capital A/C Dr (amt called
up)

To Share call A/C (call money

unpaid)

To Forfeited Shares A/C (amt

paid excluding premium).

 It should be noted that the premium

received should not be transferred to
the credit of Forfeited shares A/C
because the premium received has
already been credited to Security
Premium A/C.
n other words, premium received on
the shares forfeited should not be
included in the amount to be credited
to Forfeited Shares A/C.

Re Issue of Forfeited Shares:

A company may re issue the
forfeited shares at any time it
likes.
If the Articles permit, company
can re issue the forfeited shares
at par or at premium or at a
discount.
But the discount on re issue
should not exceed the amount
forfeited.

Accounting Treatment
1. Journal entry on re issue of
shares at par (originally issued
at par or at premium):
. Cash A/C Dr (amt received on re
issue)
.
To Share capital (paid up value
of shares re issued)

2. Journal entry on reissue of shares at a

discount (originally issued at par or at
premium)

Cash A/C Dr (with the amt

received on re issue)
Forfeited Shares A/C Dr (the amt
of discount on reissue)

To Share capital (amt credited

as paid up)

3. Journal entry on issue of shares at a

premium (originally issued at par or
premium)

Cash A/C Dr (amt received on

reissue)

To Share capital (amt credited

as paid up)

To Security Premium A/C (amt

of premium on reissue)

 (If the reissue is at premium,

forfeited shares A/C will not be
debited. Forfeited shares A/C will
be debited only when the reissue
is at a discount)

4. Journal entry on reissue of shares at a

discount (originally issued at a discount)

Cash A/C Dr (amt received on reissue)

Discount issue of Shs Dr (amt of
original discount)
Forfeited Shares A/C Dr (discount on
reissue ie, excess of discount on
reissue over the original discount)

To Share capital A/C (amt credited

as paid up)

 When shares originally issued at

a discount are forfeited, the
discount on issue of shares A/C
will be credited.
Hence, when such shares are
reissued, the discount on issue
of shares A/C has to be debited
again in order to reinstate the
discount.

Balance in the Forfeited Shares

Account

If all forfeited shares have been

reissued, the credit balance left
in the forfeited shares A/C being
capital profit will be transferred
to Capital Reserve A/C. Entry for
this is:
Forfeited shares A/C Dr

To Capital reserve A/C.

 If only a part of the forfeited

shares are reissued, only the
profit on shares which are
reissued is transferred to Capital
reserve.
The balance in the forfeited
shares A/C will be carried
forward and will be used for
meeting the discount of the
remaining shares.

 In case only a part of the forfeited

shares are reissued, the profit on
reissued shares to be transferred to
capital reserve is calculated as follows:
Amount of forfeited shares A/c
proportionate
To the extent of shares reissued XXX
Less discount on reissue XX
Amt to be transferred to capital
reserve XXX