Mastering Forfeiture & Reissue Accounting
A comprehensive walkthrough of journal entries and balance sheet extracts for XYZ Ltd.
Highlights
- Forfeiture Entries: Detailed recording of non-payment by Mr. Das and Mr. Pal
- Reissue Adjustments: Calculation of reissue proceeds and treatment of excess forfeiture balances
- Balance Sheet Impact: Integration of share capital, securities premium, and capital reserve accounts
Journal Entries
XYZ Limited issued 10,000 equity shares of ₹15 each, with the following payment schedule per share:
- ₹4 on application
- ₹7 on allotment (including ₹2 premium, implying a nominal allotment portion of ₹5 and a premium of ₹2)
- ₹6 on first and final call
In this scenario, two shareholders defaulted on payments: Mr. Das (50 shares) did not pay the allotment and the call money, and Mr. Pal (80 shares) did not pay the call money. Consequently, the shares allotted to these shareholders were forfeited and later reissued at ₹17 per share. Below is a step‐by‐step breakdown of the accounting entries.
Step 1: Accounting for Share Issue (Summary)
Receipt on Issue
Although the main emphasis here is on the forfeiture and reissue, note that initially, when shares were issued the entries would have been recorded as follows:
On Receipt of Application Money:
Dr. Bank A/c ₹40,000 (10,000 shares × ₹4)
To Equity Share Application A/c ₹40,000
Similarly, on allotment and call, the relevant amounts (₹7 and ₹6 per share respectively) would be recorded. However, when default occurs by specific shareholders, those amounts are not received. The following entries focus on the defaults.
Step 2: Forfeiture of Shares
The forfeiture of shares is carried out for the defaulting shareholders by reversing the credited amounts (as applicable) and transferring the balance to a Forfeited Shares Account. The amounts already received on application remain with the company, while the unreceived allotment and call amounts are written off against respective accounts.
A. For Mr. Das (50 Shares)
For each share issued:
- Application money received = ₹4
- Allotment due = ₹7 (₹5 toward share capital and ₹2 as premium)
- First & final call due = ₹6
Since Mr. Das failed to pay the allotment and call money, the amount (₹7 + ₹6 = ₹13 per share) remained outstanding. The adjustment is made as follows:
Journal Entry – Forfeiture of Mr. Das’s 50 Shares:
Dr. Equity Share Capital A/c ₹500 <!-- (Assuming nominal portion reversal, ₹10 per share for 50 shares) -->
Dr. Securities Premium A/c ₹100 <!-- Reversing the premium portion (₹2 per share × 50 shares) -->
Dr. Calls in Arrears A/c ₹300 <!-- Reversing the call due (₹6 per share × 50 shares) -->
To Forfeited Shares A/c ₹900
(Being 50 shares forfeited for non-payment of allotment and call)
Note: The debit to Equity Share Capital A/c is taken as ₹500 which is reflective of the unreceived portion of the nominal amounts (approx. ₹10 per share; here the treatment ensures that the aggregate amount transferred to the Forfeiture Account equals ₹500 + ₹100 + ₹300 = ₹900).
B. For Mr. Pal (80 Shares)
For each share held by Mr. Pal:
- Application money received = ₹4
- Allotment (₹7) fully paid (implicitly, as default occurs only on the call)
- First & final call due = ₹6
Since Mr. Pal defaulted entirely on the call money, that amount is adjusted:
Journal Entry – Forfeiture of Mr. Pal’s 80 Shares:
Dr. Equity Share Capital A/c ₹400 <!-- (Nominal reversal, approx. ₹5 per share × 80 shares) -->
Dr. Securities Premium A/c ₹160 <!-- (Premium adjustment of ₹2 per share × 80 shares) -->
Dr. Calls in Arrears A/c ₹480 <!-- (Call money reversal of ₹6 per share × 80 shares) -->
To Forfeited Shares A/c ₹1,040
(Being 80 shares forfeited for non-payment of the call money)
Total Forfeiture:
Mr. Das: ₹900 + Mr. Pal: ₹1,040 = ₹1,940 credited to the Forfeited Shares A/c.
Step 3: Reissue of Forfeited Shares
The forfeited shares, aggregating to 50 (Mr. Das) + 80 (Mr. Pal) = 130 shares, were reissued at ₹17 per share.
Total Reissue Proceeds = 130 × ₹17 = ₹2,210
Journal Entry – On Reissue
The reissue entry involves:
- Crediting the share capital at the nominal value: 130 × ₹15 = ₹1,950
- The excess received amount (₹2,210 – ₹1,950 = ₹260) is credited to the Securities Premium A/c
Thus the entry is:
Dr. Bank A/c ₹2,210
To Equity Share Capital A/c ₹1,950 <!-- (130 shares at ₹15 each) -->
To Securities Premium A/c ₹260 <!-- (Excess on reissue) -->
(Being 130 forfeited shares reissued at ₹17 per share)
Adjustment of Forfeiture Account
Prior to reissue, the Forfeited Shares A/c held a total credit balance of ₹1,940. On reissue, only a fraction of this balance is adjusted against the reissue proceeds. The amount realized from the reissue on forfeited shares is calculated as:
Realized Amount per Share = Reissue Price − Nominal Value
= ₹17 − ₹15 = ₹2 per share × 130 shares = ₹260
The remaining balance, ₹1,940 − ₹260 = ₹1,680, is written off by transferring it to the Capital Reserve. The entry for this adjustment is:
Dr. Forfeited Shares A/c ₹1,680
To Capital Reserve A/c ₹1,680
(Being unabsorbed balance on forfeited shares written off to Capital Reserve)
Extract of the Balance Sheet
Following the above transactions, the balance sheet extract for XYZ Limited (as at the relevant date) would reflect adjustments in the Shareholder’s Funds. Below is a sample extract that incorporates the changes due to forfeiture and reissue:
Balance Sheet Extract – Equity and Liabilities
| Particulars | Amount (₹) |
|---|---|
| Equity Share Capital (10,000 shares @ ₹15 each) | 150,000 |
| Less: Amount Adjusted for Forfeited Shares (Nominal reversal from defaulting shareholders) | (Applicable amount as adjusted through entries) |
| Revised Share Capital (after reissue adjustment) | 150,000 |
| Securities Premium Account | [Original Premium + ₹260 from Reissue adjustments − Premium reversal from defaults] |
| Capital Reserve | 1,680 |
| Forfeited Shares Account | Nil (Balance transferred to Capital Reserve) |
Note: The above figures are indicative. In a complete balance sheet, the Share Capital would reflect the total authorized and issued amounts with corresponding adjustments in the Securities Premium Account according to the detailed transactions recorded.
References
- Accounting Entries on Re-issue of Forfeited Shares - GeeksforGeeks
- Forfeiture of Share: Accounting Entries - Toppr
- Reissue of Forfeited Shares - BYJU'S
-
Forfeiture of Shares: Meaning, Entry and Examples - Shiksha
- Forfeiture and Reissue Journal Entries - Doubtnut
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Last updated March 24, 2025