Journal Entries and Balance Sheet for Share Forfeiture and Reissue
Detailed accounting treatment for forfeiture and reissue of shares in XYZ Limited
Key Highlights
- Step-by-step entries for application receipt, allotment, call, forfeiture, and reissue.
- Detailed narration explains each journal entry along with amounts computed.
- Balance sheet extract reflects the adjusted share capital and related reserves post these transactions.
Background and Transaction Overview
XYZ Limited made an issue of 10,000 equity shares of ₹15 each. The issue was structured so that payment was collected in three stages:
- ₹4 per share on application.
- ₹7 per share on allotment (of which ₹2 per share is treated as premium).
- ₹6 per share on the first and final call.
However, due to non-payment by some shareholders, adjustments in the share capital account were necessary. Specifically, Mr. Das, holding 50 shares, defaulted on both the allotment and first and final call amounts. Mr. Pal, holding 80 shares, defaulted only on the first and final call amount. The shares of these shareholders were consequently forfeited and later reissued at a premium price of ₹17 per share.
Detailed Journal Entries
A. Original Share Issue Entries
1. Receipt of Application Money
On receiving application money at ₹4 per share for 10,000 shares, the entry would be:
// Journal Entry: Receipt of Application Money
Bank A/c Dr. ₹40,000
To Share Application A/c ₹40,000
(Being application money received @ ₹4 per share x 10,000 shares)
2. Allotment Money Due and Premium
The allotment money of ₹7 per share (including ₹2 as premium) is then called for all issued shares. In practice, the allotment proceeds are divided between share capital and securities premium. The entry is:
// Journal Entry: Allotment Money Received
Bank A/c Dr. ₹70,000
To Share Allotment A/c ₹70,000
(Being allotment money received @ ₹7 per share x 10,000 shares)
Note that, typically, this amount will later be apportioned between the Share Capital (₹5 per share) and Securities Premium (₹2 per share). For clarity we record the receipt first.
3. First and Final Call Money Receipt
The final call is made for ₹6 per share on all shares:
// Journal Entry: Receipt of First and Final Call Money
Bank A/c Dr. ₹60,000
To Share Call A/c ₹60,000
(Being first and final call money received @ ₹6 per share x 10,000 shares)
B. Forfeiture of Shares
When shareholders default on payment, their shares are forfeited. We have two defaulters:
- Mr. Das (50 Shares): Did not pay the allotment (₹7 per share) and first and final call (₹6 per share).
- Mr. Pal (80 Shares): Did not pay the first and final call (₹6 per share).
While the application money (₹4 per share) is received in full from every shareholder, the balance of the share premium or allotment and call amounts that remain unpaid are forfeited.
For Mr. Das
For the 50 shares held by Mr. Das:
- Application money received = ₹4 per share × 50 = ₹200 (this amount is not at risk)
- Assembly of amounts not received: Allotment (₹7) + Call (₹6) = ₹13 per share.
- Total default = 50 × ₹13 = ₹650.
For Mr. Pal
For the 80 shares held by Mr. Pal:
- Application money received = ₹4 per share × 80 = ₹320 (this amount is not forfeited)
- Default on first and final call = ₹6 per share.
- Total default = 80 × ₹6 = ₹480.
Thus, the combined default on unpaid amounts equals ₹650 + ₹480 = ₹1,130.
The following journal entry is passed to record the forfeiture of these shares:
// Journal Entry: Forfeiture of Shares
Forfeited Shares A/c Dr. ₹1,130
To Share Capital A/c (or appropriate subsidiary accounts)
₹1,130
(Being forfeiture of shares for non-receipt of allotment and call money
for Mr. Das (50 shares @ ₹13 per share) and Mr. Pal (80 shares @ ₹6 per share))
Narration: "Being the amount of ₹13 per share not received from Mr. Das (50 shares) and ₹6 per share not received from Mr. Pal (80 shares) forfeited."
C. Reissue of Forfeited Shares
The forfeited shares (a total of 50 + 80 = 130 shares) were later reissued at ₹17 per share. The total amount received on reissue is:
Total Reissue Proceeds = 130 × ₹17 = ₹2,210.
In reissuing forfeited shares, the amount received is first adjusted towards the amount previously forfeited (₹1,130) and any extra received over the alleged forfeiture value is credited to appropriate capital accounts. The excess is generally treated as a premium or profit on reissue.
The journal entry to record the reissue is as follows:
// Journal Entry: Reissue of Forfeited Shares
Bank A/c Dr. ₹2,210
To Forfeited Shares A/c ₹1,130
To Share Capital A/c* ₹1,080
(Being reissue of 130 forfeited shares at ₹17 per share.
The excess amount of ₹1,080 (i.e. ₹2,210 - ₹1,130) being credited to Share Capital)
Narration: "Being forfeited shares reissued at ₹17 per share with the amount adjusted against Forfeited Shares A/c and the balance credited to Share Capital (or Securities Premium as per the accounting practice)."
Note: In practice, the distribution of the balance credited could be split between share capital, securities premium, and profit on reissue of shares accounts, if there are adjustments provided for by the entity’s accounting policies. For the purpose of illustration, the above entry directly applies the excess to the share capital; the exact treatment may vary.
Extract of the Balance Sheet
After incorporating all the above transactions, the effect on the balance sheet is primarily seen under the "Equity" section. The following table illustrates a simplified extract for XYZ Limited.
Balance Sheet Extract
| Equity and Liabilities | Amount (₹) |
|---|---|
| Share Capital (10,000 shares @ ₹15 each) | 1,50,000 |
| Less: Forfeited Shares (Amount adjusted on forfeiture of 130 shares) | (1,130) |
| Net Share Capital | 1,48,870 |
| Add: Amount Received on Reissue of Forfeited Shares (Excess credited) | 1,080 |
| Adjusted Share Capital | 1,49,950 |
| Securities Premium (if applicable, from allotment and reissue adjustment) | As per disclosure |
| Other reserves and surplus items are omitted for brevity. | |
Narration for the Balance Sheet: "Equity share capital is shown after adjusting for the forfeiture of shares and subsequent reissue. Forfeited Shares A/c is adjusted against the total paid-up share capital. The additional amount received on reissue is shown as an increment in the share capital or may be credited to Securities Premium Account, as per the company’s accounting policy."
Additional Considerations and Notes
Details on Account Distribution
The journal entries provided above reflect a simplified treatment. In practice, companies might record:
- A separate division of all allotment receipts between the Share Capital portion (typically ₹5 per share if ₹2 is premium) and the Securities Premium portion (₹2 per share).
- Recording of Calls-in-Arrears accounts for default on call payments before forfeiture.
- Detailed adjustments at the time of reissue to reflect any premium received on reissue (i.e. the difference between reissue price and the nominal value of the shares).
Treatment of Reissue Surplus
The surplus received (when the reissue price exceeds the amount recorded in the Forfeited Shares Account) is generally credited to either the Securities Premium Account or a separate Profit on Reissue of Shares Account. In our example, the excess of ₹1,080 has been directly attributed to share capital adjustment. Professional practice may require further segregation depending on applicable accounting policies.
Matching the Accounting Treatment with Standards
The journal entries and balance sheet extract conform to standard accounting practices used for share forfeiture and reissue. Entities must ensure consistency with the Companies Act guidelines and International Financial Reporting Standards (IFRS) or local GAAP as applicable. It is recommended that the treatment of such transactions be discussed with a qualified accounting professional to cater to any specific regulatory requirements and company policies.
References
- Accounting Entries on Re-issue of Forfeited Shares - GeeksforGeeks
- Reissue of Forfeited Shares - BYJU'S
- Reissue of Forfeited Shares - Toppr
- Forfeiture and Reissue of Shares - Accounting Notes
- Forfeiture of Shares: Impact and Accounting Treatment - Vedantu
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Last updated March 21, 2025