Journal Entries for Share Forfeiture and Reissue

A detailed guide on preparing accounting entries and balance sheet extract

Key Highlights

Essential Transactions: Receipt of application, allotment and call money; default by two shareholders; and subsequent forfeiture and re‐issue of shares.
Accounting Treatment: Recording each transaction in its own journal entry while separating capital and premium components.
Balance Sheet Impact: Adjustment in issued share capital, premium reserve, and call in arrears accounts to reflect forfeiture and re‐issue.

Background and Transaction Details

XYZ Limited issued 10,000 equity shares of ₹15 each. The issue was made with a payment schedule as follows:

₹4 per share on application
₹7 per share on allotment – which includes a securities premium of ₹2 per share (thus, the capital part on allotment is ₹5 per share)
₹6 per share on the first and final call

Two shareholders defaulted on the payments:

Mr. Das, holding 50 shares, failed to pay both the allotment and the first and final call money.
Mr. Pal, holding 80 shares, failed to pay the first and final call money only.

All the shares on which defaults occurred were subsequently forfeited and re‐issued at a price of ₹17 each.

Step-by-Step Journal Entries

(1) Standard Receipts on Issue

a. Application Money Received

When the application money is received for all 10,000 shares at ₹4 per share:


// Journal Entry 1
Dr. Bank A/c                             ₹40,000   // (10,000 x ₹4)
   Cr. Share Application A/c                 ₹40,000

b. Transfer from Application to Share Capital

After allotment, the application money is transferred to the Share Capital account:


// Journal Entry 2
Dr. Share Application A/c                  ₹40,000
   Cr. Share Capital A/c                     ₹40,000

c. Allotment Money Received

The allotment money of ₹7 per share is due for 10,000 shares. Out of this, ₹2 per share is credited to Share Premium and ₹5 per share to Share Capital.


// Journal Entry 3
Dr. Bank A/c                             ₹70,000   // (10,000 x ₹7)
   Cr. Share Allotment A/c                   ₹70,000

d. First and Final Call Money Received

The call money of ₹6 per share is due on 10,000 shares:


// Journal Entry 4
Dr. Bank A/c                             ₹60,000   // (10,000 x ₹6)
   Cr. Share Call A/c                        ₹60,000

(2) Adjustments for Defaults

Certain shareholders did not pay the full amount on allotment and/or call:

Mr. Das (50 shares): Failed to pay the entire allotment (₹7 per share) and call (₹6 per share) money. Amount not received:
Allotment default = 50 × ₹7 = ₹350 and Call default = 50 × ₹6 = ₹300.
Total expected for his shares = 50 × ₹15 = ₹750, but only application money of 50 × ₹4 = ₹200 was received.
Mr. Pal (80 shares): Failed to pay the entire call money of ₹6 per share.
Call default = 80 × ₹6 = ₹480.
For Mr. Pal, application (80 × ₹4 = ₹320) and allotment amounts (80 × ₹7 = ₹560) were received, totalling ₹880 out of ₹1,200 (80 × ₹15).

(3) Forfeiture of Shares

The shares of defaulting shareholders are forfeited. The accounting treatment follows the principle of writing off the amount credited to the Share Capital (including allotment and call) against the forfeiture account.

Note: Although the individual breakdown shows higher amounts credited (because allotment includes premium component), for the purpose of computing share capital, only the nominal value of ₹15 per share is considered. However, the actual journal entries record each component as received and then written off at forfeiture.

a. Forfeiture of Mr. Das’ 50 Shares

For Mr. Das the entries combine the amounts received versus the required nominal amount:


// Journal Entry 5: Forfeiture - Mr. Das
// Amount that should have been received: 50 × ₹15 = ₹750
// Amount actually received (application only): 50 × ₹4 = ₹200
// Thus, deficiency = ₹750 - ₹200 = ₹550

Dr. Share Capital A/c               ₹750   // (To remove the nominal value for 50 shares)
   Cr. Share Application/Allotment/Call A/c     ₹200   // (Amount actually received)
   Cr. Forfeited Shares A/c                     ₹550   // (Difference written off as forfeiture

(Alternate approaches may separately reverse allotment and call components. Here, the entire nominal amount for the forfeited share is removed while the amount received is retained.)

b. Forfeiture of Mr. Pal’s 80 Shares

For Mr. Pal, who defaulted only on the call money:


// Journal Entry 6: Forfeiture - Mr. Pal
// Amount that should have been received: 80 × ₹15 = ₹1,200
// Amount actually received (application and allotment): 80 × (₹4 + ₹7) = ₹880
// Deficiency = ₹1,200 - ₹880 = ₹320

Dr. Share Capital A/c              ₹1,200   // (Nominal value for 80 shares)
   Cr. (Bank/Relevant A/c)*                    ₹880   // (Amounts received already transferred to appropriate accounts)
   Cr. Forfeited Shares A/c                    ₹320   // (Deficiency, written off as forfeiture)

(*In practice, the credit of ₹880 may be shown by adjusting the Share Application, Allotment, or Call accounts—depending upon how the receipts have been posted.)

(4) Re-issue of Forfeited Shares

The forfeited shares, totaling 50 (Mr. Das) + 80 (Mr. Pal) = 130 shares, are re‐issued at ₹17 per share.


// Journal Entry 7: Re-issue of Forfeited Shares
Dr. Bank A/c                            ₹2,210   // (130 shares x ₹17)
   Cr. Forfeited Shares A/c                  ₹?     // (Remove the balance of the forfeiture account applicable to these shares)
   Cr. Share Premium A/c                    ₹?     // (For excess received on reissue)
// Note: The Forfeited Shares account originally holds the aggregated forfeiture amounts.
// On reissue, these are transferred such that the total credited equals 130 x Nominal value (₹15)
// and the excess (₹17 - ₹15) is credited to Share Premium.

Calculation for Re-Issue:

Nominal value on reissue = 130 × ₹15 = ₹1,950
Total amount received on re-issue = 130 × ₹17 = ₹2,210
Excess credited to Share Premium = ₹2,210 - ₹1,950 = ₹260

Therefore, the entry can be detailed as follows:


// Revised Journal Entry 7: Re-issue of Forfeited Shares
Dr. Bank A/c                            ₹2,210
   Cr. Share Capital A/c                   ₹1,950   // (Nominal value for 130 shares)
   Cr. Share Premium A/c                     ₹260   // (Excess on reissue)

Extract from the Balance Sheet

The balance sheet as at the reporting date reflects the changes in the share capital, premium reserve, and any outstanding call in arrears. The extract presented here is indicative and focuses solely on the equity section related to share capital:

Equity and Liabilities Side

XYZ Limited – Balance Sheet Extract

Particulars	Amount (₹)
Authorized Share Capital (10,000 shares x ₹15)	150,000
Issued, Subscribed & Paid-up Capital (After adjusting for forfeited shares: 10,000 – 130 = 9,870 shares x ₹15)	9,870 x 15 = 148,050
Share Premium Account (Premium received on allotment for shares and from re-issue) Regular premium on fully paid shares (except forfeited) and premium on re-issue: - On allotment for non-forfeited shares: assumed as received ₹2 per share for (10,000 – 50) shares from Mr. Das plus full for others - On re-issue: ₹260 (as calculated)	As per books (including ₹260 on re-issue)
Calls in Arrears (Outstanding call money relating to defaulted shares)	Mr. Pal: 80 × ₹6 = 480 Mr. Das: 50 × ₹6 = 300 Total = 780
Forfeited Shares Account (Now fully absorbed through reissue)	Nil

Note: The premium reserve shown in the balance sheet will be the aggregate of the premium received on allotment (after adjusting for defaults) and the premium on reissue. Other assets and liabilities are not shown in this extract.

Summary of Transactions

Table: Overview of Journal Entry Amounts

Transaction	Amount Details
Application Money Received	10,000 × ₹4 = ₹40,000
Allotment Money Received	10,000 × ₹7 = ₹70,000
First & Final Call Money Received	10,000 × ₹6 = ₹60,000
Default by Mr. Das	Allotment Default = 50 × ₹7 = ₹350 Call Default = 50 × ₹6 = ₹300 Total Deficiency = ₹650 (Nominal required 50 × ₹15 = ₹750 less ₹200 received)
Default by Mr. Pal	Call Default = 80 × ₹6 = ₹480 Total Deficiency = ₹480 (Nominal for 80 shares is ₹1,200 less ₹880 received)
Total Forfeited Shares	50 + 80 = 130 shares
Reissue Proceeds	130 × ₹17 = ₹2,210
Excess on Reissue (to Premium)	₹2,210 – (130 × ₹15 = ₹1,950) = ₹260