Journal Entries and Balance Sheet Extract for Share Forfeiture and Reissue

Detailed accounting treatment and financial extract of the transactions

physical ledger open book on accountancy

Highlights

Journal Entries: Recording of application, allotment, call receipts, non-payment, forfeiture, and re-issue transactions with complete narrations.
Balance Sheet Extract: Proper reflection of share capital, reserves, premium, and forfeited shares with adjustment entries.
Accounting Treatment: Comprehensive demonstration of forfeiture for non-payment by Mr. Das and Mr. Pal and subsequent reissue at a premium.

Understanding the Share Issue and Forfeiture Scenario

XYZ Limited issued 10,000 equity shares of ₹15 each with the following payment schedule:

₹4 per share on application
₹7 per share on allotment (which includes ₹2 per share as securities premium)
₹6 per share on first and final call

In this case, Mr. Das, who held 50 shares, defaulted on permitted payments for the allotment and first and final call stages. Similarly, Mr. Pal, holder of 80 shares, defaulted on the first and final call payment. As a result, the corresponding shares were forfeited. Later, the forfeited shares were reissued at ₹17 per share. The subsequent journal entries and balance sheet extract reflect these transactions.

Journal Entries with Narrations

A. Receipt and Transfer of Application Money

As the first step, the company received application money on 10,000 shares at ₹4 per share. This amount is first credited to the Application Money Account and subsequently transferred to the Share Capital Account.

Journal Entry for Application Money Receipt


// On receiving application money
Cash A/c                         Dr.    ₹40,000
    To Application Money A/c               ₹40,000
(Being application money received on 10,000 shares @ ₹4 per share)

// Transferring application money to share capital
Application Money A/c              Dr.    ₹40,000
    To Equity Share Capital A/c            ₹40,000
(Being application money transferred to share capital)

B. Receipt of Allotment Money

The allotment payment is called at ₹7 per share. Out of this, ₹2 per share is treated as securities premium and the remainder is added to the share capital. However, note that Mr. Das defaulted on his allotment payment for his 50 shares.

Journal Entry for Allotment Money Received


// For shares where allotment is fully received (except defaults)
Cash A/c                         Dr.    ₹(Total Received, Net of defaults)
    To Share Allotment A/c               ₹(Share Capital Portion)
    To Securities Premium A/c            ₹(Premium Portion)
(Being allotment money received on 10,000 shares @ ₹7 per share)

// Adjusting entry for non-payment on 50 shares by Mr. Das:
Share Allotment A/c                Dr.    ₹350  // 50 shares * ₹7
    To Equity Share Capital A/c            ₹250  // Capital portion (approximation: (₹7 - allocation of premium))
    To Securities Premium A/c              ₹100  // Premium portion
(Being allotment money not received on 50 shares by Mr. Das)

The above entry assumes that out of the ₹7 allotment money per share, ₹2 is premium and ₹5 is allocated to Share Capital. For Mr. Das, the total non-payment equals 50 × ₹7 = ₹350, broken down into ₹250 for share capital and ₹100 for premium.

C. Receipt of First and Final Call Money

The first and final call is set at ₹6 per share. All shareholders are required to pay this on all their shares except for the defaulting shareholders. Mr. Das (50 shares) and Mr. Pal (80 shares) did not pay their respective call amounts.

Journal Entry for Call Money Received


// For shares where call money is received (total of 10,000 - (50+80) = 9,870 shares payable)
Cash A/c                         Dr.    ₹(9,870 shares * ₹6)
    To Share Call A/c                      ₹(9,870 shares * ₹6)
(Being first and final call money received on 9,870 shares @ ₹6 per share)

// Adjusting entry for non-payment of call money on defaulted shares:
Share Call A/c                    Dr.    ₹780  // (50+80)*₹6 = 130*₹6 = ₹780
    To Equity Share Capital A/c            ₹(Capital portion from call)
    To Forfeited Shares A/c                ₹(Difference if applicable)
(Being call money not received from Mr. Das and Mr. Pal)

For simplification, the total amount of call money not received is ₹780. We detail the complete default below along with the forfeiture entries.

D. Forfeiture of Shares

The shares for which full payment has not been received (namely 50 shares of Mr. Das who defaulted on allotment and call, and 80 shares of Mr. Pal defaulting on call) are subject to forfeiture. The total value of each share is ₹15, which includes all previously paid amounts and the amounts pending.

Let’s break down the amounts:

For Mr. Das:
- Amount due on share: ₹15
- Application money already incorporated: ₹4 per share
- Non-payment on allotment: ₹7 per share (₹5 towards capital and ₹2 premium)
- Non-payment on call: ₹6 per share
- Total non-received = ₹7 + ₹6 = ₹13 per share; however, the share is recorded at face value.
For Mr. Pal:
- Amount due on share: ₹15
- Application amount received: ₹4 per share
- Allotment fully paid: ₹7 per share
- Non-payment on call: ₹6 per share

Instead of aggregating amounts as received and due, many companies record forfeiture by debiting the face value amounts along with adjusting the accounts for amounts received. Here, we show a combined entry for forfeiture of shares.

Combined Journal Entry for Forfeiture of Shares

Let’s consider the overall computed amounts:

Mr. Das (50 shares): Non-payment amounts on allotment and call lead to forfeiture of 50 × ₹(₹7+₹6) = ₹650
Mr. Pal (80 shares): Default on call money leads to forfeiture of 80 × ₹6 = ₹480

Total amount transferred to Forfeited Shares Account = ₹650 + ₹480 = ₹1,130. We use the following journal entry to record the forfeiture:


Equity Share Capital A/c         Dr.    ₹1,130
    To Forfeited Shares A/c                 ₹1,130
(Being shares forfeited due to non-payment of allotment and call money by Mr. Das and Mr. Pal)

E. Reissue of Forfeited Shares

The forfeited shares (a total of 130 shares) are reissued at ₹17 per share, generating cash receipts along with a share premium arising from the difference between the reissue price and the share’s face value.

Calculation:

Number of forfeited shares reissued: 50 (Mr. Das) + 80 (Mr. Pal) = 130 shares
Total amount received on reissue: 130 × ₹17 = ₹2,210
Face value of reissued shares: 130 × ₹15 = ₹1,950
Securities Premium on reissue: ₹2,210 - ₹1,950 = ₹260

Journal Entry for Reissue of Forfeited Shares


Cash A/c                        Dr.    ₹2,210
    To Equity Share Capital A/c            ₹1,950
    To Securities Premium A/c              ₹260
(Being reissue of 130 forfeited shares at ₹17 per share)

Extract of Balance Sheet

The Balance Sheet must reflect the changes made due to the issuance, forfeiture, and reissue of shares. The key components under Shareholders' Funds include the following:

Components of Shareholders' Funds

Equity Share Capital:
- Issued at ₹15 per share.
- Includes application, allotment, call receipts minus forfeited shares.
Securities Premium Account:
- Premium received on allotment of shares.
- Additional premium from reissue of forfeited shares.
Forfeited Shares Account:
- Initially showing amounts forfeited due to non-payment.
- Later transferred to Capital Reserve after adjustment.

Balance Sheet Extract (As at March 21, 2025)

The extract below summarizes the financial position concerning share capital after the above transactions:

Particulars	Amount (₹)
Equity Share Capital	150,000*
Issued (10,000 shares @ ₹15)	150,000
Less: Forfeited Shares (Equivalent to 130 shares)	(1,950)
Add: Reissue of Forfeited Shares	1,950
Securities Premium Account	100* + 260*
Premium on Allotment (Approx.)	100
Premium on Reissue of Forfeited Shares	260
Capital Reserve	1,130*
(Transferred from Forfeited Shares A/c before reissue)	1,130
Total	151,390

*Notes: The above values are approximated based on the treatment of default amounts and subsequent reissue. The forfeited shares initially recorded at ₹1,130 have been adjusted against the premium received and transferred into the Capital Reserve. The Share Capital figure remains unchanged at the authorized level, while only the forfeited amounts are adjusted.

Detailed Narrative of Transactions

1. Application Money

Upon receipt of application money, the company debits the Cash Account for ₹40,000 corresponding to 10,000 shares at ₹4 each. This sum is initially credited to the Application Money Account. Once the application monies are verified, they are then transferred to the Equity Share Capital Account, thus increasing the share capital.

2. Allotment Money Adjustment

The allotment money of ₹7 per share is split equally into two components: ₹5 being the share capital (once the premium is separated) and ₹2 as Securities Premium. The full allotment money from non-defaulting shareholders is credited accordingly. However, Mr. Das, holding 50 shares, fails to pay his allotment money. Consequently, an adjusting entry is made where the shortfall of ₹350 (50 shares × ₹7) is recorded, with the breakdown reflecting the capital and premium elements respectively.

3. Collection of First & Final Call Money

The balance remaining after allotment is the first and final call of ₹6 per share. While the majority of shareholders dignify this payment, Mr. Das (50 shares) and Mr. Pal (80 shares) default, summing to a non-payment of ₹780. The received call money is recorded against 9,870 shares. An adjusting journal entry acknowledges the default by debiting the Share Call Account for the aggregate shortfall.

4. Recording Forfeiture of Shares

Due to non-payment on allotment and call money, the stakes of the defaulting shareholders (50 shares of Mr. Das and 80 shares of Mr. Pal) are forfeited. The aggregate computed as a debit to the Equity Share Capital Account is ₹1,130. The offset is entered as a credit to the Forfeited Shares Account. This treatment keeps the books reflective of the actual paid-up capital while earmarking default amounts in a separate reserve.

5. Reissue of Forfeited Shares

The previously forfeited shares, now a total of 130 shares, are reissued for ₹17 each. The resultant cash inflow amounts to ₹2,210, where the face value portion (₹15 per share) is credited back to the Equity Share Capital Account, and the excess of ₹2,210 less the face value (₹260) is credited to the Securities Premium Account as additional income.