Journal Entries and Balance Sheet Extract for XYZ Limited

Detailed Accounting Treatment for Forfeiture and Re-issue of Shares

Key Insights

Accurate Calculation: Determine the amounts paid and unpaid by each shareholder based on each stage – application, allotment (with premium) and first & final call.
Forfeiture & Re-issue Entries: Separate journal entries are required for recording the forfeiture of shares of defaulters and their subsequent re-issue at a different price.
Impact on Balance Sheet: Adjustments in Share Capital, Securities Premium, and Forfeited Shares accounts are reflected in the extract of the balance sheet.

Understanding the Share Issue Details

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

Application Money: ₹4 per share
Allotment Money: ₹7 per share (which includes a premium component of ₹2 per share)
First and Final Call: ₹6 per share

In this scenario, two shareholders defaulted on payment:

Mr. Das: Holding 50 shares, failed to pay the allotment money (₹7 per share) and first & final call (₹6 per share).
Mr. Pal: Holding 80 shares, failed to pay only the first & final call (₹6 per share).

As a result of these defaults, the company recorded these shares as forfeited. All these forfeited shares were subsequently re-issued at ₹17 per share.

Journal Entries for the Transactions

Step 1: Recording the Forfeiture of Shares

Determination of Unpaid Amounts

Before recording the journal entries, we must compute the amounts involved:

Each share has a face value of ₹15, with the following payment breakdown:

Application: ₹4 per share (Received by all shareholders as announced)
Allotment: ₹7 per share (including a premium of ₹2, meaning the actual share capital component is ₹5 and premium component is ₹2)
First & Final Call: ₹6 per share

For a shareholder in full compliance, the total payable per share = ₹4 + ₹7 + ₹6 = ₹17. However, the share capital is recorded at ₹15 per share, with the remaining ₹2 recognized as Securities Premium.

Default Cases

For Mr. Das (50 shares):

Application: Paid ₹4 per share → Total received = 50 × ₹4 = ₹200
Allotment: Not paid (50 × ₹7 = ₹350)
First & Final Call: Not paid (50 × ₹6 = ₹300)
Total amount due for these two stages: ₹350 + ₹300 = ₹650 per 50 shares

For Mr. Pal (80 shares):

Application and Allotment: Fully paid (80 × ₹4 for application and 80 × ₹7 for allotment)
First & Final Call: Not paid (80 × ₹6 = ₹480)

Hence, amount unpaid:

Mr. Das: ₹650 on 50 shares
Mr. Pal: ₹480 on 80 shares

Total shares defaulted = 50 + 80 = 130 shares.

Journal Entry for Forfeiture

Because these defaulted shares were originally called up at ₹15 per share (₹15 × 130 = ₹1,950) and the Securities Premium component for the allotment stage is also involved, adjustments are as follows:

For Mr. Das, the failure to pay allotment includes both the share capital and the premium portion. Here, the breakdown of ₹7 per share is: ₹5 to Share Capital and ₹2 to Securities Premium.

Therefore, the forfeiture entries would reduce both the Share Capital (and any premium received on the allotment) and recognize an account for forfeited shares, which records the amount forfeited.


// Journal Entry to record the forfeiture of shares
// Total share capital reduction for 130 shares = 130 x ₹15 = ₹1,950
// Reduction in Securities Premium attributable to Mr. Das defaults = 50 x ₹2 = ₹100
// Forfeiture amount recognized = (For Mr. Das: share due on allotment & call - amount received on application) + (For Mr. Pal: call due)
   Share Capital A/c           Dr.   ₹1,950
   Securities Premium A/c      Dr.   ₹100
       To Share Allotment A/c              ₹350    // For Mr. Das (50 shares * ₹7)
       To Share First & Final Call A/c      ₹780    // Total for 130 shares assuming calls of 50*₹6 (for Mr.Das) + 80*₹6 (for Mr.Pal)
       To Share Forfeiture A/c              ₹920    // Balancing figure

In the above entry, the balancing figure in the Share Forfeiture A/c represents the net value forfeited after reducing amounts from share capital and premium as per the defaults.

Step 2: Recording the Re-issue of Forfeited Shares

All forfeited shares (a total of 130 shares) are re-issued at ₹17 per share. The total cash received on reissue is:

Total received = 130 shares × ₹17 = ₹2,210

The entry for re-issuing entails removing the forfeited share values and appropriately adjusting the share capital and premium accounts. The reissue proceeds are allocated to restore the normal balances:


// Journal Entry for re-issue of forfeited shares:
   Bank A/c                   Dr.   ₹2,210   // Total cash received (130 shares x ₹17)
       To Share Capital A/c             ₹1,950   // (Removing the face value portion for 130 shares)
       To Securities Premium A/c        ₹260     // Balancing figure for the premium on re-issue

This reissue entry removes the forfeited shares from the Forfeited Shares account and credits the bank account with the cash received, while re-establishing the premium element.

Extract of the Balance Sheet

The balance sheet extract reflects the effect of the above transactions on the company's capital structure. Key components include:

Shareholders’ Funds

Share Capital

The issued and subscribed share capital remains based on the total of 10,000 shares at ₹15 each. Despite the forfeiture and re-issue, the share capital is adjusted by the entries above. Hence:

Face value of issued shares: 10,000 × ₹15 = ₹150,000
The forfeited shares have been re-issued so that the total issued share capital remains unchanged at ₹150,000.

Reserves and Surplus

This section now includes:

Securities Premium Reserve: Initially, the allotment premium received on shares is ₹2 per share for fully paid shares. After adjusting the reissue premiums (in this case, an additional credit arising from the reissue of forfeited shares), the net effect is a credit of ₹260 reflecting the premium received on re-issue. This premium is added back to the existing balance.
Forfeited Shares Account: After the complete reissue of the 130 shares, the Forfeited Shares account is reduced to nil.

Bank and Cash Balances

The bank account reflects the cash inflows:

Application money received: 10,000 × ₹4 = ₹40,000
Allotment money received (net of defaults): Adjusted for the defaults by Mr. Das (₹350 not received) resulting in a net receipt.
First and Final Call money received: Adjusted for defaults (₹300 from Mr. Das and ₹480 from Mr. Pal not received) leading to a net receipt.
The reissue of forfeited shares, resulting in ₹2,210 credited.

Comprehensive Extract Format

Particulars	Amount (₹)
Authorized Share Capital	10,000 × ₹15 = ₹150,000
Issued and Subscribed Share Capital	₹150,000 (Unaffected by forfeiture since re-issue restored the face value)
Reserves and Surplus	Securities Premium Reserve: [Initial Premium] + ₹260 (from re-issue) Forfeited Shares Account: Nil (after complete reissue)
Bank/Cash Balance	Application Receipts: ₹40,000 Net Allotment Receipts: ₹(70,000 - Defaults, e.g., Mr. Das did not pay ₹350) = Approximately ₹69,650* Net First & Final Call Receipts: ₹(60,000 - Defaults of ₹300 from Mr. Das and ₹480 from Mr. Pal) = Approximately ₹59,220* Reissue Receipts: ₹2,210 *The above amounts are representative and subject to adjustments based on actual defaults recorded.
Total Liabilities	Summation of Shareholders’ Funds – approximately ₹[Calculated Total]

Note: Actual figures for the Reserves and Cash positions depend on additional details such as prior balances in the Securities Premium, application, allotment, and call receipts before adjusting for defaults. The entries provided ensure that the net outcome is that the forfeited shares are removed from the Forfeited Shares account and are re-incorporated into the share capital at the reissue price.

Step-by-Step Accounting Treatment

1. Receipt of Application Money

Transaction: Receipt of ₹4 per share on 10,000 shares.


// Journal Entry for Application Money
   Bank A/c          Dr.   ₹40,000    // (10,000 x ₹4)
       To Application Money A/c      ₹40,000

2. Transfer of Application Money to Share Capital

Transaction: Transfer the received application money to the Share Capital account.


// Journal Entry for Transfer of Application Money
   Application Money A/c  Dr.   ₹40,000
       To Share Capital A/c         ₹40,000

3. Receipt of Allotment Money and Its Allocation

Transaction: Receipt of allotment money on 10,000 shares at ₹7 per share. However, Mr. Das defaults on ₹350.


// Journal Entry for Allotment Money Receipt (Net Receipt after defaults)
   Bank A/c          Dr.   ₹69,650   // (Total allotment to be received reduced by ₹350 default)
       To Share Allotment A/c      ₹69,650

Then, the allotment money is transferred partly to share capital and partly to securities premium:


// Journal Entry for Transfer from Allotment
   Share Allotment A/c  Dr.   ₹70,000
       To Share Capital A/c           ₹50,000     // representing the capital part (10,000 shares x ₹5)
       To Securities Premium A/c      ₹20,000     // representing the premium part (10,000 shares x ₹2)
   (Note: Adjustments for defaults are already considered in the net receipt)

4. Receipt of First & Final Call Money

Transaction: Receipt of first & final call money at ₹6 per share on 10,000 shares reduced for defaults by Mr. Das and Mr. Pal.


// Journal Entry for First & Final Call Receipt (Net Receipt after defaults)
   Bank A/c          Dr.   ₹59,220   // (₹60,000 total minus defaults: ₹300 + ₹480)
       To Share Call A/c           ₹59,220

And the call money is then transferred to the Share Capital account:


// Journal Entry for Transfer of Call Money
   Share Call A/c     Dr.   ₹60,000
       To Share Capital A/c         ₹60,000

5. Recording the Forfeiture of Shares

As detailed earlier, for the defaulting shares, compute:

Mr. Das (50 shares): Not received ₹350 (allotment) + ₹300 (call) = ₹650
Mr. Pal (80 shares): Not received ₹480 (call) only
Total reduction in Share Capital: 130 shares × ₹15 = ₹1,950
Total reduction in Securities Premium (from Mr. Das): 50 × ₹2 = ₹100


// Composite Journal Entry for Forfeiture
   Share Capital A/c           Dr.   ₹1,950
   Securities Premium A/c      Dr.   ₹100
       To Share Allotment A/c            ₹350
       To Share First & Final Call A/c    ₹780   // (₹300 for Mr. Das + ₹480 for Mr. Pal)
       To Share Forfeiture A/c            ₹920   // Balancing amount representing net forfeiture

6. Re-issue of Forfeited Shares

All 130 forfeited shares are re-issued at ₹17 per share resulting in:


// Journal Entry for Re-issue of Forfeited Shares
   Bank A/c                   Dr.   ₹2,210   // (130 x ₹17)
       To Share Capital A/c             ₹1,950   // Restoring face value portion
       To Securities Premium A/c        ₹260     // Balance representing premium on re-issue
   (This entry effectively closes the Forfeited Shares account)

Impact on the Books and Balance Sheet Extract

After all the above entries, the Impact on the books can be summarized as follows:

Share Capital

Remains at ₹150,000 (i.e., 10,000 shares × ₹15) because while forfeiture reduced it temporarily by the defaults, the re-issue of forfeited shares restored the capital fully.

Reserves and Surplus

The Securities Premium Reserve now includes:

The premium from the allotment portion (normally credited as ₹2 per share for full allotment), and
An extra credit of ₹260 arising from the re-issue of forfeited shares.

The Forfeited Shares Account is reduced to nil upon complete re-issue.

Bank/ Cash Position

Consolidated cash receipts include:

Application money: ₹40,000
Net allotment money: Approximately ₹69,650 (after adjusting defaults)
Net first & final call: Approximately ₹59,220 (after adjusting defaults)
Reissue receipts: ₹2,210

These inflows will be reflected as an overall increase in the Bank account balance in the Balance Sheet.

Comprehensive Overview Table

Description	Calculation/Details	Amount (₹)
Application Money (Received)	10,000 × ₹4	40,000
Allotment Money (Total)	10,000 × ₹7	70,000
Premium on Allotment	10,000 × ₹2	20,000
First & Final Call Money (Total)	10,000 × ₹6	60,000
Defaults by Mr. Das	50 shares: Allotment (50×₹7) + Call (50×₹6)	350 + 300 = 650
Defaults by Mr. Pal	80 shares: Call (80×₹6)	480
Total Forfeited Shares	50 + 80	130 shares
Aggregate Face Value of Forfeited Shares	130 × ₹15	1,950
Extra Reduction from Securities Premium (Mr. Das Only)	50 × ₹2	100
Cash Received on Re-issue	130 × ₹17	2,210