Comprehensive Journal Entries and Balance Sheet Extract for XYZ Limited

Detailed Analysis of Forfeiture and Reissue of Equity Shares

Key Highlights

Structured Calculation – Step-by-step break-up of amounts received, forfeiture adjustments, and reissue premium.
Accurate Journal Entries – Correct recording for application, allotment, calls, forfeiture, and reissue processes.
Integrated Balance Sheet Extract – Reflecting the updated Share Capital, Premium, and Reserves after adjustments.

Overview of the Transaction

XYZ Limited issued 10,000 equity shares of ₹15 each on a staggered payment schedule. The payment structure was as follows:

₹4 per share on Application.
₹7 per share on Allotment (including ₹2 per share as premium).
₹6 per share on First and Final Call.

However, two shareholders defaulted on certain payments: Mr. Das (50 shares) did not pay both the allotment and the first and final call, while Mr. Pal (80 shares) failed to pay the first and final call. Consequently, these shares were forfeited and later reissued at ₹17 per share. The following sections detail the computation, journal entries, and the updated extract of the balance sheet.

Step-by-Step Computation

1. Payment Breakdown at Issue

Let’s first understand the amounts received by the company for the entire issue and then break down the collection by payment stage.

Application Stage

All 10,000 shares were issued at ₹4 per share on application. The total amount received at this stage is:

\( \text{Total Application Money} = 10,000 \times 4 = ₹40,000 \)

Allotment Stage

At the allotment stage, ₹7 per share was due on each share. However, note that for Mr. Das’ 50 shares, the allotment money was not paid. For the remaining 9,950 shares, the allotment money is received:

\( \text{Allotment Received from Others} = 9,950 \times 7 = ₹69,650 \)

For Mr. Das, for 50 shares:
\( \text{Allotment due} = 50 \times 7 = ₹350 \) (not received)

First and Final Call Stage

A call of ₹6 per share was issued. Payments were received from all except Mr. Das (50 shares) and Mr. Pal (80 shares). Therefore, payments are received from:

\( \text{Number of shares paid} = 10,000 - (50 + 80) = 9,870 \) shares

Total call money received:
\( \text{Call Money Received} = 9,870 \times 6 = ₹59,220 \)

The default details:
- Mr. Das: 50 shares, call money due \(= 50 \times 6 = ₹300\) (not received)
- Mr. Pal: 80 shares, call money due \(= 80 \times 6 = ₹480\) (not received)

Journal Entries

A. Recording Money Received

I. Application Money Received

The entry on receiving application money is:


// Debit Bank for amount received from application money
// Credit Share Application Account for the same amount
Bank A/c                  Dr.  ₹40,000
   To Share Application A/c           ₹40,000

II. Allotment Money Received

While allotment money of ₹7 per share is expected on all 10,000 shares, Mr. Das's 50 shares did not pay this amount. Thus, the received allotment money is only from 9,950 shares:


// Debit Bank for allotment received from non-defaulting shareholders
Bank A/c                  Dr.  ₹69,650
   To Share Allotment A/c           ₹69,650

III. First and Final Call Money Received

Call money is received for 9,870 shares:


// Debit Bank for first and final call money received from non-defaulting shareholders
Bank A/c                  Dr.  ₹59,220
   To Share Call A/c                ₹59,220

B. Forfeiture of Shares

Forfeiture of shares accounts for the non-receipt of funds by certain shareholders. The balances not received are:

For Mr. Das (50 shares):

Allotment money not received: \( 50 \times ₹7 = ₹350 \)
Call money not received: \( 50 \times ₹6 = ₹300 \)
Total not received for Mr. Das: \( ₹350 + ₹300 = ₹650 \)

For Mr. Pal (80 shares):

Call money not received: \( 80 \times ₹6 = ₹480 \)

Thus, the total amount not received on forfeiture is:
\( ₹650 + ₹480 = ₹1,130 \)

The journal entry to write off the non-received amounts and to record the forfeiture is as follows:


// For Mr. Das:
Share Allotment A/c       Dr.  ₹350
Share Call A/c            Dr.  ₹300
      To Share Capital A/c              ₹650
      (Being amount not received from Mr. Das forfeited)
// For Mr. Pal:
Share Call A/c            Dr.  ₹480
      To Share Capital A/c              ₹480
      (Being call money not received from Mr. Pal forfeited)

Alternatively, to combine both entries, we can indicate:


// Combined Forfeiture Entry:
Share Allotment A/c       Dr.  ₹350
Share Call A/c            Dr.  ₹300 + ₹480 = ₹780
      To Share Capital A/c              ₹350 + ₹780 = ₹1,130
      (Being aggregate amount not received on 130 shares forfeited)

C. Reissue of Forfeited Shares

The forfeited shares (50 from Mr. Das and 80 from Mr. Pal, totaling 130 shares) were subsequently reissued at ₹17 per share. The total cash inflow on reissue is:

\( \text{Cash received on reissue} = 130 \times 17 = ₹2,210 \)

The original share capital per share is ₹15. Hence, for 130 shares, the nominal share capital is:

\( 130 \times 15 = ₹1,950 \)

The difference between the reissue price and the nominal value is considered a premium:

\( \text{Reissue Premium} = (₹17 - ₹15) \times 130 = ₹2 \times 130 = ₹260 \)

Also note, the forfeiture account already had a debit of ₹1,130 from defaulted payments. On reissue, this account is adjusted against the cash received:


// Reissue Entry:
Bank A/c                  Dr.  ₹2,210
   To Share Capital A/c             ₹1,950
   To Share Forfeiture A/c          ₹260
      (Being forfeited shares reissued at ₹17 per share)

Balance Sheet Extract

Presentation in the Equity and Liabilities Section

After accounting for the original issue, the subsequent forfeiture, and the reissue, the equity section of the balance sheet is updated. We assume that originally, the share capital was recorded on the basis of the issue of 10,000 shares of ₹15 each. The forfeiture entry temporarily reduces the share capital by ₹1,130, and the reissue entry then restores part of the share capital alongside recording the premium.

Assuming no other adjustments, the extract will show the following:

Equity Share Capital

Particulars	Amount (₹)
Authorized Share Capital (10,000 x ₹15)	150,000
Less: Amount Written Off on Forfeited Shares	(1,130)
Add: Reissue of Forfeited Shares (at nominal value 130 x ₹15)	1,950
Net Share Capital	150,820

Reserves and Premium

Additionally, the Securities Premium received during allotment is:

\( \text{Securities Premium on Allotment} = 10,000 \times 2 = ₹20,000 \)

And the additional premium from reissue is ₹260, which will be credited to the Capital Reserve or added to the premium account. The balance sheet extract’s remainder, considering the premium, is:

Liabilities	Amount (₹)
Net Share Capital	150,820
Securities Premium (Including Reissue Premium)	20,260
Total Shareholders' Funds	171,080

The above tables summarize the impact of the transactions on the equity section. The net effect is an increase in the share capital by the nominal value reissued and an appropriate addition to the premium reserve from the excess received on reissue.

Detailed Narrative of the Accounting Process

Accounting for Each Stage

In this transaction scenario, XYZ Limited followed detailed steps to account for various stages of money receipt and subsequent adjustments due to default:

1. Receipt of Funds

The cash inflow on application, allotment, and first and final call was recognized immediately and credited to temporary accounts such as Share Application A/c, Share Allotment A/c, and Share Call A/c respectively. This process ensured that funds were recorded as soon as they were received.

However, when specific shareholders (Mr. Das and Mr. Pal) failed to meet their payment obligations in the allotment and call stages, the amounts due from them were identified as uncollected. The approach was to:

Directly write off these amounts from the Share Capital, thereby reflecting the non-receipt in the company’s equity.
Maintain a temporary account – Share Forfeiture A/c – that captures the aggregate amount lost from defaults.

2. Forfeiture and Reissue Process

The forfeiture process involved debiting the amounts due from the defaulting shareholders from related accounts (Share Allotment and Share Call) and crediting the Share Capital. This reflects the nominal value that was originally expected but not received.

Following forfeiture, the company reissued the 130 forfeited shares at a premium. The reissue entry credited:

The nominal share capital value, representing the face value of shares reissued.
The premium on reissue (the excess of ₹17 over ₹15), which was transferred to the premium reserve/Capital Reserve after reconciling the previous forfeiture adjustment.

The procedure of first writing off the defaults then reissuing at a higher price allows companies to recover some of the losses incurred due to share forfeitures.

Integration into the Balance Sheet

Once these transactions have been recorded in the journal, the adjustments are reflected in the balance sheet under the Shareholders’ Funds section. The net effect is:

An updated Share Capital account that adds back the reissue of the forfeited shares at nominal value while writing off the initial defaults.
A Securities Premium or Capital Reserve account that captures both the original premium received during allotment and any additional premium from the reissue.

This detailed recording provides stakeholders with a clear view of how the company managed defaults and recovered funds through reissue, thereby maintaining financial transparency.