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Deep study Of Accounting Treatment of Share Forfeiture and reissue of share forfeiture shares:-

>> November 6, 2008

Sorry , For not writing some time due to busy for writing my thought . So today I am writing new for you

Definition of share forfeitures

Share forfeitures means cancel the power of share holder if he does not pay his call money when company demands for this .Company will give 14 days notice, after 14 days if shareholder did not pay then company will forfeit his shares and cut off his name from the register of shareholder. Company will not pay his received fund from shareholder.
Deep accounting treatment is divided in following parts

1st situation

Simple accounting treatment

In this situation shares issue at part and there is no pro-rata situation. So the following entry will pass

Share capital Account Debit (called up amount of forfeited shares
Share forfeited Account Credit (Amount received of forfeited shares)
Share call in arrear Account Credit (Amount did not receive of forfeited shares)

2nd Situation

When shares issue on discount and premium

Dear friend if shares are issue on premium or on discount, then if we did not receive the premium, then we write in journal entry otherwise we will not show security premium account in share forfeiture journal entry

Share capital Account Debit (called up amount of forfeited shares)
Security premium account Debit (If premium is not received from share holder)

Share forfeited Account Credit (Amount received of forfeited shares)
Share Allotment Account Credit (If allotment money is not received)
Share call in arrear Account Credit (Amount did not receive of forfeited shares)

In case shares are issued on discount

Share Capital Account Debit
Share Forfeiture Account Credit
Share Allotment Account Credit
Share call in arrear account credit
Discount on issue of shares account credit

3rd situation

When shares issue pro-rata base

In case there is also difficulty to calculate the net amount of allotment received in case some amount is not received and same person we have adjust some amount of share application.
Calculate the net amount of allotment received
Total amount of allotment money due xxxxxx
Less Adjustment with application
Money xxxxxx
Less Amount not received
As forfeited shares

Less (-) xxxx
Perportion in
Not received amount
Of adjusted application
Money which is
We received in advance

Total not receive allotment
= ------------------------------- x Total adjustment of application money
Total Allotment money

Net amount not received
In the form of allotment xxxxxxx (-) xxxx

______________________________ ____________

Net Amount received in the form of
Allotment xxxxx

The following journal entry will passed
Share capital account Debit (Called up capital)
Share forfeiture Account Credit (Total Amount received of forfeited shares)
Share Allotment Account Credit (Net amount not received in the form of allotment, for calculation of this amount you must understand and use above formula)
Share Call in Arrear Credit (if you are not received any call money of share forfeited)

4th situation

When shares fully reissue

Reissue means sale to any other person after forfeiting from previous share holder.
In this situation we can reissue of share in discount or premium. For doing this we have to pass the following journal entry
Bank Account Debit
Discount on issue of shares Debit
Share forfeiture account Debit (Discount on reissue of shares)
Share capital account Credit (Face value of reissue of shares)
Security premium Account Credit (If shares reissue at premium

So difference between amount received from forfeiture and discount on reissue share will go to capital reserve account and following entry will passed

Share forfeited account Debit
Capital reserve account credit
This capital reserve account will show in liability side of balance sheet of company.

5th situation

When Shares partly reissue

It is most difficult situation when you will see the question paper and you found the sum where is pro-rata situation , then share holder did not pay and then these forfeited shares party reissue to another share holder because
Above 4 situations will cover but in the 4th situation’s last journal entry will pass after making forfeiture account in working note because only the amount go to capital reserve which is sold or reissue gain other will go to balance of share forfeiture account upto that date until we reissue all shares.
Share forfeiture Account
Credit Side of this account
By share capital Account 2000
Suppose we get 100 shares forfeiture money received
Rs,20 per share
________ _
Debit Side of this account
To share capital account 250
Suppose we have reissue of 50 shares at reissue discount Rs.5

To capital Reserve account
We will calculate this amount after deducting the proportion of of this gain according to sold shares
2000 x 50/100 – 250 = 750
To balance C/d 1000

Then following journal entry will pass
Share forfeiture account Debit 750
To capital Reserve Account Credit 750

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sanjeev kumar September 22, 2012 at 8:26 AM  

please suggest how to calculate the amount when 1 forfeiture will happen after 1st call and again after second call. problem is there how to calculate the capital reserve amount
REF:- ICWAI BOOK PAGE NO 557 Illustration no 13


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