When share is reissued at premium then security premium account is credited but when it is reissued at discount then why share forfeiture account is debited and not discount account?
Manisha from India
Manisha! You have asked good question. If you have completed corporate accounting’s forfeiture and reissue of shares topic, you know, at the time of forfeiture of shares, forfeiture account will show the total amount which we got from defaulter shareholder. It will be our source of fund. So, before showing in balance sheet as capital reserve, we have to deduct the loss on reissue of share. For example, we issue 10 shares @ Rs. 8 and its face price is Rs. 10. We got Rs. 6 per share from defaulter shareholder and these shares are forfeited due to not paying Rs. 2. Now, these shares are reissued at Rs. 7 per share. At discount on reissue of share will be adjusted from the fund collected for this purpose. Rs. 8 – Rs. 7 = Rs. 1 will be the discount on reissue of shares. Share forfeiture Account will be debit with this Rs. 1.
Remember, discount on original issue will be debited to discount on issue of share account.