Forfeiture and Reissue of Shares Journal Entries

Today, we are taking an important example for explaining the journal entries of forfeiture and reissue of shares. But before study this, you should study our past corporate Accounting study material which will clear you the fundamental of Forfeiture and Reissue of Shares accounting.


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A Ltd. issued 100,000 shares  of Rs. 10 each payable as follows :

Applications were received for 160000 shares out of which letters of regret were issued for 30,000 shares. Full allotment was made to applicants for 40000 shares. Pro-rata allotment was made on the balance.

A shareholder holding 100 shares to whom full allotment was made, failed to pay allotment money. Another shareholder holding 200 shares to whom pro rata allotment was made also failed to pay allotment money. On first call, there was a further default on 300 shares. All these were forfeited. The first lot of 300 was reissued at the rate of Rs. 8 per share as fully paid up shares.

Pass necessary journal entries. 

In the books of A

Journal Entries

1. When application money received on 160000 @ Rs. 3 each.

Bank Account Debit 4,80,000

Share Application Account Credit 4,80,000

2.  When Application money transferred to capital account, returned money to applicants and balance transferred to share allotment account 

Share application account Debit 480,000

Share capital account Credit 3,00,000

Bank Account Credit 90,000

Share Allotment Account Credit 90,000

3. When allotment money is due on 100,000 shares @ Rs. 2 per share.

Share Allotment Account Debit  2,00,000

Share Capital Account Credit 2,00,000

4. When Allotment money has received except not failed ( See working notes)

Bank Account Debit 1,09,700

Share Allotment Account Credit 1,09,700

5. When First call's money due ( 1,00,000 shares @ RS. 3)

Share First Call Account Debit 3,00,000

Share Capital Account Credit 3,00,000

6. When First Call money received ( 100,000 -600) @ Rs. 3

Bank Account Debit 2,98,200

Share First Call Account Credit 2,98,200


7. When forfeiture of Shares of 600 due to non- payment of allotment money and call money

Share capital account Debit 4800 ( 600 shares X Rs. 8)

Share Allotment Account Credit 300 ( see working note 3)

Share First Call Account Credit 1800 ( 600 X Rs. 3)

Share Forfeiture Account Credit 2700 ( Balance)

8. When Forfeiture Share Re-issued

Bank Account Debit 2400 ( 300 X Rs. 8)

Share Forfeiture Account Debit 600 ( Discount on re-issue of shares 300 X RS. 2 ( Rs. 10 -Rs. 8)

Share Capital Account Credit 3000

9. Transfer of Net Balance of Forfeiture Account to Capital Reserve ( See Working Note ) 

Share Forfeiture Account Debit 600

Capital Reserve Account Credit 600

 10. When Final call's money due ( 99,400 shares @ RS. 2)

Share First Call Account Debit 1,98,800

Share Capital Account Credit 1,98,800

11. When First Call money received ( 99,400) @ Rs. 2

Bank Account Debit 1,98,800

Share First Call Account Credit 1,98,800


Working Notes 

First of all you need to make the pro-rata table



1. Advance received of allotment money at the time of application.

If there are alloted Rs. 180,000 shares , application received = Rs. 270,000
If there is alloted 1 share, then application received = 270,000/180,000
If there is alloted 200 share (failed allotment money), then application received for ths = 9/6 X 200 = 3/2 X 200 = Rs. 300

2. Calculation of amount received on allotment

Amount Due on allotment = Rs. 2,00,000
Less : Received on application =  90,000
-------------------------------------------------
Balance __________________1,10,000
Less allotment money
on 100 shares full allotment is
made ( Failure to pay allotment
money)  ( 100 X 2 ) _________  200
--------------------------------------------------
Balance__________________1,09,800
Less Allotment money on _____      100
200 shares alloted on pro-rata
basis
{200 X 2 - RS. 300 (Already received at the time application) }             
----------------------------------------------------------------
Amount received at the time of allotment = 1,09,700
==========================================                     

3. Calculation of Not received allotment Money

1. Failure on Full allotment = Rs. 200
( Failure to pay allotment money)  ( 100 X 2 )

2. Failure of pro-rata payment = Rs. 100
{200 X 2 - RS. 300 (Already received at the time application) }        
-------------------------------------------------------------
Total not received allotment money = Rs. 300
=======================================

4. Calculation of amount transferred to capital reserve

Amount received on 100 shares full payment of application money =  Rs. 300
Amount received on 200 shares which is pro-rata
(It means, we have received 300 shares application money

200 X 90,000/60,000)       Now 300 X 3 Application money =  Rs. 900
--------------------------------------------------------------------------------
Total __________________________________________ Rs. 1200
Less discount allowed on reissue of shares )_____________ Rs. 600
-----------------------------------------------------------------------------
Transferred to Capital Reserve ______________________ Rs. 600
====================================================

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Accounting Education: Forfeiture and Reissue of Shares Journal Entries
Forfeiture and Reissue of Shares Journal Entries
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