Forfeiture of shares – Its accounting Entries

Forfeiture of shares - Its accounting Entries

Forfeiture of shares means canceling the allotment of shares to someone who fails to pay calls due. After the forfeiture of shares, the share will be reissued to the other person or business. 

What is Forfeiture of Shares?

The Forfeiture of Shares means when any one or more shareholder has held our company’s shares but he is failed to pay calls money(any call) then the business has canceled his shares. But there will be clearly mentioned in the Article of Association of the company about the condition of the forfeiture of the shares and have allowed in A&A to forfeiture of shares. Before the forfeiture of a share company must have to give notice to the defaulting shareholder. 

Example of Forfeiture of Shares: 

XYZ Limited Co. issued 50,000 shares  @ Rs. 10 in the market. Shares are fully called up and paid up except the number of 100 shares held by Mr. Raj Who failed to pay 1st call and 2nd & final call. They called as follows: 

With application Rs.3
On Allotment Rs. 4
On First Call Rs. 2
On Second and Final Call Rs. 1

Solution:

In the above question, Mr. Raj holds 100 shares of the company but failed to pay the calls money.

So the company can forfeit the shares held by Mr. Raj Because he has failed to pay the calls money. 

Disclosure of the balance of Share forfeited account in the Balance sheet:

The amount already received from the defaulting shareholder will not be refunded to him. The company will be using this amount if need at the time of reissue of shares and till the reissue, the balance of share forfeit will be shown in the balance sheet under the subscribed capital in the note to accounts on shares capital

Accounting Entries of Forfeiture of Shares: 

The journal entries of share forfeited is treated as on the basis of the issue of shares: 

  1. Issued at Par
  2. Issued at Discount 
  3. Issued at Premium

1. When the shares were issued at Par:

When the shares were issued at par then the following journal entry will be recorded in the books: 

The following journal entry will be recorded if the Calls in the arrear account not  

Date   Particulars
L.F. Debit Credit
           
  Share Capital A/c Dr.   *****  
  To Share Allotment A/c       *****
  To Share’s 1st Call A/c        *****
  To Share 2nd and Final Call A/c       *****
  To Share Forfeited A/c        *****
  (Being share forfeited due to non-payment of calls )      
           

The amount will be calculated as the following: 

Share Capital A/c: The total called up capital will be recorded in this column. 

Share allotment, 1st Call, and 2nd & final Call A/c: if the amount due for any call had not paid then recorded in the books. if the amount received then it will be recorded in the share forfeited A/c. 

Share Forfeited A/c: The total amount received. 

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References: –

    1. mca.gov.in
    2. Class +2 Accountancy by Sultan Chand

 

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