Question

At the time of forfeiture of shares, ‘Share Capital Account’ is debited with:

• A. Paid-up amount on forfeited shares
• B. Called-up amount on forfeited shares
• C. Face value of shares forfeited
• D. Unpaid amount on forfeited shares

Hint:

Forfeiture Entry Recap:

• Debit Share Capital A/c \(\Rightarrow\) Face Value of shares forfeited
• Credit Share Forfeiture A/c \(\Rightarrow\) Amount already received
• Credit Calls-in-Arrears A/c \(\Rightarrow\) Unpaid amount (if applicable)

Share Capital is always debited with the face value (nominal value) of shares, not with paid-up or called-up amount!

Answer 1

The Correct Option is C

We are asked what amount is debited to Share Capital Account at the time of forfeiture of shares.
Step 1: Understand share forfeiture.
When a shareholder fails to pay the allotment or call money, the company may forfeit (cancel) their shares. The shares become the property of the company and can be reissued.
Step 2: Journal entry for forfeiture.
The standard journal entry for forfeiture of shares is:

Step 3: Explanation of the entry.

• Share Capital Account is debited with the face value (nominal value) of the shares forfeited. This cancels the liability of the company towards the shareholder for the called-up capital.
• Share Forfeiture Account is credited with the amount already received from the defaulting shareholder.
• Calls-in-Arrears Account is credited with the unpaid amount (if already recorded separately).

Step 4: Analyze each option.

• (A) Paid-up amount on forfeited shares:
  • Incorrect. This is credited to Share Forfeiture Account, not debited to Share Capital.
• (B) Called-up amount on forfeited shares:
  • Incorrect. Called-up amount includes both paid and unpaid portions, but Share Capital is debited with face value.
• (C) Face value of shares forfeited:
  • ✓ Correct. Share Capital Account is debited with the face value of shares forfeited.
• (D) Unpaid amount on forfeited shares:
  • Incorrect. Unpaid amount is credited to Calls-in-Arrears or written off.

Final Answer: (C) Face value of shares forfeited