Question

Cemto Ltd. forfeited 6,000 shares of ₹10 each issued at a premium of ₹2 per share for the non-payment of the \emph{final call} of ₹3 per share. Later, 300 of the forfeited shares were re-issued at ₹8 per share as fully paid. Pass the necessary journal entries for forfeiture and re-issue of shares. Also prepare the Share Forfeiture Account.

Hint:

Forfeiture: \(\text{Capital Dr (called)} \to \text{Unpaid Calls} + \text{Forfeiture (amount received)}\). On re-issue at discount: debit the discount to \emph{Share Forfeiture} (not exceeding the amount forfeited on those shares); transfer the remaining forfeiture on re-issued shares to \textbf{Capital Reserve}.

Answer 1

Given and interpretation.
- Face value per share = ₹10; Securities premium = ₹2 (assumed received earlier on allotment).
- Final call unpaid = ₹3 per share; hence \emph{called-up capital} on forfeiture = full ₹10; \emph{amount received on capital} per share = ₹7. Step 1: Forfeiture entry for 6,000 shares.
General rule on forfeiture (for non-payment of calls already due): \[ \text{Share Capital Dr (called-up)} \quad \To \ \text{Unpaid Call A/c(s)} \quad \To \ \text{Share Forfeiture A/c (amount received on capital)}. \] Here: Called-up per share = ₹10 ⇒ debit ₹60,000 (6,000×10).
Unpaid = Final Call ₹3 ⇒ credit ₹18,000 (6,000×3).
Amount received on \emph{capital} = ₹7 per share ⇒ credit Share Forfeiture ₹42,000 (6,000×7). Premium was already collected, so no entry for Securities Premium on forfeiture.
Step 2: Re-issue of 300 forfeited shares at ₹8 as fully paid.
Issue price = ₹8 for a ₹10 paid-up share ⇒ \emph{discount on re-issue} = ₹2 per share (₹600 total). Such discount is debited to \underline{Share Forfeiture A/c}, limited to the amount available therein. Entry: \[ \text{Bank Dr } 300\times8=2{,}400,\quad \text{Share Forfeiture Dr } 300\times2=600 \quad \To \ \text{Share Capital } 300\times10=3{,}000. \]
Step 3: Transfer capital profit on re-issue to Capital Reserve.
Amount originally forfeited per share (related to capital) = ₹7. After using ₹2 as discount, surplus per re-issued share = ₹5. Transfer for 300 shares = \(300 \times 5 = ₹1{,}500\). \[ \text{Share Forfeiture Dr } 1{,}500 \ \To \ \text{Capital Reserve } 1{,}500. \]
Step 4: Prepare Share Forfeiture Account.
[2pt] \[ \begin{array}{|l|r||l|r|} \hline \multicolumn{2}{|c||}{Share Forfeiture A/c (₹)} & \multicolumn{2}{c|}{}
\hline Dr. & & Cr. &
\hline \text{To Discount on Re-issue} & 600 & \text{By Forfeiture (6,000 sh.)} & 42{,}000
\text{To Capital Reserve (300 sh.)} & 1{,}500 & &
\hline \text{To Balance c/d (for 5,700 sh.)} & 39{,}900 & &
\hline Total & 42{,}000 & Total & 42{,}000
\hline \end{array} \] Thus, ₹39,900 remains in Share Forfeiture A/c relating to the 5,700 shares not yet re-issued (to be transferred to Capital Reserve when re-issued).
Final Answer: \[ \boxed{\text{Entries as above; Capital Reserve credited ₹1,500; Share Forfeiture balance ₹39,900.}} \] % Quciktip