Question

PR Ltd. forfeited 10,000 equity shares of ₹10 each, issued at a premium of ₹4 per share, for non-payment of the first call of ₹3 per share. The second and final call of ₹2 per share had not yet been made.
These forfeited shares were later reissued at a discount of ₹1 per share, fully paid-up.
Pass necessary journal entries for the forfeiture and reissue of shares in the books of PR Ltd. Also prepare the Share Forfeiture Account.

Hint:

In case of forfeiture with unpaid premium, reverse the premium as well. For reissue at discount, adjust it against Share Forfeiture Account.

Answer 1

Step 1: Analyze the share structure
Face value of share = ₹10
Securities premium = ₹4
Total issue price = ₹14

Money received till forfeiture:
Application and Allotment including premium = ₹6 (face value) + ₹4 (premium) = ₹10
First call of ₹3 was unpaid
Second call of ₹2 was not yet made

Called-up capital at time of forfeiture = ₹8 (₹6 + ₹2 first call)
Amount unpaid = ₹3 (first call)
Amount received = ₹6 (face value) + ₹4 (premium) = ₹10

Step 2: Forfeiture Entry for 10,000 shares

 Share Capital A/c Dr. ₹80,000 To Share Forfeiture A/c ₹70,000 To Share First Call A/c ₹30,000 

Explanation:
₹8 called up × 10,000 shares = ₹80,000
₹3 unpaid (first call) × 10,000 = ₹30,000
Amount received = ₹6 per share × 10,000 = ₹60,000
Securities Premium was already received and hence not reversed.

Step 3: Reissue Entry (at a discount of ₹1 per share)

 Bank A/c Dr. ₹1,30,000 Share Forfeiture A/c Dr. ₹10,000 To Share Capital A/c ₹1,40,000 

Shares reissued at ₹13 per share, fully paid-up.
Face value = ₹10, premium ₹4, so reissued at ₹13 → discount of ₹1/share → ₹10,000 discount adjusted from Share Forfeiture A/c.

Step 4: Transfer balance in Share Forfeiture A/c to Capital Reserve

 Share Forfeiture A/c Dr. ₹60,000 To Capital Reserve A/c ₹60,000 

Share Forfeiture Account

 Dr. SHARE FORFEITURE ACCOUNT Cr. -------------------------------------------------------------------- Particulars ₹ Amount Particulars ₹ Amount -------------------------------------------------------------------- To Discount on Reissue ₹10,000 By Forfeiture of Shares ₹70,000 To Capital Reserve ₹60,000 -------------------------------------------------------------------- Total ₹70,000 Total ₹70,000