Question

Ritu Ltd. forfeited 2,000 shares of ₹20 each issued at 10% premium to Neeru (₹18 called up) on which he did not pay ₹6 of allotment (including premium) and first call of ₹4. Out of these, 1200 shares were re-issued to Goldy as fully paid up for ₹16 per share. Give journal entries for forfeiture and re-issue of shares.

Hint:

Forfeiture and re-issue of shares should be carefully recorded, ensuring that the forfeited amount is properly transferred to the Share Forfeiture Account and that the re-issue is done at an appropriate price.

Answer 1

Step 1: Understanding the Forfeiture of Shares.
Neeru was allotted 2,000 shares of ₹20 each at a 10% premium, so the total issue price per share is ₹20 + ₹2 = ₹22. Neeru did not pay ₹6 of the allotment, which includes ₹2 premium and ₹4 for the first call. Therefore, the unpaid amount is ₹6.
Step 2: Forfeiture Journal Entry.
When the shares are forfeited, we need to reverse the amounts that were received for the shares that are now being forfeited. The journal entry for forfeiting 2,000 shares is: \[ \text{Bank A/c} \text{Dr.} 40,000 \text{(for the amount paid by Neeru)}
\text{Share Capital A/c} \text{Cr.} 40,000 \text{(for the face value of the shares)}
\text{Share Premium A/c} \text{Cr.} 4,000 \text{(for the premium portion)}
\text{Calls in Arrears A/c} \text{Cr.} 12,000 \text{(for the unpaid portion of allotment and first call)}
\] Step 3: Re-issue Journal Entry.
Out of the 2,000 forfeited shares, 1,200 shares were re-issued at ₹16 per share (fully paid). The re-issue price is less than the face value of ₹20, so the difference must be debited to the Share Forfeiture Account. The journal entry for re-issuing 1,200 shares is: \[ \text{Bank A/c} \text{Dr.} 19,200 \text{(for the amount received on re-issue)}
\text{Share Capital A/c} \text{Cr.} 24,000 \text{(for the face value of the shares)}
\text{Share Premium A/c} \text{Cr.} 2,400 \text{(for the premium portion)}
\text{Share Forfeiture A/c} \text{Dr.} 6,000 \text{(for the amount forfeited)}
\] Step 4: Conclusion.
These journal entries reflect the forfeiture of shares for non-payment and the re-issue of the shares at a discount. The forfeited amount is transferred to the Share Forfeiture Account and adjusted during the re-issue.