Forfeiture Of Shares Issued At Premium And At Discount Part 2

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When shares are issued at premium forfeiture can be done in two different ways as per situation.

Premium Money Has Been Received Prior to the Forfeiture:

In this case Securities Premium A/c will not be affected. The journal entry will be same as if the shares had been issued at par.

Premium on shares forfeited

Premium on Shares Forfeited

Premium on shares forfeited

Premium on shares has not been received and stands credited to Securities Premium A/c as due but not paid:

When a share is forfeited on which the amount of premium has been made due but has not been received, either wholly or partially, the Securities Premium A/c will be cancelled and it will be credited.

Shares to unpaid call or forfeited

Premium on Shares to Unpaid Call or Forfeited

Shares to unpaid call or forfeited

(Forfeiture of shares originally issued at premium due to non-payment of dues).

Example:

The Latest Technology Company Ltd. offered to public for subscription of 50,000 shares of Rs. 20 each at a premium of Rs. 5 per share. The amount was payable as under:

On application Rs. 5 per share

On allotment Rs. 12 per share (Including premium of Rs 5 per share)

On first call Rs. 4 per share

On Second and Final call Rs. 4 per share

Applications were received for all the shares. Allotment was made to all the applicants in full. Ashima failed to pay allotment and call money on 200 shares held by her. Reshma was allotted 300 shares. She did not pay the call money. Their shares were forfeited. Make necessary journal entry for the forfeiture only.

Solution:

Journal Entries

Table of Journal Entries
Title: Table of Journal Entries

S.No

Particulars

L.F

Amount (Rs.)

Dr.

Cr.

1.

Share Capital A/c (200 × 20) Dr.

Securities Premium A/c (200 × 5) Dr.

To Share Forfeited A/c (200 × 5)

To Share Allotment A/c (200 × 12)

To Share First Call A/c (200 × 4)

To Share Second and Final call A/c (200 × 4)

(Forfeiture of 200 shares held by Ashima

who did not pay allotment and call money)

4000

1000

1000

2400

800

800

2.

Share Capital A/c (200 × 20) Dr.

To Shares forfeited A/c

To Share First Call A/c

To Share Second Call A/c

(Forfeiture of 300 shares held by Reshma)

6000

3600

1200

1200

Combined Entry:

Table of Combined Entry
Title: Table of Combined Entry

S.No

Particulars

L.F

Amount (Rs.)

Dr.

Cr.

1.

Share Capital A/c Dr.

Securities Premium A/c Dr.

To Share Forfeited A/c

To Share Allotment A/c

To Share First Call A/c

To Share Second and Final call A/c

(Forfeiture of 200 shares held by Ashima,

who did not pay allotment and call and 300

share of Reshma who did not pay call money)

10000

1000

4600

2400

2000

2000

Forfeiture of Shares Issued at Discount:

Companies allow discount on shares, if they are financially sound, to attract shareholders. Discount allowed by company is a loss to the company and Shares A/c will be debited when shares issued. If the shareholders who brought shares on Discount goes default, through forfeiture of shares allowed discount will be written back and it will be credited.

Journal entry is made:

Forfeiture of shares issued at discount

Forfeiture of Shares Issued at Discount

Forfeiture of shares issued at discount

Example:

M/s Herbal Tea Plantations Ltd. was registered with a capital of Rs 1 crore divided into equity shares of Rs 100 each. The company offered to public 50000 shares at a premium of Rs 20 per share. The amount on shares was payable as:

Rs 25 on application

Rs 50 (including Rs 20 premium) on allotment

Rs 20 on first call and

Rs 25 on final call.

Applications were received for 75000 shares. Shares were allotted to the applicants on prorata basis. Kanti Bhai who was allotted 500 shares did not pay the allotment money. He also failed to pay the first call. His shares were forfeited. Sheetal was holding 200 shares did not pay the first call. Final call was not made.

Make journal entries in the books of the company

Working Notes:

Shares applied for 75000

Share Allotted 50000

Ratio = 3 : 2

Kanti Bhai Number of shares holding =

Number of shares applied =

Excess application money received

Share allotment money due =

Forfeiture of Shares:

Net Amount due after adjustment of excess application money = R

Total allotment money due =

Less excess application money adjusted =

Less Kanti Bhai’s amount due on allotment =

Net Amount Received =

Solution: Journal Entries

Table of Journal Entries
Title: Table of Journal Entries

S.No

Particulars

L.F

Amount (Rs.)

Dr.

Cr.

1.

Bank A/c Dr.

To Share Application A/c

(Application money received)

18,75,000

18,75,000

2.

Share Application A/c Dr.

To Share Capital A/c

To Share Allotment A/c

(Application money of 50000 share transferred to share Capital A/c on their allotment and remaining adjusted towards shares allotment)

18,75,000

12,50,000

6,25,000

3.

Share Allotment A/c Dr.

To Share Capital A/c

To Securities Premium A/c

(Allotment money due including premium)

25,00,000

15,00,000

10,00,000

4.

Bank A/c Dr.

To Share Allotment A/c.

(Allotment money received)

18,56,250

18,56,250

5.

Share First Call A/c Dr.

To Share Capital A/c.

(First Call money due)

10,00,000

10,00,000

6.

Bank A/c Dr.

Call-in-arrears A/c Dr.

To Share First Call A/c

9,86,000

4000

9,90,000

7.

Share capital A/c Dr.

Security Premium A/c Dr.

To Share Forfeited A/c

To Share Allotment A/c

To Share First Call A/c

(Forfeiture of 500 shares on nonpayment

of allotment and call money)

37,500

10000

18,750

18,750

10,000

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