Accounting: Forfeiture of Shares: Issued at Premium and at Discount (For CBSE, ICSE, IAS, NET, NRA 2022)

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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 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 do 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

(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 ₹ 20 each at a premium of ₹ 5 per share. The amount was payable as under:

On application ₹ 5 per share

On allotment ₹ 12 per share (Including premium of ₹ 5 per share)

On first call ₹ 4 per share

On Second and Final call ₹ 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
S. NoParticularsL. FAmount (₹)
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)

60003600

1200

1200

Combined Entry:

Table of Combined Entry
S. No.ParticularsL. FAmount (₹)
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

Example:

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

₹ 25 on application

₹ 50 (including ₹ 20 premium) on allotment

₹ 20 on first call and

₹ 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
S. No.ParticularsL. FAmount (₹)
Dr.Cr.
1.Bank A/c Dr.

To Share Application A/c

(Application money received)

18,75, 00018,75, 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, 00012,50, 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, 00015,00, 000

10,00, 000

4.Bank A/c Dr.

To Share Allotment A/c.

(Allotment money received)

18,56, 25018,56, 250
5.Share First Call A/c Dr.

To Share Capital A/c.

(First Call money due)

10,00, 00010,00, 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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