Issue, Forfeiture, Reissue of Shares

Re-issue of Forfeited Shares

Forfeiture of shares refers to the cancelation of shares. Sometimes, shareholders may be unable to pay the money due on allotment or calls on the due date. In this case, the company may forfeit such shares. On forfeiture, the company extinguishes the title of such shareholder. It also forfeits the money received on forfeited shares till the date of forfeiture. Consequently, the Company may opt for Reissue of Shares.

Suggested Videos

Play
Play
previous arrow
next arrow
previous arrownext arrow
Slider

 

Re-issue of Forfeited Shares

Forfeited shares are available with the company for sale. After the forfeiture of shares, the company is under an obligation to dispose off the forfeited shares.

The company requires to pass a resolution in its Board Meeting for the re-issue of forfeited shares. Re-issue of forfeited shares is a mere sale of shares for the company. A company does not make allotment of these shares.

The company auctions the forfeited shares and disposes them off. A company can re-issue these shares at any price but the total amount received on these shares should not be less than the amount in arrears on these shares. Here, total amount refers to the amount received from the original allottee and the second purchaser.

For example, A pays the application amount of ₹3 on 100 shares of the face value ₹10. But, he fails to pay the allotment money. The company forfeits his shares and re-issues them. Now, the amount in arrear is ₹7 per share. The company can re-issue the shares at ₹7 or more. Thus, it cannot issue shares at a price less than ₹7.

Important Points:

  1. We show the Forfeited shares A/c under the heading ‘Share Capital’.
  2. When a company re-issues only a part of the forfeited shares, then it will transfer only the profit relating to this part to the capital reserve.
  3. When a company re-issues shares at a price more than their face value, it needs to transfer the excess amount to the Securities Premium A/c.

 

Reissue of Shares

Journal Entries for Re-issue of Forfeited Shares:

Date Particulars   Amount (Dr.) Amount (Cr.)
1. On re-issue of shares Bank A/c (Actual amount received) Dr.  XXX
Forfeited Shares A/c (loss on re-issue) Dr.  XXX
     To Share Capital A/c Cr.  XXX
(Being ….. forfeited shares re-issued @ ₹…each as per the Board’s Resolution no… dated….)
2. On transfer of profit on re-issue Forfeited Shares A/c Dr.  XXX
     To Capital Reserve A/c Cr.  XXX
(Being profit on re-issue of the shares transferred to capital reserve)

 

Calculation of profit on re-issue when different categories of shares are re-issued

The company cannot treat the credit balance in the Share Forfeiture A/c until it re-issues the forfeited shares. The reason is that the company can re-issue these shares at a discount and it will adjust this amount from the Share Forfeiture A/c. When a company re-issues different categories of shares, it will transfer the amount to Capital Reserve only in respect of the category of shares re-issued.

For example, A company forfeits 500 shares with ₹4 paid-up and 400 shares with ₹6 paid-up. Thus, the balance of Share Forfeiture A/c will be: (500 x ₹4) + (400 x ₹6) = ₹ 4400

Now, if company issues 400 shares with ₹6 paid-up at ₹8, the amount that it will transfer to Capital Reserve will be:

[(₹6 + ₹8) – ₹10] x 400 shares = ₹1600

Solved Example For You

MN Ltd. issues 100000 shares of face value of ₹10 each at a premium of ₹2 per share. The amount payable is as follows:

Application: ₹3

Allotment: ₹6 including premium

First and Final Call: balance due


The company receives a full subscription. A, a shareholder having 1000 shares fails to pay the allotment and call money until the due date of payment. Consequently, the company forfeits his shares. Later, it re-issues these shares to B for ₹11 per share fully paid up. Pass the necessary journal entries in the books of MN Ltd.

Ans.

Journal Entries

In the books of MN Ltd.

Date Particulars Amount (Dr.) Amount (Cr.)
1. Bank A/c Dr. 300000
     To Share Application A/c Cr. 300000
(Being application money received on 100000 shares @ ₹3 per share)
2. Share Application A/c Dr. 300000
     To Share Capital A/c Cr.  300000
(Being share application money transferred to share capital)
3. Share Allotment A/c Dr. 600000
     To Share Capital A/c Cr. 400000
     To Securities Premium A/c Cr. 200000
(Being share allotment due on 100000 shares @₹6 per share including premium)
4. Bank A/c Dr. 594000
     To Share Allotment A/c Cr. 594000
(Being share allotment money received on 99000 shares @₹6 each)
5. Share First and Final Call A/c Dr. 300000
     To Share Capital A/c Cr. 300000
(Being money on share call due on 100000 shares @₹3 per share)
6. Bank A/c Dr. 297000
     To Share First and Final Call A/c Cr. 297000
(Being share call amount received on 99000 shares @₹3)
7. Share Capital A/c (1000 x ₹10) Dr. 10000
Securities Premium A/c (1000 x ₹2) Dr. 2000
     To Share  Allotment A/c (1000 x ₹6) Cr. 6000
     To Share First and Final Call A/c (1000 x ₹3) Cr. 3000
     To Forfeited Shares A/c Cr. 3000
(Being forfeiture of 1000 shares for non-payment of allotment and call money as per the Board’s Resolution No….dated…..)
8. Bank A/c (1000 x ₹11) Dr. 11000
     To Share Capital A/c Cr. 10000
     To Securities Premium A/c Cr. 1000
(Being 1000 forfeited shares re-issued @ ₹11 each as per the Board’s Resolution no… dated….)
9. Forfeited Shares A/c Dr. 3000
     To Capital Reserve A/c Cr. 3000
(Being profit on re-issue of the shares transferred to capital reserve)

 

Share with friends

Customize your course in 30 seconds

Which class are you in?
5th
6th
7th
8th
9th
10th
11th
12th
Get ready for all-new Live Classes!
Now learn Live with India's best teachers. Join courses with the best schedule and enjoy fun and interactive classes.
tutor
tutor
Ashhar Firdausi
IIT Roorkee
Biology
tutor
tutor
Dr. Nazma Shaik
VTU
Chemistry
tutor
tutor
Gaurav Tiwari
APJAKTU
Physics
Get Started

Leave a Reply

avatar
  Subscribe  
Notify of

Customize your course in 30 seconds

Which class are you in?
No thanks.