ACCOUNTS ASSIGNMENT

SUBMITTED TO – SUBMITTED BY -
Ms. KAJAL SAKSHI MANGLA
191/17
B. Com LLB
2nd SEMESTER

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 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my teacher Miss. Kajal

who gave me the golden opportunity to do this wonderful project on Forfeiture and
Re-issue of shares.

I would also like to thank my parents and friends who helped me a lot in finalizing
this project within the limited time frame.

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 CONTENTS

 Introduction ………………………………………………………………. 4
 Forfeiture of shares ………………………………………………….......... 5
 Types of forfeiture …………………………………………………………7
 Re issue of shares …………………………………………………………. 9
 Profit on re issue of shares ………………………………………………. 11
 Bibliography ………………………………………………………………12

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 INTRODUCTION

A company is a voluntary and autonomous association of certain persons with

capital divided into numerous transferable shares formed to carry out a particular
purpose in common. It is an artificial person created by law to achieve the object
for which it is formed.

A company is a legal entity quite distinct and separate from the persons who are its
members. No trading concern can run without capital. The capital of the company
known as the share capital is divided into different units with definite value is
called shares. The holders of these shares are called shareholders or the members
of the company. There are two types of shares that the company may issue -

1) Preference shares

2) Equity shares.

These shares are issued by the shareholders to raise money. Issued share capital is

the amount of capital that is actually paid by the shareholders. This will usually be
a smaller amount than the authorized share capital and will be taken up by the
shareholders of the company for money or another form of consideration.

When the shareholders fail to pay the share money, their shares are forfeited. It is
the process by which the directors of a company cancel the power of
a shareholder if he does not pay his call money when the company demands for it.

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 FORFEITURE OF SHARES

If a shareholder fails to pay the instalments/calls for the shares held by him, his
shares are compulsory forfeited as penalty and his membership from the company
is cancelled.

After forfeiture of shares, shareholder does not have any right on the money
already paid by him on such shares. The name of the shareholder is removed from
the Register of Members and the amount already paid by him/her is forfeited. He
loses all the rights and the privileges of the membership.

PROVISION -

On forfeiture, Share Capital Account has been debited as it reduces the share
capital and calls due but not received will be credited in order to cancel their debt
balances standing in the books.

Discount on the issue of shares will be cancelled like share capital on forfeiture of
shares. At the time of issue, discount on issue must have been debited if the shares
are issued at less than the face value and in order to cancel, this account will be
credited.

Premium received on the original issue of shares cannot be cancelled on the

forfeiture of shares as once the premium is received, it cannot be cancelled.
Securities Premium not received on the issue of shares will be cancelled by
debiting the Securities Premium Reserve Account with the forfeiture entry.
Balance of Shares Forfeitured Account will be shown in the Balance Sheet by way
of addition to the paid-up share capital till such time that all forfeitured shares are
re-issued.

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For Example –

 Mr. A buys 100 shares of a company but for the time being the company asks him
to pay only 50% of that amount. The company makes a deal with Mr. A that
whenever needed, the rest of the money will be asked for. Some months later when
the company asks for the remaining 50% amount, Mr. A says that he is incapable
of paying. The company gives him some more time to pay but he still can't pay.
The company seizes his shares and he no longer is a shareholder of the company.
He loses the 50% he had already paid. This seizure of shares is called share
forfeiture.

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 TYPES OF FORFEITURE

1. Shares Issued at Premium

2. Shares Issued at Par
3. Shares Issued at Discount

Forfeiture of shares issued at premium –

 When money for premium has already been received on forfeited shares
Share Capital a/c Dr.
To Unpaid calls a/c
To Share Forfeiture a/c
(Being forfeiture of shares issued at premium when payment is received)

 When money for premium has not been received

Share Capital a/c Dr.
Security Premium a/c Dr.
To Unpaid calls a/c
To Share Forfeiture a/c
(Being forfeiture of shares issued at premium when payment is not received)

Forfeiture of shares issued at discount –

Share Capital a/c Dr.

To Discount on issue of shares a/c

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 To Unpaid calls a/c

To Share forfeiture a/c

(Being forfeiture of shares issued at discount)

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 REISSUE OF SHARES

Forfeited shares are the property of the company. If an article of association of a

company permits, the board of directors can reissue these forfeited shares to the
third party not to the defaulting shareholders.

All the forfeited shares can be reissued at a time or they may be reissued in parts.
Similarly, these shares may be reissued at par or premium or discount. Again, the
amount of such reissue is collected in jump sum but not in installment.

 Re-issue of forfeited shares at par -

Bank a/c Dr.

To Share Capital a/c
(Being forfeited shares re issued at par)

 Re-issue of forfeited shares at premium –

Bank a/c Dr.

To Share Capital a/c

To Security Premium a/c

(Being forfeited shares reissued at premium)

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 Re-issue of forfeited shares at discount –

Bank a/c Dr.

Share forfeited a/c Dr.
To Share Capital a/c
(Being forfeited shares re issued at discount)

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 PROFIT ON RE ISSUE OF SHARES

After re issue of all forfeited shares, if there is no balance in Shares forfeited

Account, then there will be no capital profit. But where there is profit on the re
issue of forfeited shares, i.e., Shares forfeited Account is showing credit balance
after reissue of all forfeited shares, such profit should be treated as capital profit
and the balance or amount relating to shares re issued will be transferred to capital
reserve by passing the following Journal entry –

Shares forfeited a/c Dr.

To Capital Reserve a/c

(Being the profit transferred)

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 BIBLIOGRAPHY

 onlineaccountreading.blogspot.com/2014/07/forfeituere-and-re-issue-of-
shares.html
 http://www.accountingnotes.net/shares/forfeiture-and-reissue/forfeiture-and-
reissue-of-shares/8470
 https://www.slideshare.net/GuruAarat/forfeiture-of-shares-company-
accounts

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