Lecture 12

Re-issue of Forfeited Shares

 Re-issue of Forfeited Shares

• The directors can either cancel or re-issue the forfeited shares. In most cases, they reissue
such shares which may be at par, at premium or at a discount.
• Forfeited shares may be reissued as fully paid at a par, premium, discount. In this
context, it may be noted that the amount of discount allowed cannot exceed the amount
that had been received on forfeited shares at the time of initial issue, and that the discount
allowed on reissue of forfeited shares should be debited to the ‘Forfeited Share Account’.
• The balance, if any, left in the Share-Forfeited Account relating to reissued Shares, should
be treated as capital profit and transferred to Capital Reserve Account.
 Re-issue of Forfeited Shares Cont.

• Journal Entries:

Bank a/c Dr. (amount received)

Share Forfeited a/c Dr. (Discount Allowed)
To share capital a/c (with face value of shares )
To securities premium a/c (if shares are reissued at premium)

• After the reissue if there is no balance in shares forfeited account then there will be no capital
profit. But where there is profit on the reissue of forfeited shares , such a profit is treated as a
capital profit and balance or amount relating to shares reissued will be transferred to capital
reserve by following entry ;

Share Forfeited a/c Dr.

To capital reserve a/c
 Re-issue of Forfeited Shares Cont.
For example ;
When a company forfeits 200 shares of Rs. 10 each on which Rs. 600 had been received, it
can allow a maximum discount of Rs. 600 on their reissue. Assuming that the company
reissues these shares for Rs. 1,800 as fully paid, the necessary journal entry will be:
Bank A/c Dr. 1,800
Share Forfeiture A/c Dr.  200
To Share Capital A/c  2,000
 
(Reissue of 200 forfeited shares at Rs. 9 per share as fully paid)

This shall leave a balance of Rs. 400 in share forfeited account which should be transferred to
Capital Reserve Account by recording the following journal entry:

Share Forfeiture A/c Dr. 400

To Capital Reserve 400
(Profit on reissue of forfeited shares transferred)
 Re-issue of Forfeited Shares Cont.

• Note:

• Another important point to be noted in this context is that the capital profit arises only in
respect of the forfeited share reissued, and not on all forfeited shares.
• Hence, when a part of the forfeited shares are reissued, the whole balance of share
forfeiture account cannot be transferred to the capital reserve. In such a situation, it is
only the proportionate amount of balance that relates to the forfeited shares reissued
which should be transferred to capital reserve, ensuring that the remaining balance in
share forfeiture account is proportionate to the amount forfeited on shares not yet
reissued.
 Illustration
• The director of Poly Plastic Limited resolved that 200 equity shares of Rs.100 each be
forfeited for non-payment of the second and final call of Rs.30 per share. Out of these,
150 shares were re-issued at Rs.60 per share to Mohit. Show the necessary journal entries

Books of Poly Plastic Limited Journal

Date Particulars L.F. Debit Credit
Amount Amount
(Rs.) (Rs.)
  Share Capital A/c Dr.   20,000
To Shares Forfeiture A/c  14,000
To Share Second and Final Call A/c 6,000
(200 shares forfeited for non-payment of final call at Rs.30 per share)
Bank A/c Dr. 9,000
Shares Forfeiture A/c 6,000
 
To Share Capital A/c  15,000
(Reissue of 150 shares of Rs.100 each, issued as fully paid for Rs.60 each)
Shares Forfeiture A/c Dr. 4,500
To Capital Reserve A/c  4,500
(Profit on reissue of 150 forfeited shares transferred to capital reserve)
     
 Solution
• Working Notes :

  (Rs.)  
Total amount forfeited on 200 shares = 14,000 (200 shares Rs.70)
Amount forfeited on 150 shares = 10,500 (150 shares Rs.70)
Amount forfeited on 50 shares = 3,500 (50 shares Rs.70)
Amount of loss on reissue of 150 shares = 6,000 (150 shares Rs.40)
Amount of profit on reissued shares      

transferred to capital reserve = 4,500 (Rs. 10,500 – Rs.6,000)

Balance left in share forfeited account = 3,500 (Rs.14,000 – Rs.6,000
(equal to amount forfeited on 50 shares)     – Rs. 4,500)