J.D.

Birla Institute Department of Management :

SHIVESH PODDAR A 19 BUSINESS ACCOUNTING PROBLEM ON FORFEITURE AND REISSUE OF SHARES

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25.09.2008

FORFEITURE AND REISSUE OF SHARES

Forfeiture of shares

Forfeiture of shares is defined as termination of membership and taking away of shares because of default in payment of allotment or call money by a shareholder.

Conditions to satisfy forfeiture of shares are:-

1. The power to forfeit shares must be given by companys article and must be followed accordingly. 2. These should be a default by shareholder in payment of a valid call. 3. A notice of demand, requiring the shareholder to pay calls of a specified amount within a specified period must be given. 4. The board of directors must pass a resolution for forfeiture of shares.
1

Reissue of shares

Forfeited shares become the property of the company and the company can always reissue the shares at its convenience either at par, at premium, or at discount. There cannot be any loss of account of reissue of forfeited shares. The amount of discount given cannot exceed the amount received for these shares before forfeiting. 2

Question:-

X Co. Ltd. Invited application for 200,000 equity shares of Rs 10 each on the following terms.

Payable of application on 31.01.1998 - Rs 5 per share

Payable of allotment on 28.02.1998

- Rs 3 per share [ including Rs 1 as premium ]

Payable of final call on 30.06.1998

- Rs 3 per share

Applicants for 250,000 shares were received. It was decided

1. 2. 3. 4.

To refuse allotment to applications for 10,000 shares. To allot in full to applicants of 40,000 shares. To allot the balance of the available shares on pro-rata basis. To utilize excess application money in party of payment of allotment money.

One shareholder to whom shares have been allotted on pro-rata basis failed to pay the amount due on allotment and on call and his shares were forfeited. 150 of these shares were reissued on 31.10.1998 at Rs 9 per share.

Give the necessary Journal entries and prepare the cash book to record the above transactions.

In The Books of X Co. Ltd. Journal Entries Dr.

DATE PARTICULARS 1998 31.01 LF. AMOUNT NO. {Rs} 12,50,000

Cr.
AMOUNT {Rs}

Bank A/c Dr. To Equity Share Application A/c (Being application money received for 2,50,000 shares) Equity Share Application A/c Dr. To Equity Share Capital A/c To Equity Share Allotment A/c To Bank A/c (Being application money allotted to 40,000 in full , refusing 10,000 shares , and allotting rest 2,00,000 share on pro-rata basis) Equity Share Allotment A/c Dr. To Equity Share Capital A/c To Security Premium A/c (Being allotment money due on share capital and security premium account) Bank A/c Dr. Calls In Arrear A/c Dr. To Equity Share Allotment A/c (Being allotment money received except for 200 shares) Equity Share Final Call A/c Dr. To Equity Share Capital A/c (Being final call money due on share capital account)

12,50,000

31.01

12,50,000 10,00,000 2,00,000 50,000

28.02

6,00,000 4,00,000 2,00,000

28.02

3,99,500 350 4,00,000

30.06

6,00,000 6,00,000

30.06 Bank A/c Dr. Calls In Arrear A/c Dr. To Equity Share Final Call A/c (Being final call money received except for 200 shares) 30.06 Equity Share Capital A/c Security Premium A/c To Calls In Arrear A/c To Share Forfeiture A/c (Being shares forfeited) Dr. Dr.

5,99,400 600 6,00,000

2,000 200 950 1,250

31.10

Bank A/c Dr. Share Forfeiture A/c Dr. To Equity Share Capital A/c (Being 150 shares reissued @ Rs. 9 per share) Share Forfeiture A/c Dr. To Capital Reserve A/c (Being balance of share forfeiture transferred to capital reserve account)

1,350 150 1,500

31.10

787.50 787.50

In The Books Of X Co. Ltd. Cash Book

Dr. DATE 1998 31.01 PARTICULARS LF NO. AMOUNT (Rs.) 12,50,000 DATE PARTICULARS LF. NO. Cr. AMOUNT (Rs.) 50,000

To Equity Share Application A/c (Being application money received) To Equity Share Allotment A/c (Being allotment money received) To Equity Share Final Call A/c (Being final call money received) To Equity Share Capital A/c (Being forfeited shares reissued @ Rs. 9 per share)

1998 31.01 By Equity Share Application A/c (Being application money refunded to 10,000 shares) 31.10 By Balance c/d

28.02

3,99,650 22,00,550

30.06

5,99,400

31.10

1,500

22,50,550

22,50,550

BIBLIOGRAPHY
1. Maheshwari S.N. ; S.K. Maheshwari ; Vikash Publishing House Pvt. Ltd. ; 9th Edition ; Pg 4.34