Reissue of Forfeited Shares

Forfeiture of shares can occur when some of the shareholders are unable to pay one or more of the installments, which can be allotment money or call money. In such situations, the company can forfeit the shares, which is cancelling their allotment.

After the shares are forfeited, the company can re-issue the shares, in this case it is known as re-issue of forfeited shares or reissue of shares.

For reissue of shares, the company can conduct an auction and dispose of the shares.The shares can be reissued at any price, but there is a clause, it states that the total money received on shares should not be less than the price of shares held in arrears.

The total amount includes the price paid by the first allottee and the price paid by the second purchaser.

This can be understood by the following example. Suppose, Arun paid Rs.4 for application money for a share having face value of Rs.10. He purchased 100 shares. Due to not being able to pay further installments, the company forfeits his shares and reissues them. Now, the amount that company has in arrear is Rs.6, so they can issue the shares at a value more than Rs.6 and not less than that.

The shares can be reissued at par, premium and discount. While there is no restriction on re-issue of shares at premium, there are certain restrictions on re-issue of shares at discount which are:

1. For shares issued at par, the discount allowed is equal to value forfeited on these shares.

2. For shares issued at discount, the original amount received first time becomes the forfeit amount. Maximum discount will be the sum of amount forfeited and amount of discount allowed at the time of first issue.

3. For shares issued at premium, if premium is received the maximum discount will be the amount that is forfeited.

Conditions for Re-issue of Shares

There are four situations in which re-issue of shares take place.

1. Forfeited shares reissued at discount when originally issued at par.

2. Shares reissued at par or at premium, when originally issued at par.

3. Forfeited shares reissued at par, at discount and at premium when originally issued at premium.

4. Forfeited shares reissued at par, at discount and at premium, when originally issued at discount.

Let’s look at the journal entries for the following cases

1. Forfeited shares reissued at discount when originally issued at par

When shares are reissued at a discount, the bank account will be debited by the amount received and the share capital account is credited by paid up amount. The discount allowed will be debited to share forfeited account.

Journal entries

Bank A/c (the amount received on reissue) Dr.

Share Forfeited A/c (the amount allowed as discount) Dr.

To Share Capital A/c (paid up amount)

If the amount of discount allowed is less than the forfeited amount then the remaining forfeited amount will be considered as a profit to the company and accordingly transferred to the capital reserve account

Share Forfeited A/c Dr.

To Capital Reserve A/c

(Transfer of surplus share forfeited amount to capital reserve A/c)

2. Shares reissued at par or at premium, when originally issued at par

In this case the whole amount that has been credited to Shares Forfeited A/c is transferred to capital reserve A/c

Journal entries

For shares reissued at par

Bank A/c Dr.

To Share Capital A/c

(Reissue of shares at ₹ per share)

Shares Forfeited A/c Dr.

To Capital Reserve A/c

(Balance amount of Shares Forfeited Account transferred to Capital reserve account)

For shares reissued at premium

Bank A/c Dr.

To Share Capital A/c

To Securities Premium Reserve A/c

(Reissue of forfeited shares at premium)

Share Forfeited A/c Dr.

To Capital Reserve A/c

(Balance amount of Shares Forfeited A/c is transferred to Capital Reserve A/c)

3. Forfeited shares reissued at par, at discount and at premium when originally issued at premium.

Shares that are originally issued at premium need not be reissued at premium, it can be reissued at par, discount or at premium

On reissuing at premium, the premium received should be credited to the Securities Premium A/c.

Journal entries

Bank A/c Dr.

(Number of shares × amount received per share)

To Share Capital A/c

(Number of shares × amount paid up per share)

To Securities Premium Reserve A/c

(Number of shares × amount of premium per share)

4. Forfeited shares reissued at par, at discount and at premium, when originally issued at discount.

When forfeited shares are originally issued at discount are reissued then discount allowed at the time of original issue is again applicable. On reissue of shares, the discount on issue of shares account is debited by the original discount amount.

Journal Entries

Share Capital A/c Dr.

To Share Forfeited A/c

To Discount on Issue of Shares A/c

To Share Final Call A/c

(Forfeiture of shares issued at discount)

This concludes our article on the topic of Reissue of Forfeited Shares, which is an important topic in Class 12 Accountancy for Commerce students. For more such interesting articles, stay tuned to BYJU’S.