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Forfeiture of Shares-Issued at Par

Balance of sh...

Question

Balance of share forfeiture account (before re-issue of such shares) is shown in the balance sheet under the item ___________________.

A

Current liabilities and provisions.

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B

Reserves and surpluses.

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C

Share Capital.

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D

Unsecured loans.

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Solution

The correct option is C Share Capital.
Forfeiture essentially means cancellation. If the shareholder fails to pay any of the calls (one or more) then, on the authorization of the board of directors, the said shares can be forfeited.
The balance in the Share Forfeiture A/c is shown under the Share Capital on the liabilities side of the balance sheet. This account will remain till the said shares are reissued by the company.

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Ashoka Limited Company which had issued equity shares of ₹.20 each at a premium of ₹. 4 per share, forfeited 1,000 shares for non-payment of final call of ₹.2 per share. 400 of the forfeited shares were reissued at ₹.14 per share out of the remaining shares of 200 shares reissued at ₹.20 per share. Give journal entries for the forfeiture and reissue of shares and show the amount transferred to capital reserve and the balance in Share Forfeiture Account.

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