Question

Give Journal entries for forfeiture and re-issue of shares:

(i) A Ltd. forfeited 1,000 shares of Rs 10 each, Rs 7 called up, issued at a premium of 20% (to be paid at the time of allotment) for non-payment of a first call of Rs 2 per share. Out of these, 600 shares were re-issued as Rs 7 paid up for Rs 4 per share.

(ii) B Ltd. forfeited 1,000 shares of Rs 10 each, Rs 7 called up, issued at a premium of 20% (to be paid at the time of allotment) for non-payment of allotment money of Rs 4 per share (including premium) and first call of Rs 2 per share. Out of these, 600 shares were re-issued as fully paid in such a way that Rs 900 were transferred to capital reserve.

Answer 1

(i)

$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F}& \text{Dr (Rs)}& \text{Cr. (Rs)}\\ & \text{Share Capital A/c}& \text{Dr.}& & 7,000& \\ & \text{To Share First Call A/c}& & & & 2,000\\ & \text{To Share Forfeiture Call A/c}& & & & 5,000\\ & \text{(Forfeiture of 1,000 shares)}& & & & \\ & \text{Bank A/c}& \text{Dr.}& & 2,400& \\ & \text{Share Forfeiture A/c}& \text{Dr.}& & 1,800& \\ & \text{To Share Capital A/c}& & & & 4,200\\ & \text{(Re-issue of 600 shares @ Rs 4 each)}& & & & \\ & {\text{Share Forfeiture A/c}}^{\left(1\right)}& \text{Dr.}& & 1,200& \\ & \text{To Capital Reserve A/c}& & & & 1,200\\ & \text{(Profit on 600 re-issued shares transferred to Capital Reserve)}& & & & \end{array}$

Note (1)

$\begin{array}{ccc}\text{As Profit on 1,000 shares = Rs 5,000}& & \text{Rs.}\\ \text{Therefore},\text{Profit on 600 shares =}\frac{5,000}{1,000}\times 600& =& 3,000\\ \text{Less: Loss on re-issue}& =& 1,800\\ \text{Transferred to Capital Reserve}& & \overline{\underset{–}{1,200}}\end{array}$

(ii)

$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F}& \text{Dr (Rs)}& \text{Cr. (Rs)}\\ & \text{Share Capital A/c}& \text{Dr.}& & 7,000& \\ & \text{Securities Premium Reserve A/c}& \text{Dr.}& & 2,000& \\ & \text{To Share Allotment A/c}& & & & 4,000\\ & \text{To Share First Call A/c}& & & & 2,000\\ & \text{To Share Forfeiture A/c}& & & & 3,000\\ & \text{(Forfeiture of 1,000 shares)}& & & & \\ & {\text{Bank A/c}}^{\left(2\right)}& \text{Dr.}& & 5,100& \\ & \text{Share Forfeiture A/c}& \text{Dr.}& & 900& \\ & \text{To Share Capital A/c}& & & & 6,000\\ & \text{(Re-issue of 600 shares @ Rs 8.50 each)}& & & & \\ & \text{Share Forfeiture A/c}& \text{Dr.}& & 900& \\ & \text{To Capital Reserve A/c}& & & & 900\\ & \text{(Profit on 600 re-issued shares transferred to Capital Reserve)}& & & & \end{array}$

Note (2)

$\begin{array}{ccc}\text{As Profit on 1,000 shares = Rs 3,000}& & \text{Rs.}\\ \text{Therefore},\text{Profit on 600 shares =}\frac{3,000}{1,000}\times 600& =& 1,800\\ \text{Less:Transferred to Capital Reserve}& =& 900\\ \text{Loss on Re-issue}& & \overline{\underset{–}{\underset{–}{900}}}\end{array}$

Per share loss on re-issue=$\frac{\text{Rs 900}}{600}=Rs1.50$ per share.

Hence, shares are re-issued ar Rs 10 - Rs 1.50 = Rs 8.50 per share.