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Q.Xeno Ltd. issued 25,000 equity shares of ₹10 each. The amount was payable as follows : On Application — ₹4 per share On Allotment — ₹5 per share On First and Final call — Balance All the shares offered were applied for and allotted. All the money due on allotment was received except on 1,500 shares. These shares were forfeited immediately after allotment. First and final call was not yet made. At the time of forfeiture, Share Capital Account will be debited by : (A) ₹15,000 (B) ₹24,000 (C) ₹13,500 (D) ₹18,000

CBSECBSE Class XII Board 2024MCQ· 1mImportance★★★★★
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At the time of forfeiture (immediately after allotment), Share Capital Account will be debited by ₹13,500 — the called-up amount (₹4 + ₹5 = ₹9 per share) on 1,500 forfeited shares.

Concept: Forfeiture of Shares and the Share Capital Account

When a shareholder defaults on a call payment, the company may forfeit those shares. Forfeiture cancels the shareholder's membership and extinguishes the company's claim for unpaid amounts. The accounting treatment reverses the original issue entries only to the extent of the amount called up (not the full face value, because uncalled amounts were never recorded as a liability or capital).

The forfeiture entry follows this logic:

  • Share Capital A/c Dr. — with the called-up amount on the forfeited shares (to reduce the capital by what was originally credited when those shares were issued).
  • Share Forfeiture A/c Cr. — with the amount actually received on those shares (the surplus, which the company retains as a capital reserve until the shares are reissued).
  • Calls-in-Arrears A/c Cr. — with the unpaid amount (to write off the receivable that will never be collected).

The question asks specifically for the debit to Share Capital Account, which equals the total called-up amount on the forfeited shares.

Facts and Timeline

EventPer ShareTotal (25,000 shares)
Face value₹10₹2,50,000
On Application₹4₹1,00,000
On Allotment₹5₹1,25,000
On First & Final Call₹1₹25,000 (not yet made)

All 25,000 shares were applied for and allotted. Application money (₹4 per share) was received in full. On allotment, ₹5 per share was due, but 1,500 shareholders defaulted. These shares were forfeited immediately after allotment — before the first call was made.

At the time of forfeiture, the called-up amount per share is:

Called-up=Application+Allotment=₹4+₹5=₹9 per share\text{Called-up} = \text{Application} + \text{Allotment} = ₹4 + ₹5 = ₹9 \text{ per share}

The first call (₹1 per share) has not been made, so it is not part of the called-up capital and does not enter the forfeiture entry.

Working Note: Amount to Debit Share Capital Account

Called-up amount on 1,500 forfeited shares:

1,500 shares×₹9 per share=₹13,5001,500 \text{ shares} \times ₹9 \text{ per share} = ₹13,500

This is the amount by which Share Capital Account must be debited to cancel the capital attributable to these shares.

The Forfeiture Entry (Immediately After Allotment)

DateParticularsL.F.Debit (₹)Credit (₹)
Share Capital A/c Dr.13,500
To Share Allotment A/c7,500
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