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Q.Shivalik Limited was registered with an authorized capital of ₹10,00,000 divided into equity shares of ₹10 each. It offered 50,000 equity shares to the public. The amount was payable as follows : On Application — ₹2 per share On Allotment — ₹6 per share On First and Final call — Balance The issue was fully subscribed. All the amounts were duly received except the allotment and first and final call money on 4,000 equity shares. These equity shares were forfeited. Present the Share Capital in the Balance Sheet of the company as per Schedule III, Part I of the Companies Act, 2013. Also prepare 'Notes to Accounts' for the same.

CBSECBSE Class XII Board 2024Subjective· 4mImportance★★★★★
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The Balance Sheet shows an issued, subscribed, and fully paid-up capital of ₹4,60,000 (46,000 shares × ₹10) and a forfeited shares reserve of ₹8,000 (4,000 shares × ₹2 application money already received). The Notes to Accounts disclose the authorised, issued, subscribed, and paid-up capital along with the forfeited shares.

Concept and Accounting Treatment

When a company issues shares and a shareholder fails to pay the allotment or call money, the company can forfeit those shares. Forfeiture cancels the shareholder's ownership and transfers the amount already paid (application money) to a separate reserve called the Forfeited Shares Account (or Share Forfeiture Account). This reserve is shown under "Equity and Liabilities" as part of "Shareholders' Funds" — specifically under "Reserves and Surplus" or as a separate line item.

The key accounting rule: On forfeiture, the Share Capital Account is debited with the called-up amount (₹10 per share here), and the respective unpaid calls (Allotment and First & Final Call) are credited. The amount already received (Application money) is transferred to the Forfeited Shares Account. This ensures the capital account reflects only the amount actually received from the forfeited shares.

In the Balance Sheet, the Subscribed and Fully Paid-up Capital shows only the shares that have been fully paid (46,000 shares × ₹10 = ₹4,60,000). The Forfeited Shares Account balance (₹8,000) is added to the paid-up capital as a separate reserve, increasing the total shareholders' funds.

Watch out

Common Pitfall

Do not show the forfeited shares as part of "Subscribed but not Fully Paid-up Capital." Once forfeited, those shares are no longer outstanding. The unpaid amount (₹8 per share on 4,000 shares = ₹32,000) is never recorded as a receivable — it is simply cancelled by the forfeiture entry.

Solution: Balance Sheet Extract and Notes to Accounts

Balance Sheet of Shivalik Limited (as per Schedule III, Part I)

ParticularsNote No.Amount (₹)
EQUITY AND LIABILITIES
1. Shareholders' Funds
(a) Share Capital14,68,000
TOTAL4,68,000
Note

The total shareholders' funds equal ₹4,68,000 — comprising ₹4,60,000 paid-up capital plus ₹8,000 forfeited shares reserve. No other liabilities exist in this extract.

Notes to Accounts

Note 1: Share Capital

ParticularsAmount (₹)
Authorised Capital
1,00,000 Equity Shares of ₹10 each10,00,000
Issued Capital
50,000 Equity Shares of ₹10 each5,00,000
Subscribed Capital
(a) Subscribed and Fully Paid-up:
46,000 Equity Shares of ₹10 each4,60,000
(b) Subscribed but not Fully Paid-up:Nil
Total Paid-up Capital4,60,000
Add: Forfeited Shares Reserve8,000
Total Share Capital4,68,000
Tip

Shortcut for Forfeited Shares Reserve …

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