Q.At the time of forfeiture of shares, ‘Share Capital Account’ is debited with : (A) Paid-up amount on forfeited shares (B) Called-up amount on forfeited shares (C) Face value of shares forfeited (D) Unpaid amount on forfeited shares
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Start your 14-day free trial to unlock the full solution →At the time of forfeiture, Share Capital Account is debited with the called-up amount on the forfeited shares — option (B).
The Concept: Why the Called-Up Amount?
When a company forfeits shares, it cancels the shareholder’s membership. The accounting entry must reverse the original credit that was made to Share Capital Account when the shares were issued.
Think about what happened when the shares were first allotted. The company made this entry:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| Bank A/c (amount received) | Dr. | |||
| Share Forfeiture A/c (amount not received) | Dr. | |||
| To Share Capital A/c (called-up amount) | Cr. |
The Share Capital Account was credited with the called-up amount — not the face value, not the paid-up amount, and certainly not the unpaid amount. It was credited with the amount the company had called from shareholders, because that is the legal liability the shareholder accepted.
Now, when shares are forfeited, we must reverse that credit. The rule is simple: whatever was credited to Share Capital at allotment must be debited back at forfeiture. That amount is the called-up value per share multiplied by the number of shares forfeited.
A common mistake is to debit Share Capital with the paid-up amount (the amount actually received). But that would leave the unpaid calls still sitting in the Share Capital Account — incorrect. The called-up amount is the full amount the company demanded; the unpaid portion is already in Share Forfeiture Account (or Calls-in-Arrears Account) and is removed separately.
The Journal Entry at Forfeiture
The standard entry is:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| Share Capital A/c (called-up amount) | Dr. | |||
| To Share Forfeiture A/c (amount already received) | ||||
| To Calls-in-Arrears A/c (amount not yet received) | ||||
| (Being forfeiture of shares for non-payment of calls) |
Notice: Share Capital is debited with the called-up amount. The credit goes partly to Share Forfeiture Account (the money already collected) and partly to Calls-in-Arrears Account (the money still owed but now cancelled).
If the company has not maintained a separate Calls-in-Arrears Account, the unpaid amount is directly credited to the respective call account (e.g., First Call A/c, Final Call A/c). The principle remains the same — Share Capital is debited with the called-up amount.
Why Not the Other Options? …
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