Amit holds 100 shares of Rs. 10 each on which he has paid Re. 1 per share as application money. Bimal holds 20

Numerical Questions · Q21

Q. Amit holds 100 shares of Rs. 10 each on which he has paid Re. 1 per share as application money. Bimal holds 200 shares of Rs. 10 each on which he has paid Re. 1 and Rs. 2 per share as application and allotment money, respectively. Chetan holds 300 shares of Rs. 10 each and has paid Re. 1 on application, Rs. 2 on allotment and Rs. 3 for the first call. They all failed to pay their arrears and the second call of Rs. 2 per share and the directors, therefore, forfeited their shares. The shares are reissued subsequently for Rs. 11 per share as fully paid. Journalise the transactions.

Jharkhand JacTextbookSubjective· 5mImportance★★★★★

96% · 71/74 Questions

🔒 Locked · start free trial →

You're viewing a preview — the full solution, concept, methods & PYQ mapping are locked.

Start your 14-day free trial to unlock the full solution →

Concept understanding — Share Capital Accounting

Let’s begin with something you already know from everyday life.

Imagine you and two friends decide to start a small business — say, a tiffin service. You each put in some money to buy utensils, a stove, and ingredients. That money you all contributed is the capital of the business. The business doesn’t own that money; it owes it back to you, the owners. In accounting, we call you the shareholders, and the money you put in is share capital.

Now scale that up to a company. A company needs huge amounts of money to build factories, buy machinery, or develop software. It raises this money by selling shares — small units of ownership. When you buy a share, you become a part-owner of that company. The total money collected from all shareholders is the company’s share capital.

Why does share capital matter in accounting?

Because the company is a separate legal person. It does not own the money — the shareholders do. So the company must record exactly how much it has collected from whom, and in what form. This affects the balance sheet (where share capital appears under Equity and Liabilities) and the cash flow (money coming in from shareholders is a financing activity).

The precise meaning (NCERT Class 12)

Share Capital is the money raised by a company by issuing shares to the public or to promoters. It is shown under the head Shareholders’ Funds in the Balance Sheet.

There are two main types of shares:

Equity shares – ordinary shares; owners get dividends only if the company makes profit.
Preference shares – owners get a fixed dividend before equity shareholders, but usually have no voting rights.

Accounting treatment — the journal entries

When a company issues shares, it follows a standard sequence. Let’s say a company issues 10,000 equity shares of ₹10 each at par (i.e., at face value). The money is received in two instalments: ₹4 on application, ₹6 on allotment.

Step 1: Application money received

Date	Particulars	Debit (₹)	Credit (₹)
	Bank A/c Dr.	40,000
	To Share Application A/c		40,000
(Being application money received on 10,000 shares @ ₹4 each)

Step 2: Transfer application money to Share Capital

Date	Particulars	Debit (₹)	Credit (₹)
	Share Application A/c Dr.	40,000
	To Share Capital A/c		40,000
(Being application money transferred to Share Capital)

Step 3: Allotment money due

Date	Particulars	Debit (₹)	Credit (₹)
	Share Allotment A/c Dr.	60,000
	To Share Capital A/c		60,000
(Being allotment money due on 10,000 shares @ ₹6 each)

Step 4: Allotment money received

Date	Particulars	Debit (₹)	Credit (₹)
	Bank A/c Dr.	60,000
	To Share Allotment A/c		60,000
(Being allotment money received)

Note

If shares are issued at a premium (e.g., ₹10 face value, issued at ₹12), the extra ₹2 goes to a separate account called Securities Premium Reserve A/c. It is not part of share capital.

The Balance Sheet format (as per NCERT)

Under Equity and Liabilities, share capital appears like this:

Particulars	Note No.	Amount (₹)
1. Shareholders’ Funds
(a) Share Capital	1	1,00,000
(b) Reserves and Surplus	2	20,000
2. Non-Current Liabilities	...	...
3. Current Liabilities	...	...

And Note 1 (Share Capital) is typically shown as:

Particulars	Amount (₹)
Authorised Capital
1,00,000 Equity Shares of ₹10 each	10,00,000
Issued Capital
80,000 Equity Shares of ₹10 each	8,00,000
Subscribed and Paid-up Capital
80,000 Equity Shares of ₹10 each fully paid	8,00,000

Start your 14-day free trial to unlock the full solution →

We first compute the amount unpaid by each shareholder and the total amount received on forfeiture.

Amounts called and unpaid per share:

Application: ₹1 (paid by all)

Allotment: ₹2 (Bimal and Chetan paid; Amit did not)

First call: ₹3 (only Chetan paid)

Second call: ₹2 (none paid)

Total called per share: ₹1 + ₹2 + ₹3 + ₹2 = ₹8

Face value: ₹10; unpaid per share = ₹10 – amount already paid by that shareholder.

Amit (100 shares): Paid only application ₹1. Unpaid = ₹9 per share.

Amount received on forfeiture = 100 × ₹1 = ₹100.

Bimal (200 shares): Paid application ₹1 + allotment ₹2 = ₹3. Unpaid = ₹7 per share.

Amount received = 200 × ₹3 = ₹600.

Chetan (300 shares): Paid application ₹1 + allotment ₹2 + first call ₹3 = ₹6. Unpaid = ₹4 per share.

Amount received = 300 × ₹6 = ₹1,800.

Total shares forfeited = 600. Total amount received = ₹100 + ₹600 + ₹1,800 = ₹2,500.

Reissue: 600 shares reissued at ₹11 each as fully paid.

Amount received = 600 × ₹11 = ₹6,600.

Share capital credited = 600 × ₹10 = ₹6,000.

Securities Premium credited = 600 × ₹1 = ₹600.

Transfer to Capital Reserve:

Forfeited amount (₹2,500) less discount on reissue (nil, since reissue is at a premium) = entire ₹2,500 is transferred to Capital Reserve.

Journal Entries

Particulars	Debit (₹)	Credit (₹)
Share Capital A/c (100 × ₹10) Dr.	1,000
To Share Forfeiture A/c (100 × ₹1)		100
To Calls-in-Arrears A/c (100 × ₹9)		900
(Forfeiture of 100 shares of Amit for non-payment of allotment, first call & second call)
Share Capital A/c (200 × ₹10) Dr.	2,000
To Share Forfeiture A/c (200 × ₹3)		600

Start your 14-day free trial to unlock the full solution →

The forfeiture and reissue of shares results in a Capital Reserve of ₹2,500, calculated as the excess of reissue proceeds over the amount forfeited (after adjusting for calls in arrears).

Concept and Accounting Treatment

When shareholders fail to pay calls, the company can forfeit their shares. Forfeiture cancels the shareholder's rights, and the amount already paid (application, allotment, earlier calls) is transferred to the Share Forfeiture Account (a credit balance). This account represents the company's gain from the default.

Later, when forfeited shares are reissued, the reissue price may differ from the face value. The key rule: the discount on reissue cannot exceed the credit balance in the Share Forfeiture Account for those shares. Any surplus remaining in the Share Forfeiture Account after the reissue is transferred to Capital Reserve (a distributable profit).

The journal entries follow this logic:

Forfeiture: Debit each call account (for the amount not paid) and credit Share Capital (for the called-up amount). The difference (amount already paid) is credited to Share Forfeiture Account.
Reissue: Debit Bank (amount received), debit Share Forfeiture Account (if reissued at a discount), and credit Share Capital (face value).
Transfer to Capital Reserve: Debit Share Forfeiture Account (the remaining balance) and credit Capital Reserve.

Watch out

Common Pitfall

Students often forget that the Share Forfeiture Account balance is the total amount already paid by the defaulting shareholders, not just the application money. Also, when reissuing at a premium (₹11 for ₹10 shares), the premium goes to Securities Premium Reserve, not to Share Forfeiture Account.

Solution: Journal Entries

Step 1: Forfeiture of Shares

First, calculate the amount due and paid for each shareholder:

Amit (100 shares):

Called-up value per share: ₹10 (all calls made)
Paid: Application ₹1 = ₹100
Unpaid: Allotment ₹2 + First Call ₹3 + Second Call ₹2 = ₹7 per share = ₹700

Bimal (200 shares):

Paid: Application ₹1 + Allotment ₹2 = ₹3 per share = ₹600
Unpaid: First Call ₹3 + Second Call ₹2 = ₹5 per share = ₹1,000

Chetan (300 shares):

Paid: Application ₹1 + Allotment ₹2 + First Call ₹3 = ₹6 per share = ₹1,800
Unpaid: Second Call ₹2 per share = ₹600

Total shares forfeited: 100 + 200 + 300 = 600 shares

Total amount already paid (credited to Share Forfeiture): ₹100 + ₹600 + ₹1,800 = ₹2,500

Journal Entry for Forfeiture:

Particulars	Debit (₹)	Credit (₹)
Share Capital A/c (600 shares x ₹10) Dr.	6,000
To Share Allotment A/c (100 shares x ₹2)		200
To Share First Call A/c (100 shares x ₹3 + 200 shares x ₹3)		900
To Share Second Call A/c (600 shares x ₹2)		1,200
To Share Forfeiture A/c (amount already paid)		2,500
(Being forfeiture of 600 shares for non-payment of calls)

Note

Explanation of the Entry

Share Capital is debited with the total called-up value (₹6,000) because the shares are cancelled. The individual call accounts are credited for the amounts not received (the arrears). The balancing figure (₹2,500) is the amount already paid by the defaulters, which is credited to Share Forfeiture Account.

Step 2: Reissue of Forfeited Shares

The 600 shares are reissued at ₹11 per share as fully paid. This means:

Face value: ₹10 per share
Premium: ₹1 per share (credited to Securities Premium Reserve)
Total received: 600 x ₹11 = ₹6,600

Journal Entry for Reissue:

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	6,600
To Share Capital A/c (600 shares x ₹10)		6,000
To Securities Premium Reserve A/c (600 shares x ₹1)		600
(Being reissue of 600 forfeited shares at ₹11 each as fully paid)

Tip

Shortcut

When reissuing at a premium, the Share Forfeiture Account is not touched at this stage. The entire premium goes to Securities Premium Reserve. The Share Forfeiture balance will be transferred to Capital Reserve later.

Step 3: Transfer to Capital Reserve …

Start your 14-day free trial to unlock the full solution →

←Previous question · questions-for-practiceQ20 — Ashoka Limited Company which had issued equity shares of Rs. 20 each a…→Next question · questions-for-practiceQ22 — Ajanta Company Limited having a nominal capital of Rs. 3,00,000, divid…

Concept and Accounting Treatment

Solution: Journal Entries

Step 1: Forfeiture of Shares

Step 2: Reissue of Forfeited Shares

Step 3: Transfer to Capital Reserve …

🎓Unlock everything free for 14 days

Unlock everything free for 14 days