Accountancy · Ch 6 — Accounting for Share Capital
Forfeiture of Shares
Forfeiture of Shares
Forfeiture of Shares
When a shareholder fails to pay any instalment due — allotment money, call money, or both — the company has the right to cancel that shareholder's allotment and treat the amount already received as forfeited to the company. This power must be given by the company's articles of association, which are usually based on Table F of the Companies Act. The directors must follow the procedure laid down in the articles strictly before forfeiting shares.
The fundamental accounting principle at forfeiture is this: all entries relating to the forfeited shares must be reversed, except the entry relating to share premium that has already been received. The share capital account is debited with the amount called-up on the forfeited shares, and the respective unpaid calls accounts (or Calls in Arrears account) are credited with the amount not received. The amount already received on those shares is credited to a new account called Share Forfeiture Account.
Forfeiture of Shares Issued at Par
When shares were issued at par (no premium), the journal 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 Share Allotment A/c (Unpaid allotment) | ||||
| To Share Calls A/c (Unpaid calls — individually) | ||||
| (Forfeiture of shares for non-payment of allotment money and calls) |
The Share Capital account is debited with the total called-up amount on the forfeited shares. The Share Forfeiture account is credited with the amount actually paid by the shareholder on those shares. The difference — the unpaid calls — is credited to the respective call accounts (or Calls in Arrears account).
The Share Forfeiture Account balance is shown as an addition to the total paid-up capital under 'Share Capital' in the Equity and Liabilities section of the Balance Sheet, until the forfeited shares are reissued.
Forfeiture of Shares Issued at a Premium
The treatment depends on whether the premium has been received or not.
Case 1: Premium has been fully received — If the premium amount was fully collected (usually on allotment) and the default is only on subsequent calls, the Securities Premium Reserve account is not touched at forfeiture. The forfeiture entry is exactly the same as for shares issued at par. The amount credited to Share Forfeiture Account excludes the premium amount.
Case 2: Premium has not been received (wholly or partially) — This happens when the default is on allotment itself (which includes premium). In such cases, the Securities Premium Reserve Account is also debited with the amount of premium not received, along with the Share Capital Account.
The journal entry is:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| Share Capital A/c Dr. | (Called-up amount) | |||
| Securities Premium Reserve A/c Dr. | (Premium not received) | |||
| To Share Forfeiture A/c | (Amount actually received excluding premium) | |||
| To Share Allotment A/c | (Unpaid allotment including premium) | |||
| To Share Calls A/c (individually) | (Unpaid calls) | |||
| (Forfeiture of shares for non-payment of allotment money and calls) |
If Calls in Arrears Account is maintained, credit Calls in Arrears Account instead of crediting the individual Share Allotment and Share Call accounts.
Key Points to Remember
- At forfeiture, reverse all entries except the premium entry if premium was received. …