Book-Keeping and Accountancy · Ch 8 — Company Accounts – Issue of Shares
Forfeiture of Shares
Forfeiture of Shares
If a shareholder fails to pay a call (or calls) even after the company's final reminder notice, the Board of Directors may, following the procedure laid down in the company's Articles, forfeit the shares — i.e., cancel the shareholder's membership and take the shares back, along with whatever money was already paid on them.
The accounting logic. Three things happen simultaneously in the forfeiture entry:
- The Share Capital Account is debited with the amount called up on the forfeited shares (removing them from the company's called-up capital) — never with the full face value if the shares were only partly called up.
- Whatever amount had actually been received on those shares (application + allotment + any calls the shareholder DID pay) is credited to a Share Forfeiture Account — this money is NOT refunded to the defaulting shareholder; the company keeps it.
- The amount called up but never received (the Calls-in-Arrears relating to those specific shares) is credited to the relevant Call Account(s), closing them off for those shares.
Journal entry.
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Share Capital A/c ...Dr | XXX (called-up value of shares forfeited) | |
| To Share Forfeiture A/c | XXX (amount already received) | |
| To Share ___ Call A/c (or Calls-in-Arrears A/c) | XXX (amount called but not received) | |
| (Being ___ shares forfeited for non-payment of ___) |
The cancellation of a shareholder's membership by the company's Board (for non-payment of a call or calls due), by which the shares — and any amount already paid on them — are taken back by the company; the de …
The account credited with the amount actually received (and retained by the company) on shares that are subsequently forfeited; its balance for any share is drawn upon when that share is re-issued, and any …