Q.M Ltd. forfeited 300 equity shares of ₹10 each, on which the company had called up ₹8 per share (₹2 on Application, ₹3 on Allotment and ₹3 on First Call). The shareholder had paid the Application and Allotment money but failed to pay the First Call. Pass the journal entry for forfeiture.

When a shareholder fails to pay a call (or allotment) after due notice, the company may forfeit the shares under its Articles of Association — cancelling the membership and keeping the money already received.

Entries on forfeiture

• Share Capital A/c is debited with the full called-up amount on the shares.
• The unpaid allotment/call accounts are credited to cancel the outstanding demand.
• The amount already received is credited to the Forfeited Shares (Shares Forfeited) A/c.

Re-issue and transfer

• Forfeited shares can be re-issued at a discount, but that discount (debited to Forfeited Shares A/c) can never exceed the amount originally forfeited on those very shares.
• The surplus on re-issued shares (amount forfeited − re-issue discount) is a capital profit → transferred to Capital Reserve.
• Any balance for shares not yet re-issued stays in the Forfeited Shares A/c, shown as an addition to paid-up capital.

Quick example

X holds 100 shares of ₹10 each, has paid ₹6 per share, but fails the first & final call of ₹4. The shares are forfeited and later re-issued at ₹8 per share, fully paid.

1. Forfeiture: Share Capital A/c Dr ₹1,000 (100 × 10); To Calls A/c ₹400; To Forfeited Shares A/c ₹600 (100 × 6). …