Book-Keeping and Accountancy · Ch 8 — Company Accounts – Issue of Shares
Re-Issue of Forfeited Shares
Re-Issue of Forfeited Shares
Forfeited shares do not remain 'dead' — the company's Board can re-issue them to a new applicant, usually at par, at a premium, or (very commonly, since the shares already carry some money the company has retained) at a discount.
The key accounting question on re-issue is always the same: is the total amount the company will have received on that share (the amount forfeited + the amount now received on re-issue) enough to cover the share's full paid-up value?
Re-issue at a discount (the most common exam scenario). The company can allow a discount on re-issue, but that discount can never exceed the amount already forfeited on that share — the company must never end up having received, in total from the two shareholders combined, less than the share's full paid-up value.
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Bank A/c ...Dr | XXX (amount actually received on re-issue) | |
| Share Forfeiture A/c ...Dr | XXX (discount allowed on re-issue) | |
| To Share Capital A/c | XXX (full called-up/paid-up value credited) | |
| (Being ___ forfeited shares re-issued as fully paid @ ₹___ per share) |
Transferring the balance to Capital Reserve. After the discount on re-issue has been adjusted against the Share Forfeiture Account, whatever balance is left over in the Share Forfeiture Account, specifically for the shares that have now been re-issued, represents a genuine capital profit to the company — this balance is transferred to Capital Reserve, a fully non-distributable reserve:
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Share Forfeiture A/c ...Dr | XXX | |
| To Capital Reserve A/c | XXX |
An important qualification — only the reissued shares' own share of the balance moves. If only part of the originally forfeited shares are re-issued, only the proportionate amount of the Share Forfeiture Account balance relating to those specific shares is worked out and transferred to Capital Reserve; the balance relating to the shares still lying un-reissued stays in the Share Forfeiture Account until (and unless) those shares are re-issued too. …
A reserve created out of capital profits (such as the surplus balance in the Share Forfeiture Account after adjusting the discount on re-issue) that is not available …
The shortfall between a forfeited share's paid-up value and the (lower) price at which it is re-issued; it can never exceed the amount already forfei …