Accountancy · Ch 7 — Company Accounts
Forfeiture and Reissue of Shares
Forfeiture and Reissue of Shares
If a shareholder fails to pay allotment money or a call when due, the Board of Directors — if the Articles of Association permit — may forfeit the shares after giving the required notice. Forfeiture cancels the shareholder's membership and rights in those shares, but the amount already received from him or her is not refunded (it is a capital forfeiture, not a penalty payable back).
Journal entry for forfeiture
Share Capital A/c Dr. (with the called-up amount on the forfeited shares)
To Share Allotment/Call A/c(s) (with the unpaid amount)
To Share Forfeited A/c (with the amount already received on those shares)
Forfeited shares may later be reissued — often at a discount — to a new allottee, as fully paid.
Journal entry for reissue
Bank A/c Dr. (amount actually received on reissue)
Share Forfeited A/c Dr. (discount allowed on reissue, if any)
To Share Capital A/c (with the full face value of the reissued shares) …
The cancellation of a shareholder's membership by the company, for non-payment of allotment or call money, without refunding the a …
A reserve created out of capital profits (such as the surplus left in the Share Forfeited Account after reissue), not available for d …