Q.Sanjana Ltd. invited applications for the issue of 20,000 equity shares of ₹ 10 each at 10% premium. The amount was payable as follows :
On Application ₹ 4 (Including Premium), on Allotment ₹ 4 and remaining of First and Final calls.
Applications were received for 50,000 shares. Incomplete applications of 10,000 shares were cancelled and amount was refunded. Remaining applications were allotted on Pro-rata basis. Excess application money is used for allotment. Vijay, who applied for 4,000 shares could not pay allotment and First and Final call money and his shares were forfeited. All these shares were re-issued @ ₹ 8 per share as fully paid up. Give necessary journal entries in the books of the company.

Showing the 12 most recent of 64 on this concept.

1. CBSE 2026Set 67/5/11 markMCQ
   Q.At the time of forfeiture of shares, ‘Share Capital Account’ is debited with : (A) Paid-up amount on forfeited shares (B) Called-up amount on forfeited shares (C) Face value of shares forfeited (D) Unpaid amount on forfeited shares

   ›Reveal solutionSolution

   At the time of forfeiture, Share Capital Account is debited with the called-up amount on the forfeited shares — option (B).

   The Concept: Why the Called-Up Amount?

   When a company forfeits shares, it cancels the shareholder’s membership. The accounting entry must reverse the original credit that was made to Share Capital Account when the shares were issued.

   Think about what happened when the shares were first allotted. The company made this entry:

   Date	Particulars	L.F.	Debit (₹)	Credit (₹)
   	Bank A/c (amount received)		Dr.
   	Share Forfeiture A/c (amount not received)		Dr.
   	To Share Capital A/c (called-up amount)			Cr.

   The Share Capital Account was credited with the called-up amount — not the face value, not the paid-up amount, and certainly not the unpaid amount. It was credited with the amount the company had called from shareholders, because that is the legal liability the shareholder accepted.

   Now, when shares are forfeited, we must reverse that credit. The rule is simple: whatever was credited to Share Capital at allotment must be debited back at forfeiture. That amount is the called-up value per share multiplied by the number of shares forfeited.

   Watch out

   A common mistake is to debit Share Capital with the paid-up amount (the amount actually received). But that would leave the unpaid calls still sitting in the Share Capital Account — incorrect. The called-up amount is the full amount the company demanded; the unpaid portion is already in Share Forfeiture Account (or Calls-in-Arrears Account) and is removed separately.

   The Journal Entry at Forfeiture

   The standard 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 Calls-in-Arrears A/c (amount not yet received)
   	(Being forfeiture of shares for non-payment of calls)

   Notice: Share Capital is debited with the called-up amount. The credit goes partly to Share Forfeiture Account (the money already collected) and partly to Calls-in-Arrears Account (the money still owed but now cancelled).

   Tip

   If the company has not maintained a separate Calls-in-Arrears Account, the unpaid amount is directly credited to the respective call account (e.g., First Call A/c, Final Call A/c). The principle remains the same — Share Capital is debited with the called-up amount.

   Why Not the Other Options? …

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2. CBSE 2026Set MARCH1 markMCQ
   Q.When shares are forfeited then amount called up on forfeited shares is _____.

   (a) debited to share forfeiture account

   (b) credited to share forfeiture account

   (c) credited to share capital account

   (d) debited to share capital account

   ›Reveal solutionSolution

   On forfeiture, the called-up amount on forfeited shares is debited to Share Capital A/c, so the answer is (d).

   When shares are forfeited for non-payment of calls, the forfeiture entry is:

   Account	Dr / Cr
   Share Capital A/c (amount called up on forfeited shares)	Dr
   To Share Forfeiture A/c (amount already received)	Cr

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3. CBSE 2026Set ANNUAL1 markMCQ
   Q.Rashmi Limited forfeited 1500 equity shares of ₹ 10 each issued at 10% premium, on which first call of ₹ 2 per share was not received and final call ₹ 1 per share was not made. How much amount will be credited in Share Forfeiture A/c? A) ₹ 15,000 B) ₹ 13,500 C) ₹ 3,000 D) ₹ 10,500

   ›Reveal solutionSolution

   The Share Forfeiture Account is credited with ₹10,500 - option (D).

   Face value ₹10 per share, issued at 10% premium (premium ₹1). A typical call pattern totalling face value is: Application + Allotment (including premium) + First call ₹2 + Final call ₹1.

   Per share received towards SHARE CAPITAL before forfeiture:

   Item	Amount per share (₹)
   Face value	10
   Less: First call (not received)	(2)
   Less: Final call (not made / not called)	(1)
   Capital actually received per share	7
   …

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4. CBSE 2026Set ANNUAL1 mark
   Q.Fill in the blank: The balance of __________ account is capital gain for the company. (Share forfeiture/General Reserve)

   ›Reveal solutionSolution

   The balance of the Share Forfeiture Account is a capital gain for the company.

   When shares are forfeited, the amount already received on them is credited to the Share Forfeiture Account. Any balance remaining after the shares are re-issued represents a capital profit (gain) retained by the company and is transferred to the Capital Reserve. A General Reserve, by contr …

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5. CBSE 2026Set ANNUAL1 mark
   Q.When shares are issued at premium and the premium is realised, which accounts will be debited at the time of their forfeiture?

   ›Reveal solutionSolution

   When the premium has been realised, forfeiture debits only the Share Capital Account.

   The treatment of the premium on forfeiture depends on whether it was received:

   • If the premium was ALREADY received, it stays in the Securities Premium Account and is not cancelled. Only the Share Capital Account is debited (with the called-up value), the Share Forfeiture Account is credited with the amount received, and any unpaid calls are credited to Calls-in-Arrears. …

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6. CBSE 2026Set ANNUAL1 mark
   Q.Where is the balance of the Share Forfeiture Account shown till the share is re-issued?

   ›Reveal solutionSolution

   The Share Forfeiture balance is added to Subscribed capital under Share Capital until the shares are re-issued.

   Until the forfeited shares are re-issued, the amount standing in the Share Forfeiture Account is disclosed in the Notes to Accounts on Share Capital and added to the Subscribed and Paid-up Capital. It thus appears on the Equity and Liabilities side of the Balance Sheet under Shareholders' Funds -> Share Capital. Once the shares are re-issued, this balance (net of any …

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7. CBSE 2026Set ANNUAL1 mark
   Q.Which shares a company can reissue?

   ›Reveal solutionSolution

   A company can reissue forfeited shares.

   When a shareholder fails to pay any call money due on his shares (allotment money, first call, or final call) despite proper notice, the Board of Directors may cancel his shares — this is called Forfeiture of Shares. On forfeiture:

   • The shareholder's name is removed from the Register of Members.
   • All money already received on those shares (towards application, allotment and any calls actually paid) is credited to a Share Forfeiture Account and is forfeited (generally not refunded).
   • The shares themselves become the company's own property again, available for reissue. …

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8. CBSE 2026Set ANNUAL1 markMCQ
   Q.2000 shares of ₹10 each issued at a premium of ₹2 per share, were forfeited for the non-payment of final call of ₹2 per share. Share Capital A/c will be debited with (at the time of forfeiture)

   (a) ₹20,000

   (b) ₹4,000

   (c) ₹24,000

   (d) ₹16,000

   ›Reveal solutionSolution

   Share Capital A/c is debited only with the called-up face value of the forfeited shares — ₹10 × 2,000 shares = ₹20,000 — never with the securities premium.

   When shares are forfeited, the entry reverses exactly what had earlier been credited to Share Capital A/c for those shares — nothing more and nothing less. It is a common error to add the premium into this figure; the premium on shares is always recorded in a separate Securities Premium Reserve A/c, not in Share Capital A/c, so forfeiture debits Share Capital only with the par value called up.

   Here: 2,000 shares of ₹10 each were issued at a premium of ₹2, forfeited for non-payment of the final call of ₹2 per share. Since the shares were forfeited specifically for non-payment of the final call (and not application/allotment, where the premium is usually collected), it means the ₹2 premium per share had already been received from the shareholder before forfeiture.

   Journal entry at forfeiture (for reference):

   Share Capital A/c Dr. ₹20,000 (2,000 × ₹10 called up) …

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9. CBSE 2025Set MARCH1 mark
   Q.Profit on forfeiture of shares is transferred to ________ account.

   ›Reveal solutionSolution

   Profit on forfeiture (balance of Share Forfeiture A/c after re-issue) goes to CAPITAL RESERVE.

   When shares are forfeited, the amount already received on them is credited to the Share Forfeiture Account. On re-issue, any discount allowed on the re-issued shares is first met from this account. Whatever is left over is a capital profit (it did not arise from normal …

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10. CBSE 2025Set ANNUAL1 markMCQ
    Q.Balance of Share Forfeiture A/c is shown in the Balance Sheet under the item (A) Share Capital A/c (B) Current Liabilities and Provision (C) Unsecured loan (D) Reserve and Surplus

    ›Reveal solutionSolution

    The Share Forfeiture Account balance is shown under Share Capital in the balance sheet, so the answer is (A).

    When shares are forfeited, the amount already received on them is credited to the Share Forfeiture Account. Until the forfeited shares are reissued, this balance represents a part of the company's own funds.

    • It is therefore shown on the Equity and Liabilities side by adding it to the paid-up/subscribed capital figure (Share Capital note), making (A) correct. …

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11. CBSE 2025Set ANNUAL1 markMCQ
    Q.Forfeiture of share results in the reduction of (A) Paid-up capital (B) Authorised capital (C) Fixed assets (D) Reserved capital

    ›Reveal solutionSolution

    Forfeiture of shares reduces the paid-up capital, so the answer is (A).

    When a shareholder fails to pay the allotment or call money, the company may forfeit (cancel) his shares. The amount already received on those shares is transferred to the Share Forfeiture Account and the shares cease to be part of the subscribed/paid-up capital.

    • Thus forfeiture reduces the Paid-up Capital — option (A).
    • The Authorised capital (B) (the maximum capital the company may raise) is unaffected. …

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12. CBSE 2025Set ANNUAL1 markMCQ
    Q.Profit on re-issue of forfeited shares is transferred to (A) Share Capital Account (B) Capital Reserve Account (C) Share Forfeiture Account (D) Securities Premium Account.

    ›Reveal solutionSolution

    Profit on re-issue of forfeited shares goes to Capital Reserve — option (B).

    When shares are forfeited, the amount already received on them is credited to the Share Forfeiture Account. On re-issue, any discount allowed is debited to this account. The balance remaining in the Share Forfeiture Account relating to the re-issued shares is a profit of a capital nature (it does not arise …

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