Class 12th Accounts | Journal Entries for Share Forfeiture and Reissue

Introduction

class 12th accounts share capital question

In Class 12th Accounts, understanding share forfeiture and reissue of shares can be tricky. This blog explains two important share-related questions step-by-step, focusing on journal entries, pro-rata allotment, and forfeited shares reissue.

Question 1: Petromax Ltd. - Forfeiture and Reissue of Shares

Question Summary:

Petromax Ltd. issued 2,00,000 equity shares at ₹10 each.
Money was payable: ₹4 on application, ₹3 on allotment, and the balance ₹3 on first and final call.
Pawan (9,000 shares) failed to pay the first and final call. His shares were forfeited.
Ramesh (4,000 shares) paid the call money in advance with allotment.
2/3rd of the forfeited shares were reissued as fully paid, and ₹36,000 was transferred to the Capital Reserve.

Step-by-Step Solution

1. Forfeiture of Pawan’s Shares

Pawan failed to pay the first and final call of ₹3 per share on 9,000 shares. To forfeit the shares:


Journal Entry:

   Share Capital A/c          Dr.   ₹ 90,000

       To Forfeited Shares A/c         ₹ 63,000

       To Calls-in-Arrears A/c         ₹ 27,000

(Being 9,000 shares forfeited for non-payment of first and final call)

Explanation:

₹10 per share is the total called-up amount (₹4 + ₹3 + ₹3).
₹7 has been received on each share (application + allotment), so ₹3 is unpaid.
Forfeited Shares Account = ₹7 x 9,000 shares = ₹63,000.
Calls-in-Arrears = ₹3 x 9,000 shares = ₹27,000.

2. Reissue of 2/3rd Forfeited Shares

2/3rd of 9,000 shares = 6,000 shares were reissued as fully paid-up. Capital Reserve = ₹36,000.


Journal Entry:

   Bank A/c                   Dr.   ₹ 60,000

   Forfeited Shares A/c       Dr.   ₹ 6,000

       To Share Capital A/c           ₹ 66,000

(Being 6,000 forfeited shares reissued as fully paid-up)

Explanation:

The shares were reissued as fully paid-up, so ₹10 is credited to Share Capital.
Bank Account receives the actual cash (₹10 x 6,000 = ₹60,000).
Forfeited Shares A/c is adjusted for the loss.

3. Transfer to Capital Reserve

The amount left in Forfeited Shares A/c after reissue is transferred to Capital Reserve:


Journal Entry:

   Forfeited Shares A/c       Dr.   ₹ 36,000

       To Capital Reserve A/c         ₹ 36,000

(Being the profit on forfeited shares transferred to Capital Reserve)

Explanation: The remaining balance in the Forfeited Shares Account is the profit on reissued shares, transferred to Capital Reserve.

Final Notes for Question 1

Understanding forfeiture, reissue, and the adjustment of Capital Reserve is crucial. The key is to calculate unpaid amounts correctly and reissue entries systematically.

Question 2: Shubh Ltd. - Pro Rata Allotment and Forfeiture

Question Summary:

1,00,000 equity shares of ₹10 each were offered.
Applications received for 3,00,000 shares. Shares allotted on a pro-rata basis.
Excess application money adjusted with allotment.
Mohan (3,000 shares) failed to pay the call money, and his shares were forfeited.
Forfeited shares were reissued at ₹8 as fully paid-up.

Step-by-Step Solution

1. Application and Allotment

Pro-rata basis means allotment was scaled down. The excess application money is adjusted against allotment.


Journal Entry for Application Money:

   Bank A/c                    Dr.   ₹ 6,00,000

       To Share Application A/c          ₹ 6,00,000

(Being application money received for 3,00,000 shares)

Adjusting Application Money:

   Share Application A/c       Dr.   ₹ 2,00,000

       To Share Capital A/c             ₹ 2,00,000

       To Share Allotment A/c           ₹ 4,00,000

(Being application money adjusted for allotment)

2. Forfeiture of Mohan’s Shares

Mohan’s 3,000 shares were forfeited for non-payment of call money.


Journal Entry:

   Share Capital A/c           Dr.   ₹ 30,000

       To Forfeited Shares A/c         ₹ 20,000

       To Calls-in-Arrears A/c         ₹ 10,000

(Being 3,000 shares forfeited for non-payment of call money)

3. Reissue of Forfeited Shares

The forfeited shares were reissued at ₹8 as fully paid-up.


Journal Entry:

   Bank A/c                    Dr.   ₹ 24,000

   Forfeited Shares A/c        Dr.   ₹ 6,000

       To Share Capital A/c             ₹ 30,000

(Being forfeited shares reissued at ₹8 each as fully paid)

4. Transfer to Capital Reserve

Balance in Forfeited Shares A/c transferred to Capital Reserve:


Journal Entry:

   Forfeited Shares A/c        Dr.   ₹ 14,000

       To Capital Reserve A/c           ₹ 14,000

(Being the profit on forfeited shares transferred to Capital Reserve)

Conclusion

These two questions cover critical concepts like share forfeiture, reissue, pro-rata allotment, and Capital Reserve. By following the journal entries step-by-step, Class 12th students can master these concepts with ease.

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