How to Solve Class 12th Accounts share capital Journal

Entries for Forfeiture and Reissue of Shares: A Comprehensive Solution

Class 12th accounts problems, particularly involving forfeiture and reissue of shares, often pose significant challenges to students. This blog will break down and solve a frequently asked question in detail, catering specifically to the problem shared:

Problem Statement Recap

Rekha, Sunita, and Teena hold shares and fail to pay the required calls. Here's a summary of their respective shares and payments:

Rekha: 100 shares of ₹10 each, ₹1 paid on application.

Sunita: 200 shares of ₹10 each, ₹1 paid on application and ₹2 paid on allotment.

Teena: 300 shares of ₹10 each, ₹1 paid on application, ₹2 on allotment, and ₹3 on the first call.

All three shareholders fail to pay their arrears and the second call of ₹4 per share. Their shares are forfeited and subsequently reissued at ₹11 per share as fully paid-up.

Step-by-Step Solution

Before diving into journal entries, it’s crucial to understand the treatment of forfeited and reissued shares.

1. Forfeiture of Shares:

Shares are forfeited when shareholders fail to pay due amounts.

Amount already paid by shareholders is transferred to the "Share Forfeiture Account."

2. Reissue of Shares:

Forfeited shares are sold again, usually at a price lower than their nominal value.

Any difference between the nominal value and reissue price is adjusted against the forfeiture amount.

Journal Entries for the Given Problem

Step 1: Forfeiture of Shares

Let’s first calculate the unpaid amounts:

Journal Entry for Forfeiture of Rekha’s Shares:

Share Capital A/c Dr. ₹1,000  

  To Share Forfeiture A/c ₹100  

  To Calls in Arrears A/c ₹900  

(Forfeiture of 100 shares held by Rekha for non-payment of ₹9/share)

Journal Entry for Forfeiture of Sunita’s Shares:

Share Capital A/c Dr. ₹2,000  

  To Share Forfeiture A/c ₹600  

  To Calls in Arrears A/c ₹1,400  

(Forfeiture of 200 shares held by Sunita for non-payment of ₹7/share)

Journal Entry for Forfeiture of Teena’s Shares:

Share Capital A/c Dr. ₹3,000  

  To Share Forfeiture A/c ₹900  

  To Calls in Arrears A/c ₹2,100  

(Forfeiture of 300 shares held by Teena for non-payment of ₹4/share)

Step 2: Reissue of Shares

The forfeited shares (100+200+300 = 600 shares) are reissued at ₹11 per share as fully paid-up. The reissue price exceeds the nominal value (₹10), resulting in a premium of ₹1 per share.

Journal Entry for Reissue of Shares:

Bank A/c Dr. ₹6,600  

  To Share Capital A/c ₹6,000  

  To Securities Premium A/c ₹600  

(Reissue of 600 forfeited shares at ₹11 per share as fully paid-up)

Step 3: Transfer of Forfeiture Amount

The total forfeiture amount from Rekha, Sunita, and Teena:

Rekha: ₹100

Sunita: ₹600

Teena: ₹900

Total = ₹1,600

Since the shares are reissued at a price exceeding the nominal value, the forfeiture amount is transferred to the Capital Reserve.

Journal Entry to Transfer Forfeiture Amount:

Share Forfeiture A/c Dr. ₹1,600  

  To Capital Reserve A/c ₹1,600  

(Transfer of forfeiture amount to capital reserve upon full reissue of forfeited shares)

Final Solution Summary

Key Concepts Explained

1. Share Forfeiture

When shareholders fail to meet payment obligations, their shares are forfeited. The paid-up amount is credited to the "Share Forfeiture Account," while unpaid amounts go into "Calls in Arrears."

2. Reissue of Shares

Forfeited shares are reissued to new buyers, often at a discount or premium, depending on the market demand. The excess amount from the reissue price is treated as Securities Premium.

3. Capital Reserve

The leftover forfeiture balance after reissue is transferred to the Capital Reserve, a non-distributable reserve used for specific purposes.

Exam Tips for Solving Similar Problems

1. Understand the Structure: Always break the question into application, allotment, first call, and second call stages.

2. Tabulate Payments: Create a table to identify unpaid amounts for each shareholder.

3. Practice Journal Entries: Ensure you know the format and double-entry accounting principles.

4. Revise Concepts: Familiarize yourself with forfeiture, reissue, and capital reserve terms.

Frequently Asked Questions (FAQs)

Q1: What happens to unpaid amounts during forfeiture?

Unpaid amounts are debited to the "Calls in Arrears Account" and removed from the books.

Q2: Can forfeited shares be reissued at a premium?

Yes, forfeited shares can be reissued at a premium or discount depending on market demand.

Q3: What is the role of the Share Forfeiture Account?

The Share Forfeiture Account temporarily holds paid-up amounts for forfeited shares until they are reissued or transferred to the Capital Reserve.

Q4: Is Capital Reserve a distributable profit?

No, the Capital Reserve is a non-distributable reserve used for purposes like writing off capital losses.

Q5: Can reissued shares be issued at less than their nominal value?

No, shares cannot be issued at less than their nominal value unless specifically allowed by company law.

Q6: Why is Securities Premium credited during reissue?

Securities Premium arises when shares are reissued at a price higher than their nominal value. This premium is credited to the "Securities Premium Account."

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Conclusion

Forfeiture and reissue of shares are fundamental topics in Class 12th accounts. By mastering journal entries, understanding key concepts, and practicing extensively, students can excel in these problems. Use this detailed solution as a guide to enhance your understanding and score high marks in your exams.