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NIOS Class 12 Accountancy Chapter 28 Forfeiture of Shares
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Forfeiture of Shares
Chapter: 28
| Module – 5: Company Accounts |
INTEXT QUESTIONS 28.1
Fill in the blanks with an appropriate word/ words :
(i) If a shareholder fails to pay the due amount on shares, the board of directors may decide to _______ shares.
Ans: Forfeit.
(ii) Forfeiture of shares means:
(a) ___________.
(b) ___________.
Ans: (a) Cancellation of membership of the company.
(b) Reduction of issued capital.
(iii) The authority to forfeit shares is given by company’s _________.
Ans: Articles of Association.
(iv) The Board of Directors has to give at least _________ days notice to the defaulting members.
Ans: Fourteen.
INTEXT QUESTIONS 28.2
(i) 200 shares of Rs. 100 each were forfeited for non payment of first call of Rs. 20 per share and find call of Rs. 30 per share. Write the amount against each account in the journal entry for forfeiture of shares :
Share Capital A/c Dr. (a) _______.
To Share Forfeited A/c (b) _______.
To Share First Call A/c (b) ________.
To Share Final Call A/c (d) ________.
(Forfeitures of 200 shares of Rs. 100 each for non payment of first call and final call)
Ans: 200 shares × Rs.100 = Rs.20,000.
First call = Rs.20 × 200 = Rs.4,000.
Final call = Rs.30 × 200 = Rs.6,000.
Amount received before forfeiture = Rs.10,000.
Journal entry amounts
Share Capital A/c Dr. Rs.20,000.
To Share Forfeited A/c Rs.10,000.
To Share First Call A/c Rs.4,000.
To Share Final Call A/c Rs.6,000.
(ii) A Joint Stock Company has offered for subscription 50000 shares of Rs. 100 each on which it has demanded Rs.30 on application, Rs. 40 on allotment and balance as and when required. Applications were received for 60000 shares. Allotment to the applicants was made on pro rata basis. Rakesh who was allotted 200 shares did not pay the allotment money. Ascertain the following amounts of Rakesh’s shares.
(a) Excess application amount received Rs. ________.
Ans: Shares applied = 60,000.
Shares issued = 50,000.
Application money = Rs.30.
Rakesh allotted = 200 shares.
Excess application amount
40 × 30 = Rs.120.
(b) Amount due on allotment Rs. ________.
Ans: Amount due on allotment
200 × 40 = Rs.800.
Ans: Rs.800.
(c) Net unpaid amount on allotment Rs. _______.
Ans: Net unpaid amount on allotment
800 − 120 = Rs.680.
Ans: Rs.680.
INTEXT QUESTIONS 28.3
In the following cases write whether the account given is to be debited or credited and the amount by which it is debited or credited.
(i) Forfeiture of 100 shares of Rs. 10 each fully paid issued at par on which final call of Rs. 3 per share is not received.
Shares forfeited A/c.
Ans: Forfeiture of 100 shares of Rs.10 each.
Final call unpaid = Rs.3 per share.
Shares forfeited A/c credited by Rs.700.
Credited by Rs.700.
(ii) 250 shares of Rs. 10 each issued at a premium of Rs. 4 per share forfeited for non payment of call money, of Rs. 2 per share premium as called with allotment is paid.
Shares forfeited A/c
Ans: 250 shares × Rs.10.
Premium = Rs.4 per share.
Shares forfeited A/c credited by Rs.2000.
Credited by Rs.2000.
(iii) 100 shares of Rs. 10 each issued as fully paid at a premium of Rs. 2 per share forfeited on which only application money @ Rs. 2 per share is received.
Securities Premium A/c
Ans: 100 shares × Rs.10 issued at premium Rs.2.
Only application money received = Rs.2 per share.
Securities Premium A/c debited by Rs. 200.
Debited by Rs.200.
(iv) 200 shares of Rs. 20 each issued at a discount of Rs. 2, Rs.15 called are forfeited for non payment of final call of Rs. 5 per share.
Discount on issue of shares A/c
Ans: 200 shares × Rs.20 issued at discount Rs.2.
Rs.15 called, final call unpaid Rs.5.
Discount on Issue of Shares A/c credited by Rs.400.
Credited by Rs.400.
| TERMINAL EXERCISE |
1. State the meaning of forfeiture of shares. When can shares be forfeited?
Ans: Forfeiture of shares means the cancellation of membership of a shareholder due to non-payment of the amount due on allotment or calls on shares. When a shareholder fails to pay the called-up amount within the specified time, the Board of Directors may decide to cancel his/her membership. In such a case, the amount already paid by the shareholder is not refunded and stands forfeited.
Thus, forfeiture of shares results in cancellation of membership of the shareholder and reduction of the issued share capital of the company.
Shares can be forfeited under the following conditions:
(i) When a shareholder fails to pay allotment money.
(ii) When a shareholder fails to pay call money (first call, second call, or final call).
(iii) When the company gives proper notice to the defaulting shareholder and he/she still fails to pay within the specified period.
(iv) When the Articles of Association authorise the Board of Directors to forfeit shares and a resolution is passed.
2. What accounting treatment is given to Securities Premium A/c on forfeiture of shares when:
(i) Amount of premium has been received.
Ans: When the amount of premium on shares has already been received before forfeiture, the Securities Premium Account is not affected. In such a case, the accounting treatment of forfeiture is the same as in the case of shares issued at par.
The journal entry is:
Share Capital A/c Dr.
To Share Forfeited A/c.
To Unpaid Calls A/c / Calls-in-Arrears A/c.
Thus, no adjustment is made in Securities Premium Account because the premium has already been received.
(ii) Amount of premium has not been received on such forfeited shares.
Ans: When the amount of premium has been made due but has not been received and the shares are forfeited, the Securities Premium Account must be cancelled. Since it was earlier credited when due, it is now debited at the time of forfeiture.
The journal entry is:
Share Capital A/c Dr.
Securities Premium A/c Dr.
To Share Forfeited A/c.
To Unpaid Calls A/c.
Thus, Securities Premium Account is debited to cancel the unpaid premium amount.
3. X Ltd. forfeited 500 shares of Rs. 100 each on which final call of Rs. 30 per share has not been received. Other calls have been duly received. Make journal entry to record the forfeiture of shares.
Ans: Given:
| Particulars | Calculation | Amount (₹) |
| Share Capital | 500 × 100 | 50,000 |
| Final Call Unpaid | 500 × 30 | 15,000 |
| Amount Received | 500 × (100 − 30) | 35,000 |
Journal Entry:
| Date | Particulars | L.F. | Dr (₹) | Cr (₹) |
| Share Capital A/c | 50,000 | |||
| To Share Forfeiture A/c | 35,000 | |||
| To Calls in Arrears A/c | 15,000 | |||
| (Being 500 shares forfeited for non-payment of final call) |
4. All Time Entertainment Ltd. issued 50000 shares of Rs. 10 each at a premium of Rs. 4 per share payable as Rs. 3 per share on application Rs. 7 (including premium) on allotment and the balance on call. Akbar who was allotted 300 shares failed to pay the allotment amount and on his subsequent failure to pay the call money his shares were forfeited. Make the journal entry for the forfeiture of 300 shares.
Ans: Given:
- Shares forfeited = 300
- Face value = ₹10 × 300 = ₹3,000
- Premium = ₹4 × 300 = ₹1,200
- Application paid = ₹3 × 300 = ₹900
- Allotment due = ₹7 × 300 = ₹2,100 (includes premium ₹1,200) → unpaid
- Call due = ₹4 × 300 = ₹1,200 → unpaid
Calculation:
- Share capital unpaid = ₹3,000 − ₹900 = ₹2,100
- Premium unpaid = ₹1,200
- Total unpaid = ₹3,300
- Amount received = ₹900 → credited to Share Forfeiture A/c
Journal Entry:
| Particulars | Dr (₹) | Cr (₹) |
| Share Capital A/c | 3,000 | |
| Securities Premium A/c | 1,200 | |
| To Share Forfeiture A/c | 900 | |
| To Calls in Arrears A/c | 3,300 | |
| (Being 300 shares forfeited for non-payment of allotment and call) |
5. Exe Ltd issued 10000 shares of Rs. 50 each at a discount of Rs. 5 per share payable as Rs. 10 per share on application, Rs. 20 per share on allotment and the balance on call. All money was duly received except of 400 shares on which allotment and call money was not received. These shares were forfeited. Make journal entries in the books of the company and prepare ledger accounts also.
Ans: Given:
400 shares × ₹50 = ₹20,000
Discount = ₹5 × 400 = ₹2,000
Paid on application = ₹10 × 400 = ₹4,000
Unpaid allotment = ₹20 × 400 = ₹8,000
Unpaid call = ₹20 × 400 = ₹8,000
Journal Entry (Forfeiture)
| Date | Particulars | L.F. | Dr (₹) | Cr (₹) |
| Share Capital A/c | 20,000 | |||
| Share Forfeiture A/c | 4,000 | |||
| Discount on Issue of Shares A/c | 2,000 | |||
| To Calls in Arrears A/c | 16,000 | |||
| (Being 400 shares forfeited for non-payment of allotment and call) |
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