NIOS Class 12 Accountancy Chapter 29 Reissue of Forfeiture Shares

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NIOS Class 12 Accountancy Chapter 29 Reissue of Forfeiture Shares

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Reissue of Forfeiture Shares

Chapter: 29

Module – 5: Company Accounts

INTEXT QUESTIONS 29.1

Fill in the blanks with suitable word/words :

(i) On forfeiture of shares the membership of the ________ allottee is cancelled.

Ans: Original.

(ii) Forfeited shares are the property of the _________.

Ans: Company.

(iii) When the shares are originally issued at par, the maximum permissible discount for reissue of shares is equal to the amount ________ on such shares.

Ans: Forfeited.

(iv) In case shares are originally issued at premium the amount forfeited is the amount that has been received including the amount of _________ that has been received.

Ans: Premium.

(v) On reissue of forfeited shares which were originally issued at discount, the

permissible discount will be the amount forfeited plus the amount of ________ originally allowed.

Ans: Discount.

INTEXT QUESTIONS 29.2

Given below are certain statements. Write (C) against the correct statements and (I) against the incorrect statements:

(i) Share forfeited account can show a zero balance.

Ans: C.

(ii) Discount allowed on reissue of forfeited shares will be debited to discount on issue of shares account.

Ans: C.

(iii) Balance amount of share forfeited account after adjusting discount allowed on reissue of these share remains in the same account.

Ans: I.

INTEXT QUESTIONS 29.3

How much amount will be credited to Capital Reserve A/c in the following cases:

(i) 100 shares of Rs. 10 each forfeited for non payment of call of Rs. 3 per share reissued at Rs. 7 per share.

Ans: 100 shares × Rs.10 = Rs.1000.

Call unpaid = Rs.3 per share.

Reissue price = Rs.7.

Amount forfeited = Rs.3 × 100 = Rs.300.

Discount on reissue = (10 − 7) × 100 = Rs.300.

Capital Reserve = Rs.300 − Rs.300 = Rs.0.

(ii) 200 shares of Rs. 10 each forfeited on which Rs. 8 per share have been called and only Rs. 2 per share have been paid are reissued at Rs. 9 per share fully paid up.

Ans: 200 shares × Rs.10.

Called up = Rs.8 per share.

Paid = Rs.2 per share.

Amount forfeited per share = 8 − 2 = Rs.6.

Total forfeited = 200 × 6 = Rs.1200.

Reissue price = Rs.9.

Discount on reissue = 10 − 9 = Rs.1 per share.

Total discount = 200 × 1 = Rs.200.

Capital Reserve = 1200 − 200 = Rs.1000.

(iii) 100 shares of Rs. 20 each issued at a discount of Rs. 2 per share have been forfeited for non payment of first call of Rs. 4 and final call of Rs. 5 per share. These shares are reissued at Rs. 15 per share fully paid up.

Ans: 100 shares × Rs.20.

Issued at discount = Rs.2.

Reissue price = Rs.15.

Amount forfeited = First call Rs.4 + Final call Rs.5 = Rs.9 per share.

Total forfeited = 100 × 9 = Rs.900.

Discount on reissue = 20 − 15 = Rs.5 per share.

Total discount = 100 × 5 = Rs.500.

Capital Reserve = 900 − 500 = Rs.400.

TERMINAL EXERCISE

1. Give the meaning of ‘reissue of shares’.

Ans: Reissue of shares means the sale of shares which were earlier issued by the company but were later forfeited due to non-payment of allotment or call money. When shares are forfeited, the membership of the original shareholder is cancelled and the shares become the property of the company. The company may then sell or issue these forfeited shares again to new purchasers. Such sale of forfeited shares is known as reissue of shares.

2. What is the maximum permissible discount at the time of reissue of forfeited shares when the forfeited shares originally issued are (a) at par (b) at premium (c) at discount?

Ans: (i) Shares originally issued at par – The maximum permissible discount on reissue of such shares is equal to the amount forfeited on those shares.

(ii) Shares originally issued at premium – The maximum permissible discount is equal to the amount forfeited, which includes the premium amount if it has been received.

(iii) Shares originally issued at discount – The maximum permissible discount on reissue is equal to the amount forfeited plus the amount of discount originally allowed on such shares at the time of their issue.

3. What amount is transferred to Capital Reserve A/c after reissue of forfeited shares? Why is this account transferred to capital reserve A/c?

Ans: After reissue of forfeited shares, the balance amount remaining in the Share Forfeited Account, after adjusting the discount allowed on reissue, is transferred to Capital Reserve Account.

This amount is transferred to Capital Reserve because it represents a capital gain to the company. It arises from forfeiture of shares and not from normal business operations, therefore it is not treated as revenue profit but as capital profit and is credited to Capital Reserve Account.

4. Make journal entries for forfeiture and reissue of shares in the following cases:

(a) The directors of X Ltd. forfeited 400 shares of Rs. 10 each fully called up on which Rs. 2400 have been received. 300 of these shares were reissued upon payment of Rs. 2500

Ans: Given:

400 shares of ₹10 each = ₹4,000

Amount received = ₹2,400

Unpaid = ₹1,600

Reissued: 300 shares for ₹2,500

Face value = 300 × 10 = ₹3,000

Discount = 500 (allowed from forfeiture)

Journal Entries

Forfeiture of Shares:

Particulars	Dr (₹)	Cr (₹)
Share Capital A/c	4,000
To Share Forfeiture A/c		2,400
To Calls in Arrears A/c		1,600

Reissue of Shares

Particulars	Dr (₹)	Cr (₹)
Bank A/c	2,500
Share Forfeiture A/c	500
To Share Capital A/c		3,000

Transfer of Gain:

Forfeiture balance = 2,400 − 500 = 1,900

Gain on reissue = (300/400 × 1,900) = 1,425

Share Forfeiture A/c | Dr 1,425

To Capital Reserve A/c 1,425

(b) Real Estate Developers Ltd. forfeited 500 shares of Rs. 10 each held by Amarjeet Singh which were issued at a premium of Rs. 3 per share to be paid along with allotment money. He paid only application money of Rs. 3 per share. 200 of these shares were reissued at Rs. 10 per shares.

Ans: Given:

Shares forfeited = 500
Face value = ₹10 × 500 = ₹5,000
Premium = ₹3 × 500 = ₹1,500
Application paid = ₹3 × 500 = ₹1,500
Allotment unpaid = ₹5 × 500 = ₹2,500
Premium unpaid = ₹1,500

Journal Entries

Forfeiture of Shares:

Particulars	Dr (₹)	Cr (₹)
Share Capital A/c	5,000
Securities Premium A/c	1,500
To Share Forfeiture A/c		1,500
To Calls in Arrears A/c		5,000
(Being 500 shares forfeited for non-payment of allotment and premium)

(ii) Reissue of 200 Shares @ ₹10

Particulars	Dr (₹)	Cr (₹)
Bank A/c	2,000
To Share Capital A/c		2,000

(iii) Transfer to Capital Reserve:

Forfeiture relating to 200 shares = 1,500 × 200/500 = ₹600

Particulars	Dr (₹)	Cr (₹)
Share Forfeiture A/c	600
To Capital Reserve A/c		600

(c) Royal Enterprises Ltd. forfeited 200 shares of Rs. 10 each issued at a discount of 10%, on which only Rs. 4 per share have been paid. Out of these 100 shares have been reissued at Rs. 7 per share.

Ans: Given:

Particulars	Calculation	Amount (₹)
Shares Forfeited	200 × ₹10	2,000
Discount on Issue	200 × ₹1	200
Amount Received	200 × ₹4	800
Calls in Arrears	2,000 − 800 − 200	1,000
Shares Reissued	100 × ₹10	1,000
Reissue Price	100 × ₹7	700
Discount on Reissue	1,000 − 700	300
Forfeiture Amount Relating to Reissued Shares	800 × 100/200	400
Capital Reserve	400 − 300	100

Journal Entries

(i) Forfeiture of Shares

Particulars	Dr. (₹)	Cr. (₹)
Share Capital A/c Dr.	2,000
To Share Forfeiture A/c		800
To Discount on Issue of Shares A/c		200
To Calls in Arrears A/c		1,000
(Being 200 shares forfeited for non-payment of amount due)

(ii) Reissue of 100 Shares @ ₹7

Particulars	Dr. (₹)	Cr. (₹)
Bank A/c Dr.	700
Share Forfeiture A/c Dr.	300
To Share Capital A/c		1,000
(Being 100 forfeited shares reissued at ₹7 per share)

(iii) Transfer to Capital Reserve

Particulars	Dr. (₹)	Cr. (₹)
Share Forfeiture A/c Dr.	100
To Capital Reserve A/c		100
(Being profit on reissue transferred to Capital Reserve)

5. Make journal entries:

(a) P Ltd. issued 400 shares of Rs. 10 each to Suresh on which he has paid Rs. 3 per share on application but failed to pay allotment money of Rs. 3 per share and first call money of Rs. 2 per share. His shares were forfeited before making the final call. These shares were later on reissued at Rs. 8 per share fully paid up.

Ans: Working Notes

Particulars	Calculation	Amount (₹)
Shares Forfeited	400 × ₹10	4,000
Amount Received	400 × ₹3	1,200
Calls in Arrears	Allotment (₹3 × 400) + First Call (₹2 × 400)	2,000
Share Capital Called-up	₹10 − ₹2 (Final Call not made) = ₹8 per share	400 × ₹8 = 3,200
Shares Reissued	400 × ₹8	3,200
Discount on Reissue	₹10 − ₹8 = ₹2 per share	800
Capital Reserve	₹1,200 − ₹800	400