Accounting for Forfeiture and Reissue of Shares: A Comprehensive Guide

JMD1420 PART A
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Table of Contents
PART A...........................................................................................................................................3
Accounting for forfeiture..............................................................................................................3
Reissue of shares............................................................................................................................7
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PART A
Accounting for forfeiture
Cancellation of shares
The cancellation of the shares must be informed to ASIC. There are various obligations that need
to be fulfilled. Section 254Y of Companies Act 2001 needs to file a form 484 after one month of
the shares that are being canceled by the company (ASIC, 2013). The details that form part of the
advice are as follows:-
 Shares that are canceled
 Any settlement made in terms of cash or otherwise
 The canceled share can be either buyback, in that case, the amount of aid must be
specified
 The share class must be mentioned of the canceled shares
The cancellation of share can be of different types which are:-
 Redeemable Preference
 Capital reductions
 Equal Reduction
 Selective reduction
 Forfeited Shares
 Other share cancellation
 Share buyback
The share prices of the shares need to be paid in the installment which is bifurcated in share
money on the application, on allotment and calls that are being made by the company as and
when required. The non-fulfillment of payment of any of the calls or payment desired by the
company the shares of the owner can be forfeited by the company. The forfeited shares can be
defined as the shares that are being lost by the owner due to various reasons such as the non-
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payment of the allotment or call money that is being left to pay by the owner with nil balance
left. The shares are also transferred to the company along with any capital gain if any earned by
the owner.
The forfeiture of the shares can be done after providing appropriate notice to the owner of the
shares. The resolution can be passed thereon if the owner is failed to provide the money as
desired by the company of calls or allotment or application money. The treatment for forfeiture
of shares is different.
i) Forfeiture of shares issued at Par
General Terms
Amount called up = No. of shares x called up per share
Amount Paid = No. of shares x Amount paid per share
Amount called but not paid = No. of shares × Amount called but not paid per share
The journal entry for the issue of share at par forfeiture is as follows:-
Share capital A/c xxx
To Share Forfeited A/c xxx
To Unpaid calls A/c xxx
The Share capital is debited with the amount that is being called up by the company. The share
forfeited account is credited with the amount already paid by the owner of the shares. The unpaid
call is credited with the amount that is not received from the owners of the shares.
The journal entry for the share forfeiture allotted on pro-rata basis is as follows:-
It is important to calculate the number of shares that are applied to determine the application
money that is being paid by the owner so that it can be further adjusted for appropriate
accounting.
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