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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The Number of shares applied is calculated as follows:-
Total No. of shares applied × shares allocated to Gunakshi / Total No. of shares allotted
Share capital A/c xxx
To Share Forfeited A/c xxx
To Share allotment A/c xxx
To Unpaid calls A/c xxx
The share capital account is debited with the amount of share par value. The share forfeited
account is credited with the amount received an application as well as the excess money received
due to pro rata allotment. The Share allotment a/c is credited with the amount at the time of
allotment less the excess money received at the time of application of shares. The unpaid call is
the amount that is not being paid by the shareowner.
ii) The journal entry for the share forfeiture issued on premium basis is as follows:-
a) Premium money is received before the forfeiture of shares
Share capital A/c xxx
To Share Forfeited A/c xxx
To Unpaid calls A/c xxx
The share capital account consists of the share value as well as the premium which is to be paid
at the time of application if any. The share forfeiture account consists of the money received
from the forfeiting. The unpaid calls are the amount not paid by the share owners. Since the
premium is already been received therefor there will be no effect on the securities premium
account.
a) Premium money is received before the forfeiture of shares
Share capital A/c xxx
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Securities premium A/c xxx
To Share Forfeited A/c xxx
To Unpaid calls A/c xxx
Since the payment of the securities is not been received it is important that the securities
premium account is to be debited to write off and further will be credited in case of making due.
iii) The journal entry for the share forfeiture issued on discount basis is as follows:-
Share Capital A/c Dr. xxx
To Share Forfeited A/c xxx
To Discount on Issue of Shares A/c xxx
To Unpaid call A/c xxx
The shares forfeited which are issued at the discount required to written back. The Discount on
issue of shares provided is written back by crediting the same making the issue of share debited.
The discount allowed entry is being credited as it was made due by debiting so to written back it
is being credited at the time of forfeiture of shares entry.
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Reissue of shares
The forfeiture of the shares makes the shares property of the company. The company has the
option of reselling it which is called as the reissue of the shares. The owner of shares if not able
to pay the call amount results in forfeiting which can be further sold by the company. The shares
which are reissued are not done as the fresh issue by issuing of the prospectus or allowing the
general public to invest in the same but the amount can be called as desired by the company that
is in a lump sum or in the installments. The reissued share can be issued at above the minimum
price to any extent.
There can be a different situation on the basis of the issue of shares for the discount that
can be provided which is as follows:-
Shares issued at par – The amount forfeited on the share is the maximum that can be provided as
a discount at the time of reissue of shares.
Shares issued at a premium – In case of the premium is received that the amount which can be
provided as the discount is the premium amount and the forfeited amount of the shares whereas
if the premium amount is not received than the amount forfeited only.
Shares issued at discount – The discount which is being provided at the time of issue plus the
amount which is being forfeited is allowed as the discount at the time of reissue of the shares.
Accounting treatment of the reissue in different situations is as follows:-
i) Reissue of forfeited shares issued at discount, originally issued at par
Share capital A/c xxx
To Share Forfeited A/c xxx
To Unpaid calls A/c xxx
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(Forfeiture of share)
Bank A/c xxx
Share Forfeited A/c xxx
To Share capital A/c xxx
(Reissue of shares in discount)
Share Forfeited A/c xxx
To Capital Reserve A/c xxx
(The amount transferred in Capital reserve account)
In case of reissue of shares, the bank account is debited with the amount received as well as the
share forfeited account to adjust the discount that is being provided at the time of reissue with it.
The balance of share forfeited account is then transferred to the capital reserve account after the
discount is being adjusted.
ii) Reissue of forfeited shares at a premium and at par, originally issued at par
a) At Par
Bank A/c xxx
To Share capital A/c xxx
(Reissue of shares at Par)
Share Forfeited A/c xxx
To Capital Reserve A/c xxx
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(The amount transferred in Capital reserve account)
b) At premium
Bank A/c xxx
To Share capital A/c xxx
To Securities Premium A/c xxx
(Reissue of shares at a premium)
Share Forfeited A/c xxx
To Capital Reserve A/c xxx
(The amount transferred in Capital reserve account)
The amount of the forfeit is transferred to the capital reserve account of the company as the issue
is made in at par and premium thereby transferring the entire amount in capital reserve.
iii) Reissue of forfeited shares at par, at discount and at a premium, originally issued at a
premium:
a) At Par
Bank A/c xxx
To Share capital A/c xxx
(Reissue of shares at Par)
Share Forfeited A/c xxx
To Capital Reserve A/c xxx
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(The amount transferred in Capital reserve account)
b) At Premium
Bank A/c xxx
To Share capital A/c xxx
To Securities Premium A/c xxx
(Reissue of shares at a premium)
Share Forfeited A/c xxx
To Capital Reserve A/c xxx
(The amount transferred in Capital reserve account)
In the above cases since there is no discount provided at the time of reissue the amount in the
share forfeited account must be transferred to capital reserve account as shown above.
c) At Discount
Bank A/c xxx
Share Forfeited A/c xxx
To Securities Premium A/c xxx
(Reissue of shares at Discount)
Share Forfeited A/c xxx
To Capital Reserve A/c xxx
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(The amount transferred in Capital reserve account)
The amount after adjusting the discount from the forfeited account will be transferred to capital
reserve. The transferred amount will be the share forfeited account less the amount provided as a
discount.
iv) Reissue of forfeited shares at par, premium, and discount, originally issued at a discount
a) At Discount
Bank A/c xxx
Discount on Issue of Shares A/c xxx
Shares Forfeited A/c xxx
To Share Capital A/c xxx
(Reissued at Discount)
Share Forfeited A/c xxx
To Capital Reserve A/c xxx
(Balance transferred after adjusting discount provided)
The discount on issue of share account is debited with the discounted amount which was
provided at the initial issue of the shares and above that, it is being adjusted with the Shares
forfeited accounted and the balance amount is being transferred to the capital reserve account.
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b) At Par
Bank A/c xxx
To Share capital A/c xxx
(Reissue of shares at Par)
Share Forfeited A/c xxx
To Capital Reserve A/c xxx
c) At premium
Bank A/c xxx
Discount on Issue of Shares A/c xxx
To Share Capital A/c xxx
To Securities Premium A/c xxx
(Reissued of shares issued at discount)
Share Forfeited A/c xxx
To Capital Reserve A/c xxx
(Balance transferred to capital reserve account)
The amount of the share forfeited account is transferred to the capital reserve account and since
no discount is there no adjustment is being made of the discount.
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References
 ASIC, 2013. Cancellation of shares. ASIC. [Online]. Also available at
https://asic.gov.au/for-business/running-a-company/shares/cancellation-of-shares/.
[Accessed on 29-05-2018]
 Kaur, S., 2015. Share Capital. International Journal of Business and Management
Invention Volume 4 Issue 1, PP.60-66.
 Vinita, B., ND. Forfeiture and Reissue of Shares. Accounting Notes. [Online]. Also
available at http://www.accountingnotes.net/shares/forfeiture-and-reissue/forfeiture-and-
reissue-of-shares/8470. [Accessed on 29-05-2018]
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