Accounting for Forfeiture and Reissue of Share

Accounting for Forfeiture and Reissue of
Share

INTRODUCTION
The present study is based on the evaluation and analysis of forfeiture and reissue of shares done
by a corporate entity in Australia. Further, the present study covers practical examples and
illustrations, supported by viable sources to provide a better understanding of same.
ACCOUNTING OF REISSUE AND FORFEITURE OF SHARES
Reissues of share- shares are forfeited if the investor fails to pay the due amount and balance
remains unpaid. While forfeiture the membership right on the share is cancelled for the
shareholder and they cannot be further obliged for paying a due amount (Pitfield, 2016). Such
unpaid shares are owned by the company, and they have right to sell those shares, and such
shares are called” reissue of share” therefore reissue of share means issue of forfeited shares.
As authority forfeitures, the shares, therefore share certificate which is allotted to the shareholder
is cancelled. The further declaration has been made by the directors to allot the forfeited shares
to new investors. At the time of reissue of shares, directors do not issue any prospectus or serve
any offer to the general public. A further amount of such shares can be asked to be paid in one or
two instalments. However, generally, whole reissue amount is asked to be paid in one instalment.
Price for reissuing the share is decided by the Board of Directors. Shares are reissued at par, at a
premium, or at a discount (Nichols, Betancourt and Scott, 2017). Generally reissued shares are
calculated on the discount basis, i.e. the amount which is less than its actual values. Discount that
is allowed while reissuing the products should be more than the amount of its forfeited shares to
ensure overall loss is compensated.
Reissue of forfeited shares is not considered as the share allotment but is merely considered as a
re-sale. A corporate entity can do reissuing of forfeited shares under the applicable provisions
given in the articles (Pitfield, 2016). Further, the forfeited shares could be reissued under
discount basis, but the discount shall not surpass the accessible amount in the account of share
forfeiture.
 When there is a loss in the reissue of share, then the loss shall be placed on the debit side
of share forfeiture account. In a situation where the loss is less than the fortifying amount,
then the extra amount shall be relocated to the capital reserve account.

 In case the prices of shares which are reissued are higher than the actual amount, then the
extra amount shall be placed on the credit side of securities premium account (Borg,
2015).
 If only a part of shares is reissued, then, in this case, the profit shall be relocated to the
capital reserve account.
Shares can be fortified if one of the following conditions is satisfied:
Shares are forfeited as the amount is not fully paid, or shareholder does not pay the due on
allotment or calls (Burns, 2017.At the time of forfeiture, shareholder is a restricted member of
the company. A shareholder whose share is forfeited is entitled to a full or half refund of the
amount which is paid before forfeiture.
Various outcomes-
 In a situation where the company is listed on AXS or if they are permitted by operating
rules amount of refund to investors is equivalent to the amount paid by them less cost of
the reissue of shares.
 Refund Amount that company has to pay back to the shareholder are recorded in a
forfeiture shares account
 If a corporation is not listed on AXS and nothing is mention by the constitution about a
refund, the company has a right to hold the amount paid fewer costs of reissuing shares
(Nichols, Betancourt and Scott, 2017).
 The amount that is paid to the shareholders is mentioned in forfeited share reserve.
In a situation where the reissue of the fortified shares are done on a discount basis, then the bank
account will be on the debit side by the received amount and the share capital will be credit by
the paid-up amount. The allowance of the discounted amount shall be debited in the Share
Forfeited Account. This is meant for the adjustment of the allowed discounted amount from the
fortified amount during forfeiture (Singh, 2014).
For the above illustration, the journal entry has been provided as below:
Bank A/c (the amount received on reissue) Dr.