Forfeited shares originally issued on premium where premium money was not received need not be reissued at premium. However, if reissue price is sufficient enough, then the share premium can be re-recorded and the balance can be transferred to capital reserve.
When a share is forfeited on which the amount of premium has been made do but has not been received, either wholly or partially, the Securities Premium A/c will be cancelled and it will be credited. (Forfeiture of shares originally issued at premium due to non-payment of dues) .
There are four situations in which re-issue of shares take place.
- Forfeited shares reissued at discount when originally issued at par.
- Shares reissued at par or at premium, when originally issued at par.
- Forfeited shares reissued at par, at discount and at premium when originally issued at premium.
In case the shares were issued at premium and the premium money has become due but has not been paid by defaulting shareholder, then any credit already given to ‘Securities Premium Reserve Account’ must be debited (cancelled) at the time of forfeiture of shares.
These shares can be reissued at par, at premium or at discount. … The amount of discount allowed at the time of reissue in no case should be more than the amount forfeited on such shares.
2. Securities Premium amount has not been received – the share capital amount is debited with the called-up amount. If securities premium is not received, securities premium is debited. Dr.
Forfeited shares can be reissued as fully paid at a par, premium or discount. In this, it may be noted that the amount of discount allowed cannot exceed the amount that had been received on forfeited shares at the time of initial issue.
ADVERTISEMENTS: Accounting Entries Regarding Reissue of Forfeited Shares! The forfeited shares can be reissued by the company at any price. But in no case, the amount collected on the reissue of such shares plus the amount already forfeited be less than the amount credited as paid upon reissue of shares.
Therefore, When a company issues shares at a premium, the premium amount will be received by it along with application money, allotment money, or calls.
If the discount allowed on reissue of shares is less than the forfeited amount, there will be some balance left in the Forfeited Account, which should be transferred to capital reserve, because it is a profit of capital nature. ADVERTISEMENTS: Example: A company forfeited shares of Rs.
When shares are forfeited, share capital account is debited. Explanation: Share Capital Account represents the liability of the company as it is the amount that is borrowed from the public. Therefore, at the time of forfeiture of shares, it is debited with a called-up amount.
1. In case of the forfeited shares were originally issued at par or at premium, then these shares can be reissued with the maximum discount = amount forfeited on the re-issued share.
ADVERTISEMENTS: If a Company makes any loss on reissue of shares, such loss is made good by making adjustments by debiting the Forfeited Shares Account. The balance remaining the forfeited Share Account is a capital profit and it must be transferred to Capital Reserve Account.
Answer: If the discount allowed on reissue of shares is less than the forfeited amount, there will be some balance left in the Forfeited Account, which should be transferred to capital reserve, because it is a profit of capital nature. ADVERTISEMENTS: Example: A company forfeited shares of Rs. 100 each.