Forfeiture and reissue of shares

The essentials

If a shareholder fails to pay an allotment or call money, the company may, after due notice and as per its articles, forfeit his shares. The shares are cancelled, and the amount he has already paid is kept by the company and credited to Share Forfeiture Account. Forfeited shares may later be reissued at par, at a premium or at a discount. The discount on reissue cannot exceed the amount forfeited on those shares.

Key points

• Forfeiture (issued at par): Share Capital A/c Dr (called-up amount); To Share Forfeiture A/c (amount paid); To unpaid Allotment / Call A/cs.
• If premium has not been received, Securities Premium A/c is also debited. If premium has already been received, it is not touched.
• Reissue: Bank A/c Dr; Share Forfeiture A/c Dr (discount); To Share Capital A/c.
• After reissue, the remaining forfeited amount on reissued shares is a capital profit: Share Forfeiture A/c Dr; To Capital Reserve A/c.
• Balance of forfeiture on shares not yet reissued is shown with share capital in the notes.

Exam tips

Work per share: amount called, amount paid, amount forfeited. Then multiply by the number of shares reissued, not by all the forfeited shares.

Common mistakes

• Transferring the forfeiture balance on all forfeited shares to capital reserve when only some were reissued.
• Allowing a discount on reissue larger than the amount forfeited.