Forfeiture of shares

 Hey guys,

Welcome back!!!!

Do you ever hear the word forfeiture? Do you want to know about it?  

Then this article is for you… I will explain the forfeiture of shares in detail.

Let’s get started………

 I have discussed about shares in my previous articles. I have told you that company may claim share money in parts or in lump sum. If company claims money in parts, and shareholder fails to pay any call then company may forfeit his shares. 

  This forfeiture of share means cancellation of shares for non-payment of call money due.

It means company will cancel these shares due to non-payment of calls. This cancellation of shares will be known as “forfeiture of shares”. 

  Now company will not refund any amount which it has received from shareholders. It will be receipt on the part of company.

However, shares can be forfeited only if the AOA of the company allows forfeiture. And company must give 14 days’ notice to the defaulting shareholder so that he can pay the amount along with interest (if any).

Disclosure in accounts:  Balance of forfeiture account will be added to Subscribed Share Capital. This will be shown under ‘Notes to Accounts’ on ‘share capital’.  

Entries: If shares are issued at par:

Date	Particulars	Amount	Amount
	Share capital                                                                                       dr          To share forfeiture           (with actual amount received till date)   To share allotment       (amount not received on allotment)   To calls in arrears/ share call  (amount not received on call)	called up

For example: A ltd has forfeited 100 shares of Ramesh due to non-payment of 2 rupees on first call. Application was of 5 rupee, allotment was of 3 rupees. Prepare journal entries:

Solution:  Share capital                             dr. 1000   (100*10)

                           To share forfeiture                             800 (100*8)

                            To share first call                                200 (100*2)

If shares are issued at premium:  And if premium is not received on shares

 (If premium is not received on shares then it will be debited with that amount and if it is received then we will forget all about premium we will not debit the premium)

Date	Particulars	Amount	Amount
	Share Capital Dr. Security Premium Reserve Dr.                        To Share Forfeiture             To Share Allotment            To Calls in arrears/ share call	(called up )         (premium not yet received)	(Amount which is  received)          (Amount due but not received) (Amount due but not received on call)

        

Example: X ltd has forfeited 100 shares of 10 each was issued at a premium of rupee 2 each , calls were made rupee 3 on application, 7 on allotment including premium and balance on final call. Ram, the shareholder didn’t pay allotment and final call. Pass journal entry.

Solution:

Date	Particulars	Amount	Amount
	Share capital               dr.               Security premium reserve      dr.         To share forfeiture         To share allotment         To share first & final call	1000 200	300 700 200

If shares are issued at premium:  if premium is received on shares (we will forget about premium and will not record it in the entry) because of section 52(2) of companies act, utilisation of securities premium.

Date	Particulars	Amount	Amount
	Share capital                  dr    To share forfeiture    To allotment    To calls in arrears/ share call	Called up amount

Example: X ltd has forfeited 100 shares of 10 each was issued at a premium of rupee 2 each , calls were made rupee 3 on application, 7 on allotment including premium and balance on final call. Ram the shareholder first & final call. Pass journal entry.

Solution: In this case, security premium is received by the company so we will forget about security premium.

Date	Particulars	Amount	Amount
	Share capital                dr.                  To share forfeiture                 To share first & final call	1000	800 (100*8) 200

Hope you all have understood about forfeiture of shares now. I hope this article has helped you in your concept clarity. If it is true then give your feedback in comment section or write me at shivamsir009@gmail.com. Please do share and follow us on gocommerc.blogspot.com. If you want any video lesson on this topic then feel free to ask in comment box or at mail id.

Thank you

Shivam garg

Team Go Commerce