Forfeiture of Shares at Par

Practical Problem 1

A company forfeits 100 shares of $10 each fully called upon. The shareholder has failed to pay the first call money of $3 per share and the second and final Call Money of $3 per share.

Pass the journal entry.

Solution

Shares Forfeiture Problem and Solution

Forfeiture of Shares at a Premium

Practical Problem 2

A company forfeits 100 shares of $10 each issued at $11 per share. The premium was payable on an allotment.

The shareholder failed to pay the allotment money of $3 per share and the second and final call of $5 per share.

Pass the journal entry.

Solution

Share Forfeiture Solution

Forfeiture of Shares at a Discount

Practical Problem 3

A company forfeits 100 shares of $10 each issued at $9 per share on account of non-payment of $4 per share by the shareholder.

Pass the journal entry.

Solution

Shares Forfeiture Discount Example

Practical Problem 4

X Ltd. issued 20,000 equity shares of $10 each at a discount of 10%.

The amounts payable are:

  • $2 on application
  • $3 on allotment
  • $5 on final call

Mr. Seth, the holder of 1,000 shares, did not pay the amount due on call and his shares were forfeited by the company.

Journalize the entries for forfeiture.

Solution

Shares Forfeiture Example

Practical Problem 5

A Ltd. had its issued capital comprising 20,000 equity shares of $10 each payable as:

  • $2 on application
  • $3 on allotment (including premium)
  • $3 on 1st call
  • $3 on final call

The shares were called up to the first call stage. All the share money was received except from John, holding 300 shares, who paid only application and except from Harry, holding 100 shares, who paid up to the allotment.

All these shares were forfeited.

Solution

Practical Problem Solution

Reissue of Forfeited Shares

Practical Problem 6

Mr. John holds 200 shares of $10 each. He had paid on these shares application money of $2 each, allotment money of $2 each, and first call money of $3 each.

He failed to pay the final call amount of $3 per share. His shares were forfeited and reissued at $8 per share as fully paid up.

Give the necessary entries to record the forfeiture and reissue.

Solution

Forfeited Shares Reissue

Reissue of a Part of Forfeited Shares

Practical Problem 7

A holds 10 shares of $10 each, on which he has paid $1 per share as application money.

B holds 20 shares of $10 each, on which he has paid $1 on application, $2 on an allotment, and $2 on the first call.

C holds 30 shares of $10 each and has paid $1 on application, $2 on an allotment, and $2 on the first call.

They all fail to pay their arrears and the second call of $2 per share. Therefore, the directors forfeited their shares. The shares of C were then reissued at $7 per share as fully paid up.

Pass necessary journal entries of forfeiture and reissue of shares.

Solution

Forfeited Shares Reissue Example

Journal

Forfeited Shares Reissue Example

Share Allotment Entries
Alternatively, the first entry can also be passed using the following method:

Reissued Forfeiture Shares Journal

Frequently Asked Questions

What is the forfeiture and reissue of shares?

Forfeiture and reissue of shares is a process by which the company reclaims shares from a shareholder and then issues them to another party. This typically occurs when the company wants to enforce its rights or when the shareholder has violated a term of their agreement.

What are the consequences of the forfeiture of shares?

The consequences of forfeiture of shares vary depending on the situation but can include termination of ownership, loss of voting rights, and being barred from future participation in the company. In some cases, the company may also be able to recover any outstanding debts that the shareholder owes.

What is the process for forfeiture and reissue of shares?

It typically involves notifying the shareholder of the company's intention to reclaim the shares, providing them with an opportunity to respond, and then making a decision based on that response. If the company decides to move forward with the reissue of shares, they will typically need to identify a new shareholder to take ownership of them.

How does the forfeiture of shares impact the company?

Forfeiture of shares can impact the company in several ways, including by reducing the number of shareholders, increasing the percentage of ownership held by other shareholders, and impacting the company's ability to raise capital. It can also create complications for the company if it needs to enforce its rights against the former shareholder.

What is the journal entry for the forfeiture of shares?

The journal entry for forfeiture of shares will vary depending on the situation but may include a debit to shareholder equity for the value of the forfeited shares and a credit to accounts receivable or cash for any outstanding debts that the shareholder owes.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

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