Forfeiture of Shares: Practical Problems and Solutions

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on November 16, 2021

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

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True contributes to his own finance dictionary, 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.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.

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