Page 51 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I Sukhpreet Kaur, Lovely Professional University

Notes Unit 2: Forfeiture of Shares

CONTENTS
Objectives
Introduction

2.1 Meaning and Procedure
2.2 Accounting Treatment
2.3 Forfeiture of Shares Issued at Premium and at Discount

2.4 Summary
2.5 Keywords
2.6 Review Questions
2.7 Further Readings

Objectives

After studying this unit, you should be able to:

 Understand the procedure of forfeiture of shares
 Know accounting treatment

 Explain forfeiture of shares issued at discount and premium
Introduction

Sometimes some shareholders fail to pay the called up amount in full i.e., they do not pay in one
or more instalments after the allotment of the shares to them. In such a case either the company
can go to the court and file a suit against the defaulting shareholders for recovery of the due
amount or can cancel the membership of the defaulting shareholders. In case the membership is
cancelled, the amount paid by the defaulting members towards share capital stands forfeited, is
called ‘Forfeiture of Shares.’ In this lesson you will learn about different situations in which
shares can be forfeited and accounting treatment thereof.

2.1 Meaning and Procedure

If a shareholder fails to pay the due amount of allotment or any call on shares issued by the
company, the Board of directors may decide to cancel his/her membership of the company.
With the cancellation, the defaulting shareholder also loses the amount paid by him/her on
such shares.

When a shareholder is deprived of his/her membership due to nonpayment of calls, it is known
as forfeiture of shares.

!

Caution The result of forfeiture of shares is: Cancellation of membership of the shareholder.
Reduction of issued share Capital of the company.

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