Page 59 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes Self Assessment

In the following cases write whether the account given is to be debited or credited and the
amount by which it is debited or credited.
4. Forfeiture of 100 shares of ` 10 each fully paid issued at par on which final call of ` 3 per
share is not received.
Shares forfeited A/c.
5. 250 shares of ` 10 each issued at a premium of ` 4 per share forfeited for non payment of
call money. ` 2 per share premium as called with allotment is paid.
Shares forfeited A/c
6. 100 shares of ` 10 each issued as fully paid at a premium of ` 2 per share forfeited on which
only application money @ ` 2 per share is received.
Securities Premium A/c
7. 200 shares of ` 20 each issued at a discount of ` 2, ` 15 called are forfeited for non payment
of final call of ` 5 per share.
Discount on issue of shares A/c

2.4 Summary

Forfeiture of shares means cancellation of membership of a shareholder due to non-payment of
calls made by the company. Forfeiture of shares amount to cancellation of the membership of
the defaulting shareholder and reduction of share capital of the company. Power to forfeit
shares is given in the Articles of Association of the company. The Board of Directors have to give
a fourteen days notice to the defaulting shareholder There are three situations when shares can
be forfeited: (i) Shares issued at par (ii) Shares issued at premium. Premium received in full
Premium due but not yet received (iii) Shares issued at discount In all cases share capital is
debited by the called up amount on forfeited shares. Shares forfeited A/c is credited by the
amount received (excluding the amount of premium) on forfeited shares. Securities premium
A/c will not get affected if premium on forfeited shares has been received but it will be debited
if it is due but not received Shares issued at a discount when forfeited discount on issue of shares
will always be credited by the amount of discount allowed on forfeited shares.

2.5 Keywords

Actual Payment – Real payment and not the assumed one.

Allotment of Shares – Allocation of shares in a company.
Par Value – Nominal or reasonable value.
Premium – A sum added to an ordinary price.

2.6 Review Questions

1. State the meaning of forfeiture of shares. When can shares be forfeited?

2. What accounting treatment is given to Securities Premium A/c on forfeiture of shares
when:
(i) Amount of premium has been received

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