Page 62 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 3: Reissue of Forfeited Shares and Bonus Issue

Notes
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Caution The directors can reissue the forfeited shares at any price which they like. But in
any condition, the reissue price of forfeited share plus the amount already received on
these forfeited shares from defaulters cannot be less than the amount credited as paid up
on reissue of shares.
In other words, maximum discount on reissue of forfeited shares is permissible to the amount
credited to forfeited shares account (when the shares were originally issued at discount, amount
of original discount also included to this amount). This reissue price can be understood well by
an illustration: if a share of 100 on which 15 are paid is forfeited and reissued (a) fully paid
up, then a sum of 85 must be collected, or (b) as partly paid up 75 paid then a sum of 60
must be collected by the reissue of share. In the case of reissue of forfeited shares the following
points are worth noting:
1. If the forfeited shares are reissued at discount, the amount of discount cannot be more than
the amount earlier received in respect of these shares from defaulters. The journal entry
for reissue will be:
Bank Account Dr. (Amount actually received on reissue)

Forfeited Shares Account Dr. (Discount given on reissue)
To Share Capital Account (Paid up value of share)
2. If the discount allowed on the reissue of forfeited shares is less than the amount earlier
received from defaulters, there will be some balance in the forfeited shares account.
This balance is treated as net capital profit and is transferred to capital reserve account.
The journal entry will be:
Forfeited Shares Account Dr. (any balance in forfeited shares a/c after reissue)

To Capital Reserve Account
3. If the whole of the forfeited shares are not reissued, only a proportionate profit on the
reissue of these shares will be transferred to Capital Reserve Account. This profit will be
calculated as under:
æ Total amount Forfeited ö
Profit = ç ´ No. of shares reissued – Amount with which forfeited
÷
è No. of shares forfeited ø
shares A/C was debited at the time of reissue of these shares.
4. If all the forfeited shares are reissued at par, entire amount of forfeited shares account will
be treated as capital profit and will be transferred to Capital Reserve Account.
5. If all the forfeited shares are reissued at a premium, the amount of premium will be
transferred to Share Premium Account. And in this case too, the entire amount will be
treated as capital profit and will be transferred to Capital Reserve Account. The entry will
be:
(i) On Reissue:
Bank Account Dr.
To Share Capital Account
To Share Premium Account

(ii) On transfer of forfeited shares account:
Forfeited Shares Account Dr.
To Capital Reserve Account.

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