Question

Sierra Ltd. forfeited 500 shares of ₹ 10 each, issued ata premium of ₹ 2 per share (payable with allotment) for non-payment of allotment money of ₹ 5 per share (including premium). The first and final call of ₹ 3 per share was not made. All the forfeited shares were reissued at ₹ 11 per share, fully paid-up.

Pass Journal entries for forfeiture and reissue of shares.

Answer 1

Journal Entries in the Books of Sierra Ltd.
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1.	Share Capital A/c   ...Dr.		3,500
	Securities Premium A/c   ...Dr.		1,000
	To Shares Allotment A/c			2,500
	To Share Forfeiture A/c			2,000
	(500 shares forfeited for non-payment of allotment money including premium)
2.	Bank A/c   ...Dr.		5,500
	To Share Capital A/c			5,000
	To Securities Premium A/c			500
	(500 forfeited shares reissued @ ₹ 11 per share as fully paid-up)
3.	Share Forfeiture A/c   ...Dr.		2,000
	To Capital Reserve A/c			2,000
	(Gain on reissue transferred to Capital Reserve)

Working Note:

Face value per share: ₹ 10

Premium per share: ₹ 2

Allotment money = ₹ 5 per share, including premium ₹ 2.

Therefore, capital portion of allotment:

₹ 5 − ₹ 2 = ₹ 3

First and Final Call of ₹ 3 per share was not made.

Hence, called-up Share Capital per share:

₹ 10 − ₹ 3 = ₹ 7

Amount received towards Share Capital per share:

₹ 7 − ₹ 3 = ₹ 4

1. Forfeiture of 500 Shares

Share Capital called-up:

500 × ₹ 7 = ₹ 3,500

Securities Premium not received:

500 × ₹ 2 = ₹ 1,000

Allotment money unpaid:

500 × ₹ 5 = ₹ 2,500

Amount received and forfeited:

500 × ₹ 4 = ₹ 2,000

2. Reissue of Shares

500 shares reissued @ ₹ 11 per share as fully paid-up:

500 × ₹ 11 = ₹ 5,500

Share Capital credited:

500 × ₹ 10 = ₹ 5,000

Securities Premium on reissue:

₹ 5,500 − ₹ 5,000 = ₹ 500

Since there is no discount on reissue, the entire forfeited amount is transferred to Capital Reserve:

₹ 2,000