Accounting for Share Capital Notes8

Partnership - ACCOUNTING FOR SHARE CAPITAL

When shares are forfeited the membership of the shareholder stands cancelled and the shares become the property of the Company.
The Company has an option of selling such forfeited shares. The sale of forfeited shares is called ‘Reissue of Shares’.
Though the amount of such shares may be called in more than one instalment but usually the entire amount is called in one instalment i.e. lumpsum.
These shares can be reissued at par, at premium or at discount. Generally, these shares are reissued at a discount at price less than its nominal value.
Maximum permissible discount for Reissue of shares is equal to the amount forfeited on such shares.
In case, this amount of discount offered is less than the amount forfeited, the remaining forfeited amount is a capital gain to the company and is transferred to Capital Reserve account.

The amount of discount allowed on reissue of shares at the most can be equal to the forfeited amount on such shares.
If the Company has given discount equal to the amount forfeited,the Forfeited Shares account after reissue will show a zero balance.
But in case, this amount of discount is less than the amount forfeited, the remaining forfeited amount will be profit for the company.
This profit is a capital gain to the company and is transferred to Capital Reserve account.

If all the forfeited shares are reissued, the Forfeited Shares A/c will show a zero balance because whole of the amount in this account after adjusting the amount of discount allowed on reissue will be transferred to Capital Reserve account
But in case, only a part of the forfeited shares are reissued and others remain cancelled, the amount forfeited on forfeited shares not reissued will remain in the Forfeited Shares Account
Proportionate amount forfeited on share reissued will be calculated in the following manner: