Accounting for Share Capital Notes8

Study Material & Notes for the Chapter 8

Partnership - ACCOUNTING FOR SHARE CAPITAL

VIII  REISSUE OF FORFEITED SHARES

1) Meaning of Reissue of Forfeited Shares
  • 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.
2) Accounting Treatment
a) Shares Reissued at Par

share capital_8.2.1

b) Shares Reissued at Premium
c) Shares Reissued at Discount
3) Reissue of all the Forfeited Shares
  • 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.

share capital_8.3.1

4) Reissue of Part of the Forfeited Shares
  • 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:share capital_8.4.1
share capital_8.4.2

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