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

When the shares forfeited are reissued at discount, Bank account is debited with the amount received and Share Capital account is credited with the Paid-up amount. The amount of discount allowed is debited to Forfeited Shares Account.

share capital_8.2.1

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. 
  • Hence, 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