A company forfeited 800 equity shares of Rs.10 each issued at a discount of 10% for non-payment of first and final calls of Rs.2 each. Calculate the amount forfeited by the company and pass the journal entry for forfeiture of the shares.
Calculation of Amount Forfeited:
Face Value per Share = Rs. 10 Number of Shares = 800 Discount on Issue = 10% of Rs. 10 = Rs. 1 per share Issue Price = Rs. 10 - Rs. 1 = Rs. 9 per share First and Final Call (unpaid) = Rs. 2 per share Amount Received per Share = Rs. 9 - Rs. 2 = Rs. 7 Amount Forfeited = 800 × Rs. 7 = Rs. 5,600
Journal Entry:
Share Capital Account Dr. Rs. 8,000 To Discount on Issue of Shares Account Rs. 800 To Calls in Arrears Account Rs. 1,600 To Share Forfeiture Account Rs. 5,600 (Being 800 shares of Rs. 10 each forfeited for non-payment of first and final call of Rs. 2)
Explanation
When shares issued at discount are forfeited, Share Capital Account is debited with the called-up amount (face value). The Discount on Issue of Shares Account is credited to reverse the original discount entry. Calls in Arrears is credited with the unpaid call amount, and Share Forfeiture Account is credited with the amount already received from shareholders.
Solution Steps
Step 1: Calculate discount per share = 10% of Rs. 10 = Rs. 1
Step 2: Calculate issue price = Rs. 10 - Rs. 1 = Rs. 9 per share
Step 3: Calculate amount received per share = Rs. 9 - Rs. 2 (unpaid call) = Rs. 7
Step 4: Calculate total amount forfeited = 800 shares × Rs. 7 = Rs. 5,600
Step 5: Pass journal entry debiting Share Capital with Rs. 8,000 (800 × Rs. 10) and crediting Discount on Issue (Rs. 800), Calls in Arrears (Rs. 1,600), and Share Forfeiture (Rs. 5,600)