Question 57 of 61intermediate🔧 ApplyNumerical5 marks

Ashoka Limited Company which had issued equity shares of Rs.20 each at a premium of Rs.4 per share, forfeited 1,000 shares for non-payment of final call of Rs.2 per share. 400 of the forfeited shares were reissued at Rs.14 per share out of the remaining shares of 200 shares reissued at Rs.20 per share. Give journal entries for the forfeiture and reissue of shares and show the amount transferred to capital reserve and the balance in Share Forfeiture Account. (Answer: Capital Reserve = Rs. 8,400, Balance of Share Forfeiture Account: Rs. 7200)

Correct Answer

Journal Entries in the books of Ashoka Limited Company:

1. Forfeiture Entry: Share Capital A/c Dr. 20,000 To Share Final Call A/c 2,000 To Share Forfeiture A/c 18,000 (1,000 shares forfeited for non-payment of final call of Rs. 2 per share)

2. Reissue of 400 shares at Rs. 14 per share: Bank A/c Dr. 5,600 Share Forfeiture A/c Dr. 2,400 To Share Capital A/c 8,000 (400 forfeited shares reissued at Rs. 14 per share as fully paid)

3. Reissue of 200 shares at Rs. 20 per share: Bank A/c Dr. 4,000 To Share Capital A/c 4,000 (200 forfeited shares reissued at Rs. 20 per share as fully paid)

4. Transfer to Capital Reserve: Share Forfeiture A/c Dr. 8,400 To Capital Reserve A/c 8,400 (Profit on reissue of forfeited shares transferred to Capital Reserve)

Calculation of Capital Reserve:

  • Amount forfeited per share = Rs. 20 - Rs. 2 = Rs. 18
  • For 400 shares: Amount forfeited = 400 × Rs. 18 = Rs. 7,200; Loss on reissue = 400 × Rs. 6 = Rs. 2,400; Transfer = Rs. 4,800
  • For 200 shares: Amount forfeited = 200 × Rs. 18 = Rs. 3,600; No loss on reissue; Transfer = Rs. 3,600
  • Total Capital Reserve = Rs. 4,800 + Rs. 3,600 = Rs. 8,400

Balance in Share Forfeiture Account:

  • Amount forfeited on remaining 400 shares = 400 × Rs. 18 = Rs. 7,200
Exercise: Questions for Practice - Numerical Questions | Q: 20 | (Page 73)
For More Understanding

Explanation

The question involves forfeiture of shares for non-payment of final call and subsequent reissue at different prices. The key points are: (1) Forfeiture amount per share is the amount paid by shareholder (Rs. 18 per share, excluding the unpaid final call of Rs. 2); (2) When shares are reissued at a discount, Share Forfeiture Account is debited with the discount; (3) Capital Reserve is calculated by deducting loss on reissue from forfeited amount for reissued shares; (4) Balance in Share Forfeiture Account represents forfeited amount on shares not yet reissued.

Solution Steps

  1. Step 1: Calculate forfeiture amount per share = Face Value - Unpaid Call = Rs. 20 - Rs. 2 = Rs. 18

  2. Step 2: Pass forfeiture entry - Debit Share Capital Rs. 20,000; Credit Share Final Call Rs. 2,000; Credit Share Forfeiture Rs. 18,000

  3. Step 3: Pass reissue entry for 400 shares at Rs. 14 - Bank Dr. Rs. 5,600; Share Forfeiture Dr. Rs. 2,400 (discount); Credit Share Capital Rs. 8,000

  4. Step 4: Pass reissue entry for 200 shares at Rs. 20 - Bank Dr. Rs. 4,000; Credit Share Capital Rs. 4,000

  5. Step 5: Calculate Capital Reserve = (400 × Rs. 18 - 400 × Rs. 6) + (200 × Rs. 18) = Rs. 4,800 + Rs. 3,600 = Rs. 8,400

  6. Step 6: Calculate Balance in Share Forfeiture = 400 shares × Rs. 18 = Rs. 7,200

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