3. Procedure:
• Memorandum to each defaulter: Time to pay dues
• List of defaulters: Prepared by CS Presented Board of Directors
meeting
• Notice to the defaulters : By the company directors – Registered post
- 14 days time to pay the dues
• Must pass resolution : Board of directors
• Information sent to related shareholders Return share certificates
• Removal of names from shareholder’s register
• Transfer of forfeited amount Share Forfeited Account Under
Called up capital till reissue
4. • The Board at a duly convened meeting should approve the forfeiture and authorize any
director or manager or the secretary to make a declaration of such forfeiture.
An authenticated list of shares to be forfeited together with the names of shareholders
thereof should be placed before the Board for this purpose.
• The date of approval by the Board is the date of forfeiture.
• Upon forfeiture, any director or manager or the secretary, authorized by the Board of the
company shall make a declaration specifying the particulars of shares forfeited.
• The declaration shall be conclusive evidence of forfeiture as against all persons
claiming to be entitled to the shares of the company which have been forfeited.
• The Board should issue individual notices to the defaulting members whose shares
have been forfeited.
• Entries in the register of members should be made with regard to forfeited shares.
• Share certificates in relation to forfeited shares shall stand cancelled upon forfeiture.
• There should be a reference to the forfeiture of shares in the report of the directors to
the shareholders.
In case of listed companies, notice of forfeiture of shares and actual forfeiture should be
intimated to the stock exchange.
# https://www.icsi.edu/finalss9/
6. 1. When Forfeiture of shares Issued at Par
Date Particulars Amount (Dr.) Amount (Cr.)
Share Capital A/c Dr. XXX - 1
To Shares Allotment A/c Cr. XXX - 2
To Shares Call A/c Cr. XXX - 3
To Forfeited Shares Account A/c Cr. XXX - 4
1 No. of shares forfeited X Called up capital
2 Unpaid allotment amount
3 Unpaid call amount
4 Money received
# Call-in-arrears A/c
7. 2. Forfeiture of Shares which were originally issued at
Premium - Securities Premium amount has been received
Date Particulars Amount (Dr.) Amount (Cr.)
Share Capital A/c Dr. XXX - 1
To Shares Allotment A/c Cr. XXX - 2
To Shares Call A/c Cr. XXX - 3
To Forfeited Shares Account A/c Cr. XXX - 4
1 Share Capital Account with the amount called up less premium
2 or/and 3 amount not received
4 amount received less premium
8. 3. Forfeiture of Shares which were originally issued at
Premium - Securities Premium amount has not been
received
Date Particulars Amount (Dr.) Amount (Cr.)
Share Capital A/c Dr. XXX
Securities Premium A/c Dr. XXX
To Shares Allotment A/c Cr. XXX
To Forfeited Shares A/c Cr. XXX
To First Call A/c Cr. XXX
If Securities Premium has not been received, we will debit Securities Premium in order to cancel it.
9. ABC Ltd. Issued 10,000 equity shares of ₹ 10 each at a
premium of ₹ 2 per share. The amount is payable as ₹ 4 per
share on the application, ₹ 5 per share (including premium)
on the allotment, ₹ 3 per share on first and final call.
The company allows 200 shares to Mr. Gaurav.
Case 1: If Gaurav fails to pay allotment money and on his
subsequent failure to pay the first and final call, the company
forfeits his shares.
Case 2: If Gaurav fails to pay the first and final call and company
forfeits his shares.
Problem : 21
10. Date Particulars Amount (Dr.) Amount (Cr.)
Case 1 Equity Share Capital A/c (200 x ₹ 10) Dr. 2,000
Securities Premium A/c (200 x ₹ 2) Dr. 400
To Shares Allotment A/c (200 x ₹ 5) Cr. 1,000
To Forfeited Shares A/c (200 x ₹ 4) Cr. 800
To First and final Call A/c (200 x ₹ 3) Cr. 600
(Being 200 shares forfeited for non-payment of
allotment and first and final call money)
Case 2 Equity Share Capital A/c (200 x ₹ 10) Dr. 2,000
To Forfeited Shares A/c (200 x ₹ 7) Cr. 1,400
To First and final Call A/c (200 x ₹ 3) Cr. 600
(Being 200 shares forfeited for non-payment of
first and final call money)
11. Problem 22
XYZ Ltd. Issued 5,000 equity shares of ₹ 10 each at par payable
as ₹ 2 per share on the application, ₹ 3 per share on the
allotment, ₹ 3 on first and final call and ₹ 2 per share on second
and final call. The company allots 40 shares to Mr. Ashish.
Case 1: If Mr. Ashish fails to pay allotment money and company
forfeits his shares.
Case 2: If Mr. Ashish fails to pay the first call and on his subsequent
failure to pay the final call, the company forfeits his shares.
12. Date Particulars
Amount
(Dr.)
Amount
(Cr.)
Case 1 Equity Share Capital A/c ( 40 x ₹ 5) Dr. 200
To Shares Allotment A/c ( 40 x ₹ 3) Cr. 120
To Forfeited Shares A/c (40 x ₹ 2) Cr. 80
(Being 40 shares forfeited for non-payment of allotment money )
Case 2 Equity Share Capital A/c (40 x ₹ 10) Dr. 400
To Forfeited Shares A/c (40 x ₹ 5) Cr. 200
To Shares First Call A/c (40 x ₹ 3) Cr. 120
To Shares Second and Final Call A/c (40 x ₹ 2) Cr. 80
(Being 40 shares forfeited for non-payment of first and second and
final call)
13. Forfeiture of shares when there is over-subscription and pro-rata allotment
• Problem 23
A Ltd forfeited 100 shares of Rs.10 each issued at a premium of Rs.1 per share
to Mr. Hemanth who had applied for 150 shares, for non-payment of allotment
money of Rs.4/share (including premium) and the first and final call of
Rs.5/share. Give journal entries assuming that the company follows the policy
of adjusting excess application money towards remaining due.
14. Annulment of forfeiture
• Meaning Is considered never to have existed
• The Board can annul the forfeiture by passing a resolution before the
reissue of forfeited shares.
• On annulment, the name of the member should be restored in the register
of members for those shares.
In case of shares issued in physical form, fresh share certificates should
be issued for those shares.
The forfeiture can be annulled by the Board at its discretion, if the member
pays all outstanding calls due on the shares together with interest.
The member whose shares have been forfeited should be duly informed
by the Board on revoking the forfeiture and restoring the name of the
member on the register of members.
15. Forfeiture
D
at
e
Particulars
Amt
(Dr.)
Amt
(Cr.)
Share Capital A/c Dr.
To Shares Allotment A/c Cr.
To Shares Call A/c Cr.
To Shares Forfeited
Account A/c
Cr.
Date Particulars
Amt
(Dr.)
Amt
(Cr.)
Bank A/c ( Including interest) Dr.
Shares Forfeited Account A/c Dr.
To Share Capital A/c Cr.
To Interest Cr.
Annulment of Forfeiture
16. Problem 24 –Additional problem
• Rohit & Company issued 30,000 shares of Rs.10 each payable Rs.3 on
application, Rs.3 on allotment and Rs.2 on first call after two months.
All money due on allotment was received, but when the first call was
made a shareholder having 400 shares did not pay the first call and a
shareholder of 300 shares paid the money for the second and final
call of Rs.2 which had not been made as yet. Give the necessary
journal entries in the books of the company.
18. Problem 25
• Honda Limited issued 10,000 equity shares of 100 each payable as
follows: Rs. 20 on application, Rs. 30 on allotment, Rs. 20 on first call
and Rs. 30 on second and final calls 10,000 shares were applied for
and allotted. All money due was received with the exception of both
calls on 300 shares held by Supriya. These shares were forfeited. Give
necessary journal entries.
20. Re-issue of Forfeited Shares
• Forfeited shares are available with the company for sale. After the
forfeiture of shares, the company is under an obligation to dispose
off the forfeited shares.
• The company requires to pass a resolution in its Board Meeting for
the re-issue of forfeited shares. Re-issue of forfeited shares is a
mere sale of shares for the company. A company does not make
allotment of these shares.
• The company auctions the forfeited shares and disposes them off. A
company can re-issue these shares at any price but the total amount
received on these shares should not be less than the amount in
arrears on these shares. Here, total amount refers to the amount
received from the original allottee and the second purchaser.
21. Date Particulars Amount (Dr.) Amount (Cr.)
1. On re-issue of
shares
Bank A/c (Actual amount received) Dr. XXX
Shares Forfeited A/c (loss on re-issue) Dr. XXX
To Share Capital A/c Cr. XXX
(Being ….. forfeited shares re-issued @
₹…each as per the Board’s Resolution
no… dated….)
2. On transfer of
profit on re-issue
Shares Forfeited A/c Dr. XXX
To Capital Reserve A/c Cr. XXX
(Being profit on re-issue of the shares
transferred to capital reserve)
22. Accounting entries for re-issue of forfeited share
1. When forfeited shares are re-issued at par
Bank A/c……………………………………………………..Dr
To—Share Capital A/c
(Being re-issue of --- forfeited shares of Rs--- each @ par)
2. When forfeited shares are re-issued at premium.
Bank A/c……………………………………………………..Dr
To ---Share Capital A/c
To Securities Premium A/c
(Being ---forfeited shares of Rs--- each are re-issued at premium --- per share)
3. When forfeited shares are re-issued at discount
Bank A/c ……………………………………………………..Dr
Share Forfeiture A/c……………………………………Dr
To -----Share Capital A/c
(Being re-issue of --- shares of Rs.—each at a discount of - --)
4. When surplus amount in share forfeiture account transferred to capital Reserve A/c.
Share Forfeiture A/c……………………………………Dr
To Capital Reserve A/c
(Being surplus amount in share forfeiture account transferred to capital reserve account
23. Surrender of shares
• The return of shares by the shareholder to the company for
cancellation
• Holder voluntarily abandons all his shares in favour of the company.
• The power to accept surrender of shares cannot be exercised by the
company unless expressly given by the Articles of Association.
• Two cases of valid surrender:
When shares are surrendered in exchange of the new shares of
the same nominal value.
When shares are surrendered as a short cut to forfeiture of shares
when all the circumstances for forfeiture have arisen.
24. Difference between Forfeiture and Surrender of shares
Forfeiture of Shares Surrender of Shares
Definition
Forfeiture of shares refers to the cancellation of
allotment of shares to the shareholders by the company
due to non payment of installments (application money
or call money)
Surrender of shares refers to the voluntary act of
surrender of shares by the shareholder for cancelling
the allotment of shares
Type of Action
It is a compulsory action It is a voluntary action
Initiated by
Company Shareholder
Reason
Forfeiture occurs due to the non-payment of call money Surrender of shares occurs due to inability of a
shareholder to pay the call money
Time Taken
Forfeiture of shares takes a long time to settle Surrender of shares is a relatively quicker process
Impact on Reputation
Forfeiture of shares impacts the reputation of the
shareholders as it is a penalty that is charged on the
shareholders due to non-payment of installment money
Surrender of shares does not create issues with
reputation as it is a voluntary act by the shareholder
25. Issue of Shares for a consideration other than cash
To vendors, promoters any other party for furnishing technical information,
engineering services, plant layout drawings and specifications.
27. Problem 27
Jindal and Company purchased a machine from High Life Machine
Limited for Rs.3,80,000. As per purchase agreement, Rs. 20,000 were
paid in cash and balance by issue of shares of Rs.100 each. What will be
the entries passed if the shares are issued :
(a) at par
(b) at 20% premium
Working Note :
a. Rs. 3,60,000 / 100 = 3600 shares
b. Rs. 3,60,000 / 120 = 3,000 shares
29. Lien of shares
• Lien means a right to retain possession of a property belonging to
another until the claim attached to it is settled. A company has first and
paramount rights of lien on every share which are not fully paid shares
for amounts payable on the shares or for any amount which is due on a
shareholder or his estate to the company. However, the right of the
company to have a lien on shares must be provided by the Articles of
the company.
• The company’s right of lien on share extends to all dividends payable,
bonuses declared on such shares, and the assets receivable by the
shareholders in case of winding up of the company. A right of lien is on
all shares that are registered in the name of a Member for all debts,
liabilities, or engagements to or with the corporation by him. The
company’s lien on shares exists also for debts due by a shareholder to
the company in the capacity as a customer of the company.
• 14 days notice to concerned shareholder before sale.