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Asked By :  jawney
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A company forfeited certain number of shares of face value 10

A company forfeited certain number of shares of Face Value ₹ 10 each, for non-
payment of final call money of ₹ 4. These shares were reissued at a discount of
₹ 5 and amount of ₹ 4500 was transferred to capital Reserve account. Pass the
necessary journal entries to show the above transactions and prepare Share
forfeited account.




Answers :

0

Let's break down the given information and pass the necessary journal entries for the forfeiture and reissue of shares.

Given:

  • Face Value of Shares: ₹10 each.
  • Final Call Money Due: ₹4 per share (non-payment).
  • The shares were forfeited for non-payment of the final call.
  • The forfeited shares were reissued at a discount of ₹5 per share.
  • The amount transferred to the Capital Reserve Account is ₹4,500.

Step 1: Forfeiture of Shares

Let’s assume that a certain number of shares were forfeited for non-payment of final call money. The forfeited shares are not specified in the problem, but we can calculate it based on the amount transferred to the capital reserve (₹4,500).

  • Amount transferred to Capital Reserve = (Discount on Reissue + Final Call Due) × Number of Shares Forfeited.
  • Let the number of forfeited shares be xx.

Thus:

Capital Reserve Transfer=(4final call+5discount on reissue)×x=4500\text{Capital Reserve Transfer} = (4 \, \text{final call} + 5 \, \text{discount on reissue}) \times x = 4500 9x=45009x = 4500 x=45009=500shares.x = \frac{4500}{9} = 500 \, \text{shares}.

So, 500 shares were forfeited.

Journal Entry for Forfeiture of Shares:

  • Share Capital (₹10 face value per share) is debited.
  • Amount unpaid on the final call (₹4 per share) is also debited.
  • Share Forfeited Account is credited with the amount received.

Journal Entry for Forfeiture:

Share Capital A/c              Dr.        ₹5,000
    To Share Forfeited A/c                   ₹5,000
(Being forfeiture of 500 shares for non-payment of final call money of ₹4 each)

Now, for the final call money, we will adjust that:

Share First and Final Call A/c  Dr.        ₹2,000
    To Share Forfeited A/c                   ₹2,000
(Being final call money of ₹4 each on 500 shares forfeited)

Step 2: Reissue of Forfeited Shares

  • The forfeited shares (500 shares) are reissued at ₹5 discount, i.e., for ₹5 each (₹10 face value - ₹5 discount).
  • The shares are reissued at ₹5 each, so the amount received is ₹5 × 500 = ₹2,500.
  • The difference between the amount reissued (₹2,500) and the face value (₹5,000) is transferred to the Capital Reserve Account.

Journal Entry for Reissue of Shares:

To reissue the forfeited shares at a discount of ₹5:

Bank A/c                        Dr.        ₹2,500
Share Forfeited A/c              Dr.        ₹2,500
    To Share Capital A/c                   ₹5,000
(Being 500 forfeited shares reissued at ₹5 each)

For the Capital Reserve Transfer (Discount + Final Call adjustment): The difference of ₹4,500 (reissue discount and final call adjustment) is transferred to Capital Reserve.

Share Forfeited A/c              Dr.        ₹4,500
    To Capital Reserve A/c                  ₹4,500
(Being the amount transferred to Capital Reserve account)

Step 3: Share Forfeited Account

Now, let’s prepare the Share Forfeited Account, which will show all the amounts related to the forfeiture and reissue of shares.

Share Forfeited Account:

---------------------------------------------------
| Date       | Particulars             | Amount  |
---------------------------------------------------
|            | To Share Capital A/c     | ₹5,000  |
|            | To Share First Call A/c   | ₹2,000  |
---------------------------------------------------
| By Bank A/c | ₹2,500 (Reissue of shares)   | ₹2,500  |
| By Capital Reserve A/c    | ₹4,500  |
---------------------------------------------------
| Total     |                          | ₹7,500  |
---------------------------------------------------

Summary of Journal Entries:

  1. Forfeiture of shares (₹5,000 + ₹2,000):

    Share Capital A/c              Dr.        ₹5,000
        To Share Forfeited A/c                   ₹5,000
    
    Share First and Final Call A/c  Dr.        ₹2,000
        To Share Forfeited A/c                   ₹2,000
    
  2. Reissue of forfeited shares:

    Bank A/c                        Dr.        ₹2,500
    Share Forfeited A/c              Dr.        ₹2,500
        To Share Capital A/c                   ₹5,000
    
  3. Transfer to Capital Reserve:

    Share Forfeited A/c              Dr.        ₹4,500
        To Capital Reserve A/c                  ₹4,500
    

These journal entries and the Share Forfeited Account reflect the entire process of forfeiting and reissuing the shares at a discount.


Answered By

jawney

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