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Question

Difficulty: MediumForfeiture and Re-issue of Shares

Match each share forfeiture and re-issue transaction on the left with its corresponding double-entry accounting treatment on the right.

  • Forfeiture of shares for non-payment of callsDebit Share Capital Account; Credit Calls-in-Arrears Account and Credit Forfeited Shares Account
  • Discount allowed on the re-issue of forfeited sharesDebit Forfeited Shares Account; Credit Share Capital Account
  • Transfer of remaining surplus on forfeited shares after re-issueDebit Forfeited Shares Account; Credit Capital Reserve Account

Answer

The correct pairings match each transaction event with its appropriate double-entry journal posting: Forfeiture of shares requires debiting Share Capital Account and crediting both Calls-in-Arrears Account and Forfeited Shares Account; Discount allowed on re-issue requires debiting Forfeited Shares Account and crediting Share Capital Account; Transfer of remaining surplus after re-issue requires debiting Forfeited Shares Account and crediting Capital Reserve Account.
Each corporate transaction event correctly corresponds to its standardized double-entry posting rule under company financial accounting principles.

Step-by-Step Solution

1
Determine double-entry for share forfeiture
Debit Share Capital Account (called-up value), Credit Calls-in-Arrears Account (unpaid calls), and Credit Forfeited Shares Account (amount paid).
Cancels the issued nominal capital of defaulting shareholders and isolates the money already paid.
2
Determine double-entry for discount on re-issue
Debit Forfeited Shares Account and Credit Share Capital Account for the discount amount.
The discount granted on re-issuing forfeited shares cannot exceed the amount forfeited and is charged against the Forfeited Shares Account.
3
Determine double-entry for capital profit transfer
Debit Forfeited Shares Account and Credit Capital Reserve Account.
Any unutilized balance in the Forfeited Shares Account after re-issuing all forfeited shares is a non-recurring capital profit.

Key Concept

Journal Entries for Forfeiture and Re-issue of Shares
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Topics

Forfeiture and Re-issue of Shares

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