Match each accounting transaction event relating to the forfeiture and re-issue of shares on the left with its correct double-entry ledger treatment on the right.
- Recording the initial forfeiture of shares due to default on callsDebit Ordinary Share Capital Account (called-up amount); Credit Calls-in-Arrears Account (unpaid amount); Credit Forfeited Shares Account (amount already paid)
- Re-issuing forfeited shares at a price below nominal value (at a discount)Debit Bank Account (amount received); Debit Forfeited Shares Account (discount allowed); Credit Ordinary Share Capital Account (nominal value)
- Re-issuing forfeited shares at a price above nominal value (at a premium)Debit Bank Account (total proceeds); Credit Ordinary Share Capital Account (nominal value); Credit Share Premium Account (excess over nominal value)
- Transferring the net surplus remaining in the Forfeited Shares Account after re-issueDebit Forfeited Shares Account; Credit Capital Reserve Account
Answer
1. Recording initial forfeiture matches with debited Ordinary Share Capital (called-up amount), credited Calls-in-Arrears (unpaid amount), and credited Forfeited Shares Account (amount paid).
2. Re-issue at a discount matches with debited Bank Account, debited Forfeited Shares Account for the discount, and credited Ordinary Share Capital Account.
3. Re-issue at a premium matches with debited Bank Account, credited Ordinary Share Capital Account, and credited Share Premium Account.
4. Transfer of remaining net surplus matches with debited Forfeited Shares Account and credited Capital Reserve Account.
2. Re-issue at a discount matches with debited Bank Account, debited Forfeited Shares Account for the discount, and credited Ordinary Share Capital Account.
3. Re-issue at a premium matches with debited Bank Account, credited Ordinary Share Capital Account, and credited Share Premium Account.
4. Transfer of remaining net surplus matches with debited Forfeited Shares Account and credited Capital Reserve Account.
Each transaction event strictly corresponds to double-entry accounting rules: cancelling called-up share capital upon forfeiture, using Forfeited Shares Account to absorb re-issue discounts, recognizing share premium on premium re-issues, and transferring residual forfeiture gain to Capital Reserve.
Step-by-Step Solution
Key Concept
Accounting entries for forfeiture, re-issue, and transfer of share forfeiture profit to capital reserve
Estimated Time:1m 30s