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Difficulty: MediumForfeiture and Re-issue of Shares

Match each accounting stage or balance associated with share forfeiture and re-issue with its appropriate ledger accounting treatment.

  • Called-up value of forfeited sharesDebited to Ordinary Share Capital Account
  • Unpaid call amount on forfeited sharesCredited to Calls-in-Arrears Account
  • Amount already paid up on shares before forfeitureCredited to Forfeited Shares Account
  • Surplus profit remaining after re-issuing forfeited sharesCredited to Capital Reserve Account

Answer

Called-up value of forfeited shares matches 'Debited to Ordinary Share Capital Account'; Unpaid call amount matches 'Credited to Calls-in-Arrears Account'; Amount already paid up matches 'Credited to Forfeited Shares Account'; Surplus profit remaining after re-issue matches 'Credited to Capital Reserve Account'.
Each accounting stage accurately reflects standard double-entry bookkeeping rules for corporate share forfeiture: Share Capital is debited for the called-up amount, Calls-in-Arrears is credited to eliminate unpaid debts, Forfeited Shares Account stores money already received, and net re-issue profit is transferred to Capital Reserve.

Step-by-Step Solution

1
Identify the double-entry required to cancel the share capital upon forfeiture.
Debit Ordinary Share Capital Account with the called-up value.
Forfeiture cancels the shares previously allotted, requiring a reduction in called-up share capital.
2
Identify the accounting treatment for the unpaid call amount.
Credit Calls-in-Arrears Account.
Crediting Calls-in-Arrears eliminates the unpaid receivable balance associated with the forfeited shares.
3
Identify where the previously paid cash is held until re-issue.
Credit Forfeited Shares Account.
The money paid by defaulting shareholders before forfeiture is retained by the company and held in the Forfeited Shares Account.
4
Identify the final transfer upon re-issuing forfeited shares.
Credit Capital Reserve Account with any remaining surplus.
Profit realized on re-issuing forfeited shares is a capital profit and must be transferred to the Capital Reserve Account.

Key Concept

Accounting treatment and journal entries for share forfeiture and re-issue
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Topics

Forfeiture and Re-issue of Shares

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