Lesson
Learn what happens when shareholders fail to pay call money and their shares are cancelled and reissued.
Understand forfeiture, Share Forfeiture Account, reissue at par, discount, premium, and Capital Reserve with simple examples.
Concept explanation
Forfeiture of shares means cancelling shares because the shareholder did not pay the required call money.
Example: Raju has 100 shares of Rs.10 each.
The company asks him to pay the final call of Rs.3 per share.
Amount due = 100 x Rs.3 = Rs.300.
Raju does not pay.
After giving notice, the company cancels his shares.
Simple line: Forfeiture means shares are cancelled because call money was not paid.
A company may forfeit shares because the shareholder failed to pay allotment money.
A company may forfeit shares because the shareholder failed to pay call money.
The company usually gives notice, but payment is still not made.
The company may then cancel unpaid shares and issue them again.
Simple line: Forfeiture happens when the shareholder does not pay money due on shares.
Riya Stationery Ltd. issues shares of Rs.10 each.
Raju buys 100 shares.
He pays application Rs.3 per share and allotment Rs.4 per share.
But he does not pay final call Rs.3 per share.
Unpaid amount = 100 x Rs.3 = Rs.300.
The company asks Raju to pay, but he still does not pay.
So the company forfeits his shares.
Later, the company reissues those shares to Amit.
This is called forfeiture and reissue of shares.
Calls in arrears means call money has not been paid.
If the shareholder still does not pay after notice, the company may forfeit the shares.
Simple flow: Call money due -> shareholder does not pay -> calls in arrears -> company gives notice -> still unpaid -> shares forfeited.
Simple line: Calls in arrears can lead to forfeiture.
When shares are forfeited, Share Capital is reduced because the shares are cancelled.
Calls in Arrears is removed because the company will not collect that unpaid amount from the old shareholder.
Amount already received from the shareholder is transferred to Share Forfeiture Account.
Example: Raju had 100 shares of Rs.10 each.
Face value = 100 x Rs.10 = Rs.1,000.
He paid application Rs.300 and allotment Rs.400, so total paid = Rs.700.
He did not pay final call Rs.300.
On forfeiture, Share Capital is reduced by Rs.1,000, Calls in Arrears Rs.300 is cancelled, and Rs.700 goes to Share Forfeiture Account.
Simple line: Share Forfeiture Account holds the amount already received on forfeited shares.
Share Forfeiture Account records the amount already received on shares that are forfeited.
Example: Raju paid Rs.700 before his shares were forfeited.
This Rs.700 goes to Share Forfeiture Account.
When shares are reissued, part of this amount may be used to give discount.
Remaining amount may become Capital Reserve.
Simple line: Share Forfeiture Account shows money kept by the company from forfeited shares.
Reissue means selling forfeited shares again to another person.
Example: Raju's 100 shares were forfeited.
Later, the company gives those 100 shares to Amit.
This is reissue of forfeited shares.
Simple line: Reissue means forfeited shares are issued again.
Reissue at par means shares are reissued at face value.
Example: Rs.10 share reissued at Rs.10.
Reissue at discount means shares are reissued below face value.
Example: Rs.10 share reissued at Rs.8. Discount is Rs.2 per share.
Discount on reissue cannot be more than the amount already received on those shares.
Reissue at premium means shares are reissued above face value.
Example: Rs.10 share reissued at Rs.12. Premium is Rs.2 per share.
Simple line: Reissue may happen at face value, below face value, or above face value.
After forfeited shares are reissued, any remaining profit in Share Forfeiture Account is transferred to Capital Reserve.
Example: amount already received from Raju is Rs.700.
Shares are reissued to Amit at discount of Rs.200.
Remaining amount = Rs.700 - Rs.200 = Rs.500.
This Rs.500 becomes Capital Reserve.
Simple line: Capital Reserve is the profit kept after reissuing forfeited shares.
Forfeiture example: 100 shares of Rs.10 each forfeited. Raju paid Rs.7 per share and failed to pay Rs.3 per share.
Entry idea: Share Capital A/c Dr. Rs.1,000, To Calls in Arrears A/c Rs.300, To Share Forfeiture A/c Rs.700.
Reissue at discount example: 100 shares of Rs.10 each reissued at Rs.8.
Entry idea: Bank A/c Dr. Rs.800, Share Forfeiture A/c Dr. Rs.200, To Share Capital A/c Rs.1,000.
Transfer to Capital Reserve example: Share Forfeiture balance Rs.700, discount used Rs.200, balance Rs.500.
Entry idea: Share Forfeiture A/c Dr. Rs.500, To Capital Reserve A/c Rs.500.
Simple line: Share Capital is cancelled on forfeiture and restored on reissue.
Easy memory table
| Principle / Concept | Simple Meaning | Easy Example |
|---|---|---|
| Calls in Arrears | Money called but not paid | Raju did not pay final call |
| Forfeiture | Shares cancelled | Raju's shares cancelled |
| Share Forfeiture | Amount already received on forfeited shares | Raju paid Rs.700 |
| Reissue | Forfeited shares issued again | Shares given to Amit |
| Discount on Reissue | Reissued below face value | Rs.10 share at Rs.8 |
| Capital Reserve | Remaining gain after reissue | Share forfeiture balance left |
Forfeiture guide
| Item | Simple meaning | Effect |
|---|---|---|
| Share Capital | Face value of shares | Reduced on forfeiture and restored on reissue |
| Calls in Arrears | Unpaid call money | Removed when shares are forfeited |
| Share Forfeiture | Amount already received | Used for discount and remaining balance |
| Bank | Money received on reissue | Increases when shares are reissued |
| Securities Premium | Extra above face value | Recorded separately if shares are reissued at premium |
| Capital Reserve | Final gain after reissue | Receives remaining Share Forfeiture balance |
Discount on reissue cannot be more than the amount already received on the forfeited shares.
Visual flow
Company issues shares
Shareholder fails to pay call money
Calls in arrears
Shares forfeited
Amount already received goes to Share Forfeiture
Shares reissued
Discount adjusted if any
Balance transferred to Capital Reserve
Solved examples
Example 1
Calls in arrears = 100 x Rs.3 Calls in arrears = Rs.300
The company asked Raju to pay Rs.300.
Because Raju did not pay, the amount is calls in arrears.
Example 2
Share capital cancelled = 100 x Rs.10 = Rs.1,000 Amount already received = 100 x Rs.7 = Rs.700 Calls in arrears = 100 x Rs.3 = Rs.300 Share Forfeiture = Rs.700
The company cancels the full face value of shares.
The amount already received is kept in Share Forfeiture Account.
Example 3
Meaning: no discount, no premium
Issue price equals face value.
So the reissue is at par.
Example 4
Discount = Rs.2 per share Total discount = 100 x Rs.2 = Rs.200
The shares are reissued below face value.
The discount is adjusted from Share Forfeiture Account.
Example 5
Capital Reserve = Rs.700 - Rs.200 Capital Reserve = Rs.500
The unused Share Forfeiture balance becomes Capital Reserve.
This is the gain after reissue.
Example 6
Premium = Rs.2 per share Total premium = 100 x Rs.2 = Rs.200
The shares are reissued above face value.
Premium is recorded separately.
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After learning forfeiture and reissue of shares, the next company accounts topic is debentures.
Continue to Issue and Redemption of Debentures