What is meant by forfeiture of shares and explain its accounting treatment?

What is forfeiture of shares in accounting?

Forfeiture of Shares. Forfeiture of share means the cancellation of the shares for non-payment of calls due. … If any shareholder is not able to pay the amount of call, the company may exercise the power to forfeit his shares on which he is unable to pay the amount of call.

What is meant by forfeiture of shares explain the accounting treatment of forfeiture of shares and their reissue?

Forfeiture of shares refers to the cancelation of shares. Sometimes, shareholders may be unable to pay the money due on allotment or calls on the due date. … It also forfeits the money received on forfeited shares till the date of forfeiture. Consequently, the Company may opt for Reissue of Shares.

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What do you mean by forfeited of share explain with example?

A forfeited share is an equity share investment which is cancelled by the issuing company. A share is forfeited when the shareholder fails to pay the subscription money called upon by the issuing company.

What is the accounting treatment to be passed for forfeiture of shares if they were issued at discount?

It may be recalled that when the shares are issued at discount ‘Discount on shares A/c’ is given debit, which implies that share capital is raised at loss. On forfeiture of such shares, Discount on shares A/c is credited with the amount of discount originally debited on forfeited shares.

What are the effects of forfeiture of share?

– The liability of a person whose shares have been forfeited comes to an end when the company receives the payment in full of all such money in respect of shares forfeited. – A member is liable for unpaid calls even after the forfeiture of shares.

What do you mean by forfeiture?

Forfeiture is the loss of any property without compensation as a result of defaulting on contractual obligations, or as a penalty for illegal conduct. … When mandated by law, as a punishment for illegal activity or prohibited activities, forfeiture proceedings may be either criminal or civil.

How the profit on re issue of forfeited shares can be treated in accounts?

If a Company makes any loss on reissue of shares, such loss is made good by making adjustments by debiting the Forfeited Shares Account. The balance remaining the forfeited Share Account is a capital profit and it must be transferred to Capital Reserve Account.

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What is forfeited amount?

In case the transfer of assets is done within the agreement between seller & buyer, then will the advance money taken by seller in previous FY be termed as forfeited amount.

When shares are forfeited share capital account is debited with?

When shares are forfeited, share capital account is debited. Explanation: Share Capital Account represents the liability of the company as it is the amount that is borrowed from the public. Therefore, at the time of forfeiture of shares, it is debited with a called-up amount.

What entries are done in case of forfeiture and re issue of shares?

originally allowed. When the shares forfeited are reissued at discount, Bank account is debited by the amount received and Share capital account is credited by the paid up amount. The amount of discount allowed is debited to Share Forfeited Account.

What are the sources of buy back of shares?

ADVERTISEMENTS: The buy-back of shares may be made by a company from: (a) Free Reserves: If buy-back is made from free reserves a sum equal to the nominal value of shares so bought must be transferred to Capital Redemption Reserve.

What do you mean by re issue of share?

Reissue of shares simply means issue of share again. Due to numerous reasons a company may forfeit shares of their shareholders. Most common case is due to default in installments such as allotment money or calls. These forfeited are thus supposed to be reissued.