What is FORFEITUERE AND RE-ISSUE OF SHARES

FORFEITURE AND RE-ISSUE OF SHARES

Introduction
A company makes call for the payment of installments of shares in accordance of articles of association. According to Nepal company act, 2064 (section 53). Every shareholder should be sent a written notice in the prescribed format mentioning the calls to be paid within at least 30 days. If a shareholder fails to pay the calls within the period, the company shall send notice him/her giving an additional
Meaning of forfeiture of shares
Forfeiture of shares is the termination of membership and taking away of the shares of a shareholder because of default in the payment of any installment except application money. In other words, it sometimes happens that when a shareholder fails to pay any installment (i.e.ither allotment or call money or both but not the application money) the company may forfeit (i.e. cancel) such shares, if so is authorized by its articles of association. Such process of cancelling the shares and not refunding the amount paid on these shares is known as forfeiture of shares.

period of 3 months. If he/she doesn't make payment even within the period, his shares may be forfeited. In the case of a public company, such notice shall be published in a daily newspaper with national circulation for at least three times.

When shares are forfeited, the name of such defaulting shareholder is removed from the register of members, the allotment is cancelled and the amount already paid by such shareholder is forfeited i.e. not refunded to such shareholder.
Accounting for forfeiture of shares
When shares are forfeited, an entry called forfeiture entry is made in the books of the company record the forfeiture of shares in the following circumstances.

Share capital a/c Dr. with called up value of share
Share premium a/c Dr. If premium is not received
Discount on issue of share a/c Cr. If there is discount on issue of shares
Calls in arrears a/c Cr. Unpaid amount
Share forfeiture a/c Cr. Paid amount
Forfeiture of shares originally issued at par
Generally, on forfeiture of shares the share capital is reduced and as such, "share capital account" is debited for the amount to the extent of calls made. Unpaid calls accounts are credited in order to cancel their debit balances standing in the books. The amount already paid by the defaulting shareholder is credited to share forfeiture account.

When a company forfeits those shares, which are originally issued at par, the following made in this situation.
Forfeiture of shares originally issued at premium
When a company forfeits those shares, which are originally issued at premium, the following two situations re fund while making forfeiture entry regarding this:
a. When forfeiture takes place after receiving the amount of premium.
Share premium once received and credited to the share premium account cannot be cancelled; therefore, in this situation both amount and account of premium are not shown while passing forfeiture entry. In other words, if premium has already been received, it should not be debited at the time of forfeiture. The following entry is made in this situation:
b. When forfeiture takes place before receiving the amount of premium.
When a shares is forfeited on which the premium is due has not been received either wholly or partially, the share premium a/c must be debited with the full amount of premium at the time of forfeiture. The entry in this case will be:

FOREITURE OF SHARE ORGINALLY ISSUED AT DISCOUNT
Discount on issue of shares is usually recorded at the time of allotment of shares by debiting it as a loss. When shares, originally issued at discount are forfeited, discount allowed on such shares is written back. In this situation, discount on issue of shares a/c is credited with the amount of discount relating to forfeited shares.
FORFEITURE OF SHARES ISSUED ON PRO-RATE BASIS
The application money of the shareholders to whom shares are allotment less than their demand is adjusted on allotment and subsequent calls. Therefore, their unpaid amount always becomes less than the amount due. I such condition, the calls in arrears and amount forfeited is calculated as below:

RE-ISSUE OF FORFEITED SHARES

Forfeited shares are the property of the company. If an article of association of a company permits, the board of directors can reissue these forfeited shares to the third party not to the defaulting shareholders.

All the forfeited shares can be reissued at a time or they may be reissued in parts. Similarly, these shares may be reissued at par or premium or discount. Again, the amount of such reissue is collected in jump sum but not in installment.
A) Shares issued originally at par re-issued at par
Bank account is debited and share capital is credited when which were issued originally at par and re-issued also at par.

CAPITAL RESERVE

After the reissue of forfeited shares, the credit balance left in the share forfeiture a/c is a capital gain to the company and must be transferred to "capital reserve a/c". Such gain is also known as profit on reissue of forfeited shares

It should be clearly understood that if the forfeited shares are not reissued, only that proportion of shares forfeiture account, which belong to the reissued number of shares, should be transferred to capital reserve account.
B) Shares issued originally at par but re-issued less than par
When shares originally issued at par and re-issued at the value which is less than par value, bank account is debited with issued price, shares forfeiture account is debited with the discount on re-issued and share capital is credited with par value.
C) Shares issued originally at par and re-issued premium
Under this condition, bank account is debited with the actual price and shares capital and share premium account is credited as below:
D) Shares issued originally at discount and re-issued at discount
Under this situation, bank account, discounts on issued of share and share forfeiture accounts are debited and share capital account is credited as below:
E) Share issued originally at premium and re-issued at discount
Under this situation, bank account, and share forfeiture account are debited and share capital account is credited as below:
F) SHARES ISSUED ORGINALLY AT PREMIUM AND RE-ISSUED AT PREMIUM
Under this situation, bank account is debited with the new issue price and share capital account and share premium account is credited. No entry is made for the original premium.
REVIES OF THERETICAL
1. When and how the shares of the company are forfeited?
If any shareholder fails to make the payment of allotment or call money, the company may forfeit such share the effect of forfeiture is that the name of such shareholders is removed from the register of member, the allotment is cancelled and the amount paid by the shareholder is forfeited.
2. EXPLAIN WITH AN EXAMPLE THE PROCEDUTE FOR THE FERFEITURE SHARE ORGINALLY ISSUED AT DISCOUNT.
When shares originally issued at discount are forfeited, discount allowed on such shares is written back as the amount shown on the debit of share. Discount account must have a definite relationship with the number of share actually issued. Following journal entries is passed for forfeitures of share issued at discount.
3. WRITE SHORT NTOES ON RE-ISSUE OF FERFEITED SHARE.
The forfeited shares become property of a company. the directors are authorized to re-issued such shares at par, premium or discount. The re-issue amount is debited to bank account and credited to share capital. The re-issued share at discount should not exceed the forfeited mount.