Answer: If the discount allowed on reissue of shares is less than the forfeited amount, there will be some balance left in the Forfeited Account, which should be transferred to capital reserve, because it is a profit of capital nature. ADVERTISEMENTS: Example: A company forfeited shares of Rs. 100 each.
What amount of gain on reissue will be transferred?
1200 is the gain that will be transferred to the General Reserve.
The entry on the reissue of forfeited shares is:
At this stage, if some balance is left in the forfeited shares account, such balance is to be taken as capital profit on the reissue of forfeited shares and is to be transferred to capital reserve.
When shares are reissued at a discount, the bank account will be debited by the amount received and the share capital account is credited by paid up amount. The discount allowed will be debited to share forfeited account. Bank A/c (the amount received on reissue) Dr.
Reissue of Forfeited Shares at a Discount
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.
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.
At the time of reissue of forfeited shares a discount of Rs 2 per share is allowed so the total amount of discount of Rs 400 is adjusted from the forfeited amount of Rs 600 and the balance amount of Rs 200 is transferred to Capital Reserve A/c being a capital gain.
Balance of forfeited shares Account after re-issue of forfeited shares is transferred to Capital account.
Reissue of forfeited shares is a sale of shares and it does not amount to an allotment. The company should duly record the particulars of the members who acquire those shares as if it were a transfer of shares.
10% of the capital reissued.