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Forfeiture of Shares which are Issued at a Premium

The journal entry for forfeiture of shares issued at a premium where the premium is not received is as follows:



Note: If the premium is already received by the company, it cannot be cancelled even if the shares are forfeited in the future. The securities premium account will be debited with the amount of premium (if not received by the company).


Illustration 8


A Ltd. forfeited 200 equity shares of ₹ 10 each, fully called-up, held by Mr X, for non-payment of allotment and first and final call. These shares were issued at a premium of 20 per cent. The application, allotment (including premium) and first and final call money were₹ 2, ₹ 5 and ₹ 5 per share, respectively. Give the journal entry for forfeiture.



Journal Entries in the Books of A Ltd.

Suppose, in the above illustration, if the premium was paid along with the allotment, then the journal entry would be as follows:



Note: The balance of the share forfeiture account is shown as an addition to the total paid-up capital under the head share capital on the liabilities side of the balance sheet.

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