Forfeiture and Reissue of Shares Journal Entries

Forfeiture and reissue of shares can look scary at first because the question mixes many things at once: application money, allotment money, calls, premium, discount, and capital reserve.

But the heart of the topic is simple.

A shareholder did not pay the amount due. The company cancels those shares. Later, the company may sell those same forfeited shares again. Your job is to show what happens to the unpaid amount, the money already received, and any profit left after reissue.

Once you understand this one line, the entries stop feeling random.

What Forfeiture of Shares Means

Forfeiture of shares means cancellation of shares because the shareholder failed to pay an amount that was due.

For example, a shareholder may fail to pay:

Unpaid amount	Where it can arise
Allotment money	When allotment becomes due but is not paid
First call	When the first call is unpaid
Final call	When the final call is unpaid
Premium due	When premium was due but not received

After forfeiture, the original shareholder loses the shares. The money already paid on those shares is not returned in normal accounting treatment. It is transferred to Share Forfeiture Account.

Think of Share Forfeiture Account as a temporary holding place.

It holds the amount already received on the forfeited shares until the company reissues those shares. After reissue, any profit left in this account is transferred to Capital Reserve.

What Reissue of Forfeited Shares Means

Reissue means the company gives the forfeited shares to another person.

Forfeited shares may be reissued:

Reissue type	Meaning
At par	Reissued at face value
At discount	Reissued below face value
At premium	Reissued above face value

The important point is this:

The discount on reissue is not treated like a fresh issue of shares at discount. It is adjusted against the amount already forfeited from the old shareholder.

So if Rs. 6 per share was forfeited, the maximum discount allowed on reissue is Rs. 6 per share. If the company gives only Rs. 2 discount, the remaining Rs. 4 per share becomes profit and is transferred to Capital Reserve.

The Three Accounts You Must Understand

Before writing entries, understand the role of the three main accounts.

Account	What it represents
Share Capital Account	The called-up value of shares
Calls in Arrears or unpaid call account	Amount due but not received
Share Forfeiture Account	Amount already received on forfeited shares
Capital Reserve Account	Profit after forfeited shares are reissued

Many mistakes happen because students put the wrong amount in Share Forfeiture Account.

Share Forfeiture Account does not mean unpaid money. It means money already received from the defaulting shareholder, usually excluding premium.

Entry for Forfeiture of Shares Issued at Par

When shares are issued at par, there is no premium. So the entry is quite direct.

Format

Particulars	Debit	Credit
Share Capital A/c Dr.	Called-up capital on forfeited shares
To Calls in Arrears A/c or unpaid call account		Amount not received
To Share Forfeiture A/c		Amount already received

This entry reverses the capital recorded for the forfeited shares.

Share Capital Account is debited because the company cancels the called-up share capital on those shares.

The unpaid amount is credited because it was receivable but will no longer be collected in the same way after forfeiture.

Share Forfeiture Account is credited with the amount already received.

Entry for Forfeiture When Premium Was Received

If shares were issued at premium and the premium was already received, the premium is usually not cancelled.

Why?

Because the company has already received it. So it remains in Securities Premium Reserve Account.

Format

Particulars	Debit	Credit
Share Capital A/c Dr.	Called-up capital on forfeited shares
To Calls in Arrears A/c or unpaid call account		Unpaid capital amount
To Share Forfeiture A/c		Capital amount already received

Notice that Securities Premium Reserve Account does not appear here when premium has already been received.

Entry for Forfeiture When Premium Was Not Received

This is where students often get confused.

If premium was due but not received, and it had already been credited to Securities Premium Reserve Account when allotment became due, then that unpaid premium has to be cancelled at forfeiture.

Format

Particulars	Debit	Credit
Share Capital A/c Dr.	Called-up capital on forfeited shares
Securities Premium Reserve A/c Dr.	Premium due but not received
To Share Allotment A/c or unpaid account		Amount unpaid, including premium
To Share Forfeiture A/c		Capital amount already received

The logic is clean:

The company cannot keep a premium reserve for premium it never received.

So Securities Premium Reserve Account is debited only for the premium that was due but unpaid.

Entry for Reissue of Forfeited Shares at Par

If forfeited shares are reissued at face value, the company receives the full amount.

Suppose shares of Rs. 10 each are reissued at Rs. 10 fully paid.

Particulars	Debit	Credit
Bank A/c Dr.	Amount received
To Share Capital A/c		Paid-up value of shares reissued

There is no discount and no new premium.

After this, the balance in Share Forfeiture Account related to these shares is transferred to Capital Reserve.

Entry for Reissue of Forfeited Shares at Discount

If forfeited shares are reissued below face value, the discount is debited to Share Forfeiture Account.

Suppose shares of Rs. 10 each are reissued at Rs. 8 fully paid.

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 8 per share
Share Forfeiture A/c Dr.	Rs. 2 per share discount
To Share Capital A/c		Rs. 10 per share

This does not mean the company has made a normal revenue loss.

The discount is adjusted from the amount already forfeited from the old shareholder.

Capital Reserve Transfer

After reissue, transfer the profit left in Share Forfeiture Account:

Particulars	Debit	Credit
Share Forfeiture A/c Dr.	Profit on reissue
To Capital Reserve A/c		Profit on reissue

The profit is calculated like this:

Amount forfeited on shares reissued - discount allowed on reissue

Entry for Reissue of Forfeited Shares at Premium

If forfeited shares are reissued above face value, the excess is credited to Securities Premium Reserve Account.

Suppose shares of Rs. 10 each are reissued at Rs. 12 fully paid.

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 12 per share
To Share Capital A/c		Rs. 10 per share
To Securities Premium Reserve A/c		Rs. 2 per share

After that, the old forfeited amount related to the reissued shares is transferred to Capital Reserve.

The Best Step-by-Step Method

Do not start with the journal entry. Start with workings.

Use this order:

1. Find the number of shares forfeited.
2. Find the face value per share.
3. Find the called-up amount per share at the date of forfeiture.
4. Find the amount unpaid per share.
5. Find the amount already received per share.
6. Credit Share Forfeiture Account with the amount already received.
7. Check the reissue price.
8. Compare reissue discount with the forfeited amount.
9. Transfer only the profit related to shares reissued to Capital Reserve.

Solved Example 1: Shares Issued at Par and Reissued at Discount

Sunrise Ltd. issued 1,000 equity shares of Rs. 10 each. The amount was payable as:

Stage	Amount per share
On application	Rs. 3
On allotment	Rs. 4
On first and final call	Rs. 3
Total	Rs. 10

All money was received except the first and final call. The company forfeited the shares and later reissued them at Rs. 8 per share as fully paid.

Step 1: Calculate Amount Called Up

The full Rs. 10 per share had been called.

1,000 shares x Rs. 10 = Rs. 10,000

So Share Capital Account will be debited by Rs. 10,000.

Step 2: Calculate Amount Unpaid

The unpaid amount is the final call of Rs. 3 per share.

1,000 shares x Rs. 3 = Rs. 3,000

Step 3: Calculate Amount Already Received

The company received application and allotment money:

Rs. 3 + Rs. 4 = Rs. 7 per share

So total received:

1,000 shares x Rs. 7 = Rs. 7,000

This is credited to Share Forfeiture Account.

Journal Entry for Forfeiture

Particulars	Debit	Credit
Share Capital A/c Dr.	Rs. 10,000
To Share First and Final Call A/c		Rs. 3,000
To Share Forfeiture A/c		Rs. 7,000

Step 4: Reissue Entry

The shares are reissued at Rs. 8 each as fully paid.

The paid-up value is Rs. 10 per share, but the company receives only Rs. 8 per share.

So the discount is:

Rs. 10 - Rs. 8 = Rs. 2 per share

Total discount:

1,000 shares x Rs. 2 = Rs. 2,000

Journal Entry for Reissue

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 8,000
Share Forfeiture A/c Dr.	Rs. 2,000
To Share Capital A/c		Rs. 10,000

Step 5: Transfer Profit to Capital Reserve

Amount forfeited was Rs. 7,000.

Discount on reissue was Rs. 2,000.

Profit:

Rs. 7,000 - Rs. 2,000 = Rs. 5,000

Journal Entry for Capital Reserve

Particulars	Debit	Credit
Share Forfeiture A/c Dr.	Rs. 5,000
To Capital Reserve A/c		Rs. 5,000

Solved Example 2: Premium Was Due but Not Received

Brightline Ltd. issued 500 shares of Rs. 10 each at a premium of Rs. 2 per share. The amount was payable as:

Stage	Amount per share
On application	Rs. 3
On allotment	Rs. 5, including Rs. 2 premium
On first and final call	Rs. 4
Total payable	Rs. 12

The shareholder paid application money only. Allotment and call money were not paid. The shares were forfeited and later reissued at Rs. 9 per share as fully paid.

Step 1: Amount Already Received

Only application money was received:

500 shares x Rs. 3 = Rs. 1,500

This amount goes to Share Forfeiture Account.

Step 2: Amount Unpaid on Allotment

Allotment due was Rs. 5 per share, including Rs. 2 premium.

500 shares x Rs. 5 = Rs. 2,500

Step 3: Amount Unpaid on Call

Call due was Rs. 4 per share.

500 shares x Rs. 4 = Rs. 2,000

Step 4: Unpaid Premium

Premium due but not received:

500 shares x Rs. 2 = Rs. 1,000

Because this premium was not received, it is debited to Securities Premium Reserve Account if it was already credited when allotment became due.

Journal Entry for Forfeiture

Particulars	Debit	Credit
Share Capital A/c Dr.	Rs. 5,000
Securities Premium Reserve A/c Dr.	Rs. 1,000
To Share Allotment A/c		Rs. 2,500
To Share First and Final Call A/c		Rs. 2,000
To Share Forfeiture A/c		Rs. 1,500

Step 5: Reissue at Rs. 9

The shares are reissued at Rs. 9 each as fully paid.

Paid-up value:

500 shares x Rs. 10 = Rs. 5,000

Cash received:

500 shares x Rs. 9 = Rs. 4,500

Discount:

Rs. 5,000 - Rs. 4,500 = Rs. 500

Journal Entry for Reissue

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 4,500
Share Forfeiture A/c Dr.	Rs. 500
To Share Capital A/c		Rs. 5,000

Step 6: Transfer Profit to Capital Reserve

Amount forfeited:

Rs. 1,500

Less discount on reissue:

Rs. 500

Profit:

Rs. 1,000

Particulars	Debit	Credit
Share Forfeiture A/c Dr.	Rs. 1,000
To Capital Reserve A/c		Rs. 1,000

Partial Reissue: The Most Important Trap

Sometimes all forfeited shares are not reissued.

For example, 1,000 shares were forfeited, but only 600 shares were reissued.

In that case, you cannot transfer the whole Share Forfeiture Account balance to Capital Reserve.

You can transfer only the profit related to the 600 shares reissued.

Quick Working

Suppose the amount forfeited was Rs. 6 per share.

Total amount forfeited on 1,000 shares:

1,000 x Rs. 6 = Rs. 6,000

Amount forfeited on 600 shares reissued:

600 x Rs. 6 = Rs. 3,600

If the shares are reissued at Rs. 9 each as fully paid, the discount is Rs. 1 per share:

600 x Rs. 1 = Rs. 600

Profit transferred to Capital Reserve:

Rs. 3,600 - Rs. 600 = Rs. 3,000

Balance left in Share Forfeiture Account for shares not yet reissued:

400 x Rs. 6 = Rs. 2,400

How to Check Your Answer

After writing the entries, do these checks:

Check	What to confirm
Forfeiture entry balances	Debit equals credit
Share Capital debit	Use called-up value, not always face value
Share Forfeiture credit	Use amount already received, not amount unpaid
Premium treatment	Debit unpaid premium only when required
Reissue discount	It must not exceed forfeited amount on shares reissued
Capital Reserve	Transfer only profit on shares reissued

These checks are simple, but they catch almost every mistake in this topic.

Common Mistakes Students Make

The first mistake is debiting Share Capital Account with the full face value when the full amount has not been called.

If a Rs. 10 share has only Rs. 8 called up, Share Capital Account is debited with Rs. 8 per share at forfeiture, not Rs. 10 per share.

The second mistake is treating unpaid money as Share Forfeiture.

Share Forfeiture Account is credited with money already received, not money still unpaid.

The third mistake is putting received premium into Share Forfeiture Account.

Premium received remains in Securities Premium Reserve Account. It is not a forfeiture gain.

The fourth mistake is transferring the full forfeiture balance to Capital Reserve even when only part of the forfeited shares are reissued.

Capital Reserve gets only the profit connected with reissued shares.

The fifth mistake is forgetting the discount limit.

If Rs. 4 per share was forfeited, the company cannot allow Rs. 5 per share discount on reissue in a normal forfeiture and reissue question.

A Simple Memory Line

Use this memory line:

Forfeit: cancel capital, remove unpaid, keep received.
Reissue: record new money, adjust discount, transfer leftover profit.

This line covers almost the whole topic.

Forfeiture is not just another journal entry. It is a story:

A shareholder promised to pay, paid part of the amount, and then defaulted. The company cancels those shares. The amount already received waits in Share Forfeiture Account. When the shares are reissued, any leftover benefit becomes Capital Reserve.

Once you follow that story, the entries become much easier to write neatly.

Frequently Asked Questions

What is forfeiture of shares in simple words?

Forfeiture of shares means cancellation of shares because the shareholder did not pay an amount due on those shares. The shareholder loses the shares, and the amount already paid is transferred to Share Forfeiture Account.

What is reissue of forfeited shares?

Reissue means giving the forfeited shares to a new holder. The shares may be reissued at par, at discount, or at premium, depending on the question.

What amount is credited to Share Forfeiture Account?

Share Forfeiture Account is credited with the amount already received on the forfeited shares, usually excluding premium. It is not credited with the amount that is still unpaid.

Can forfeited shares be reissued at discount?

Yes, forfeited shares can be reissued at discount, but the discount cannot exceed the amount forfeited on the shares being reissued.

Where is profit on reissue of forfeited shares transferred?

Profit on reissue of forfeited shares is transferred to Capital Reserve Account. The profit is the amount forfeited on the shares reissued minus any discount allowed on reissue.

What happens if only some forfeited shares are reissued?

Only the profit related to the shares actually reissued is transferred to Capital Reserve. The balance related to shares not yet reissued remains in Share Forfeiture Account.

Is Securities Premium Reserve debited at forfeiture?

It is debited only when premium was due but not received and had already been credited earlier. If premium was already received, it usually remains in Securities Premium Reserve Account.

What is the easiest way to solve forfeiture and reissue entries?

First find three amounts: called-up amount, unpaid amount, and amount already received. Then write the forfeiture entry. After that, compare the reissue price with the paid-up value and transfer the remaining profit to Capital Reserve.