After re-issue of forfeited shares, balance of share forfeiture account is transferred to:
Understanding Share Forfeiture and Re-issue
When a shareholder fails to pay the calls on shares, the company may take back or cancel those shares. This process is known as share forfeiture. The amount already paid by the shareholder on these forfeited shares is retained by the company.Accounting for Forfeited Shares
The amount received on forfeited shares becomes a capital gain for the company, but it cannot be directly transferred to profit and loss. Initially, this amount is credited to a separate account called the Share Forfeiture Account.Re-issue of Forfeited Shares
The company can decide to re-issue these forfeited shares to new or existing shareholders. When re-issuing these shares, the company might offer them at a discount. The maximum discount allowed on re-issue is limited to the amount originally received on those specific forfeited shares that were subsequently forfeited.Adjusting Discount on Re-issue from Share Forfeiture Account
Any discount allowed on the re-issue of forfeited shares is debited to the Share Forfeiture Account. This uses up a portion of the amount previously credited to this account when the shares were forfeited.Transferring the Balance of Share Forfeiture Account
After the re-issue process is completed, there is often a balance left in the Share Forfeiture Account. This balance represents the amount originally received on the share forfeiture that was not used to cover the discount on re-issue. This remaining balance is a capital gain. According to accounting principles, capital gains that are not derived from the normal course of business are typically transferred to the Capital Reserve Account. Therefore, the balance of the Share Forfeiture Account, after adjusting for any discount on the re-issue of forfeited shares, is transferred to the Capital Reserve Account. This is a crucial step in the accounting treatment of share forfeiture and subsequent re-issue. Here's a summary of the process regarding the share forfeiture balance transfer:- Shares are forfeited due to non-payment of calls.
- Amount paid on forfeited shares is credited to Share Forfeiture Account.
- Forfeited shares are re-issued, potentially at a discount.
- Discount on re-issue is debited to Share Forfeiture Account.
- Remaining balance in Share Forfeiture Account is a capital gain.
- This balance is transferred to the Capital Reserve Account.
Important Questions from Shares
Discount allowed on the reissue of forfeited shares cannot exceed
Rate of return on equity share capital is calculated after deducting _____ and _____ from the net profit before interest.
Which of the following statements are true?
1. A company cannot purchase its own equity shares.
2. A company can issue its shares at a discount by passing a special resolution.
3. The interest rate charged on calls-in-arrear and the interest rate payable on calls-in-advance are the same as per provisions of Table-F of Schedule-I of the Companies Act, 2013.
Identify the correct statements in context of equity financing.
A. Borrowing limit increases as a consequence of increase in number of shares.
B. Ordinary shares are generally not redeemable.
C. Issue of new shares dilutes the EPS if the profits do not increase immediately in proportion to increase in number of shares.
D. A company is not legally oblidged to pay dividend.
E. Ordinary shares are less riskier from investor's perspective.
Choose the correct answer from the options given below:
The effect of surrender of shares is the same as of shares':
