Corporate Accounting and Auditing · Issue, Forfeiture, Rights, Bonus, Sweat Equity, ESOP and Buy-back of Shares

Forfeiture and Reissue of Shares: Journal Entries and Problems

Updated 10 October 2026 · Fact-checked

Forfeiture is the cancellation of shares when a shareholder fails to pay a call, as the company's articles allow. You debit share capital with the called-up amount, credit the unpaid calls, and credit Forfeited Shares Account with the amount paid. On reissue, any balance left in that account goes to Capital Reserve.

Understand Forfeiture and Re-issue of Shares

A company can call money on shares in instalments. If a shareholder does not pay a call, the articles usually let the directors give notice and then forfeit the shares. The shareholder loses the shares and the money already paid. The company keeps that money.

Forfeiture is a cancellation of shares, not a refund. The shares are removed from share capital at the amount that was called up. The amount the shareholder had paid on share capital is the company's gain for now. Any securities premium already received is excluded from this amount and stays in Securities Premium. The amount paid on share capital is credited to the Share Forfeiture Account until the shares are reissued.

The company can then reissue the forfeited shares. It may reissue them at par, at a discount or at a premium. The new buyer is treated as holding shares that are fully paid up to the amount credited. Under section 53 of the Companies Act, 2013, a company cannot issue shares at a discount, and a share issued at a discount is void. So a reissue at a loss is acceptable only because the discount is absorbed by the amount forfeited from the original holder. The discount allowed on reissue must not exceed the amount in the Forfeited Shares Account that relates to those shares. That is the maximum discount rule. It is an accounting limit, not a section of the Act.

After the reissue, the discount is debited to the Forfeited Shares Account. Any balance left for the reissued shares is a capital profit. You transfer it to Capital Reserve. If the shares were originally issued at a premium and the premium was not received, you must debit Securities Premium for it at forfeiture. If it was received, it stays credited to Securities Premium and is not touched.

Section 52 requires the premium received on shares to be credited to the securities premium account. That is why forfeiting shares on which the premium was already received does not reduce the securities premium balance.

Key rules to remember

Forfeiture entry (shares issued at par): Share Capital A/c (called-up amount) Dr. To Calls in Arrear A/c (unpaid) To Share Forfeiture A/c (amount paid); Called-up value is debited, not the face value, if some calls are yet to be made.
Forfeiture entry when the premium was not received: Share Capital A/c (called-up) Dr. Securities Premium A/c (unpaid premium) Dr. To Calls in Arrear A/c To Share Forfeiture A/c; Debit Securities Premium only for premium that was due but unpaid. Premium already received is not reversed.
Amount forfeited: Amount forfeited = Amount actually received on the shares (excluding any premium received and retained in Securities Premium); Credit to Share Forfeiture A/c equals the money received, less the premium received if premium was received.
Reissue entry: Bank A/c (cash received) Dr. Share Forfeiture A/c (discount allowed) Dr. To Share Capital A/c (amount treated as paid up); If reissued at a premium, credit the extra to Securities Premium.
Maximum discount on reissue: Maximum discount = Amount forfeited on the shares reissued (for all shares reissued, the forfeiture credit of those shares); If only part of the forfeited shares are reissued, use the proportionate forfeiture amount.
Capital Reserve on reissue: Capital Reserve = Share Forfeiture balance for shares reissued − Discount allowed on reissue; Transfer this to Capital Reserve. Any balance for unissued forfeited shares stays in the Forfeiture Account.
Pro rata forfeiture amount: Forfeiture amount of shares reissued = Total forfeited amount × (Shares reissued ÷ Shares forfeited); Use when only some of the forfeited shares are reissued and all were forfeited at the same rate.

How to solve Forfeiture and Re-issue of Shares questions

Follow the same order for every forfeiture and reissue problem. It stops you mixing up called-up amounts, premium and discount.

1Read the original issue terms: face value, premium, and when each instalment was called.
2Find what was called up and what was actually paid by the defaulting holders. Work out the unpaid calls, with premium shown separately.
3Pass the forfeiture entry: debit Share Capital at the called-up amount and any unpaid premium to Securities Premium, credit Calls in Arrear and Share Forfeiture.
4Work out the forfeiture amount per share and for the shares to be reissued.
5Pass the reissue entry: debit Bank with cash received and Share Forfeiture with the discount, credit Share Capital with the amount treated as paid up. Credit Securities Premium if reissued above par.
6Check that the discount does not exceed the forfeiture amount of those shares.
7Transfer the balance of the Share Forfeiture Account for the reissued shares to Capital Reserve.
8Show the resulting balances if the question asks for them, and keep the Forfeiture Account for any unissued forfeited shares.

Quickest way: Forfeiture account shortcut

When to use it: Use it when the question asks only for the amount of capital reserve or the maximum discount, and no journal entries.

Find the forfeiture amount for the shares in question: money received less any premium that stays in Securities Premium.
Scale it to the shares reissued if only some are reissued.
Subtract the discount allowed on reissue from that amount.
The result is the Capital Reserve. If the question asks for maximum discount, the forfeiture amount itself is the answer.
Write one line each for forfeiture, reissue and transfer so you still earn step marks.

Common mistakes in Forfeiture and Re-issue of Shares

Debiting Share Capital with face value instead of the called-up amount.
Students forget that the final call may not have been made.
Fix: Always debit Share Capital with the amount called up on the forfeited shares.
Reversing the premium that was already received.
Students think forfeiture cancels everything about the shares.
Fix: Debit Securities Premium only for premium due but not received. Received premium stays.
Allowing a discount larger than the forfeiture amount.
The discount is compared with face value, not with the forfeited money.
Fix: Check that discount is not more than the forfeiture credit for those shares.
Transferring the whole Share Forfeiture balance to Capital Reserve when only some shares are reissued.
Students ignore that the balance relates to unissued shares too.
Fix: Transfer only the proportionate amount for the reissued shares.
Crediting Share Capital with cash received at reissue.
Cash and the amount treated as paid up look the same when there is no discount.
Fix: Credit Share Capital with the paid-up value, and show the discount as a debit to Share Forfeiture.
Forgetting that securities premium on reissue is credited as premium, not as capital reserve.
Students mix the two reserves.
Fix: A reissue above par adds to Securities Premium. Capital Reserve comes only from the forfeiture balance.

Worked examples

Example 1

Rathi Ltd issued 1,000 equity shares of ₹10 each at par. Ramesh, who held 100 shares, paid ₹3 on application and did not pay the allotment call of ₹4 or the first and final call of ₹3. All 100 shares were forfeited. Of these, 60 shares were reissued at ₹8 per share as fully paid. Pass the journal entries and find the capital reserve.

Show the solution

Forfeiture: all calls are due, so called-up is ₹10 per share. Share Capital debit = 100 × ₹10 = ₹1,000.
Money received = 100 × ₹3 = ₹300. Calls in arrear = ₹700 (allotment ₹400 + final call ₹300).
Entry: Share Capital A/c Dr. ₹1,000; To Calls in Arrear A/c ₹700; To Share Forfeiture A/c ₹300.
Reissue of 60 shares at ₹8 as fully paid: cash = 60 × ₹8 = ₹480. Discount = 60 × ₹2 = ₹120.
Forfeiture amount on 60 shares = ₹300 × 60 ÷ 100 = ₹180. Discount ₹120 is less than ₹180, so it is allowed.
Entry: Bank A/c Dr. ₹480; Share Forfeiture A/c Dr. ₹120; To Share Capital A/c ₹600.
Capital Reserve = ₹180 − ₹120 = ₹60. Entry: Share Forfeiture A/c Dr. ₹60; To Capital Reserve A/c ₹60.
The remaining ₹120 in Share Forfeiture relates to the 40 unissued shares and stays there.

Answer: Capital Reserve = ₹60. Share Forfeiture Account keeps ₹120 for the 40 shares not yet reissued.

Example 2

Shreya Ltd issued 500 equity shares of ₹10 each at a premium of ₹2. Mohan, holding 50 shares, paid ₹3 on application and ₹5 on allotment (including the full premium of ₹2). He failed to pay the final call of ₹4. His shares were forfeited and then reissued at ₹9 per share fully paid. Find the amount credited to Share Forfeiture and the capital reserve, and pass the entries.

Show the solution

Called-up on shares = ₹10 face value including final call. Share Capital debit = 50 × ₹10 = ₹500.
Money received = 50 × (₹3 + ₹5) = ₹400. This includes premium 50 × ₹2 = ₹100, which stays in Securities Premium.
Forfeiture amount = ₹400 − ₹100 = ₹300. Calls in arrear = 50 × ₹4 = ₹200.
Entry: Share Capital A/c Dr. ₹500; To Calls in Arrear A/c ₹200; To Share Forfeiture A/c ₹300.
Reissue at ₹9 as fully paid: cash = 50 × ₹9 = ₹450. Discount = 50 × ₹1 = ₹50.
Entry: Bank A/c Dr. ₹450; Share Forfeiture A/c Dr. ₹50; To Share Capital A/c ₹500.
Capital Reserve = ₹300 − ₹50 = ₹250. Entry: Share Forfeiture A/c Dr. ₹250; To Capital Reserve A/c ₹250.

Answer: Share Forfeiture credit = ₹300. Capital Reserve = ₹250.

Exam tips

Write the forfeiture amount in a working note first. Every later figure depends on it.
State whether premium was received. Examiners check this and it decides the Securities Premium entry.
Show the maximum discount check in one line to earn a step mark.
For MCQs, compute capital reserve as forfeiture amount for reissued shares minus discount. There is no negative marking, so always answer.
Keep the capital reserve transfer as a separate journal entry and label it clearly.

Practice questions from Issue, Forfeiture, Rights, Bonus, Sweat Equity, ESOP and Buy-back of Shares

Forfeiture and Re-issue of Shares in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Forfeiture and Re-issue of Shares: frequently asked questions

What is the maximum discount on reissue of forfeited shares?

The discount cannot exceed the amount forfeited on the shares being reissued. If only some shares are reissued, use the proportionate forfeiture amount. This keeps the company from reducing its paid-up capital below the called-up value.

How do I calculate capital reserve on reissue?

Take the Share Forfeiture balance that relates to the reissued shares and subtract the discount allowed. The result is a capital profit and is transferred to Capital Reserve. Any balance for unissued forfeited shares stays in the Forfeiture Account.

What happens to securities premium when shares are forfeited?

If the premium was already received, it stays in Securities Premium and is not reversed. If the premium was due but not paid, you debit Securities Premium with it in the forfeiture entry. Section 52 requires premium received to be credited to the securities premium account.

Can a company issue shares at a discount?

Under section 53 of the Companies Act, 2013, a company cannot issue shares at a discount, except as section 54 allows, and a discounted share is void. A reissue at less than par is treated differently in accounts because the discount is met from the amount forfeited from the earlier holder.