Corporate Accounting and Financial Management · Accounting for Share Capital

Forfeiture and Re-issue of Shares: Entries and Capital Reserve

Updated 11 October 2026 · Fact-checked

Forfeiture is the cancellation of shares when a shareholder fails to pay a call. Debit share capital with the amount called up, credit unpaid calls and the forfeited shares account with the amount received. On re-issue, any discount allowed is debited to forfeited shares account, and the balance left there goes to capital reserve.

Understand Forfeiture and Re-issue of Shares

A company allots shares and collects the money in instalments: application, allotment and calls. If a shareholder does not pay a call, the company may forfeit the shares if its articles allow this and the notice procedure is followed. The shareholder loses the shares and the money already paid.

On forfeiture, the shares are cancelled. You remove the share capital that was called up, remove the unpaid calls (calls in arrears), and credit the money already received to a Forfeited Shares Account. If the shares were issued at a premium and the premium was not received, the premium is also reversed (debit securities premium). If the premium was already received, it is not reversed.

The company can then re-issue the forfeited shares. It may re-issue at par, at a premium or at a discount. A discount on re-issue is accepted by accounting convention and practice, but it cannot exceed the amount in forfeited shares account for those shares. Be careful with the law here. Section 53 says that, except as provided in section 54, a company shall not issue shares at a discount, and a share issued at a discount is void. Section 53 has no separate exception for re-issue of forfeited shares, so the re-issue discount is not a statutory exception. The practice rests on the cap: the new holder's payment plus the amount already forfeited at least equals the paid-up value of the share, so the shares are not effectively issued below their paid-up value.

After re-issue, the balance left in forfeited shares account for the re-issued shares is a gain. It is a capital profit, so you transfer it to Capital Reserve. Any forfeited amount on shares not yet re-issued stays in forfeited shares account and is shown under share capital in the balance sheet.

Key rules to remember

Forfeiture entry: Share Capital A/c (called-up amount) Dr; to Calls in Arrears A/c (unpaid); to Forfeited Shares A/c (amount received); If premium was due but unpaid, also debit Securities Premium A/c with that unpaid premium.
Amount in forfeited shares account: Forfeited amount = Amount actually received on the shares (excluding any premium already received); Premium already received is not reversed on forfeiture. This follows accounting practice. Section 52(1) only requires premium received to be credited to securities premium account.
Re-issue entry: Bank A/c Dr (cash received); Forfeited Shares A/c Dr (discount allowed); to Share Capital A/c (face value paid-up shown); Credit share capital with the full paid-up value at which the shares are treated as issued.
Capital reserve on re-issue: Capital Reserve = Forfeited amount on re-issued shares − Discount allowed on re-issue; Transfer only the portion relating to the shares actually re-issued. If only part of the lot is re-issued, use a proportionate share of the forfeited amount.
Limit on discount: Discount on re-issue ≤ Forfeited amount on those shares; This cap is accepted accounting and legal practice. It ensures the new holder's cash plus the forfeited amount at least equals the paid-up value. Section 53 itself prohibits issue at a discount and does not mention forfeited amounts or a re-issue exception.
Legal rule on discount: Section 53(1)-(2): shares shall not be issued at a discount, except as provided in section 54; a share so issued is void; Section 52(1) requires the premium received on shares issued at a premium to be transferred to the securities premium account. Not reversing it on forfeiture is a matter of accounting practice.

How to solve Forfeiture and Re-issue of Shares questions

Use the same sequence for every forfeiture question. Work per share first, then multiply by the number of shares.

1List the face value, premium (if any), and the amount called and received on each instalment for the forfeited shares.
2Find the amount received per share. Separate premium received from share capital received.
3Pass the forfeiture entry: debit Share Capital with the called-up amount (and Securities Premium with any unpaid premium), credit Calls in Arrears and Forfeited Shares Account with the amount received.
4Pass the re-issue entry: debit Bank with cash received and Forfeited Shares Account with the discount; credit Share Capital with the paid-up value. Credit Securities Premium if re-issued above face value.
5Check that discount on re-issue does not exceed the forfeited amount on those shares.
6Compute capital reserve: forfeited amount on re-issued shares less discount allowed. Pass the transfer entry: Forfeited Shares A/c Dr to Capital Reserve A/c.
7Show any balance left in forfeited shares account for unsold shares in the balance sheet under share capital.

Quickest way: Three-number shortcut

When to use it: Use it when the question asks only for the forfeited amount, the discount or the capital reserve, not full journals.

Write the amount received per share on forfeited shares (ignore premium already received if you want only the forfeited share capital figure).
Subtract the discount per share given on re-issue.
Multiply by the number of shares re-issued. The result is the capital reserve.
Cross-check: the new holder's cash plus the forfeited amount on those shares (share capital portion only) should equal the paid-up value plus the capital reserve.

Common mistakes in Forfeiture and Re-issue of Shares

Crediting Forfeited Shares Account with the full called-up amount instead of the amount received.
Students confuse called-up amount with paid-up amount.
Fix: Credit Forfeited Shares only with cash actually received. The unpaid part goes to Calls in Arrears.
Reversing securities premium that was already received.
Students assume premium always goes back on forfeiture.
Fix: Debit Securities Premium only for premium that was due but not paid. Received premium stays.
Transferring the whole forfeited shares balance to capital reserve when only some shares are re-issued.
Students ignore that unsold shares still have a forfeited amount.
Fix: Transfer only the amount relating to re-issued shares, less the discount on them.
Debiting discount on re-issue to Profit and Loss or a discount account.
Discount on issue is normally treated as a loss elsewhere.
Fix: Debit the discount on re-issue to Forfeited Shares Account.
Crediting share capital with only the cash received on re-issue.
Students forget that the new holder is treated as having paid up the full amount.
Fix: Credit Share Capital with the paid-up value, and debit Forfeited Shares with the difference.
Allowing a discount greater than the forfeited amount.
The limit is not checked before pricing the re-issue.
Fix: Always confirm discount per share ≤ forfeited amount per share.

Worked examples

Example 1

Sundaram Textiles Ltd issued 1,000 shares of ₹10 each at par. Ravi, holding 100 shares, did not pay the final call of ₹3 per share. His shares were forfeited. Pass the forfeiture entry. Then 60 of these shares were re-issued at ₹8 per share fully paid. Pass the re-issue entry and compute the capital reserve.

Show the solution

Called up per share is ₹10 and received is ₹7 (₹10 − ₹3 unpaid).
Forfeiture: Share Capital A/c Dr ₹1,000 (100 × ₹10); to Calls in Arrears A/c ₹300; to Forfeited Shares A/c ₹700.
Forfeited amount per share is ₹7. Re-issue at ₹8 means discount of ₹2 per share, which is below ₹7, so it is allowed.
Re-issue of 60 shares: Bank A/c Dr ₹480 (60 × ₹8); Forfeited Shares A/c Dr ₹120 (60 × ₹2); to Share Capital A/c ₹600.
Forfeited amount on 60 shares is 60 × ₹7 = ₹420. Capital reserve = ₹420 − ₹120 = ₹300.
Transfer: Forfeited Shares A/c Dr ₹300; to Capital Reserve A/c ₹300. The remaining ₹280 (40 × ₹7) stays in forfeited shares account.

Answer: Forfeited shares credited ₹700; re-issue of 60 shares at ₹8 gives a capital reserve of ₹300; ₹280 remains in forfeited shares account.

Example 2

Kaveri Industries Ltd issued 500 shares of ₹10 each at a premium of ₹2, payable ₹3 on application, ₹5 on allotment (including premium ₹2) and ₹4 on call. Meena holding 50 shares paid application and allotment but did not pay the call. Her shares were forfeited and then re-issued at ₹9 per share as fully paid. Pass the entries and find the capital reserve.

Show the solution

Received per share: ₹3 + ₹5 = ₹8, of which ₹2 is premium already received and ₹6 is share capital.
Called-up share capital is ₹10 and unpaid call is ₹4.
Forfeiture: Share Capital A/c Dr ₹500 (50 × ₹10); to Calls in Arrears A/c ₹200 (50 × ₹4); to Forfeited Shares A/c ₹300 (50 × ₹6). Premium received is not reversed.
Re-issue at ₹9 with ₹10 paid-up: discount ₹1 per share, total ₹50. Entry: Bank A/c Dr ₹450; Forfeited Shares A/c Dr ₹50; to Share Capital A/c ₹500.
Capital reserve = ₹300 − ₹50 = ₹250.
Transfer: Forfeited Shares A/c Dr ₹250; to Capital Reserve A/c ₹250.

Answer: Forfeited shares account is credited ₹300; on re-issue the discount is ₹50; capital reserve is ₹250.

Exam tips

Write the forfeiture entry first and show working per share. Examiners award marks for each correct line.
State the legal point in one line: section 53 prohibits issue of shares at a discount, and re-issue discount is accepted in practice only up to the forfeited amount.
Always check whether premium was received. This decides whether securities premium is debited.
In part re-issue questions, apportion the forfeited amount before computing capital reserve.
Show the capital reserve transfer as a separate journal entry and state the balance remaining in forfeited shares account.

Practice questions from Accounting for Share Capital

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 journal entry for forfeiture of shares?

Debit Share Capital with the called-up amount. Credit Calls in Arrears with the unpaid amount and Forfeited Shares Account with the amount received. If premium was due but unpaid, also debit Securities Premium.

How do you calculate capital reserve on re-issue of forfeited shares?

Take the forfeited amount on the shares re-issued and subtract the discount allowed on re-issue. The balance is a capital profit and is transferred to Capital Reserve.

Is premium reversed when shares issued at a premium are forfeited?

Only if the premium was not received. Section 52(1) requires premium received to be credited to securities premium account. By accounting practice, premium already received is not reversed on forfeiture.

Can forfeited shares be re-issued at a discount?

Yes, in accounting practice, but the discount cannot exceed the forfeited amount on those shares. This keeps the new holder's cash plus the forfeited amount at least equal to the paid-up value. Section 53 itself prohibits issue at a discount and has no re-issue exception, so present this as accepted practice and not as a statutory rule.