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CSEET · Fundamentals of Accounting · Introduction to Company Accounts

A company forfeits shares for non-payment of a call. Which account is credited with the amount already received from the defaulting shareholder on those shares (excluding any premium dealt with separately), when the forfeiture entry is passed?

The amount already received from the defaulting shareholder is credited to Share Forfeiture Account at the time of forfeiture. Share Capital is debited by the called-up amount, and the capital reserve arises only later, after re-issue, from any surplus balance.

  1. AShare Forfeiture AccountCorrect
  2. BShare Capital Account
  3. CSecurities Premium Account
  4. DCapital Reserve Account

Explanation

On forfeiture, the share capital account is debited with the called-up amount, the unpaid calls are credited, and the amount actually received is credited to Share Forfeiture Account. Capital Reserve arises only after re-issue, from the balance left in the forfeiture account. So Share Forfeiture Account is correct.

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