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Debenture forfeiture

M Iffi (44 Points)

10 December 2022

can debenture be forfeited like share and reissued

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8 Replies

Yasaswi Gomes new (Finance ) (4474 Points)
Replied 10 December 2022

Yes they can be. In many countries there is no forfeiture accounting i heard. I think the flow goes like this

Bank dr

Share application cr

Instead of passing allotment because shres will be allotted anyways after application money is received, allotment entry can be made redundant

Share application dr.

Share/debenture capital cr

When it is forfeited

Share/debentuee capital dr.

Forfeiture cr

There is another entry which shows amount due but that wont be necessary cause we only recognise what we receive.

When the person leaves off the money it can be shown as profit

Forfeiture a/c dr

Profit on forfeiture / capital reserves cr

Or when you reissue it to the same person for same price

Forfeiture dr 100

Bank dr 100

Share / debenture capiral cr 200

That leaves the bank account to be reconciled . That means 100 forfeited is reversed and 100 received for further calls recogniaed in share capital

sabyasachi mukherjee (26047 Points)
Replied 11 December 2022

The only difference between share and debenture is the basic one. Debenture is a loan .Share is an application for either increasing capital or right issue. There are are other minor differences.

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Yasaswi Gomes new (Finance ) (4474 Points)
Replied 11 December 2022

Sorry got carried away cause i was answering this question after more than 2 years. Yes debenthres can be forfeited but the am8unt cannot be kept as profits not unless the court gives the permission if they fail to make payments completely. Until then it charges interest.

capital dr

Forfeiture cr

And

Bank dr

Interest on due balance cr.

Yasaswi Gomes new (Finance ) (4474 Points)
Replied 11 December 2022

I have tried to search for provisions regarding forfetures and couldnt find any. Hence we can forfeit and reissue it to the same person. Otherwise companies can go bankrupt. Im just skeptical about it.

M Iffi (44 Points)
Replied 11 December 2022

If no provisions exist then what is to be done when a person doesn't pay allotment or call for debentures

Yasaswi Gomes new (Finance ) (4474 Points)
Replied 11 December 2022

The corporate givernance implemets these laws on ths contract to reduce agency costs due to conflicts. So codes are defined by corporate directors and they will know what to do. Accounting wise there is nothing wrong to forfeit and go to a court and reissue or transfer it to capital reserves. So what is there on the contract is very important. Abstract of what agency theory means https://www.accaglobal.com/pk/en/student/exam-support-resources/professional-exams-study-resources/strategic-business-leader/technical-articles/corporate-governance-inside-out.H T M L

sabyasachi mukherjee (26047 Points)
Replied 12 December 2022

These are not relevant.

Yasaswi Gomes new (Finance ) (4474 Points)
Replied 12 December 2022

Well in MNC they do work on codes. Financial governance is an important part. MIS especially plays a crucial role. Otherwise why will anyone ask such a doubt if the procedures are well defined. Kaka hotels can dont need all of these thoughts but not bahemoth corporations. The failure of financial governance led to 2008 recession due to inexperienced auditors. What happened after recession is, they just changed few softwares but havent defined the modus operendi