Forfeiture - no adjustment of security premium received


When a Company forfeits some shares, it passes the following entry and
adjusts/transfers amounts accordingly:

Share Capital A/c Dr (No. of shares forfeited × Called up value per
Securities Premium A/c Dr. (if issued at a premium and premium not
 To Calls-in-Arrear A/c (amount not received on forfeited shares)
 To Shares Forfeited A/c (amount received on forfeited shares)
 To Discount on Issue of Shares A/c (if issued at a discount)

But there is no entry for security premium already received on those
shares, why those premium amounts received are not transferred to
share forfeiture account?

Any practical experience in this regard or else comments on this are


shivam gupta (Student)     14 March 2012

shivam gupta
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The Latest Technology Company Ltd. offered to public for subscripttion of
50,000 shares of Rs. 20 each at a premium of Rs. 5 per share. The amount
was payable as under:
On application Rs. 5 per share
On allotment Rs. 12 per share (Including premium of Rs 5
per share)
On first call Rs. 4 per share
On Second and Final call Rs. 4 per share
Applications were received for all the shares. Allotment was made to all
the applicants in full. Ashima failed to pay allotment and call money on
200 shares held by her. Reshma was allotted 300 shares. She did not pay
the call money. Their shares were forfeited. Make necessary journal entry
for the forfeiture only.
(i) Share Capital A/c (200  × 20)        Dr. 4000
Securities Premium A/c (200 × 5)     Dr. 1000
To Share Forfeited A/c (200  × 5)                      1000
To Share Allotment A/c (200  × 12)                   2400
To Share First Call A/c (200  × 4)                        800
To Share Second and Final call A/c (200 × 4)  800
(Forfeiture of 200 shares held by Ashima
who did not pay allotment and call money).
(ii) Share Capital A/c (200  × 20)     Dr. 6000
To Shares forfeited A/c                                     3600
To Share First Call A/c                                     1200
To Share Second Call A/c                               1200
(Forfeiture of 300 shares held by Reshma)
the share premium a/c is debited only to cancel the security premium a/c because while making the allotment due the following entries would have been passed (only ashima's case )
Share allotment a/c       Dr.   (200 x12)      2400
   To Share premium a/c   (200x 5)            1000
   To share capital               (200 x 7)           1400
so the debit of share premium at the time of passing the entry of  forfeiture of share is mere a cancellation of share premium a/c 
because if we donot debit the share premium a/c then the Premium a/c will always be in books of  accounts while the payment of the premium has not received by co. hence it will become a ficticious 
i hope u will understand  


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thanx shivam for your detailed explanation on the my query,


however you missed out my main query that is the amount of security premium received on forfeited shares, why those amount are not transferred to share forfeiture a/c.

in entry form : 

Share premium a/c Dr

        To Share forfeiture a/c 


In your example case: reshma had paid premium money with allotment money but those premium amount at the time of forfeiture not transferredd to share forfeiture a/c . Why so?



shivam gupta (Student)     15 March 2012

shivam gupta
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Dear nihar,

 If u r buying 100 shares of reliance of Rs. 500each share , out of which 100 is Face value & the remaining is Premium amount, 

then u will pay 50000 rs. but how much co. is liable to repay u that will be 10000 ur shares face value

u will get dividend on Rs. 10000 not on 50000, what does it depict is that ur 40000 is having no relevance with ur share capital 

now i m coming at ur query

if the amount of share premium has received by the co.then in that case the same amount will be transferred in share premium a/c & because of the amount of premium has been received by theco. hence sec 78 of co. act shall apply which commands a company to where the share premium amount should be utilised . i m providing the words  of the same act underneath of this paragraph



a) in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares;


(b) in writing off the preliminary expenses of the company;


(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; or


(d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company

  & always remember the discount on reissue of share shall be compensated by share forefeiture a/c &  


i hope now u will understand but however if u have any further query on that i will try to solve it ok 



exactly when the discount get adjusted from share forfeiture a/c, why not the premium gets credited to it too.


I guess as the law is silent on this issue it is a usual practice by the companies to let the premium in the securities premium a/c only and further utilise it for the purposes as mentioned in the Section 78(2).


shivam gupta (Student)     15 March 2012

shivam gupta
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If u read about reissue of forfeited share u will get to know that a co. cannot issue such share on discount ,if the amount of discount is more than the amount of forfeiture so either the share forefeiture a/c will become zero or may be some amount remained in it which will eventually transferred in Capital reserve a/c since its a capital gain.

&i think u have already read sec 78 of co.

there was no provision permitted by law in that section for writing off discount amount on reissue of forfeited shares such amount will only be written off by share forfeiture a/c. 


Dipesh Bhoir (student)     15 March 2018

Dipesh Bhoir
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