Treatment of security premium on re-issue of forfieted share

the companies act specifies that securities premium should always be credited ,because it cn be useful in following cases

1.issue of fully paid up bonus shares to members

2.to write off against preliminary expenses

3.in case paying commission,discount allowed or for issue of debentures

4.redemption of debentures or prefernce shares

because of all the thngs cn only possible to a company wen pemium is to be credited..........nd have a beficial also

because earlier  sec. premium a/c debited at the time of forfietre...and at the time of  re issued, it is assumed that they are re issud at premium....so again sec. pre. a/c credited.

at the time of forfeitre entry is, if sec. prem. not received:

share capital a/c    Dr.

sec. prem. a/c       Dr.

     To 1st call a/c

    To alloment a/c

     To Share forfeiture a/c

Mr. Kanak is absolutely right.  Actually those shares which are initially issued on premium, if reissued after forfeiture are assumed to be issued on premium.  Hence out of Rs.8 received, Re. 1 is towards security premium/  Due to this treatment the security premium always remains in proportion to the number of shares issued.  For example in this case share capital will show Rs. 30 and Security Premium account will show Rs. 3 (10% of Rs.30, share capital).  I hope the whole matter is now clear.

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