Explain what are Forfeited Shares, what are the ways to deal with forfeited shares and the bookkeeping or accounting double entry system when dealing with forfeited shares

March 6th, 2011 / No comments yet
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Forfeited shares 

  • When a shareholder is unable or unwilling to pay the calls made by the company on his or her shares, the directors have the power to forfeit the shares. Once the shares have been forfeited the person concerned is no longer a shareholder in respect of those shares forfeited.

How to deal with forfeited shares:

Directors can:

  • Re-issue the shares and the amount received on re-issued plus the amount received from the original shareholder should at least be equal to the called-up value where the shares are not fully called up, or to the nominal value where the full amount has been called up.

Bookkeeping or Accounting Double entry system dealing with Forfeited shares:

TRANSACTIONS DEBIT CREDIT
Called-up value of shares forfeited Ordinary Share account Forfeited shares account
Calls in arrears on forfeited shares Forfeited Shares account Call account
Paid-up value of forfeited shares re-issued Re-issue of Forfeited Shares Account Ordinary Share Capital account
Amounts received prior to forfeiture of shares Forfeited shares account Re-issue of Forfeited Shares account
Moneys received on re-issued shares Bank account Re-issue of Forfeited Shares account
Gain on re-issue, being balance in the re-issued of Forfeited Shares Account Re-issue of Forfeited Shares account Share Premium Account
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