Question

A company’s capital consists of 100 000 ordinary shares issued at $2 and paid to $1 per share. On 1 September, a first call of 50c was made on the ordinary shares. By 30 September, the call money received amounted to $45 000. No further payments were received, and on 31 October, the shares on which calls were outstanding were forfeited. On 15 November, the forfeited shares were reissued as paid to $1.20 for a payment of $1 per share. The appropriate cash amount from the reissue was received on 19 November. Costs of reissue amounted to $2 500. The company’s constitution provided for any surplus on resale, after satisfaction of unpaid calls, accrued interest and costs, to be returned to the shareholders whose shares were forfeited. The entry to record the forfeiture of shares is: isn this answar correct *a. Share capital Dr 25 000 First call — ordinary shares Cr 5 000 =10000*0.5 Forfeited shares Cr 20 000=10000* The entry to record the reissue of forfeited shares is: *a. Cash Dr 10 000 Forfeited shares Dr 2 000 Share capital — ordinary Cr 12 000 The amount of the surplus payable to the shareholders whose shares were forfeited is: a. $2 500 b. $5 000 *c. $5 500 d. $10 000

Answer 1

Forfeiture of shares: Share capital account will be debited with the called-up value of shares forfeited. Calls account will be credited with the amount due but not paid by shareholder. Forfeited shares account will be credited with the amount already received in respect of those shares.

Particulars	Amount
Total call amount [100,000*0.5]	50,000
Received call amount [90,000*0.5]	(45,000)
Pending call amount [10,000*0.5]	5,000
Pending call shares	10,000

Entry for forfeiture of shares:

No	Journal	Debit	Credit	Working notes
1	Share capital account	15,000		[No. of share* called up value per share] =10,000*1.5 per share = 15,000
	To Forfeited shares account		10,000	[Amount already received on forfeited shares] = 10,000*1 = 10,000
	To First call account		5,000	[10,000*0.5]

Entry for re-issue of shares

No	Journal	Debit	Credit	Working notes
1	Bank account	10,000		[Actual amount received] =10,000*1
	Forfeited shares account	2,000
	To Share capital		12,000	[10,000*1.2]

Calculation of Surplus refund to shareholders

Particulars	Amount
Total amount forfeited	10,000
Less: Loss on re-issue	(2,000)
Less: Issue costs	(2,500)
Net surplus to be refunded to shareholders	5,500

Hence Option ‘C’ is correct.

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