Alex Ltd. forfeited 100 shares of ₹10 each issued at a premium of 20% (to be paid at the time of application money) on which allotment money of ₹4 and first call money of ₹3 were not received; the final call money of ₹2 is not yet called.
Answer (2)
When a company like Alex Ltd. forfeits shares, it means that the company is taking back shares from an investor due to non-payment of due amounts. These shares were originally issued with the following financial details:
Face Value of the Shares: ₹10 each
Issued at a Premium of 20%: Therefore, the total issue price of each share was ₹12 (₹10 face value + ₹2 premium). The premium is to be paid at the time of application money.
In this situation:
The application money (including premium) has been paid.
However, the allotment money of ₹4 and the first call money of ₹3 have not been received.
The final call money of ₹2 has not been demanded yet.
Forfeiture Calculation:
When forfeiting shares:
The company retains any money that has already been paid by the original allottee.
The company records the amounts unpaid as a debit.
Paid Up Amount (Excluding the Last Call):
Application Money with Premium per share: ₹2 (premium) already paid.
Unpaid Amount:
Allotment Money: ₹4
First Call Money: ₹3
Total Unpaid:
Unpaid = 100 shares × ( 4 + 3 ) = 100 × 7 = ₹700
The company will adjust its accounts by:
Debiting the Shares Forfeited Account with ₹200 (since the premium has already been paid, only the face value unpaid ₹2 per share is adjusted as it relates to the capital).
The remaining unpaid balances (allotment and call dues) accumulate into the company's capital account adjustments.
The concept outlines the procedural handling of share forfeiture, focusing on which parts of the amounts are already received and which are written off. By understanding this transaction, students learn about equity capital management and company finance.
Alex Ltd. forfeited 100 shares due to unpaid allotment and first call money. The total unpaid amount for the forfeited shares is ₹700, and the company records this by debiting the Shares Forfeited Account and adjusting its capital account. This process helps understand equity capital management in a company.
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