Accountancy Part AAccounting for Shares

At the time of forfeiture of shares, the company

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → Cancel allotment and treat the amount already received thereon from the shareholders as forfeited by the company

Forfeiture does two things together. The allotment of the defaulter’s shares is cancelled, so he is no longer a shareholder, and the money already received on them is kept by the company as forfeited.

Why the other options are incorrect

Option (1) Only cancel allotment — Incorrect. It leaves out the second half: the amount received is also treated as forfeited, not left in suspense.
Option (2) Cancel allotment and return the amount already received from the shareholder — Incorrect. Returning the money would be a refund. On forfeiture the company keeps what was paid.
Option (4) Does not cancel allotment and only treats the amount already received thereon from the shareholders as forfeited. — Incorrect. Without cancelling the allotment, the defaulter would still hold the shares, so the forfeiture would not be complete.

NCERT (2026-27 edition):
Forfeiture of Shares – “It may happen that some shareholders fail to pay one or more instalments, viz. allotment money and/or call money. In such circumstances, the company can forfeit their shares, i.e. cancel their allotment and treat the amount already received thereon as forfeited to the company within the framework of the provisions in its articles.”

At the time of forfeiture of shares, the company

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → Cancel allotment and treat the amount already received thereon from the shareholders as forfeited by the company

Why the other options are incorrect

Option (1) Only cancel allotment — Incorrect. It leaves out the second half: the amount received is also treated as forfeited, not left in suspense.
Option (2) Cancel allotment and return the amount already received from the shareholder — Incorrect. Returning the money would be a refund. On forfeiture the company keeps what was paid.
Option (4) Does not cancel allotment and only treats the amount already received thereon from the shareholders as forfeited. — Incorrect. Without cancelling the allotment, the defaulter would still hold the shares, so the forfeiture would not be complete.