If the Premium on the forfeited shares has already been received, then at the time of forfeiture what will be the accounting treatment of Securities Premium?
Answer & explanation
Correct answer: option 3
The correct answer is option 3- No treatment required.
No treatment is needed if securities premium is received by the company before the forfeiture of shares.
If shares were initially issued at a premium and the premium amount has been fully realised, but some of the shares are forfeited due to non-payment of call money, the accounting treatment for forfeiture shall be on the same pattern as in the case of shares issued at par. The important point to be noted in this context is that the securities premium account is not to be debited at the time of forfeiture if the premium has been received in respect of the forefeited shares and the amount of forfeiture shall be excluding premium amount. In case, however, if the premium amount has not been received, either wholly or partially, in respect of the shares forfeited, the Securities Premium Reserve Account will also be debited with the amount of premium not received along with the Share Capital Account at the time forfeiture.