The journal entry at the time of forfeiture of the shares of Mr. Rite…

Surya Limited invited applications for 15,000 shares for ₹10 each at a premium of 20% per share. The amount was payable as under:

On application ₹4 On allotment ₹6
On first call ₹1 On final call-Balance

Applications were received for 36,000 shares and pro-rata allotment was made to all the applicants. Directors have not made the final call. Mr. Ritesh, the holder of 300 shares, did not pay anything after application money. Directors forfeited these shares and re-issued them at ₹6 per share.

On the basis of following case, answer the Question.

The journal entry at the time of forfeiture of the shares of Mr. Ritesh would be:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → Securities Premium Reserve A/c Dr. ₹120, Share Capital A/c Dr. ₹2,700 To Share Allotment A/c ₹120, To Share 1st Call A/c ₹300, To Share Forfeiture A/c ₹2,400

Pro-rata ratio = 36,000 : 15,000 = 12 : 5

Shares applied for by Mr. Ritesh = 300 × 12/5 = 720 shares

Application money paid = 720 × ₹4 = ₹2,880

Application money due on 300 shares = 300 × ₹4 = ₹1,200, so excess = ₹1,680 (adjusted towards allotment)

Allotment due = 300 × ₹6 = ₹1,800 (₹1,200 capital + ₹600 premium)

Allotment unpaid = ₹1,800 − ₹1,680 = ₹120

First call unpaid = 300 × ₹1 = ₹300 (the final call has not been made)

Called-up capital per share = ₹4 + ₹4 + ₹1 = ₹9, so Share Capital is debited 300 × ₹9 = ₹2,700

The ₹1,680 adjusted on allotment covers the capital part (₹1,200) first and ₹480 of the premium; the ₹120 left unpaid is premium not received, so Securities Premium Reserve is debited ₹120.

Share Forfeiture = money received on capital = ₹2,880 − ₹480 premium = ₹2,400

Check: debits ₹120 + ₹2,700 = ₹2,820; credits ₹120 + ₹300 + ₹2,400 = ₹2,820

NCERT (2026-27 edition):
Forfeiture of Shares – “… It may be noted here that when the shares are forfeited, all entries relating to the forfeited shares must be reversed except the entry relating to share premium received, if any. Accordingly, the share capital is debited to the extent to called-up capital and credited to (i) respective unpaid calls account i.e., calls in arrears and (ii) share forfeiture account with the amount already received on shares.”

NCERT (2026-27 edition):
Working Notes – “… 2. Securities Premium Account has been debited only with Rs. 100 relating to 100 shares allotted Mr. Ahmad’s shares from whom the allotment money (including premium) has not been received. 3. Shares Forfeiture Account represents the money received on forfeited shares excluding Securites premium.”